The decision by the bank signals a shift in its expansion strategy. Starling Bank was recently valued at £2.5 billion in April.
Starling Bank will no longer launch in Ireland having withdrawn its application for an Irish banking licence from the Central Bank.
It's the latest bodyblow to the Irish banking sector following the exit of Ulster Bank and KBC.
The UK-based digital bank, founded and led by former AIB chief operating officer Anne Boden, had plans to launch in Ireland earlier but these were delayed due to the pandemic.
However, in a memo released to staff on Monday, Boden told Starling Bank’s 2,000 employees that the company has decided to pursue other plans which focus on a growth-centric and value-added approach.
Sometimes changing course is the right option. My job as CEO is to constantly test our thinking against evolving circumstances and to make sure that we are delivering value and maximising potential for growth.
Ultimately, we felt that an Irish subsidiary would not deliver the added value we are seeking.
Anne Boden, CEO Starling Bank
Plans to enter the Irish market
The challenger bank was granted a banking licence by the Bank of England in 2016 and, following the launch of its first mobile current account there in 2017, had been looking at entering the Irish market.
It has been reported that Starling was working with the Central Bank of Ireland on its application since as early as 2018.
The digital bank already operates an office from Dublin and had a small team working here on its launch and expansion into Ireland, with a view to using the country as a springboard into the wider European marketplace.
Following a lengthy application process, Starling had reportedly been at the final stage of its licence application when it decided to make the decision to pull its plans.
Is something wrong with Irish banking?
While it’s not yet abundantly clear why Starling Bank made its decision, apart from the fact that it’s ‘seeking better value’ elsewhere, the subtext can’t help but point to the possible pitfalls that exist in the market here.
It’s clear that Starling Bank would have benefited from the exit of both Ulster and KBC, but it’s quite possible that the bank’s projected cost base for setting up in Ireland could have far outweighed any potential profits, especially in the first number of years.
Another important point is that despite there being less and less competition for consumers, there are already a number of digital banks here, Revolut and N26 being the biggest household names. Bunq also recently obtained an Irish IBAN.
In weighing up whether or not to set up shop here, Starling will have assessed the benefits of competing with these players and perhaps thought it better not to, especially with Revolut now having almost two million customers in Ireland.
Lending in Ireland is also quite risky, with banks usually finding it difficult to take back ownership of properties that are in long-term arrears. And the fallout from the banking crisis means banks here are rarely 'flavour of the month' meaning Ireland isn't really a hospitable market for finance companies.
It’s also worth stating the obvious that Ireland is, relatively speaking, a very small market. The bank's decision to not go ahead with the move could be purely down to operational concerns, with last-minute number crunching highlighting profitability issues - which makes sense in reference to the mention of ‘value’.
If nothing else, it’s interesting to know that Boden once referred to the Irish banking system as a broken one, and how it was ‘easier to found a new bank than to fix the existing [system]’.
And while these comments were made back in 2017 in reference to the looming spectre of legacy issues that haunted banks following the aftermath of the banking crisis, it still gives an insight into the mindsight of Starling’s CEO and the possible reasons for pulling the plug, seemingly at the last minute.
At any rate, Starling Bank’s decision is not exactly a good indication of a healthy and competitive banking market. Ulster Bank and KBC’s exit told consumers just that, but this latest news seems to reinforce it.
What are your thoughts?
What do you think of Starling Bank pulling its plans to launch here? Should consumers be worried about competition, or is it insignificant? Let us know your thoughts in the comments.