When Raman Bhatia joined Starling Bank as chief executive two years ago, it signalled the digital bank was growing up.

After nine years under Anne Boden - who secured Starling's place in the banking industry - Bhatia's appointment showed the bank was focusing primarily on growth rather than solely on disruption. 

Bhatia - a seasoned operator who previously headed up HSBC's digital bank before leading energy firm Ovo - says that while the bank is still in 'growth mode', the core DNA of the business as a 'disruptor' has not changed since his appointment.

While visiting its East London office, he told This is Money that he wants to pull Starling into the AI age as he continues to fend off stiff competition from Monzo and Revolut.

When Revolut secured its banking licence last month, some parts of the fintech industry were breathless with excitement that the UK-based bank could expand even further.

The tech giant was the last of the trio of digital banks that emerged in the mid-2010s to receive the licence, after Starling and Monzo. Even so, Revolut has dwarfed the competition in a tough landscape.

But Starling is pinning its hopes on its software business - which sells its proprietary tech to other banks - which could prove to be the bank's crown jewel and a way to crack the all-important US market.

Competition for customers is harder than ever

The first wave of fintech disruption in the mid-2010s triggered a fundamental change in the way Britons bank.

The pioneers of that are now the victims of that success, though, as multi-banking - when people have more than one or two bank accounts - has become the standard, making it harder to retain customers.

While Revolut and Monzo have around 14million retail customers each, Starling has 4million.

Bhatia bats these headline figures away: 'It's not just a game of headline customer numbers, it's about average balance position with the customer, engagement with customers. I think we sit in that sweet spot.'

He also rules out relying on juicy switching offers that legacy banks rely on to beef up customer numbers. 'We don't want to do that. We attract customers through referrals, the experience we offer… that's where we put our money, not in baits,' he says.

Instead, he hopes that a new AI tool, along with a suite of other products, will help to draw customers in and, crucially, retain them.

Starling claims its agentic AI 'assistant', which uses Google Gemini, will help manage customers' personal finances and share 'personalised financial insights'.

For example, a customer saving for a holiday can hand over the details - 'I need to save £1,000 by August for Las Vegas' for example - and the tool will set up saving pots or direct debits automatically.

It is perhaps inevitable as every sector, from software to wealth management, launches similar products to keep up with consumer demand and keep investors happy. 

To Starling's credit, it is one of the first out of the starting blocks among the British banks to go headfirst into new tech, perhaps unsurprising given what a laggard the sector still is in terms of tech.

'We think as AI adoption progresses, the demand for this will come automatically,' says Bhatia. 

'Over time, you imagine a world where moving money around becomes an agentic world… that world is not too far from us.'

He admits that the AI push has not come from customer demand, but rather to set the standard across the industry. Where Starling goes, others follow, seems to be the message.

'We're taking the lead in defining this sort of experience… [AI] is coming, not just in banking, but everywhere. We play a bigger role in actually setting up trust with this new technology overall.'

Bhatia insists it is about improving customer experience, but you get the sense it is as much about getting ahead of Monzo and Revolut, as well as the legacy banks, which still hold 95 per cent of market share.

Starling's Engine is its secret weapon

Retail customers are ultimately secondary to Starling's business banking division, which does most of the heavy lifting behind mortgages - it acquired specialist buy-to-let lender Fleet Mortgages in 2021.

Bhatia claims that Starling now has between nine and 10 per cent of the SME banking market share. 

That's not to say it has not faced difficulties - last year, it reported a drop in profits after it was forced to set aside £28 million to cover potential compliance issues with Covid loans.

Ultimately though, Starling is pinning its hopes on its software business, Engine. 

The digital platform that can be sold to prospective banks and is entirely separate from Starling's banking operations. It is a similar playbook used by Octopus Energy, which plans to spin off its software business, Kraken, having sold its software to other firms.

'The Engine thesis is 'Look what we've built with Starling using this [tech] stack and look what we're building on top of it,' says Bhatia. 

'When we offer Engine to banks, they come and see Starling. It's not just tech, it's the entire operating model.'

Engine is still in its early stages, having launched in 2022, but it has secured 10-year deals with the likes of Salt Bank in Romania, which now has over a million accounts, and AMP Bank in Australia.

It makes commercial sense, as Engine approaches £100million annual recurring revenue, but there is plenty of room to grow with this model. 

Last September, Octopus' Kraken announced annual revenue exceeded $500million, four times the amount reported three years ago, showing the scale of the opportunity.

It could help to shore up Starling's UK revenue too, as, like Octopus, it could sell its services to banks with clunkier tech.

'We're open-minded to it. It's on a case-by-case basis,' says Bhatia. 

'Kraken is powering EDF and many other players in the UK, while Octopus is in the market. 

'We're not averse to that, we're open to it depending on the client.'

Depending on what? 'We only pick clients where there's a clear commitment and vision behind the transformation. 

'We're not just peddling software to anyone who comes through the door.'

Ultimately, though, it's a smart way for Starling to enter new markets. Engine can act as a trial run, working out pain points before fully committing. 

That's no more evident than with Engine's push into North America, where it can capitalise on the fragmented banking landscape.

It is also another way to differentiate from Monzo and Revolut, which have separately struggled with the US market. Monzo is shutting down its US operations to focus on the UK and Europe, while Revolut is awaiting approval for its banking licence.

Engine already has a team in New York and has scored a deal with Tangerine Bank in Canada. Bhatia says he is 'open-minded' to launching Starling in the US.

The burning question is whether it opens the door to a listing - and whether that would be in Britain or the US. 

'Right now, it's head down and focus… on building that equity value story for the business. 

'We're non-committal around timing and venue. We have surplus capital, so we don't need to list per se, but eventually we want to.'

Starling might be facing stiff competition in the UK from other challengers, but if it continues its strong run with Engine, it's potentially onto a winning formula and a different path to Monzo and Revolut.