Starling Bank reported falling revenue and profits as lower interest rates squeezed margins at the UK neobank. The decline reflects the vulnerability of digital banks that rely heavily on deposit and lending spreads to stay profitable.

Unlike traditional banks, neobanks have fewer revenue streams to cushion rate moves. Starling now faces pressure to expand beyond its current model, which has been weighted toward payments and deposits rather than diversified lending income.

To counter this, Starling is pursuing acquisitions aimed at pushing into lending and entering the US market. The strategy signals that organic growth alone won't cover the gap left by narrower spreads.