For the year to 31 March 2025, one of the UK's largest digital-only banks reported revenue of £1.24 billion, up 48% on the prior twelve months. Gross profit reached £732 million, and the bank delivered a statutory profit before tax of £52 million against £15 million a year earlier. On an adjusted basis, stripping out a one-off £52 million cost tied to an employee share sale, profit before tax was £104 million. Customer numbers reached 12.1 million and card spending passed £55 billion.
On any reasonable reading, that is a strong year. It is also a year in which the profit margin on more than a billion pounds of revenue was around four percent before tax. The gap between those two statements is where the investment question sits, and it is the gap most commentary skips over.
Revenue is real. Its composition is the risk.
Roughly seven pounds in every ten of revenue came from interest income, which reached £862 million for the year. The important detail is where that interest is earned. Around half of it came from balances placed with the central bank. A further slice came from the wholesale credit and hedging portfolio built out during the year. Lending to actual customers produced roughly a third of interest income.
In other words, this is not primarily a lender. It is a deposit-gathering and payments franchise that parks the money it raises and earns the policy rate on it. That model is enormously profitable when base rates are high and structurally exposed when they fall. The base rate moved from 5.25% to 4.50% during the year, and the bank's own disclosure suggests a one percentage point fall in rates would cost it roughly £22 million of annual interest income. The direction of UK monetary policy is therefore not background noise for this business. It is a direct input into the earnings line.
The second engine is fee and commission income, which grew 38% to £328 million on the back of card transactions, subscription plans and partner products. This is the part of the model that is genuinely rate-independent and, in our view, the part that deserves the most attention. It is also the part carrying the highest cost of delivery, with associated fee expenses growing faster than the income itself.
The cost of money doubled
Interest expense rose 106% to £282 million. That single line explains a great deal about the year. As instant-access savings balances swelled, the bank moved from a funding base that was largely free current-account money towards one that pays a competitive rate. Deposits grew 48% to £16.6 billion, but the marginal pound of deposits now arrives with a price attached.
The result is net interest margin compression of roughly 30 basis points. Deposit growth of this scale is usually read as an unambiguous positive. It is not. The relevant question is whether each additional pound of deposits is being deployed into assets that earn materially more than it costs, or simply recycled into central bank balances at a shrinking spread.
Growth is being bought, not compounded
Total expenses rose 46% to £680 million against revenue growth of 48%. Operating leverage — the point at which a scaled platform starts converting revenue growth into disproportionate profit growth — has essentially not yet arrived. The reported cost-to-income ratio improved by a single percentage point.
Personnel costs reached £340 million, of which a substantial portion is share-based payment expense that more than doubled year on year. Other operating expenses also reached £340 million, with marketing up 72% following the return to large-scale brand advertising and customer compensation for fraud and disputes rising sharply. Headcount grew only 5%, so the increase is a cost-per-head and cost-per-campaign story rather than a hiring story.
For an investor, this is the central tension. The business is growing quickly, but it is spending close to every incremental pound of revenue to do so. A model that scales should eventually stop doing that. This year, it did not.
Credit: better on the surface, worth a second look
The credit loss charge fell 10% to £153 million even as gross lending grew a third to £1.9 billion. Arrears improved and the loan loss rate came down. That is a genuinely good outcome and reflects tighter underwriting and better collections tooling.
However, two things sit underneath it. First, the impairment allowance now covers 13.6% of balances, down from 14.6% — a release of coverage into a growing book. Second, balances classified as showing a significant increase in credit risk nearly doubled over the year, a much faster rate than the book itself grew. The bank attributes part of that migration to a change in the internal thresholds used to identify deteriorating credit. Changes in classification methodology that simultaneously increase the population of watch-list loans and reduce the percentage held against them are, at minimum, worth understanding in detail before extrapolating the improvement.
There is also £2.1 billion of committed but undrawn overdraft and instalment credit sitting off the balance sheet — more than the entire drawn book.
The balance sheet is fortress-like, and that is the problem
Total assets reached £18.3 billion. Equity stands at £903 million, the common equity tier one ratio is 41% and the liquidity coverage ratio is close to 979%. These are not the numbers of a bank under pressure. They are the numbers of a bank carrying far more capital and liquidity than its current asset mix requires.
Loans represent under 10% of customer deposits. Almost every peer in UK banking operates a multiple of that. The excess capital is real, but it is currently earning a policy-rate return rather than a lending return. The entire equity story rests on whether that surplus gets deployed — into lending, into new geographies, into products — at attractive returns, and how quickly.
Profit quality deserves scrutiny
Statutory profit before tax was £52 million. Profit after tax was £87 million. The bottom line is higher than the pre-tax line because the bank recognised a deferred tax asset for the first time, producing a net tax credit of £35 million.
This is legitimate accounting and reflects a judgement that historic losses will now be recovered against future profits. It is also a non-cash, one-off, forecast-dependent uplift. A material quantum of tax losses remains unrecognised, indicating that management itself has not assumed those profits are certain. Anyone valuing this business on reported post-tax earnings should first separate the recurring from the recognised.
Equally, the £104 million adjusted profit figure excludes a share-sale cost that was largely non-cash but reflects a real transfer of value to employees. Both the statutory and adjusted numbers require adjustment before they mean anything.
The risk that is not in the numbers
The accounts disclose a long-running regulatory investigation into historic financial crime systems and controls, described as being at an advanced stage, with the bank acknowledging that any resolution is likely to carry a financial cost. No amount is quantified, and total provisions on the balance sheet are around £10 million.
For a business earning roughly £50 million of statutory pre-tax profit, an unquantified regulatory outcome is not a footnote. It is a live variable in any earnings forecast.
Our view
This is a business with an exceptional funding franchise, a genuine brand advantage, and a demonstrated ability to acquire customers cheaply — most of them arriving by word of mouth. The revenue trajectory is not in question. A recent secondary share transaction valued the group at £4.5 billion.
What is in question is the path from £1.24 billion of revenue and £52 million of statutory profit to a return that justifies that valuation. That path runs through three things: deploying surplus capital into higher-yielding assets without importing credit losses; converting scale into operating leverage rather than reinvesting all of it; and doing both while interest rates fall and international expansion consumes cash.
This insight is based solely on publicly filed financial statements and is provided for information purposes only. It is not investment advice and should not be relied upon as a recommendation to buy, sell or hold any security. Figures are as reported by the entity for the financial year ended 31 March 2025.