Fintech Starling Bank has capitalised on customers’ growing cravings for digital banking alternatives by becoming the UK’s newest tech unicorn after completing its largest funding round ever.

The challenger bank raised £272m in a Series D funding round, subject to regulatory approval, which was led by financial services company Fidelity Management and Research. The Qatar Investment Authority, Railpen and Millenium Management also participated in the round.

Since launching in 2014, Starling Bank has become a front-runner in the UK’s fintech scene, accumulating more than two million customer accounts and being voted the Best British Bank three years in a row by the British Bank Awards.

In November last year, the fintech became one of the first retail challenger banks in Europe to turn a profit, reporting a positive operating profit of £0.8m for October 2020. Since then, Starling has been in the black for four consecutive months. The bank expects that it will achieve its first ever full year of profitability in 2021.

The latest funding round, which exceeded its target of £200m, brings the digital-only bank’s pre-money valuation to £1.1bn, meaning it has achieved unicorn status. Off the back of the funding round, the bank has set its sights on expanding further into the European market, increasing its lending in the UK and it is also considering possible M&A opportunities.

Starling founder and CEO Anne Boden said: “Digital banking has reached a tipping point. Customers now expect a fairer, smarter and more human alternative to the banks of the past and that is what we are giving them at Starling as we continue to grow and add new products and services.

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“Our new investors will bring a wealth of experience as we enter the next stage of growth, while the continued support of our existing backers represents a huge vote of confidence.”

Starling Bank most recently raised £60m in a funding round in February 2020, which were also said to fuel its expansion efforts.

Challengers aplenty

Starling Bank is part of a wave of challenger banks around the globe who claim to take on traditional lenders with purely digital offerings.

The UK alone is home to OakNorth, which turned a profit just six months after its launch in 2013; Revolut, which broke even in November and that competed with Klarna and for the title of being Europe’s most valuable privately owned fintech for a short period in 2020; and Monzo, which was founded in 2015 after the founding team broke away from Starling Bank on the back of a reported internal power struggle.

Europe is also home to several other challenger banks such as German N26, Danish Lunar, Swedish Northmill and Icelandic Indó.

Across the pond, Chime is making waves in the US after it secured a $14.5bn valuation in September on the back of a $485m Series F funding round.

UK’s still a fintech frontrunner

The news about Starling Bank’s ascendency to unicorn comes after reports that the UK has so far managed to keep its title as Europe’s biggest hotbed for fintech innovation, at least in terms of investment, despite Brexit and Covid-19.

North of $4.1bn in venture capital and growth private equity was invested across 408 deals in the UK in 2020, according to a report by UK fintech body Innovate Finance.

For comparison, that is more than the cash injected into similar sector ecosystems in Germany, Sweden, France, Switzerland and the Netherlands combined.

Germany was second biggest destination for fintech investment in Europe, with $1.4bn of investment across 71 deals getting injected into the nation’s companies. Sweden ranked third with $1.3bn of capital raised in 2021.

Read More: Anne Boden: Pandemic has accelerated move to cashless by 10 years.