Many fintech founders started at big banks and have much to say about banks adapting to new technology. Starling Bank CEO and Founder Anne Boden was ahead of the curve. She spent more than a few years at big banks – she forged an entire career there before moving on to found Starling Bank in 2014. What led a seasoned banking executive to, as Anne said, unlearn what she knew?
The formations of a founder
Anne entered the banking industry in the 1980s as a Computer Scientist. Starting at Lloyds Bank, she went on to work for Standard Chartered Bank, eventually landing in banking consulting.
Her career soon took her to Zurich where she worked in corporate finance and banking before moving on to the insurance industry. Her career transformed into the lead role of the transaction business across EMEA (Europe, Middle East and Asia) at ABN AMRO. It was during this time that Boden believes she absorbed much of the knowledge that would eventually influence her decision to found Starling.
“ABN AMRO was fascinating. I was responsible for providing cash management, transactional FX, and trade across 34 countries. Many of our customers were the largest corporations around the world that wanted to do business in Europe. That ranged from people running operations in Spain, right through Kazakhstan, Uzbekistan and Dubai. When I headed the division it was very much a line management role and it was very successful in bringing European services to large corporates from all over the world.”
Boden moved on to RBS where she took over the same role. “That was very interesting. Managing customers and relationships with customers throughout the world during the financial crisis was a huge learning experience. Providing working capital management is critical in those times of huge stress. My customers ranged from small SMEs in Romania to the largest corporations in the world.”
In 2011, Boden made the decision to leave and spend a year in fintech. It was during this time that her views on banking really began to transform. “Whilst everything at RBS was really focusing on the past and trying to put back things that had gone wrong, the world had changed. I came across a company called GoCardless, which was offering direct debit services to small corporates that couldn’t get those services from banks. I helped for a couple of months in that business and then went around the world talking to people about how banking technology was changing, how regulation was changing and what people’s expectations were of the new financial ecosystem.”
During her “bank explorations” Boden was approached by a headhunter about a position in a “bailed out” bank. While Boden’s initial inclinations were to say no – she eventually found herself intrigued with the challenge of picking up the pieces of a major bank after the financial crisis. “They specifically said it was an Irish bank that had taken a 20 billion bail out from the IMF and ECB. The bank had a huge agenda to return to profitability and basically divest a huge balance sheet by selling off a huge amount of assets. But it had to be done in a very sensitive way because the country had really been broken by the banking system.”
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Boden accepted the challenge, joining AIB in 2012 as Chief Operating Officer where she worked for David Duffy, who is now CEO of Clydesdale Yorkshire Banking Group.
“I was in a powerful position. I was COO and I decided to tackle the top 10 processes in the organisation – onboarding, getting a mortgage, getting a loan – and totally reinvent them using lots of the techniques of agility that I learnt in fintech. That strategy was very successful.”
Yet this success left Boden feeling like there was more left to do. “During the period I was there, we cut the costs by 25%, which struck me as horrific. Though the organisation and that program was very, very successful, I had to do more. I had to go to the next stage. And I came to the conclusion that if I did everything, in the best possible way, I still wouldn’t really move the dial and produce something that was transformational.”
Inching closer to founding a bank
Boden tasked herself with traveling the world to discuss what other banks were doing. Her travels took her to both Australia and the US, where she spoke with CFOs, Chief Digital Officers and multiple heads of technology. Her visits even included spending time in the actual branches of these banks, observing the inevitable structural changes since the recession. Yet Boden noticed something. The structural changes weren’t making much of a difference.
“I came to the conclusion that all of the banks were doing exactly the same, the only difference between banks was basically the colour of the carpets in the branches. It was all the same. They had refurbished the branches in order to sell mortgages, but people with cash and coins from small businesses kept coming in, and being told, ‘No, go away, this is not for you.’”
Boden was shocked to see how little the banks were evolving. “You’d talk to a head of digital, and he was desperately trying to change the organisation, but nobody understood him. You’d talk to the head of IT, who wanted more money because his systems weren’t built for the way customers now behave. And you’d talk to the CFO and he would say, ‘Well, I don’t know where to save the money.’ The more I thought about this, the more the same conversations kept repeating themselves, it was like déjà vu. Everyone was saying the same thing. And I came to the conclusion that I needed to find a new business model to solve the problem at AIB. But I realised I couldn’t solve the problem at AIB, so I quit to start a new bank.
And therein began the idea to start Starling.
Starting up is never easy
When Boden first approached peers about starting her own bank, the reception was not exactly positive.
“My first couple of weeks going around the city trying to raise money for a new bank – people think you’re a bit crazy. You know, you go into a party with your glass of prosecco and people say, ‘What do you do again? Are you still at Ireland?’ I say, ‘No no, I quit, I’m starting a bank’ and they’d literally step away from me.”
Still, that didn’t stop Boden from realising her goals. “This bank was going to be different. I believe the banking practice of cross-selling and upselling is very dangerous. It sometimes results in over or mis-selling. All of the banks are trying to sell a product called a current account, and then cross sell and upsell other products. But initially they dump all the costs into the current account. They effectively take a loss creating the current account that later enables cross-selling.”
Boden knew that the business model had to move away from a current account focus. “I believe a new bank can be built with a very low cost base. This can be done using the top technology- Silicon Valley technology. This can be done with direct access into payments schemes with no middle men. A bank can deliver current accounts at a lower cost – which means the banks are profitable. And you could use this, the acquired balances on the accounts in order to lend and make profit from lending.”
But how would this happen, exactly? Boden realised quite early on that her bank would require an app. “The proposition was that we would have an app based on our new technology. So every single customer transaction, card or payment, we collect lots and lots of data. We use this data with the help of machine learning and artificial intelligence to give insights to people.”
So how is this data implemented and how does it actually give insights to its users? Boden explains: “This insight helps our customers to manage their money. It also allows them to make financial decisions. We have a marketplace. In the marketplace we provide products and other peoples’ balance sheets. For example, we have Habito for mortgages, Wealthsimple for wealth management and we also have Kasko for travel insurance. All these various products in the marketplace connect with Starling using a very secure API, which is PSD2 compliant.”
This marketplace strategy is the same as that being taken by Revolut and Monzo. “We would be balance sheet light; this new bank wouldn’t be about providing 25 year mortgages, it’s all about using the power of data.” And since then, things have started to take off.
Starling Bank reaches new levels
The world is beginning to realise the appeal of Starling Bank. “In 2016 we raised, we got our banking license and in 2017 we launched in the app store. I’m thrilled that at Money 20/20 this year, Optima Consultancy analysts named us the best banking app in the UK. That was a huge thrill, in that we’ve managed to surpass the competition. Because we’ve built all of this from scratch, we have an infrastructure that other banks want to use.”
Starling Bank is following others in the space to offer its technology and rails to other banks and payment companies. “We just signed a contract with Mastercard Send, we provide payment services to people like Rails Bank, Bankable and Form3. We are a direct member of the Faster Payments Scheme and the only real time provider of that service. And we sell that through aggregators, such as Form3 and Bankable. That’s effectively providing transaction banking to an end-point – services into Europe and the UK.”
Anne recognises the limitations of the Starling model, and she knows exactly where they stand – and this awareness of her product is what gives Starling their edge. “We are a correspondent bank, we are a banking partner for banks in the US and in Asia and for fintechs in those countries. We do not think it is practical or doable to aspire to having a banking license in every part of the world and have direct access to every clearing system in every part of the world.”
So how exactly is Starling positioning themselves in the market? A digital bank that is transaction focused, as Starling is, has two unique sets of competitors. First, the “challenger banks,” which are mobile focused such as Monzo and Revolut. On top of competing with those challengers, Starling still needs to win over customers from the traditional big banks that are beginning to catch-up to technological changes. Boden sees Starling’s edge as their focus on current accounts.
“The next phase that came along came through the FCA process, was Tandem, Starling, Monzo and Atom Bank. Whilst all four actually had aspirations for current account banking, these ones didn’t. It is quite difficult to do current account banking it requires a different skill set, you have to be highly technology focused and really good at regulations. It’s not something many people want to do or are good at.”
Boden recognises Starling’s strength in current accounts and her team’s dedication to them. Current accounts are time consuming and complex. “The complexity is, and this is not just this range of banks – it’s the amount of effort and time that people like Tesco [the UK retailer] needed to go to market. The challenge is the level of integration you need to offer different services. Being a Mastercard issuer and offering everything on that side helps and there’s no tolerance to that service being down. You have to have access to payment schemes, you have to do faster payments, you have to do direct debits, you have to do standard orders, you have to do current account switching, you have to provide emergency counter services for people. There’s quite a complex thing which you have to build.”
Competing with Monzo
There are a few new companies offering mobile and digital accounts similar to Starling, but there’s one that could be seen as quite similar – Monzo. Boden had this to say about Monzo, “It was always our intention, because we are very good at it, to do current account banking. Monzo came after us. Monzo decided to do a prepaid card first, we always realised that the economics of this only work with a current account. Once this was happening, in Europe N26 started, and it started with prepaid and then Revolut started, very much on an FX route. But what you see now, we’ve gone from it being Atom and Tandem to being Starling, Monzo, Revolut and N26.”
Customer acquisition is different than expected
Boden anticipated a much higher marketing budget. But she was surprised to see a public that embraced Starling so easily. Maybe too surprised – after all, she knew exactly where banks were failing after her years working at them.
“I think customer acquisition is very different than what we expected. When I started this four years ago, I thought that acquiring customers would be a lot more expensive and it was all about switching. Acquiring customers has actually been cheaper. Word-of-mouth from a viral product – there’s a buzz going around. So I think that the market’s changed rather dramatically. I was thinking when I started this – a much more traditional acquisition model. I didn’t realize that fintech banks would become a thing, whereby there’s a huge amount of buzz, there’s a huge amount of people recommending them all the time.”
Boden attributes much of this viral customer acquisition to her sophisticated team of engineers. Her computer science background has likely helped her hiring choices as well.
“We are very engineering oriented – we are probably the best engineering team out of our peers. And that probably comes from our backgrounds – I’m an engineer. We’ve got 50-odd engineers, some of the best engineers in the world and we can attract those engineers because it’s interesting, it’s cool, you know, we’re changing the world. In order to create the best product you need to attract the best people and we are well positioned to attract the best people here, both in terms of the quality of the work we’re doing, our reputation of being pretty slick engineers and finally, we are in the centre of London. All of these things come together.”
It’s not just banking – international payments is changing too
Boden’s background in transactional banking makes Starling a natural competitor in the international payments space. Some digital banks don’t offer international payments, such as Monzo, which places Starling in the unique position of being a competitor to non-banks such as Revolut and Transferwise. Boden isn’t worried about it.
“My background is providing access to local clearing systems and FX services for the very largest to the smallest companies around the world. The key to doing that – I think it’s an ecosystem. International payments is not done by one group alone – you’re part of a system. And in order to be part of the system, you have to figure out what you can offer first – so what we are offering is start of the art, best service, best pricing access to UK faster payments.
“We know very well there are other organisations around the world that will offer best access into those particular regions. We are naturally putting together that ecosystem of partners we will use across the world. So it’s the execution of the delivery of the payment and then the FX. But first of all you have to build volume. So at the moment we have implemented our international payments in our app for retail customers, that’s also available to our small business customers – that volume is increasing quite substantially. And once we have enough volume, we will look into rooting (offering more corridors) that into different ways.”
We asked Boden to clarify “enough volume” and she explained, “At the moment, we are very subscale in this market. But we become interesting when we pair up with other people that have a B to B business. The majority of the volume that’s going through faster payments in the UK is currently driven by our own retail banking business. The business is coming in very quickly from overseas, from our partners.”
Pricing in international payments isn’t everything – aim for convenience
When it comes to international payments, Starling isn’t the cheapest. Boden explains her strategy in international payments is based more in convenience than cost.
“It’s a question of convenience, as well. If we are providing a whole suite of products and we can guarantee delivery and we can actually manage cashflow, very very carefully, I think that’s an added benefit. A lot of my history has been sitting in meetings with the treasurers of larger corporations looking at where all their cash is locked up around the world. And working on netting strategies and pooling strategies and ensuring that there was sufficient funds in various regions of the world to meet their day-to-day cashflow of funds.
“That is not available to small business. For us, we have the technical ability to sit down with these companies and figure out how much it will work, we have the engineering capability and we are seen as being the end point in Europe for Sterling and Europes.”
Making payments easy
Boden doesn’t think their speciality will be specifically international payments per se, but that their ease in transactions will naturally attract customers making international payments. For us, it is working on the optimum delivery, it is making sure that it gets there in the cheapest possible way and its confirmed to deliver in an account in another country rather than the actual FX rate.”
They have some big ideas to make this happen at Starling. “We are working on a proposition whereby, you can simply go into the app and you can make an international payment and you can have confirmation on the app of delivery to the other side within minutes. We haven’t done it yet, but that’s the vision. That’s our focus and making sure it gets to the right place at the right time.”
Part of their strategy, too, is focusing on SMEs, a harder to serve clientbase of the big banks. “At this time we have implemented a proposition to companies that have a single significant owner, we are now extending that up to businesses that have up to ten/twenty people. We applied for the RBS remedies fund, which will be building out our SME offering, and we hope to go for 6% market share of UK’s SMEs by 2022.”
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The potential impact of open banking
Boden believes open banking could transform the market – if it happens. “I think that PSD2 and open banking could be transformational – if it actually happens. It could be hugely powerful. Now we could have a situation where the backend is run by Barclays and the app is from HSBC. That really shakes up the status quo, and a lot of people have invested in keeping the status quo.
“But then it could go one step further, instead of the app being HSBC, it could be Amazon. The banks could lose ownership of the customer relationship. And in the future you may not even go into an app.”
When asked what the banks will be left doing should this happen, Boden replied, “I don’t know, we at the moment at Starling know things are changing and we are playing in all these spaces, we are playing in the app space, we are playing in the backend providing the account, we are playing in the space of doing platform services to the ecosystem as a whole. I think that things are going to shake up and I don’t know who the winners and losers are going to be.”
Diversity is still slow to arrive in fintech
Earlier this year, we took a look at the C-suite of international payments companies. There are embarrassingly few women at the top of the chain.
Boden had this to share with our readers, particular our female readers, “There are not many women in finance. Surprisingly, it hasn’t gotten any better than when I started in the industry. 30-odd years ago there weren’t any women. When I look around now, there still aren’t any women. So something has to change. We have made progress in having more women on boards, but we have not made much progress in having women at the senior level of executives. The reason for that is not because women don’t ask or because women aren’t seeking out senior roles, they are. But the standards for women are much higher than the standards for men.”
We asked Boden, does she mean the standards from up-top or the standards women hold for themselves? Boden replied, “I think it’s both. I would never have said this ten years ago because you shut up and you say nothing. If you go to talent meetings at big banks and you discuss the performance of women, women have to be perfect and the men – not quite so. So for a woman judged in those cases, she’s either too hard or too soft – she’s never quite right.”
What happens when harder days arrive
Boden’s long career in banking has seen both better and harder times than now. She also knows exactly how things work in the banking world, but she believes part of her success with Starling is being able to know what lessons to abandon. Not everything transfers that easily to 2018.
“The things that got you where you are today are never the things that get you to the next level crisis. A lot of things I came to believe were absolutely true turned out to be wrong when the world changed. I went through the 80s/90s doing big outsourcing deals, big offshoring deals, those are wrong for now – they were right for then. The world has changed, technology has changed, people have changed.”
Boden’s experience means she’s seen things newer fintech CEOs have not. “When I left RBS in 2011 I had a certain view of how you run organisations. I came across a world where other things worked and it was more important for me to forget the things I learned and be open to change.”
Boden believes this knowledge of adaptability and the experience of seeing a bank through the financial crisis and helping to rebuild it gives her an edge over younger companies. Many of the new fintechs have not seen “the bad times” which occur in every economy. Boden believes to stay on top of these bad times, an adaptability becomes necessary.
“A lot of fintechs out there, a lot of entrepreneurs who haven’t seen the bad times, you have to realise that the things that have made you and the things that have got you to that position may just be wrong for the future, and it’s the bravery to say, I am going to change.”