British digital bank Starling upped the ante on its UK competitors after announcing it purchased a mortgage book worth £1 billion from specialist lender, Kensington Mortgage. After seven years in private equity ownership under firms Blackstone and Sixth Street, Kensington recently appointed Morgan Stanley to lead a sale process.
Sunday’s news arrived just two weeks after Starling CEO and founder Anne Boden revealed the bank’s plans to go public in two years’ time. As one of the UK’s leading challenger banks, Starling has more recently revealed its aims to overtake its mainstream rival, Barclays, in the business banking market within the next five years.
In an updated edition of her book, Banking On It, Boden said she no longer considered the likes of Monzo – set up by Starling co-founder Tom Blomfield, who controversially left to launch the rival online bank – as her direct competition, PA media reported.
“The extraordinary experiences of the year 2020 made it clearer than ever that our competitors are now Lloyds, Barclays et al,” she wrote.
In July, Starling made a similar transaction after it acquired specialist buy-to-let mortgage lender Fleet Mortgages in a £50 million ($68.93 million) cash and share deal. At the time, Starling said the deal was part of a wider plan to expand its loan offerings, including through further mergers and acquisitions.
For Starling, both purchases represent new cohorts the bank can access through its lending channels.
Fleet Mortgages, based in Hampshire, focuses on providing mortgages to professional and semi-professional buy-to-let landlords, only via mortgage adviser distribution channels. Kensington, on the other hand, provides financing for consumers typically overlooked in the more prestigious banking sphere; it specializes in mortgage lending to the over-55s, consumers with multiple incomes and the self-employed.
Founded in 2014, Starling began its financial career offering fee-free checking accounts through an app. Since then, it has branched into lending and business banking, both of which helped the company break even recently. The company also counts Goldman Sachs, Fidelity Investments and Qatar’s sovereign wealth fund as investors.
The company has made to plans to enter France with its “embedded finance offering,” enabling non-financial players such as retailers to offer banking services. The company is also looking to secure a banking license from the Central Bank of Ireland, Boden said in her book.
On track to post its first annual profit for the year ending March 2022, Starling has amassed more than 2.3 million accounts and saw revenue increase by 600% to £97.6 million in its most recent set of financial accounts.