Engine, the software-as-a-service platform run by UK fintech Starling, is plotting a global expansion, says the subsidiary’s CEO Sam Everington.
That’s despite a turbulent six months for parent company Starling, which was slapped with a £29m anti-money laundering fine last year, putting its internal operations under scrutiny, as well as a leadership shake-up among its C-suite.
Founded in 2014 by former banking veteran Anne Boden, Starling is one of the UK’s largest neobanks and makes most of its money by banking retail customers and small and medium enterprises (SMEs).
But unlike most challenger banks, Starling isn’t seeking to expand internationally by exporting its primary current account product. Instead, it plans to sell its core banking software to finance firms worldwide, via subsidiary company Engine.
It’s a unique proposition that will see Starling break into new ground as it seeks to compete with other banking SaaS companies like Thought Machine, Mambu and 10X.
What is Engine?
The world of banking startups can be divided into three camps: neobanks, which provide digital banking solutions for consumers and businesses; companies which offer banking services to non-banking companies known as banking-as-a-service fintechs; and core banking providers, which help incumbents upgrade their older, non-digital systems.
Starling’s Engine straddles all three.
Derived from the same technology underpinning Starling, banks can use Engine’s cloud-based platform to upgrade existing infrastructure or use its software to build entirely new products such as savings accounts, credit cards and loans.
“Starling is very unusual in that it runs entirely on its own technology,” says Everington. “So everything from the core ledgers, payment to card processing, financial crime systems and even the chat and call handling technology.”
Engine is targeting both small regional community banks as well as large national banking firms and has so far worked with two publicly disclosed clients: AMP Bank in Australia and Salt Bank, a digital-native subsidiary of Romania’s Banca Transilvania.
Everington tells Sifted the most active geographies for the subsidiary are currently Europe and the Middle East.
Pivot into SaaS
Starling’s SaaS push is crucial to its plans for international expansion.
In 2022, Starling withdrew an application for a licence in Ireland to focus on Engine and last year reiterated it had no plans to apply for a banking licence in a European Union country.
“It just felt like it was the most effective way of doing this,” says Everington. “Getting a licence in each market can take years, look at all the banks that are trying to get into the US.”
Pivoting to SaaS could also help Starling’s value in investors’ eyes. SaaS companies are typically valued higher than traditional banks due to their recurring revenue models, potential scalability and lack of perceived risk compared to banks, which are more vulnerable to market shocks.
“From a public market corporate value perspective, bank valuations are very different to SaaS business valuations,” says Everington.
Making it work
But all the above relies on Everington making a success out of Engine, which isn’t yet profitable. According to Engine’s annual accounts dated the end of March 2024, the Starling subsidiary brought in £2.5m of revenue but is still making losses of around £4.8m.
While that may be expected for a new endeavour — Engine has only been servicing customers for the past year — its most famous case study is Starling, which faced regulatory penalties in October for “shockingly lax” financial sanction screening controls.
But Everington says that hasn’t dented Engine’s reputation among potential customers. He argues it’s a good thing that banks in the UK have been under such scrutiny as it reassures customers that Engine has experience with regulators.
“A big part of what they’re looking for is the experience we’ve gained over the last nine years,” he says, arguing global demand for Engine is still strong globally. In particular, the US’s 3000 or so mid-tier banks are in its crosshairs.
“America represents a huge opportunity for us,” said Everington, adding “We’re still working on the details, but we’ll have a permanent presence there.”
Read the orginal article: https://sifted.eu/articles/starling-saas/
