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The fintech taking on the big four clearing banks

ClearBank CEO Image credit: ClearBank

For more than a decade fintech startups have been challenging the dominance of banking giants. Free from legacy technology and bureaucracy, they are often nimbler and able to innovate quickly. But until the arrival of ClearBank in 2015, there had not been a new UK player entering the clearing bank market for 250 years.

Now, ClearBank is the fifth largest clearing bank behind the ‘big four’ of Barclays, NatWest, Lloyds and HSBC.

The London-headquartered firm has become profitable on a monthly basis and the company’s chief executive says technology has played a big role in its growth.

“The big four and others have got legacy tech, they can’t change,” says Charles McManus, CEO of ClearBank.

ClearBank is not a consumer-facing bank. It provides the underlying technology to process and settle cheques and transactions for other financial institutions. It was founded by Nick Ogden and went live in 2017.

Its customers include other banks, such as challenger bank OakNorth, which has selected ClearBank for all of its transaction activity.

Clearing a profit

In November, the clearing bank announced that it had become profitable on a monthly basis with annual revenues of £45.3m. More recently it revealed its year-on-year income had almost tripled to £58m last year.

ClearBank has three income streams: account fees, transactions and cash interest. However, the Covid pandemic and the knock-on effect of interest rates collapsing caused the “third leg of its income stool” to go.

As a response to losing one of its sources of revenue, ClearBank’s team – including McManus – took voluntary pay cuts.

“Now, that’s not to say the investors wouldn’t have funded [us], but you’ve got to take accountability and responsibility,” he tells UKTN.

“And that was a really big moment in the bank where all of us said our income has suddenly disappeared, we need to take action ourselves rather than fire people.”

It has been a long path to profitability for many of the UK’s fintech companies. Revolut, which has also been around since 2015, only last month reported its first annual profit of £26.3m. Starling Bank, founded in 2014, reached the milestone in July last year.

The ClearBank CEO says that fintech startups on the path past break-even should stay away from customer acquisition at a loss or reduced price.

“Right from day one we thought our product was very strong,” says McManus. “We felt we were saving clients money, we were adding significant value and they should pay us for that.”

McManus said ClearBank focused on customer service rather than marketing during its early days.

He adds: “If we look back at our journey, what we always wanted was an introduction or an opportunity to show our product against the competition.”

Manchester United bank accounts

McManus says ClearBank’s goals for 2023 include applying for a banking licence with the European Central Bank to open a bank in Amsterdam.

After establishing a base in Amsterdam, ClearBank then wants to move to France, Germany, Italy and Spain.

ClearBank is also looking across the Atlantic and is eyeing joint ventures or acquisitions to enter the lucrative US market.

“We’re already seeing in the marketplace in Europe and the US opportunities to acquire distressed businesses,” says McManus.

McManus said ClearBank is looking to expand its clearing technology to the current account switch service (CASS).

Outside of banking and fintech, McManus says there is another addressable market for ClearBank: white-label financial service products.

“If I was Manchester United, for example, what about offering all my fans a Manchester United Bank account but it is a ClearBank bank account that you can then get subscriptions and pay your fees through,” McManus says.

White-label finance services for corporates would extend ClearBank’s customers beyond acquirers, banks, building societies and fintechs.

“Next-gen and everyone out there are all quite happy to have 50 bank accounts. There may be only one that the cash really goes into but you know that they’ll have a number.”

Unlike other banks such as Starling, which for now has banned crypto transactions, ClearBank says crypto or digital assets are not out of the question. One possible area for ClearBank is digital asset infrastructure.

It comes as the Bank of England and the Treasury recently published a consultation paper on the idea of a UK digital pound. Crypto is a field of interest to the government currently as last month saw the government set out draft regulation for the sector.

“I welcome it but it’s all about the details,” says McManus. “We don’t want to turn London into the next Las Vegas.”