A boom in business banking has helped boost Starling Bank’s coffers.
Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: P2P, Lending, Digital Bonds, BNPL, Private Credit
December 2020 Magazine: NCFA Fintech Confidential (Vol 1. Issue 3)
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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How to Choose the Right Financial Partner for Your Business
Loop | Dimple Lalwani | Dec 7, 2020
While this may be simply-stated, we're not oblivious to the fact that such a task can be a true undertaking. There are plenty of financial options out there to consider, but the true challenge is finding the one that will be most beneficial for your business.
In this article, we'll discuss a few of the most common financing options, so you can get a better idea of what's available and what might work best for your D2C brand. Read on to learn more.
Importance of the Right Growth Capital from the Right Financial Partner
As you begin searching for and comparing inventory financing solutions for your eCommerce brand, there are a few points you'll want to consider. Here are three items to keep in mind as you select the best option for you:
1. Expert advice on managing cash flow. Some financial partners don't offer this type of guidance—rather, they offer a purely transactional relationship, with little to no guidance or advice. Some financial partners will solely offer capital without any additional services, either because of the way their business model is structured or because their business does not generate sufficient revenue to provide additional resources beyond the capital provided.
See: Managing Finances in a New Startup
Even if you believe you can do without the extra financial services, it may end up benefiting your business to have a financial partner you can turn to for advice on maximizing your revenues and margins, as well as providing inventory loans for growth.
2. As a new, high-growth brand with a limited history, you can expect to pay a higher cost for capital than more established companies (generally from newer financial companies that operate on a revenue share model). Effective cost of capital could be costing you substantial dollars, ultimately impacting your margins, valuation, and your ability to scale your business profitably.
3. The ability to borrow funds for inventory and generate revenue in the short-term is paramount. In doing so, you can unlock the necessary cash for other working capital expenses, such as marketing efforts, ads, salaries, and more, which will help promote brand awareness and allow you to expand.
Types of Financial Partners Available to Your D2C Brand
1. Banks
Though a bank loan might seem like the most straightforward route to securing funds, a bank's business line of credit is typically on the low side—especially for new businesses that have only a few years of financials. Typically ranging from $1,000 to $250,000, it's likely that a business line of credit from the bank won't supply the growth capital you need if you are growing your business substantially month to month. Banks can also be quite slow to replenish funds at the end of a fiscal year—it would not be uncommon to receive additional capital toward the middle or end of the following year.
Pros vs. Cons
There are a few advantages of using a business line of credit. For one, they are fairly flexible, allowing you to pay only for what you actually use. It also may be convenient for you that a loan from a bank is tied to other products and services, such as credit cards, bank account, savings, and more, which will serve to keep your finances more streamlined. You'll also be able to build business credit and develop your credit history, which will speak to your reputability for future loans.
See: Lending Loop Surpasses $50 million Milestone and helps thousands of Canadian Businesses and Investors
Equally important to consider are the disadvantages of a bank loan. Specifically, banks offer less money upfront due to a lack of understanding of eCommerce business models. The challenge for high-growth eCommerce businesses is balancing cash flow for their Direct-to-Consumer and wholesale needs. Specifically, high-growth eCommerce brands often need to fund substantial purchase orders placed by large retailers or other subscription box services, and often, payment from these orders isn't received for months. The inability to process these orders due to a lack of initial funds can result in missed revenue opportunities, hence slower growth from year to year.
Banks also present the problem of higher currency exchange rates for international business, which is unavoidable in the world of eCommerce. In fact, it's likely that a good deal of your business may be conducted with overseas entities—whether it be for your products themselves or your packaging costs—so higher currency exchange rates can end up significantly hurting your profits, and may even impact your ability to qualify for more affordable capital elsewhere.
2. Merchant Cash Advance Products
Also known as revenue-sharing financing, merchant cash advances are not the same as using a revolving business line of credit. Rather, this process basically entails receiving funds from a financing company in exchange for a cut of your future sales, including a fee.
Pros vs. Cons
The primary benefit of a merchant cash advance (MCA) is that it's fast—you can have the funds you need (typically up to $500,000) in as little as one day. It's also easy to qualify for, even without excellent credit. Repayment is flexible, and depends upon the amount of sales you make during a given period.
See: NEW REPORT: Small Business SOS – It’s Time to Supercharge Local Crowdfunding to Unlock Needed Capital
Unfortunately, merchant cash advances come with higher fees than most loan options, ranging from 6-20% of the amount borrowed. The more sales you make, the quicker you have to pay back what you've borrowed, which dramatically increases your effective cost of capital. If you have a particularly slow month, be prepared for your MCA provider to take the majority of your profits. There is also little regulation for this method of lending due to the fact that a merchant cash advance is not actually a business loan. Between the high fees and minimal regulation, it may be easy to fall into a cycle of debt.
3. Royalty Financing
Another popular option to consider for your business is royalty financing, which involves receiving funds based on future revenue. The amount borrowed is then paid back as a percentage of your business's revenue. In some ways, this process may sound similar to a merchant cash advance, though the two differ because royalty financing is a loan.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Lenders’ Challenge: Custom vs Off-the-Shelf Software
The performance of technology has become critical to business success in the new COVIDnomics. Digital lending requires speed and simplicity and forces financial organizations to rethink front-to-back office processes.
The pandemic acted as a catalyst for digital transformation. According to research by London and Partners, the UK Fintech sector has attracted $3.6bn in VC investment, putting it in second place globally behind San Francisco, estimated at $5.1bn. With the increased interest in fintech and digital transformation, a lot of founders and lenders are looking for reliable tech solutions.
“Since the pandemic started, we see lenders have accelerated their digital transformation plans,” says Ivan Kovalenko, CEO of HES FinTech. “Sticking to the old ways with traditional technology under the hood is no longer an option. Consumers are addicted to speed and convenience, which makes automation and technology the number one priority for lenders worldwide.”
Rephrasing Shakespeare: Custom software or out-of-the-box (OOTB)? That is the question.
Option 1: Off-the-Shelf Lending Software
According to Wikipedia: “OOTB software works immediately after or even without any special installation without any configuration or modification.”
When looking at Capterra and its list of loan software providers (over 190), business owners develop a certain idea of the platform’s desired functionality. To get it right away, lenders opt for software paid on a monthly basis, the so-called SaaS model. And this option works well if a lending entrepreneur is seeking to launch an MVP and test the product-market fit quickly.
However, buyers need to be aware that OOTB tools have little space for customization and are limited in their abilities to develop alongside a unique business model. Moreover, SaaS providers won’t make a functionality update to align with your new business requirements unless the rest of its users make the same request. This is where you have to pay extra for customization.
| Advantages of OOTB software | Disadvantages of OOTB software |
| A quick start: SaaS lending software is often a component-based, integrated and end-to-end platform that is already installed and configured. | Vendor lock-in: The customer is ceding control to the SaaS provider. Moreover, there can be per-user charges and penalties for growth. |
| Scalability: SaaS software is flexible enough to accommodate a client's unique growth plan. | Typically a customer has no access to the source code of the platform. |
| Low initial costs: No upfront hardware costs and flexible payment methods, such as pay-as-you-go models. | Extra costs: Depending on the business model, the customer may require to customize the decision-making process, calculations, document management, reporting, 3rd party integrations, etc. |
| POC: Founders can easily and quickly do proof-of-concept (POC) and test the software functionality together with the business or product idea. | TCO: While the initial costs of SaaS solutions might be significantly lower, the YOY costs, in conjunction with customizations, can add up to a large amount of money in the long-run. |
“From our experience, it’s one size fits none scenario. If you are starting as a small team of ten and planning to scale to the enterprise level, make sure your software can do the same,” adds Ivan Kovalenko, CEO of HES Fintech.
Option 2: Custom Lending Software
The competitive advantage of any financial institution lies in its ability to respond to changing market conditions and, at speed, to meet the specific needs of its target audience quickly.
In the current climate, many lenders see SaaS as a way to launch fast and reduce costs, but there’s one thing they need to know first. As with any investment decision, businesses need to understand the total cost of ownership, including YOY customization and integration costs, data migration costs, premium support, etc., and potential risks.
The lending business is not cheap. Yes, with SaaS, a lender can start an MVP quickly and relatively inexpensively. However, scaling and customizing, according to unique business needs, can easily cost over $500,000. And the client does not own the solution.
Owning the source code ends the SaaS contract, but missing repository access and documentation can still create vendor lock-in in a custom build.
| Advantages of custom software | Disadvantages of custom software |
| Tailor-made software follows specific business needs and requirements. It is fully compatible with the legal environment and strictly follows the client’s specifications. | High investment: While it may pay in the long run, the initial investment may be a little overwhelming for some companies. |
| No vendor lock-in: The client controls everything and owns the source code. | Time to market: While OOTB software can be implemented within a couple of days, bespoke solutions require typically half a year to go live. |
| TCO: In the long run investing in custom software is far more profitable than purchasing a ready-made product. | |
| Flexibility: With bespoke software, lenders can adapt to market trends and introduce new products faster. |
Despite its initial costs, lending software development can be a good investment if you are growing and anticipate your company to scale. Before choosing between custom software and SaaS, a lender should take a close look at the available resources and compare them with the core functionality they want to see on their new platform.
Wrap Up
To “build or buy” is a never-ending question. Some companies start with off-the-shelf software because it’s fast and cheap but ultimately switch to custom products, while other lenders are ready to stay and scale with SaaS providers.
There’s an old Wayne Gretzky quote: “I skate to where the puck is going to be, not to where it has been.” This is what you need to consider when choosing a solution.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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We’re the first neo-bank to break-even, says Starling Bank
AltFi | Daniel Lanyon | Nov 20, 2020
A boom in business banking has helped boost Starling Bank’s coffers.
Strong momentum in new customer accounts and increasing revenues have prompted digital bank Starling to break even, according to a trading update for the three months to 31 October.
Starling Bank, which was launched by Anne Boden five years ago, is the first ‘neo-bank’ to reach this milestone, the company said.
In October Starling hit 1.42 million retail accounts compared to 827k, an increase of 71.7 per cent. Over the same period business accounts were the standout growth area with an increase of 245 per cent, from 74,000 to 256,000. Business accounts saw a 500 per cent increase in total deposits with the average amount held by SMEs also going up.
Starling now has total customer deposits of c.£4bn.
This has all helped Starling generate a positive operating profit of £0.8m for the month of October 2020, which represents £10.1m on an annualised basis.
See:
Neobanks Can’t Fight the COVID-19 “Flight to Quality”
Investment Crowdfunding Advocates Join to Launch New Fintech Startup GUARDD in Move to Boost Secondary Markets for Exempt Securities
In total Starling generated total operating income of £9m for the month of October 2020. This, it adds, translates to an annualised revenue run rate of c.£108m. This figure is split £5.5m of net interest income and £3.5m of gross fees and commissions income.
The figure represents a 400 per cent increase in revenue compared to 12 months ago and a c.30 per cent increase from Starling’s last trading update three months ago.
“Interest income continues to be supported by strong growth in lending volumes, particularly the extension of government-backed lending schemes,” Starling said.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Payments Startup Stripe in Talks for Funding at $70 Billion Valuation or More
Bloomberg | Katie Roof and Scott Deveau | Nov 24, 2020
Private financial technology business Stripe Inc. is in talks to raise a new funding round valuing it higher than its last private valuation of $36 billion, according to people familiar with the matter.
The valuation being discussed could be more than $70 billion or significantly higher, at as much as $100 billion, said one of the people, who asked not be identified because the matter is private. That would make it currently the most valuable venture-backed startup in the U.S., according to CB Insights.
Stripe’s software, which competes with Square Inc. and Paypal Holdings Inc., is used by businesses to accept payments. According to its website, Stripe’s customers include Amazon.com Inc., Salesforce.com Inc., Lyft Inc. and Instacart Inc.
See:
Lightspeed and Stripe Partner to Launch New Payments Feature
Stripe, the world’s most valuable private fintech company, is getting into lending
The company has benefited during the pandemic with more shoppers turning to e-commerce. It’s gone on offense during the downturn this year, starting a card-issuing service for U.S. clients and agreeing to acquire a Nigerian startup to expand in Africa.
Brother Founders
Irish brothers John and Patrick Collison founded Stripe in 2010. The duo sold their first company for $5 million when they were teenagers and are now worth about $4.3 billion each, according to the Bloomberg Billionaires Index.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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The Dark Side of Fintech Borrowing
HBS Working Knowledge | Rachel Layne | Oct 25, 2020
Fintechs have revolutionized the banking industry, but some customers end up worse for the experience, according to research by Marco Di Maggio and colleagues.
Consumers turning to fintech lenders are more likely to spend beyond their means, sink further into debt, and ultimately default more often than people with similar credit profiles borrowing from traditional banks, according to recent research.
See: Where are the Biggest Fintech Startup Hotspots Around the World?
The findings run contrary to conventional wisdom that fintech lenders harvest deeper insight into those borrowers that banks typically reject after running a standard credit check. Fintech lenders claim to consult additional metrics like utility bills or rent payments to identify creditworthy individuals that are overlooked by traditional lenders.
“If you put the results into the context that most of the fintech companies claim that they use alternative data, it’s very surprising that their borrowers are more likely to default,” Di Maggio says.
In his study, Di Maggio tracked 3.79 million loans for 1.88 million borrowers using detailed national data from one of the three major credit reporting agencies over several years. This offered an in-depth look at borrowers that either used a fintech company or a bank to obtain a personal loan.
In a nutshell, fintech borrowers who initially improved their credit scores by consolidating some of their credit card debt saw a deterioration in those scores months down the line as they began to use their credit lines to consume more goods, from purchasing a car to buying everyday items, the researchers found.
See: Fintechs to play an “even more important” role coming out of lockdown, says British Business Bank
By a year after the fintech loan, more than 5 percent were likely to default. That’s a 25 percent increase in risk of default compared to similar bank borrowers.
This type of behavior is less likely among bank borrowers, suggesting that fintechs attract a different type of loan-seeker—one with a higher propensity to overspend—which is not something easily captured in their credit reports.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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ASC Updates Raising Capital for Small Businesses Resource: Fostering Alberta’s New Economy
Alberta Securities Commission | Denise Weeres | Oct 29, 2020
ASC has just rolled out some new, plain language, Small Business web-content intended to help entrepreneurs and their advisors navigate the securities law requirements when raising capital through the sale of shares or other securities. It provides some key terms, frequently asked questions, overview of common capital raising exemptions, some tips and traps.
Many factors are impacting and changing Alberta’s capital market and economy. Efforts are being taken to strengthen and to help expand and diversify the Alberta economy. There are a multitude of parties engaged in these strengthening and diversification efforts. The Alberta Securities Commission (ASC) is Alberta’s securities regulator. We are responsible for protecting investors and fostering a fair and efficient capital market.
The ASC supports these economic efforts by ensuring appropriate securities regulation that protects investors, and fosters a vibrant capital market that facilitates access to capital by Alberta businesses and investment opportunities for Alberta investors. Our goal is to find the right balance of appropriately protecting investors without unduly burdening the businesses trying to raise capital to build and grow.
See: ASC adopts Start-up Crowdfunding Blanket Order
By engaging with market participants, ASC staff can better understand the challenges small businesses face in accessing capital.
The ASC’s various external advisory committees, including its New Economy Advisory Committee, help the ASC build connections in the community, obtain valuable insight from industry and explore how securities regulation can evolve to support economic diversification, while still providing appropriate investor protection.
Sources of Money
There are a variety of ways in which an entrepreneur may obtain the capital needed to operate their business, such as:
- their own savings and financial resources, often referred to as ‘bootstrapping’,
- relying on trade credit,
- loans from banks, credit union or other financial institutions,
- government grants or loans,
- investments by investors, whether through shares, loans, revenue sharing arrangements or the distribution of other securities.
As Alberta's securities regulator, the ASC’s focus is on the last method, raising money through the sale of securities.
If you are trading any of the broad array of products that constitute securities or derivatives, then securities law applies to you!
Resources and Education
- Small Business
- Raising Money by Selling Securities
- Key terms
- Frequently asked questions
- Going Public
- Intro to Raising Capital Using Prospectus Exemptions
- Common capital raising prospectus exemptions
- Considerations when investing
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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