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Starling Bank's Profit Slips 26% Amid Covid-Era Loan Fraud & FCA Fine
In 2025, legacy problems involving loan guarantees from the pandemic and regulatory fines hurt Starling Bank's bottom line despite revenue growth.
Introduction: Growing Pains for a Fintech Darling
In the UK's rapidly expanding neobanking industry, Starling Bank has long been hailed as a fintech success story. With the support of well-known investors like Fidelity and Goldman Sachs, the app-based lender has made headlines with its customer-first philosophy and slick digital offering.Its most recent financial results, however, show the negative effects of hypergrowth in a regulated industry. Starling reported a profit before tax of £223.4 million in its annual report that ended on March 31, 2025, a 26% decrease from the year before.
What, then, led to one of the most promising digital banks in the UK to experience a sharp decline in profits? The core of the problem seems to be a combination of a significant regulatory fine and issues brought on by the UK's COVID-19 Bounce Back Loan Scheme (BBLS).
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What took place? Principal Reasons for the Profit Drop
1. Regulatory Penalty for Financial Crime Violations
The UK's Financial Conduct Authority (FCA) fined Starling Bank £29 million. The fine was a result of previous inadequacies in the bank's financial crime prevention systems.
Starling's 2025 profit statement was significantly impacted by the penalty's financial and reputational costs, despite the fact that it has since strengthened its compliance infrastructure.
Starling's 2025 profit statement was significantly impacted by the penalty's financial and reputational costs, despite the fact that it has since strengthened its compliance infrastructure.
2. Fraudulent Covid-Era Loan Schemes
Launched at the height of the pandemic, the Bounce Back Loan Scheme was designed to give small businesses in crisis quick access to capital. With a 100% government-backed guarantee, Starling was one of several banks authorized to offer these loans.However, because of historical fraud check flaws, the bank has now discovered a subset of BBLS loans that might not satisfy the requirements for the government guarantee.
A provision of £28.2 million was recorded in this year's accounts as a result of Starling's voluntary flagging of these loans to the British Business Bank and agreement to remove the government guarantee.
Revenue Growth Declines But Stays Upbeat
Starling's overall revenue increased to £714 million, a slight increase from £682 million the year before, in spite of these financial setbacks. This is a little over 5% year-over-year growth, which is much less than the bank's 50%+ revenue growth in fiscal 2024.A maturing company, heightened competition, and the necessity of resolving legacy issues before moving forward are all reasons for this slowdown in revenue growth.
A Transparent Approach to Troubles
During a media call, CFO Declan Ferguson emphasized that the issues were part of Starling’s legacy operations and had been dealt with in full cooperation with regulators.
“This is a legacy issue which we dealt with transparently and in full cooperation with the British Business Bank,” said Ferguson.
By taking a proactive stance, the bank aims to rebuild trust with both regulators and its user base.
How Is Starling Handling It?
According to Starling, for certain BBLS loans that might no longer be covered by the government guarantee, it now has an Expected Credit Loss (ECL) provision of £800,000. In order to guarantee that future lending practices adhere to the highest compliance standards, the company is also working to strengthen internal controls.It may be able to weather the current storm and preserve its long-term valuation, which was £2.5 billion in 2022, thanks to its dedication to financial and operational transparency.
Supported by Giants: An Examination of Starling's Owners
Starling's strong investor support is one of the reasons it has withstood criticism. Among the shareholders are- Goldman Sachs
- Investments in Fidelity
- Investment Authority of Qatar
Dealing with Intense Competition in Fintech
There is more competition than ever in the UK fintech market. In addition to conventional high-street banks, Starling also has to deal with nimble competitors like Monzo and Revolut.Monzo's lending portfolio and Revolut's international banking licenses have both been growing rapidly. In a delicate regulatory environment, Starling needs to put a high priority on customer acquisition, product innovation, and trust-building in order to stay ahead.
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Implications for the Fintech Sector
A significant turning point for digital banks is highlighted by Starling's situation:- Openness is essential. Fintechs need to demonstrate that they can function with the same level of regulatory rigor as traditional banks.
- Security versus speed. Funds had to be disbursed quickly due to the pandemic, but compliance systems need to advance more quickly to keep up.
- Investor trust is important. Goldman and others' support shows sustained faith in the brand despite penalties and problems.
In conclusion, is this a wake-up call or merely a setback?
The performance of Starling Bank in 2025 is a prime example of the fintech industry's growing pains. The company's once-soaring profits have been tempered by legacy problems and compliance lapses, even though revenue is still increasing and it is still a major player in UK digital banking.However, the bank's voluntary decision to forego government guarantees on dubious loans demonstrates maturity and a commitment to openness. With the support of significant institutional investors and a devoted clientele, Starling is in a strong position to recover—pun intended.
The upcoming months will show whether Starling can continue to be one of the top neobanks in the UK or if its rivals will capitalize on the misstep, as the fintech industry closely monitors.
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