One of Starling Bank’s top investors has said the digital lender could reach a valuation of nearly £10bn within the next few years on the back of fees from its recently-launched tech business.
Investment trust Chrysalis, the bank’s second-biggest investor, is betting on revenues from Starling’s software-as-a-service unit Engine to turbocharge growth at the company.
Engine licences Starling’s software platform to banks in other countries, for which it earns monthly subscription fees. This approach lets Starling reap the benefits of foreign markets while bypassing the costly and time-consuming process of obtaining new banking licences.
“We’ve been pushing for Engine to be developed to drive Starling’s growth, as this proposition opens up a global market for bank infrastructure,” Richard Watts, co-manager of Chrysalis, told the Financial Times.
He said Engine’s expansion “could see a valuation approaching £10bn” for Starling, with the unit having “a strong pipeline” of customers and the market being “very significant” for growth.
Engine formally became a subsidiary of Starling in February 2022 and landed its first two clients last year – Salt Bank in Romania and AMP Bank in Australia.
“We think Engine could grow to 40-50 clients over the next few years, which could equate to a revenue opportunity of many hundreds of millions of pounds per annum,” Watts said.
Engine’s chief executive told City A.M. in December that his division would become “increasingly significant” to Starling’s business model as it beefs up its challenge to the UK’s biggest banks.
We’ve been pushing for Engine to be developed to drive Starling’s growth, as this proposition opens up a global market for bank infrastructure
Richard Watts
News of investor optimism comes a year after Anne Boden, who founded Starling in 2014, stepped down from her role as chief executive. Reports quickly surfaced that her departure followed a row with investors over the firm’s valuation falling by at least £1bn when fund manager Jupiter sold its holding.
Boden, who still sits on Starling’s board, said her decision was driven by a desire to split up her role as a major shareholder and CEO.
Starling’s most recent accounts showed record pretax profits of £195m for the year to the end of March 2023 – a more than six-fold increase from the same period the year before. Its revenues doubled to £216m, while its loan book grew nearly 50 per cent to £4.9bn.
In March, Starling poached Ovo boss Raman Bhatia to be its new permanent chief executive, with him due to start this summer.
His appointment comes as Starling lays plans for a blockbuster IPO. The firm, last officially valued at £2.5bn in 2022, put its plans for a listing on ice after Boden stepped down. In 2021, she outlined hopes for a London float in either 2022 or 2023.
The CEO of Engine told City A.M. in December that a listing was “still the plan” but there was “no set timeline for it”.