Starling Gets Sterling: Goldman Sachs invests £50m in fintech bank
May 9, 2021
3 min read
What's going on here?
In its latest round of funding, Starling Bank secured £272m in March 2021. Now, an additional £50m investment from Goldman Sachs extends this total to £322m.
What does this mean?
Starling’s financing round was already oversubscribed, meaning the offers received from investors exceeded the amount asked for. However, the real significance for Starling is that, with this added support from a global financial firm like Goldman Sachs, it will also receive valuable expertise and insight. This will help develop its digital lending in the UK as well as its proposed expansion into Europe.
Since 2017, Starling has attracted over 2m customers and is one of the few so-called “Challenger Banks” to have made a profit in 2020. Challenger Banks are those which use modern, often innovative practices to compete directly with traditional high street banks i.e., the Big Four (Barclays, HSBC, Lloyds, and Natwest). Specifically, Starling’s participation in the government’s coronavirus lending scheme has supported its business banking, countering the financial strains induced by the pandemic, and enabling it to maintain strong competition.
Goldman Sachs Managing Director James Hayward went as far as saying Starling is “one of the leading and most innovative digital banks in the UK, with an ambitious technology-first leadership team and addressing a deep market opportunity”. Furthermore, this recent round of funding has given Starling a valuation in excess of £1.1bn pre-money (value of the bank, excluding deposits). Securing this partnership with Goldman Sachs, therefore, typifies the confidence and demand among investors in Starling’s long-term future.
What's the big picture effect?
The financial interest in Starling is nothing new when considering its previous press coverage connected to other big players in the City. Last autumn it was reported JP Morgan had discussed buying Starling, while Lloyds showed interest in its financial technology. The fact that this round of funding was over-subscribed, and its extension to allow a further £50m from Goldman Sachs, will only add to the buzz surrounding Starling.
Moreover, the news of this particular deal looks like pennies when compared to Fintech overall. Recent data shows $4.1bn was invested across 408 deals in the UK’s fintech sector in 2020. This places the UK second behind the US in total capital raised, underlining the continued importance of fintech to the UK economy as well as the opportunities available to lawyers in the banking sector advising on such deals.
What makes Fintech banks so exciting is the methods they are using to disrupt the market and lure customers away from the traditional banks we have already mentioned. While Fintechs might be best distinguished by colourful credit cards, their technological innovations should be taken seriously. The increased speed and ease at which customers can set up a fintech account and manage their money explains why investors are moving quickly to get involved, and also why traditional banks are being forced to improve their online banking and adapt their business models.
The government’s Kalifa Review published in February 2020 set out recommendations to grow the UK fintech sector, including a £1bn fintech “growth fund” and amending UK listing rules. However, even if such reforms are not implemented, based on current progress it seems that the fintech innovation by banks such as Starling will become more and more common nonetheless.
Report written by Seb Stacey
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