Fintech takes on the big four clearing banks

For more than a decade, fintech startups have challenged the dominance of banking giants. Free from legacy technology and bureaucracy, they are often smarter and able to innovate quickly. But before ClearBank arrived in 2015, there had not been a new British player entering the clearing banking 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 CEO says technology has played a big role in its growth.

“The big four and others have legacy technology, 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 checks and transactions for other financial institutions. It was founded by Nick Ogden and went live in 2017.

Customers include other banks, such as challenger bank OakNorth, which has chosen ClearBank for all its transaction activity.

Clearing a profit

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

ClearBank has three revenue streams: account fees, transactions and cash interest. However, the Covid pandemic and the consequential effect of collapsing interest rates caused the “third part of the income stool” to disappear.

In response to losing one of its sources of income, ClearBank’s team—including McManus—took voluntary pay cuts.

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

“And there was a really big moment in the bank where we all said our income has suddenly disappeared, we have to take action ourselves instead of firing people.”

It has been a long road 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 last July.

The ClearBank boss says that fintech startups on the road 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 customers money, we were adding significant value and they should pay us for it.”

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

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

Manchester United Bank Accounts

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

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

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

“We are already looking at the market in Europe and the US as opportunities to acquire distressed businesses,” says McManus.

McManus said ClearBank is looking to extend its clearing technology to its current account switching service (CASS).

Outside of banking and fintech, McManus says there is another addressable market for ClearBank: financial services white labels.

“For example, if I was Manchester United, how about offering all my fans a Manchester United Bank account, but it’s a ClearBank bank account that you can then get subscriptions and pay your fees through,” says McManus.

White-label financial services for businesses will expand ClearBank’s customers beyond buyers, banks, construction companies and fintechs.

“The next generation and everyone out there are all quite happy with having 50 bank accounts. There might only be one that the money really goes into, but you know they want a number.”

Unlike other banks such as Starling, which have currently banned crypto transactions, ClearBank says that crypto or digital assets are not excluded. One possible area for ClearBank is digital asset infrastructure.

It comes as the Bank of England and the Treasury recently published a consultation document on the idea of ​​a British digital pound. Crypto is a field of interest for the government at the moment, which last month saw the government draw up a draft regulation for the sector.

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