Thursday, 23 May 2024

Starling’s Engine grows SaaS business with mobile-first platform

5 min read

By Namir Kaissi

Sam Everington, CEO of Engine, Starling Bank’s technology arm, discussed the advantages of the cloud-native and modular Software-as-a-Service banking platform, and its plans for expansion.

  • Engine expands operations in Europe, Australia, Asia and Middle East 
  • Technology architecture is cloud-native and modular
  • Independence from parent bank encourages partnerships

Starling Bank is a neobank based in the United Kingdom (UK) with plans to become a leading provider of core banking technology. Its Engine platform offers its own core technology to the global banking market as a Software-as-a-Service.

Engine, launched by the bank in March 2022, is designed to enable businesses to offer their own branded banking services through application programming interface (API) integration with the Engine platform. By doing this, Starling expanded its offering beyond its own direct-to-consumer banking services and leveraged its technology and infrastructure to support other businesses.

Unlike other European digital-only banks, however, Starling Bank has no ambitions to establish business-to-consumer (B2C) operations in continental Europe or the United States (US), and is instead focused on building its SaaS as an additional business line.

Engine provides a range of customisable banking services, including account opening, payments, and card issuance. It is intended to be a ‘bank in a box’ that helps financial service providers build tools and apps rapidly without having to develop their own infrastructure. 

Sam Everington, CEO of Engine by Starling

Why Starling moved its SaaS solution into a dedicated subsidiary

Starling moved its SaaS solution into a dedicated subsidiary called Engine in February 2021. The move was aimed at allowing the bank to expand its SaaS offering to a wider range of financial institutions.

This also allows for a more effective management of regulatory and compliance aspects, and flexibility for future growth as Engine can easily partner with other financial institutions and service providers. Starling Bank is regulated by the central bank, the Financial Conduct Authority and the Prudential Regulation Authority of the UK.

Sam Everington, chief executive officer of Engine said: “Our ambition is to ultimately run a large technology company which is independent of the bank itself. This will help equalise the customers, because Starling Bank can become a customer of the software business (Engine). Moreover, once the technology business is big enough, it is effectively separated from the UK regulated business.”

Everington has been running Engine since January 2022, leading the development and design of the scalable, modular and cloud-native core banking platform that powers Starling Bank itself.

Engine solutions

Engine was built by Starling from the ground up and is differentiated from competitors in several ways. It’s financial products and services are designed to be intuitive, user-friendly and seamless. Engine’s pricing and fee structures are aimed at helping to build out the client base of banks.

Everington said: “The bank’s products and propositions are all run by the bank’s own technology platform. Engine is the technology platform that is used to run Starling Bank; however, the same platform is available to banks in other markets around the world.”

The modules set in the system are pre-integrated, allowing digital and traditional banks to offer and modify products and services faster, cheaper and more efficiently.

Platform journey

Starling Bank started building its banking technology platform in 2015. Deposits were integrated into the system along with testing in 2016. In March 2017, the bank launched its mobile app, and in May 2017 its first mobile-only personal current account. In July 2017, it became the first UK fintech bank to integrate with Apple Pay.

It launched  business current accounts for UK SMEs in March 2018, followed by sole trader accounts and then joint accounts in June 2018. In July 2017, it joined the UK Faster Payments scheme that enables near-instant bank-to-bank transfers. By joining the scheme, Starling was able to offer its customers faster and more convenient payments service through the bank’s mobile app. Since joining the scheme, the bank continued to expand, offering features such as international payments, direct debits, and standing orders. The bank began selling its technology in 2018 when it launched its BaaS business line - Starling Banking Services - in the UK, providing access to Faster Payments and account services to UK regulated payment service providers and E-Money Institutions. This service line currently supports over 20 clients including Point-of-Sale provider SumUp, and relies on the Engine platform to power its underlying operations.

Everington explained: “The bank started by providing payment access as the only API-based (application programming interface) and event-based real-time core system, that then evolved into the BaaS business still running in the UK today; offering products and services such as white labeled accounts, access to Faster Payments and payments processing. Engine is our SaaS (software-as-a-service) arm, now looking to markets outside of the UK to banks wanting to innovate their own offerings on our technology platform.”

 

Competitive advantage in SME segment

As Engine is not regulated by the central bank, it supplies its software to licensed entities a for example Starling Bank, licensed and regulated by the Bank of England. This created a partnership between a regulated financial institution and a technology provider to accelerate their digital journey.

Banks and financial institutions do not want to spend on building their own technologies and would rather invest in Engine’s SaaS platform, particularly to compete in the retail and small and medium-sized enterprises (SME) segments.

Tier 1 banks invest heavily in retail technologies. This created an opportunity for Tier 2 banks to invest in SME banking and bring out a digital native proposition. As Tier 1 banks face stiff competition from fintechs that focus on retail banking, Engine looks into potential partnerships with mid-sized banks to help them transform their core business into modern cloud infrastructure.

Starling Bank itself is primarily focused on retail and SME banking. As of the first quarter (Q1) of 2022, the bank had more than 2.7 million customer accounts, a year-on-year (YoY) growth of 28.5% compared to 2.1 million customers in Q1 2021.

For SME business accounts, it registered a growth of 36.4%, from 330,000 accounts in Q1 2021 to 450,000 in Q1 2022. The bank has 8% share of the UK SME banking market since its launch in 2018.

Deposits have grown by 55% from GBP 5.83 billion ($7.66 billion) in Q1 2021 to GBP 9.03 billion ($11.87 billion) in Q1 2022. Loans have increased by 42% from GBP 2.2 billion ($2.9 billion) in Q1 2021 to GBP 3.2 billion ($4.2 billion) in Q1 2022.

Engine’s modular architecture allows businesses to select the specific banking and payment services they want to offer to their customers. Its cloud-based infrastructure provides scalability, security, and resilience, allowing businesses to quickly  grow their operations and handle spikes in traffic without investing in expensive infrastructure.

Its developer-friendly APIs also allows businesses to integrate their banking and payment services into their own applications and systems, enabling them to offer integrated banking and payment experiences. Overall, Starling Bank has seen improvement in its cost-to-income ratio from 116% in 2021 to 77% in 2022. Moreover, the bank’s total income increased by 93% from GBP 97.5 million ($134.4 million) in Q1 2021 to GBP 188 million ($247 million) in Q1 2022.

Expansion into Asia Pacific, the Middle East and Europe

As Engine is a technology vendor, moving into other markets does not require it to be licensed as banks do. However, investment in the platform to localise it for markets is necessary as there are still differences in account numbers and schemes.

Engine started hiring teams in other markets such as Australia. Everington observed: “We believe there is potential in markets such as Australia, Asia, the Middle East, and Europe. However, the US is quite a different regulatory environment, so these other markets are our priority for the moment. We are primarily focusing on markets with a decent level of mobile adoption, real-time payments, and card usage.”

As of February 2023, Starling has forged over 50 partnerships including fintech firms, and other financial institutions. These partnerships have enabled the bank to offer a wide range of products and services to its customers, including insurance and investment options. Some of the bank's notable partnerships include, Credit Ladder for rent reporting, and Churchill Insurance for insurance products. The company also partnered with the UK Post Office to allow customers to deposit and withdraw cash in branches across the United Kingdom.

Anne Boden, chief executive officer and founder of Starling Bank said: “Our aspiration is that when people look at Starling in the future, they will see an international tech company that also owns a successful banking business.” 

 

 

 

 



Keywords: Banks, Technology, Banking-as-a-service, Cloud Native, Neobank, API, Payments, Card Issuance, Scalable, Modular, Seamless, Software-as-a-service, SME, Retail, Tier 1, Tier 2, Infrastructure, Insurance, Savings
Institution: Engine, Starling, Bank Of England, Financial Conduct Authority, Prudential Regulation Authority, Bank Of England, UK Faster Payments, Credit Ladder, Raisin UK, Churchill Insurance, UK Post Office
Country: Australia, USA
Region: Asia Pacific, Europe, Middle East, Australia, United States
People: Sam Everington, Anne Boden
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