Goldman Invests in Digital Challenger Bank Starling

Need to Know

• Goldman Sachs’ growth equity investment arm has invested $69 million in Starling, one of the UK’s biggest digital-only banks.
• Starling raised $380 million in an investment round last month and is now valued at roughly $1.5 billion.
• The investment marks Goldman’s continued push towards digital consumer banking options, as well as potential future partnerships involving Goldman’s Marcus.
• Starling, whose focus is on small-business banking, is planning to expand into Europe.

Analysis

Goldman Sachs has made a significant investment in Starling, the UK neobank, strengthening the investment bank’s foothold in the fintech ecosystem.

On April 19, the two banks revealed that Goldman’s growth equity investment arm had sunk $69 million in Starling, which is one of the UK’s largest digital-only banks. Goldman’s investment comes just one month after Starling raised $380 million in an investment round, increasing its valuation to roughly $1.5 billion.

“Securing the support of another global financial heavyweight demonstrates the strength of demand from investors,” said Starling CEO and founder Anne Boden, adding that the Goldman investment “represents yet another vote of confidence in Starling.”

Goldman has been working to increase its digital banking—and consumer-focused—capabilities in recent months, most notably with Marcus, its consumer-facing bank, which grew by $4 billion in the quarter that ended in October of last year. Marcus, which Goldman debuted in 2016, will launch checking accounts by the end of this year; the investment in Starling will likely help Goldman better understand how it can continue to grow its own digital banking products and tools.

“Starling is one of the leading and most innovative digital banks in the U.K., with an ambitious technology-first leadership team and addressing a deep market opportunity,” Goldman Sachs managing director James Hayward said in a statement of the investment. “We are delighted to be supporting their growth with this investment and believe the company has sustainable long-term earnings potential.”

The Goldman investment in Starling comes after competing investment firms JPMorgan and Barclays allegedly showed interest in purchasing the UK-based fintech, though Starling has denied those rumours. The bank is a rising fintech star, however, with more than 2 million users (of which 350,000 are business clients), and about $8.3 billion in deposits. Starling is reportedly planning an expansion into Europe this year.

In addition to the planned launch of checking accounts, Marcus also recently added a number of personal finance tools to its app and introduced robo-investing earlier this year. The latter tool brings Goldman Sachs’ investment expertise, historically reserved for affluent and enterprise customers, to individual consumers and investors, as part of a larger effort by the bank to democratize its services.