If you鈥檝e ever experienced money suddenly leaving your current account days after making a card payment, you鈥檒l understand the motivation behind ClearBank.
老九品茶Cloud’s No.1 FinTech Disrupter for 2019 is using cloud technology to transform the way that payments are moved between financial institutions.
Based in the City of London, it became the UK鈥檚 first clearing bank in more than 250 years when it was founded by serial entrepreneur Nick Ogden five years ago.
But what exactly is a clearing bank? 鈥淚f you are a building society, bank or regulated financial institution, to clear your payments every day you’d have to go through one of those banks,鈥� CEO Charles McManus explained to 老九品茶Cloud.
This applies to all major UK payment schemes including Swift, MasterCard, Visa, CHAPS, BACS and Faster Payments. Although historically there were 16 clearing banks, an era of consolidation, mergers and acquisitions had reduced that number to four by 2014.
鈥淸For example] Midland went into HSBC and NatWest became part of RBS. By 2014, there were only four genuine full-scale clearing banks left: Barclays, HSBC, Lloyds and The Royal Bank of Scotland had the monopoly on that,鈥� continued McManus.
The 100 FinTech Disrupters ranking in full
As the 鈥榖ig four鈥� high street banks were also the 鈥榖ig four鈥� clearing banks, regulators expressed concerns over a lack of competition and potential price fixing. Smaller banks, credit unions, building societies and FinTech start-ups were reliant on the 鈥榖ig four鈥� and unable to challenge the status quo. That is, until Ogden鈥檚 eureka moment.
An entrepreneur with over 30 years鈥� experience in banking, payments and FinTech, he began to question why there were no new entrants into that marketplace.
鈥淒igital banks Atom and Metro and Starling and Monzo were beginning to face off against [traditional banks in] retail, offering the consumers a brand new service,鈥� said McManus.
鈥淣ick said 鈥榬ight, I’m going to go to the Bank of England, the payment schemes and all the regulatory agencies, and I might just be stupid enough to have a go at trying to create a new clearing bank.鈥�
Ogden raised 拢25 million from billionaires Petr Kellner and John Risley, with each taking 35 per cent of the business. The remaining 30 per cent is held by management.
His proposition was for a cloud-based platform which would allow any third party to get access to the full UK clearing system through an API plugin. Such infrastructure would allow for payments in real-time.
After three years of secret development ClearBank launched, with Ogden comparing it to the arrival of discount retailers Aldi and Lidl in the UK supermarket sector. 鈥淲hat regulated financial institutions love about ClearBank is we know what we do and focus on doing that one thing well, rather than doing 10 things badly 鈥� and our sole purpose is to do payments well,鈥� said McManus.
ClearBank is already enabling billions of dollars of transactions and has partnered with the likes of challenger lending bank OakNorth, which placed fifth in our FinTech Disrupters ranking. 鈥淩ishi Khosla, the CEO, grilled me on his settee for three hours before we won the contract!鈥� revealed McManus. In revealing the high-profile tie-up, Nooriala described ClearBank as 鈥渂est in class鈥�.
That sentiment was echoed by Simon Hamilton, MD of Nationwide for 老九品茶, when the building society became the first high street name to launch a business banking account using ClearBank鈥檚 cloud platform.
鈥淲ith those that are on leading-edge technology, it takes their developers just a few days to scaffold against our API and create that connection; when you go to the likes of Nationwide, which has 20-year-old legacy IT which is about to collapse, it is a massive challenge 鈥� it could take six to nine months of build,鈥� explained McManus.
鈥淣ationwide for 老九品茶 are now building their core banking engine on the latest technology and connecting ClearBank to it. There are a number of others that are retooling their banks in IT spend that we’ve been talking to for some time.
鈥淲e’re now moving up to bigger-scale and more complex IT projects that take 12 to 18 months to execute compared to a small FinTech that can be on [our platform] in three weeks.鈥�
Speaking to McManus, a former CFO at RBS Ulster Bank, I get the impression that the ultimate aim is for ClearBank to become the dominant underlying platform used for clearing by all financial institutions, including the high street giants.
The fact that it doesn鈥檛 offer consumer bank accounts itself can only assist that ambition. 鈥淲e want to be neutral and independent: we don’t want to compete for our customers’ customers,鈥� said McManus.
鈥淎ll financial institutions in the UK need their payments settled every day 鈥� and most of their CEOs just want it done so they can concentrate on developing their propositions and servicing their customers.
鈥淭he reality, unfortunately, is the COOs in those banks are going to them saying: 鈥業’ve got all these problems and reconciliations, I’ve got all these failed payments, I’ve got all the delays, it’s costing a load of money, it’s inefficient, it gives me nothing but grief鈥�.
鈥淎lso, if you’re a legacy bank IT, the cost of servicing a current account is about 拢70 a year. If you’re Monzo or one of the digital banks, it鈥檚 about 拢30. So if I’m going to compete in the long term, I need to get my 70 quid down 鈥� but it’s 70 quid because of the depreciation of all the crap IT that I’ve been built.
鈥淲e talk about an IT cliff edge: those financial institutions are going have to address their IT legacy stack at some point if they want to stay in business. When they do so, it gives them the opportunity to move to cloud technology.鈥�
The 100 FinTech Disrupters ranking in full
Even the challenger banks have been hit with expensive IT infrastructure bills which ClearBank could have helped them avoid, according to McManus.
鈥淚t took Metro Bank a year and 拢10m just to connect to Faster Payments,鈥� he said. 鈥淲hen we launched, Craig [Donaldson], the CEO of Metro Bank, said to me 鈥榞osh 鈥� had I known you were coming, I could have connected to your API within about six weeks. It would have cost me nothing 鈥� and connected me to all the payment schemes at once, not just one鈥�. So that gives you a view of how the world has moved on.鈥�
There is also the potential to turbocharge the UK鈥檚 economy. 鈥淭here are so many inefficiencies in terms of suppliers being paid by customers: if it was real time it would knock all of that noise, friction and delay out of the SME conversations,鈥� observed McManus. 鈥淭he survival of small businesses is all about cash flow management.鈥�
Ogden has stated that he expects ClearBank to be his third billion-pound turnover start-up. He also founded Worldpay, which was acquired in a $34bn deal earlier this year, and Voice Commerce Group, now known as CashFlows.
The fast-growing firm is in the process of establishing a bank in the Republic of Ireland to support the processing of euro currency while it has also been awarded a 拢60m grant to develop the UK business banking marketplace with Tide, another of our FinTech Disrupters.
ClearBank hopes to achieve at least eight per cent market share in the business current account market by 2023. 鈥淭he most important hire in this sector is no longer a key FX trader 鈥� it is a cloud IT developer,鈥� concluded McManus.