European Digital Banking Plans Between Two Industry Giants Are Taking Different Approaches

June 5, 2024

The UK’s two leading digital-only banks, Starling and Monzo, are taking different paths in their quest for international growth, ahead of their anticipated IPOs.

Raman Bhatia, the incoming CEO of Starling Bank, announced on Tuesday that the bank would not reapply for a European Union banking license. This decision follows the withdrawal of their previous application in 2022, four years after initially seeking to secure one.

Instead of pursuing a traditional banking license, Starling will focus on expanding its software licensing business, Engine. Bhatia, speaking at the Money20/20 conference in Amsterdam, emphasized this strategic shift in his first public remarks since his appointment in March.

Bhatia expressed strong confidence in this approach, highlighting the benefits of leveraging Starling’s proprietary technology rather than navigating the complexities of varying regulatory regimes, capital requirements, and the challenges of building brand trust in new markets.

Engine, which provides Starling’s software platform to other banks on a subscription basis, allows Starling to tap into foreign markets without needing new banking licenses. Despite being relatively new, having signed its first two clients last year, Engine has shown significant promise. This potential was noted by Starling’s second-largest investor, who suggested that Engine could propel the bank to a £10bn valuation within a few years. Starling was last valued at £2.5bn in 2022.

Bhatia sees substantial opportunities in regions like Thailand and the Middle East, and he intends to intensify efforts in these areas as part of the Engine strategy.

This shift represents a departure from Starling’s previous strategy for European expansion, which included applying for an Irish banking license to access the EU market through a retail bank in Ireland.

In contrast, Monzo is taking a different approach. This week, Monzo announced its early steps towards establishing an office in Ireland, which will serve as a “gateway” for its expansion into continental Europe. Chief TS Anil indicated that the office is expected to open “in the coming months,” signalling Monzo’s continued focus on entering the EU market through more traditional means.