Industry26th March 2024

Case study: incuto and ClearBank’s partnership delivers real-time payments for credit unions

Large Clear Bank Incuto blog
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  • Partnership delivers cost-effective Faster Payments (FPS) access, providing real-time 24/7 payments to credit unions.
  • £598,207,305 in member payments processed as of mid-March 2024.
  • 54% of all FPS transactions are made ‘out-of-hours', ensuring critical funds are available when credit union members need them most.
  • Operational efficiency and cost reduction has enabled multiple credit unions to scale in a sustainable manner and return surpluses to members.

incuto is a technology firm established in 2017. It identified a gap in the market for serving credit unions that were competing with banks and short-term, high-cost lenders while relying on legacy technology and paper-based systems.

“Historically, credit unions have been massively underserved. The incumbents weren’t interested in them because they saw no way to make money from it. That exacerbated the problem facing those locked out of the financial system," explains Andrew Rabbitt, CEO of incuto. "We wanted to bring this sector access to things that banks had had for decades but recognised they didn't have the resources to pay bank IT money for licencing, delivery and ongoing support.”

Through its SaaS-based platform, incuto delivers a critical piece of infrastructure for affordable finance providers including credit unions and community banks by updating legacy technology, enhancing the end-user experience, empowering them to be resilient, sustainable and help more people.

Challenges and requirements

Having observed an underserved market, incuto recognised that providing accounts and sort codes, as well as access to the UK Faster Payments System (FPS), would create a comprehensive digital platform for credit unions to deliver more efficient services to their members. It would also support more cost-effective operations, enabling these firms to compete and grow their membership without also incurring significant operational overheads.

“Some of the most underserved people and communities were the most affected by legacy processes. It would often take a week or more to get a loan decision and then three to five days to receive much-needed funds. Helping providers who explicitly serve and support vulnerable members of society required a new approach and new types of partnerships.”

Andrew Rabbitt, CEO & Co-founder, incuto

incuto examined the market for a technology-focused banking partner that could support the platform by offering direct access to FPS and virtual banking services to allow credit unions to issue bank accounts and sort codes to its members. That led incuto to ClearBank.

We talked to many service providers, and the further we got into those conversations, ClearBank was the only firm that saw the opportunity and was willing to help these providers gain the access they need to better serve their communities," Rabbitt adds.

Supporting communities with cost-effective digital services

With many people now sourcing finance online, it’s vital that all credit unions take steps to fully digitise so they can reach as many potential members as possible. As we face the biggest cost of living crisis seen in a generation, credit unions can support families who are struggling through affordable lending or simply saving and education for longer-term financial stability.

By improving the services credit unions throughout the UK can offer through easy and cost-effective access to technology provided by incuto and ClearBank, they have an opportunity to service many more people. It helps them to be the primary financial services provider, particularly those going through a challenging economic period who might otherwise end up in significant debt by turning to payday loans or illegal money lenders.

We must support these firms so they’re competitive and not the lender of last resort or because someone was referred there by Citizens Advice but a genuine contender,” explains Rabbitt. “With ClearBank, we can provide access to accounts and payments in a manner that’s affordable and reflects the operational realities of these firms. That is important, now more than ever.”

For example, before using incuto, Manchester Credit Union was processing around 1.5k loans a month with seven loan officers using Bacs. Today, it processes just under 4k loans a month through six loan officers, with 99% of approved loans being paid out on the same day using Faster Payments.

Improving the member experience with 24/7 real-time payments

Credit unions' reliance on paper-based processes and manual intervention had an adverse effect on their members. It created a compounding issue of a slow membership sign-up process, loan applications that would take an average of seven days for a response, and if granted, a further three days for funds to be credited.

When every day, sometimes every hour, counts, that was unsustainable. incuto clients benefit from accounts and direct access to Faster Payments provided by ClearBank at its core. By mid-March 2024, the collaboration had seen 4,073,479 payments successfully processed, totally £598,207,305.

“Now, our clients can give members an account number and sort code. In the case of a loan, once approved, the funds are sent using Faster Payments, and it's with them in a matter of seconds. The member can repay the instalments via a Direct Debit from the same account rather than by Standing Order. The entire payment experience has been transformed,” says Rabbitt.

While every bank claims to offer Faster Payments, the reality is that many incumbents do not provide processing outside of core business hours. That, however, doesn’t meet the needs of some credit union customers who may be in dire need of access to funds. With ClearBank, incuto clients can offer instant, 24/7 access.

54% of the FPS transactions happen outside of business hours. This isn’t just a payment – there’s a person at the other end who needs to feed their kids or pay a bill to avoid the power being cut. The ability, via ClearBank, to provide payments any time of the day or night is new for them and the credit unions that serve them. It’s truly transformative,” comments Rabbitt.

Delivering long term sustainable growth

Combining online access for members and automation of cumbersome manual processes has supported credit unions to improve their products, enhance customer service and realise considerable operational benefits.

With ClearBank and incuto, credit unions can instantly process member payments for loans and withdrawals from savings accounts without manual intervention. They can also automatically and immediately reconcile payments made to member accounts 24/7 without manual processing.

For example, since the introduction of FPS, Riverside Credit Union has delivered 24/7 access to funds while halving the number of calls it receives regarding payments, freeing up staff to spend more time supporting its members.

Manchester Credit Union estimates it saves £15k a year in staff time through the reduction of manual processes. For savings account withdrawals alone, it equates to 3,000 phone calls a week that the team no longer needs to answer.

As cooperative businesses, operational cost savings support a more sustainable future, redistributing surpluses to members and enabling them to serve more customers.

“With incuto, the total cost of a loan with six repayments is £8.10. That number matters because credit unions have a cap rate, meaning they can only return a maximum of £18.19. That means we deliver an important product for members that’s also economically viable for the provider. We see credit unions that were losing money now making a surplus, which then goes back into the pot to lend to the next person. Together with ClearBank, we’re supporting them to scale sustainably and serve a need that no one else is either willing or able to. Now these firms are not just existing but thriving and competing, and I’m incredibly proud of that”

Andrew Rabbitt, CEO & Co-founder, incuto

For more information on how credit unions can deliver enhanced digital services through real-time payments, get in touch with us at [email protected].

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