In October 2008, less than a month after the collapse of Lehman Brothers in the United States, then-Prime Minister Gordon Brown unveiled a plan he called “unprecedented but essential”. Of the £37bn Brown committed to bailing out the big banks, the lion’s share – £20bn of taxpayers’ money – was aimed at saving the Royal Bank of Scotland.
For the United Kingdom to provide state aid of this scale to one of its banks, RBS had to agree with the European Commission to launch a £425m Capability and Innovation fund, aimed at fostering competition. This fund is now becoming available to SMEs, in the form of grants ranging from £5m to £120m, and Anne Boden wants in.
Boden says her company, the four-year-old digital bank Starling, would do more with £100m than the likes of Santander and TSB – who she expects will also apply. “If you give it to us, we’ll shake up the market because we’re very efficient, we spend our money carefully, and we have a track record of creating things. [Santander and TSB] have so much money,” she says, that to the high street banks, “£100m is not going to make any difference!”
Boden’s career began in traditional banking. Having studied computer science in her native Swansea she started at Lloyds in the early 1980s, entering an industry that was “very, very different”. In the wake of the recession, the banks “tried to put everything back together the way it was before the crisis”, but to Boden it was clear that business couldn’t continue as usual. “It was no longer acceptable to fine customers when they went into unauthorised overdrafts. It was no longer acceptable to charge customers for returning a direct debit.” She “stepped away” and spent some time in fintech.
Re-entering banking as Allied Irish Bank’s chief operating officer, Boden helped return AIB to profitability, but says she knew that “the only way of actually doing something really transformative was to start from scratch.” She set about creating a brand new digital bank in January 2014. At the outset her wealth of experience in “the old world” was, in some ways, a setback. “I was a computer scientist, I was a woman, but I was also an ex-banker, and that was just as difficult.”
Choosing to abandon the old world and join the new made her a black sheep amongst her peers. “They were trying to defend the industry,” she recalls, but “there was new knowledge, new technology, and a new culture that I could embrace.” Within four years, Starling Bank had won Best British Bank at the British Bank Awards, narrowly beating its competitor, Monzo.
Boden gets out her phone and opens the Starling app. “We’re all about the day-to-day money,” she explains. The app is slickly designed – “it’s quite addictive” – and allows customers to track, categorise and map their spending in real time. Pre-approved overdrafts can be adjusted using a slider, and money can be added to “goals” – an item or experience worth saving for – instantly. One feature, which Boden says she finds particularly useful, locks and unlocks the debit card – “I’m always losing my card in my handbag.” She demonstrates a bill-splitting feature which sends little prompts for payment – perfect for millennial dinner parties. Or when your mum lends you money and wants to get it back? Boden giggles. “Yes!”
While both Starling and Monzo offer tech-first, app-based banking aimed at millennials, Boden would be first to admit she isn’t a millennial, nor is she typical of the fintech scene: “like it or not, the majority of people in fintech are men in their 30s and 40s with beards”.
One of those bearded 30-somethings is Tom Blomfield, CEO of Monzo. Blomfield was Starling’s chief technical officer until – following a reported falling-out between Blomfield and Boden – he left to start his own challenger, Monzo, in 2015. Boden says that Starling is the more serious option of the two. “We’ve only been a bank,” she says, in reference to Monzo’s beginnings as a provider of pre-paid debit cards. “We’ve never been a pre-paid card, and we have many more of the real banking features.” The fact that they have Current Account Switching (CAS) and function as a B2B company – servicing “other fintechs” as well as the Department for Work and Pensions – shows that Starling is much more than a flashy app, Boden says. “As well as being able to offer these great services, we have more of a revenue stream.”
When the subject of Open Banking is raised, Boden wheels out a whiteboard – it’s time for a lesson in economics. The deadline for implementing EU directive PSD2 was 13 January 2018, a deadline that several big banks missed. “PSD2 introduced the idea of open APIs, and open APIs mean that a customer can permission somebody else to see your data.” Starling has been PSD2-compliant since its inception.
Via platforms called “aggregators”, customers will be able to share their financial data through APIs, allowing other financial providers to view it and offer them tailored products. It’s thought that this will allow consumer to switch providers much more easily, encouraging competition and ending the banking monopoly.
The response from the big banks, Boden explains, has been to try to buy control of this. HSBC recently bought its own aggregator – she draws aggressive circles on the board – because “it thinks it can consolidate Barclays and Starling into its app”. If one bank can buy the digital space in which customers can pick and choose between banks, that freedom of choice becomes an illusion.
Boden predicts banks like HSBC “will copy everything we do”, but two years later, citing a recent Lloyds announcement: an exciting new feature that enables people to lock and unlock their cards. But the “big battle”, she says, will be on cost. “The big banks are increasing their cost base all the time, and they won’t be able to compete because our cost of delivery here is very low.”
Cheap as it may be to run, Starling is still a bank, with all the regulatory baggage that comes with that label. Boden takes issue with some regulation, such as the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). MREL, a the-government-never-wants-to-bail-you-out-again fund, was established after the financial crash and stipulates that banks must have “bailing debt” to insure the capital they hold in the event of a collapse. A bank is eligible if it holds over a certain amount of customers: “everybody assumed that this would only be for big banks and nobody expected this to apply to banks like ourselves, but because we have so many customers, it does”. Relative to the big banks, Boden says, Starling carries a very small amount of risk, but such a requirement could put the brakes on growth for ambitious fintech companies.
As a CEO, she is both down to earth – personally responding to customer queries on Twitter – and economically philosophical. She has spoken publicly about “the war on cash”, which she hopes to win. “Cash is very costly. Banks charge businesses a huge amount of money for using cash.”
While she is reluctant to be drawn into a political debate about the implications of a cash-free society, Boden says “we have an obligation to make sure everybody can get banking services” before this becomes a reality. Historically, people on low incomes have been more likely to avoid banking and stick to cash, but Boden argues that Starling is changing this relationship, both through pricing and control: “we have customers that are managing every penny.”
Boden is now focused on building Starling’s case for receiving the £100m grant from the Capability and Innovation fund. If her team is successful, awarding the spoils of post-recession banking punishment to a digital start-up has a certain cyclical poetry to it. Boden has said in the past that she “doesn’t really relax”; despite her friendly exterior, the world of traditional banking may come to regret letting this hard-working Welshwoman out of its sights.