Starling Bank Considering ‘Substantial’ Acquisition of UK Lender

England’s Starling Bank is reportedly considering the acquisition of another British lender.

That’s according to a report Thursday (Dec. 11) from the Financial Times (FT), which characterizes this effort as an overhaul to the digital bank’s business model, letting it find a more profitable use for its 12 billion pounds ($16.1 billion) in customer deposits.

Two sources familiar with the discussion say Starling is actively weighing several acquisition options that would let it expand its lending capacity and deploy deposits into areas that could yield higher returns, like corporate lending. One source said the acquisition could be “substantial” in scale.

The FT notes this move is part of an effort by Starling to diversify its income. The firm’s customer deposits are either held at the Bank of England collecting interest, invested in securities like bonds, or pushed into mortgage lending through Fleet, a small lender that Starling purchased in 2021.

John Cronin, an independent bank analyst, told the FT Starling “has struggled to grow its loan book commensurate with the size of its deposit book.” He added Starling’s latest set of accounts showed that more than a third of its deposits were net loans, lower than peers.

The sources said Starling has considered expanding its capacity organically but has decided that an acquisition would be quicker. The company declined to comment when reached by PYMNTS Thursday.

The report follows an earlier story from the FT about efforts by Starling and fellow U.K. FinTech Revolut to expand their lending abilities by acquiring a U.S. bank.

Declan Ferguson, Starling’s chief financial officer, told the news outlet that the company was weighing a U.S. banking license application but that an acquisition could be faster: “We’re considering both paths, although we are probably more inclined towards acquisition.”

As noted here at the time, these moves are happening as the relationships between banks and FinTechs are becoming more closely interlinked.

For example, research by PYMNTS Intelligence has shown that 62% of banks are actively looking into partnerships with FinTech firms to enhance their cross-border payment solutions.

“This integration signals a trend in the banking industry where collaboration with FinTech firms is becoming a key strategy for driving innovation,” PYMNTS wrote earlier this year.