Charles McManus: Collaboration is the new competition

This past year has not been an easy one. 2022 has been defined by the continued impact of Covid-19, war in Ukraine, rising global interest rates, and a cost-of-living crisis—not to mention bouts of political upheaval in the UK. Digital assets have seen a devastating crash in value, and the fintech market in general is undergoing a significant correction—if not contraction. It’s a challenging time to say the least, and the lead up to the new year finds us increasingly returning to business fundamentals in order to drive sustainability and value for our customers.

It's on us to help our clients weather this storm. They need a partner who can reduce costs and inefficiencies, a partner who can improve performance and the customer experience, a partner who can help them unlock new opportunities and revenue. Against this challenging and turbulent landscape, we have been working hard to meet the fast-evolving needs of our clients and partners—all in very difficult circumstances.

This hard work has paid off as, despite these headwinds, I’m proud to announce that ClearBank Ltd. is profitable. We are one of the few new banks to have reached profitability, with only 5% of new banks globally achieving this milestone. ClearBank’s profitability means that we’ll be able to double down on what we know is working in order to make our work more impactful, and our support of clients stronger – at a time when they need it most.

ClearBank Ltd.’s profitability was driven by the shift towards digital payments during the Covid-19 pandemic, demand for cloud-based API-fluent clearing infrastructure, and the rise of embedded banking (something I’ll discuss at length in this letter). This high growth and increased revenues in 2021 saw ClearBank ranked as the fastest growing tech company in the UK according to Deloitte.

Looking more widely, the fintech market has evolved from competition to collaboration over the last decade. We have gone from fintechs looking to eat banks’ lunch to a market characterised by collaboration, where banks utilise technology from fintechs and fintechs partner with banks to scale services. The rise of embedded finance and “every company becoming a fintech company” has catalysed the sector with non-financial brands seeking to embed financial services into their offerings. The opportunity is unparalleled as the market is set to be worth $7 trillion in ten years’ time.

Today, collaboration does not just characterise our market, it is now essential to success.

In Oct’22 YTD ClearBank Limited secured £45.4m in revenue and from October has reached monthly profitability. ClearBank’s 2022 revenue YTD Oct’22 has almost tripled from the same time last year. FY2021 was the second consecutive year that ClearBank’s revenue has grown by over 100%. 2022 growth has been driven by growing transaction volumes, new customers, interest income, and the ramp-up of the bank’s new FX and multicurrency proposition.

ClearBank now supports over 200 financial institutions, including Chip, Raisin, and Recognise Bank. With 17.5m bank accounts and £3bn held in balances, ClearBank has dramatically increased in scale

And despite increasing headwinds from wider market conditions, ClearBank anticipates continued and sustainable growth.

With collaboration as the new competition, banks, fintechs and brands are more driven than ever to find the right partners. The Wirecard scandal in 2020 made fintechs increasingly wary of their financial partners. This led to a shift away from agency banking and towards BaaS and embedded banking — and firms are increasingly looking for licensed and regulated banking services.

ClearBank is in a unique position to help catalyse the embedded banking market. It is the only BaaS and embedded banking provider in the UK which operates a banking license and holds funds at the Bank of England for its customers.

Increasingly, partners are seeking to embed licensed banking services from ClearBank directly into their customer offerings to improve the user experience and safeguard funds. With Tide, for example, we are able to provide FSCS protected accounts and connectivity to payment schemes. The partnership has seen remarkable success with Tide and ClearBank now serving over 8% of the UK’s 5.6m SME market.

A final example is in the case of PayPoint Group and the Department of Work and Pensions. They needed a partner able to deliver real-time payments to those without access to a standard bank account and boost financial inclusion. Under the new initiative, a recipient can choose from a range of methods to receive their cash payment vouchers making accessing benefits quicker, simpler, and more convenient. These vouchers can be used to withdraw funds at any one of 28,000 PayPoint retailer outlets or 11,500 Post Office branches.

While innovations like BaaS and embedded banking promise much, there is always a concern that innovation may sacrifice resilience. Recent disruptive events across the financial services industry and beyond have underlined the importance of safe and resilient operations. Our partners not only demand uninterrupted services, but there is also increasing regulatory will to penalise those that face major outages.

ClearBank is able to ensure that its technology delivers resilient operational outcomes by providing elevated levels of availability, reliability, and resilience. We protect against operational risk events by mirroring our cloud native technology to negate any service disruption to our partners. Operational resilience is of the highest priority, and we remain committed to the continued investment in the enhancement of our infrastructure, services, and controls to ensure delivery of a safe and reliable service.

The recent outbreak of war in Ukraine has highlighted the need for all financial institutions to remain vigilant, work together, and continue to invest in financial crime controls. Though ClearBank and our clients have not been directly affected by the situation, we value and continue to honour our role alongside the regulators in ensuring payments are screened for the developing sanctions requirements and the payments systems are protected from fraud and cybercrime. We have taken steps including participation in and support for government initiatives such as the new Economic Crime Levy and introduced new tools such as Confirmation-of-Payee to help our partners and the wider industry fight against the growing threat of fraud and bad actors.

Our unprecedented growth in the past two years has allowed us to expand our horizons as we look to 2023. Already in 2022, ClearBank announced a £175m strategic investment led by funds advised by Apax Digital, the growth equity arm of Apax Partners LLP (“Apax”), a leading global private equity advisory firm, to accelerate ClearBank’s international growth and expand its range of product and services. ClearBank’s existing investors CFFI UK Ventures (Barbados) Ltd and PPF Financial Holdings BV also participated in the round.

The investment supports our mission to succeed globally and helps us to accelerate our international expansion plans. It will fuel product development and enhancement and bring us that much closer to Unicorn status.

Expansion

With expansion in mind, ClearBank has plans to launch into Europe in 2023, including the establishment of ClearBank Europe in The Netherlands, with arrival in the US to come soon after. ClearBank’s largest embedded banking clients are moving into Europe where there’s a capability and service gap across technology, commercial know-how, and critically a full banking license, similar to the gap ClearBank has closed in the UK. We have seen that, more than anything, being ‘fully-regulated’ piece is key when it comes to who will lead banking’s next generation. That’s why it’s at the heart of ClearBank’s strategy and differentiation – we will be the company that is fully regulated, with set-banks in each market, all connected to our single platform.

New products and services

ClearBank also plans to expand its range of products and services to include direct API-based access to interbank payment schemes such as SEPA, enhanced multi-currency accounts, and additional FX services. These capabilities will allow ClearBank to support existing customers in scaling internationally and welcome new customers in multiple markets.

Future M&A activity

The funds from Apax’s strategic investment will open M&A opportunities for ClearBank. As the embedded finance space explodes there is a race to cover Sterling, Euro, and US dollar currencies on a fully licensed cloud-based platform. To lead this race there may be opportunities through M&A to consolidate various activities and businesses to accelerate European expansion.

This growth and expansion coupled with a healthy client pipeline and an expanding deposit base, has catalysed the firm’s first cash break-even month in 2022.

In the last few years, we have seen the market shift from agency banking services to BaaS and now embedded banking driven by the demand from institutions and increasingly brands to integrate increasingly sophisticated and regulated services from a licensed bank into their customer offerings.

A major driver here is the wider risk landscape particularly around the pandemic and, in recent weeks, geopolitical conflict. The UK economic situation also remains unstable, with inflation reaching a 40-year high, a dramatic jump in interest rates, and growing a cost-of-living crisis with recent political turmoil. With all this weighing on the public consciousness, we must continue to work closely with our customers and partners to mitigate these risks throughout 2022.

As the macro-economic environment continues to be turbulent, there is a renewed focus on the security, resilience and utility offered by fully licensed banking products that unlock the potential of businesses and their customers while ensuring peace of mind at an extremely challenging time.

With a licensed clearing and embedded banking platform that is scaling rapidly, we expect to build on the success of 2021 and our accomplishments thus far in 2022 ahead of international expansion in 2023. The next few years have enormous promise, and we believe ClearBank is uniquely positioned for success.

As always, ClearBank’s success is due to the support of our staff, our partners, our customers and our investors. Thank you for making the company what it is today, and we look forward to another banner year for ClearBank.

All the best,
Charles

ClearBank’s 2021 annual accounts cover a period of 12 months, from 1 January 2021 to 31 December 2021. ClearBank’s 2022 figures cover a period of 10 months, from 1 January to 31 October. Please note that 2022 figures are interim and unaudited.