A multi-million pound grant, an experienced and well-connected management team and a corporate strategy to be envied. Could ClearBank be the first to break the UK banking oligopoly? Joe McGrath investigates…
ClearBank hit the jackpot earlier this year. In February, Banking Competition Remedies – the body established to stimulate competition in the market – awarded it a cool £60m, in partnership with challenger brand Tide, to take on the legacy players in the UK business banking market.
The two parties said they intended to match the grant with further investment over the next five years to fully establish themselves as major players in the domestic market. But they face a mammoth task.
The UK has not had a new clearing back in more than 250 years, and the existing players are deeply intertwined with customers, policymakers, trade groups, government and crucially, investors. However, Open Banking and speed of technological change in the sector means that the current market environment is perfect for challengers to step in and shake things up.
More than a service
ClearBank styles its strategy as a ‘banking infrastructure play’. It allows companies operating in the banking market to launch new products and services quickly, and piecemeal, without having to develop, own and service all of the necessary infrastructure in-house. The industry will be more familiar with this approach as “Banking as a Service” (BaaS).
“We see an opportunity to help other financial institutions,” says Nigel Walder, the recently-appointed chief operating officer at ClearBank. “We already have a set of services that are live. The next generation of that product allows our customers to offer additional services to their customers, such as current accounts.”
Walder joined ClearBank in December as chief operating officer after a career which included stints at major, global players. Previously CIO (Corporate Functions) at Barclays, he has also held senior positions at Deutsche Bank, Royal Bank of Scotland and NatWest Markets. Having seen everything that the legacy players have to offer, Walder is convinced that ClearBank’s proposition will prove irresistible to customers.
ClearBank’s customer base is vast, ranging from fintechs who are challenging in one or two banking product areas, to the traditional banking giants who are looking to update their payments infrastructure.
“They come to us for different reasons,” Walder explains. “We have got fintechs on board, but we are also seeing, in terms of pipeline, customers seeking to immunise themselves against considerable cost and effort updating their payments infrastructure.
“Larger, traditional players are starting to look at those challenges. If they have a payment infrastructure themselves, they are asking whether they should continue down that trajectory or outsource it to a specialist.”
Another member of the ClearBank team is chief technology officer Andrew Smith, who has been a part of the executive team since April 2016. A cloud computing expert with nearly two decades of experience, Smith mastered his trade at blue-chips such as Vodafone, GE, Aviva and Credit Suisse.
For Smith, the attraction for customers is simple. “They are able to consume our APIs very quickly,” he says. “We offer a subscription-based service for anyone who wants to come on board. I see different banks utilising us for a plethora of services. Fintechs will maybe use more services than traditional banks, but that kind of Software as a Service model is being applied to all of our customer base.
“We are trying to allow other businesses to get their ecosystem up and running quickly. Institutions that want to make better credit decisions can use Banking as a Service to enhance those. Each one of our customers can utilise our services to really understand what Open Banking is all about.”
Smith is intrigued by the industry’s ongoing predictions that the world’s tech giants will aggressively enter the market, but says he isn’t at all surprised that they haven’t so far.
“We have already seen Amazon and Google becoming PISPs. They are semi-regulated in terms of payments. They will likely become increasingly interested. That said, if I was on their side, I wouldn’t go the full hog. You don’t have to be fully regulated, in the same way as a bank is, to feel like, and act like a bank.
“It is easy to foresee an area where big tech companies utilise Banking as a Service to enrich customer experiences in shopping or in payments. They will increasingly start to look like, or act like, a bank.”
When it comes to competing, the ClearBank executive team are certainly not shy in laying down their ambitions. “We want to become the dominant player that provides Banking as a Service in the UK,” says Walder. The company has also applied for a European licence to complement its UK registration.
“I have spent over 30 years within big banks. A lot of the technology within these large institutions is very old, batch processed and, candidly, it is not necessarily a particularly profitable part of the business.
“There is a consequence of that, when it comes to sitting at the top table and going through your budget. You don’t see a lot going into payment infrastructure. That is why I have found it so exciting coming to ClearBank.”
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