About four years ago I set up a currency transfer service (it was called Berry FX if you must know). Because more years ago than that I used to be a prime broker for client-facing foreign exchange services. We used to convert some (relatively speaking) large amounts and deliver around £20m Euros, USD, Danish Krone etc. in one go.
We’d always offer rates around 1 to 3 pips from the interbank rate, which is infinitesimally small when you look at it as a percentage. But the rates that the currency exchange services would pass on to their customers could have been more than 1% away from that. Which to be fair, was still better than the 4%-5% that a bank would have taken.
Anyway, I set it up because I wanted to offer transparent rates to consumers. A fixed 0.5% for individuals or 0.3% for businesses. It was during a period where new currency transfer services were cropping up on a daily basis. Some competing on price, some on service. My aim was to compete on both.
But, at the back of my mind, I knew that the entire international money transfer industry could be completely wiped out if banks simply stopped charging 4% with fees on top for sending money abroad and reduced it to something approaching competitive.
Obviously, there are some things banks won’t offer like currency forwards, OTC FX options and advice on market timing.
But, my SWOT analysis really just consisted of me sticking my head in the sand and ignoring the elephant in the room. And, as it turns out, big banks are elephants. In that, they are cumbersome and continue to plod along, unlikely to change the way they do things. So even to this day, they haven’t reduced their foreign exchange rates.
What’s happening instead of traditional banks changing, is that new banks are being set up without the hindrance of legacy processes and pricing.
Enter Starling Bank, a brand new bank started from scratch by Anne Boden in 2014.
I have to admit that I was so impressed with Starling Bank when I downloaded the app for research prior to meeting the CEO that I’ve switched both my personal and business account to Starling from NatWest.
Anyway, I met with Anne Boden, the founder and CEO of Starling Bank for a Fanta and mug of Cappuccino at their City offices to find out a little more about how, and why, Starling Bank was set up.
Here’s what we discussed…
So to kick things off, why and how did you manage to set up a brand new bank in this day and age when it’s exceptionally difficult to get anything done regardless of who you are, and what you’re trying to achieve?
Well I think I started as I’d had a long career in traditional banks, I’d worked for a number of big banks all over the world, and post-financial crisis I realised that lots of things had changed, but banks really hadn’t, everybody was trying to put banking back together again the way it was before.
People had changed the way they were shopping, they were buying on Amazon, they were buying their music on iTunes, but banking was really roughly the same. So in January 2014 I quit my job and said, “I’m going to start a bank,” and most people thought I was crazy.
First of all, people don’t start banks.
People said, “Well aren’t there enough banks?” and, “So why don’t you just go and transform a bank, or do something different?” but I was passionate that it could be done and I wanted to do it, I wanted to start a new bank.
It was pretty horrific, coming back to London in January 2014, the middle of winter, knocking on doors saying, “I’ve got this fantastic idea about having a bank that’s built on all new technology, that’s on the side of the customer, that actually offers services very competitively.”
And that started the journey. We got our banking license in 2016, and in 2017 the FCA and the PRA raised our restrictions which meant that we were free to go, we were free to build a business.
So you built it all the way from the ground up. You didn’t do a sort of Wirecard, white label to begin with?
No, we started with a new banking license, and new technology from day one.
Over the four years you’ve been going since setting up Starling Bank, what would you say are the best, worst, hardest and proudest moments?
I think that the worst moments were in the very, very beginning because people didn’t understand what we were trying to do. Back in 2014 there weren’t any new generation banks. There was a couple of us going around independently in the city not knowing each other, and it was very soul destroying trying to explain it to people.
I’d say, “No, you don’t understand, the big banks have all this legacy, they have old ways of doing things, it’s very, very difficult to do that, if you start from scratch it’s much easier,”
And they’d say, “No, no, no, why can’t you just buy a package, or can you just take a bit from there,”
But I always said, “No, no, if we start from scratch with new technology and one customer, we can build something that’s really, really different.” Those were probably the worst moments.
What about the proudest moment?
I was at an event a couple of weeks ago, and I was about to go up to speak on a panel, and the guy was miking me up, and he said, “Oh, Starling Bank, you work for my bank,” and that was absolutely the proudest moment, in that to him it was his bank, and I was just one of the people that worked in the bank.
It was a tipping point from it not being about a bank, me and the management team, but our customers.
I sat down on my seat ready to go up to speak, and there were tears in my eyes to be honest, it was, yeah, it was “you work for my bank”, that was wonderful.
There are more and more disruptive banking providers entering the market through off the rack services like Wirecard, which we mentioned earlier.
Especially in financial services and fintech at the moment, there’s a bit of a race to the bottom when it comes to pricing in that companies are just on a massive customer grab, with a view to making money later on.
What I mean is at some point for a bank to succeed and offer a great service to customers they obviously have to make money and not give everything away for free.
So in the spirit of transparency how does Starling make money, compared to a traditional bank that has higher fees and so on?
I think the difference between us and the traditional bank is not necessarily to do with our revenue, but a lot to do with our cost base. I’ve got a lot of experience working in the big banks and I came to the conclusion they were broken, and the best way of resolving things was to start a new bank.
So we do not charge any punitive fees for things that don’t cost us money. We don’t charge you for rejecting a direct debit, and we don’t have unauthorised overdraft fees and all that sort of stuff, so everything we charge is very simple, and very low cost.
We make money from the fact that we have new technology, and we have new processes, we don’t have many people. We have 300 people working at Starling, in my previous jobs I would have had probably 30,000 people doing what we do.
So there are two things going on here, it’s cutting out the superfluous fees, and penalties on the revenue side. Then really keeping the cost base low, not because we’re cutting back, but because we’re doing things better.
I quite like the way you’ve got your marketplace as well, so you specialise in your current account, then essentially outsource other products to specialists. An area where traditionally other banks have made money, by cross-selling other products.
Do you have any plans, as you grow to offer those additional services like mortgages and so on?
Okay, it’s all about selecting the very, very best product, and putting it in an environment that we can curate, and making it easy to buy.
So in our marketplace we have the children’s products, we have mortgage products, we have pension products, and we connect to the marketplace using APIs, and those connections using APIs make it very easy for our customers and businesses to consume those products.
We are big believers in the API economy, for many, many years the banks have tried to do absolutely everything for everybody, and we believe that by bringing the latest technology, and using APIs we can connect up an infrastructure which gives the right solution for our customers.
On to international currency transfers… Big business for banks traditionally because they’re very expensive and they’ve always been a major bugbear for consumers because it’s expensive, slow, and actually quite complicated.
I’ve had a look at your rates on the app, for when I opened the account, and even for transactions of 100,000 Sterling to Euro, I calculated your rate from the mid-market to be about 0.13% from the mid-market. That’s about the third the price of TransferWise, and significantly lower than a lot of other specialist currency brokers.
So, is that a bit of a loss leader for you at the moment as a business? Also, do you think there’ll ever be a point where foreign currency transfers will become as fee-free as domestic payments?
Very interesting. And first of all, it’s not a loss leader, it is part of the service that we offer to make our overall offering compelling.
In the big banks it is policy to charge big margins to consumers and small businesses. TransferWise has come in and basically put pressure on the big banks by just offering those services at a lower price, but they’re still not taking huge market share.
What we are doing is following our principles in that what we want to do is offer the best service at the best price to as large a population as possible, and if it’s possible to do that, and that’s an objective.
Still sticking with international payments, your due diligence process when I opened my account was the quickest I’ve ever seen compared to other high street banks. So, say for example I had to transfer £100,000 abroad tomorrow, would you then do extended due diligence on my account? I ask because that’s one of the major holding up issues when using a currency broker.
When you have an account with us, you have a proper account with us, so we don’t have limited due diligence on individuals. When you open an account with us you have a full account. However, we do do other due diligence on certain payments of a certain size and certain occasions.
But in most cases we can provide you with these services very, very quickly. We are a proper bank, so we do all the due diligence on you when you open the account.
And as I mentioned, I just came from another female CEO who I think you met at a do hosted by Philip Hammond, who highlighted a report which only came out a couple of days ago that suggests that only 2% of VC funding goes to women entrepreneurs.
Do you think enough is being done to promote women entrepreneurship, and specifically what more do you think can be done, especially in an industry which has been traditionally regarded as a bit of a boys club?
Things have not got better the last 30 years. When I started in my career as a computer scientist in the early ‘80s, I worked in a series of banks, I did my MBA in International Banking, I did my strategy consulting, and I’ve run businesses all over the world.
Throughout that period there weren’t many of us, there was always one or two, and in the ‘80s I was hoping there’d be tens of us, or I was hoping there was going to be hundreds of us, but it hasn’t got any better.
I think what we can do is actually to call it out. I recently went to a briefing of CEOs at the PRA. There were 100 or so CEOs of building societies and banks, and, well, I think there were three of us in the room.
But what can we do to fix that? We can fix it by talking about it, we can make it real, and we can provide role models.
And the final question, we always ask this of everybody because everybody’s insight is different.
For people in general, and your customers that want to make the most of their money, what would be your top resources, be it a book, a website or a service, that you think can help people make smarter decisions when it comes to saving and investing their money?
I think most people have hang ups about money, whether you’ve got too much money or not enough money, or whether you’re saving enough, or saving too much.
I think the most important thing is your health and your family’s health, and then your financial health.
And therefore, secretly, deep down most people are stressed about money.
I’ve changed the resources I’ve used throughout my life. I was an avid reader of newspapers, I always read the money pages when I was in my early 20s because I was working in the financial services industry.
I buy lots and lots of books, I’m an avid reader of books. The house is full of all the books I’ve bought. Now it’s Kindle, and buying audio books. I’ve spent a lot of time and effort reading about entrepreneurship.
But what do I think people should focus on is that people have to make money interesting.
I think that there’s no point in buying books or using resources that bore you, because the next time you won’t go back to it.
Anne Boden is founder and CEO of Starling Bank