Q&A: CFO of ClearBank on scaling globally

Most CFOs are treading more cautiously than usual as the current economic climate remains volatile and complex – something that shows no signs of slowing down anytime soon.

However, the uncertainty has yet to phase James Hopkinson, CFO at ClearBank, who has his sights set on expanding into new markets to help build the bank’s global presence following a recent £175m equity investment from Apax Digital.

Speaking to The CFO, Hopkinson shares his international growth plans, how he’s ensuring the finance function is strategically aligned to execute its expansion efforts, as well as how, and when, the bank will deliver its first break-even month.

Congratulations on the £175m equity investment. You mentioned the investment will help to accelerate ClearBank’s international growth, could you explain what that looks like in real terms?

Thank you – we are all very excited about the opportunities that the investment brings. The first stage in building a sustainably successful international business is to create scalable and resilient technology and a customer proposition that adds real value. Since we mobilised in the UK, we have built a significant customer base, spanning from fintechs looking for innovative technology to bring their business ideas to life to challenger banks, building societies and other more mature businesses.

Our platform now services around 1% of the UK’s faster payments volume and, through our partnership with Tide, we now provide current accounts and payments processing more than 7% of the UK’s SMEs.

Our clients are clear in their message to us: “We love your services in the UK, but we want more currencies, and we want you in our other markets.”

We have listened to our clients’ feedback and with the help of our founder investors, PPF and CFFI, and the new capital provided by Apax Digital, we are exploring the best way to accelerate our international ambitions.

We will first look to the EU, but we are also keen to build businesses in other key locations around the world, as we build out a ClearBank network spanning the key currency corridors. Our first location will be the Netherlands. We plan to apply for a banking license there, to be the home of our European bank, which will allow us to service European and cross border European countries.

How are you preparing the finance team and function so it can support ClearBank with its strategy and growth projections?

Much like the business approach to expand from solid foundations, we have applied the same with the finance and treasury function. As a bank we have invested in our talented people and have encouraged our teams and leaders to grow along with the company.

We have also invested in our core finance systems to increase our levels of straight-through automation, built a single structured data lake and visualisation tools, and have enhanced our modelling capability, enabling us to drive budgeting, forecasting and stress testing more efficiently across multiple operating entities. We have also supplemented our core team with expert support from key partners like KPMG, EY and our auditors BDO. Their focused expertise has helped augment our in-house capabilities.

Deloitte recently ranked ClearBank as the fastest growing fintech in the UK. How are you looking to ensure the growth the bank has seen in recent years is sustainable and doesn’t lose momentum?

We were delighted to be recognised as the fastest growing Fintech in the UK.  There were three key factors in earning this accolade:

One of the most attractive features of our business model is the long-term nature of our client relationships. We work extremely closely with our clients and integrate directly with their core systems and products. This ensures that they benefit from our real time, API-enabled cloud-based services and also provides a good quality annuity income stream which we can build on. Every new client sign up is therefore incremental income, transaction volume and more liquidity.

Scalability and resilience is also key for us. We have invested since inception in building our technology stack and operational processes to be able to cope with multiple times our forecasted volume. This is a continuous process of learning and development and enables us to keep the high level of customer experience we are known for and build trust with our clients and regulators

The third success factor is attracting and scaffolding up to a growing number of clients hungry for real-time client centric services from their clearing banks. We currently process around 1% of the UK’s faster payments so there is still a considerable opportunity to grow.

Our success with our early adopter clients, awards like the one from Deloitte, and the influx of capital from a high-profile investor like Apax will help to attract the next wave of clients for us to serve.

In the company’s annual report, ClearBank plans to break-even in 2022. Are you on track to reach that target?

We are very much on track, driven by strong client led growth and cost control, balanced with continuing to invest for the future. Breakeven is not the end goal – it is more of a milestone in the journey to making our vision a reality.

We have grown our income by over 100% per annum for each of the last three years including the most recent 2021 period. Our strong annuity income streams and growing transaction volumes are also being supplemented by a growing contribution from net interest income earnings. Part of our business model is unlike any other bank, as we haven’t lent out any money – no credit cards, no term loans, no mortgages.

We place all funds overnight at the Bank of England. Whilst this does reduce the opportunity for interest income on lending products, it minimises the commercial lending risk for our clients and has been an important differentiator for us as we started to operate.

As the UK base rate has climbed towards the end of 2021 and into 2022, after the initial reduction to 10 basis points in March 2020, we have started to earn more interest on our growing client balances. Whilst our income has been growing at more than 100% per annum, our costs have been well-controlled, driving strong operating leverage whilst still allowing for significant investment in our growing platform.

With the momentum in our business, increasing numbers of happy clients, and supportive shareholders we are well placed to deliver our first break-even month for our UK business in 2022.

With the Bank of England raising interest rates, what impact is that having on ClearBank’s earnings and what steps as a CFO are you taking to mitigate the impact?

The increase in UK base rates is unambiguously positive for ClearBank. We don’t have a credit book to worry about as most commercial banking CFOs would. Our stress test outcomes become less harsh in a rising rates environment as, all other things being equal, we earn more money in a higher rate environment and don’t have the credit RWA inflation factor to worry about.

It is also important to remember that the current (April 2022) Bank of England rate is still only at the same level as before the Covid-driven reductions. Market pricing does suggest that there will be further increases this year to try and combat rising inflation. It is the underlying inflation pressure which is more relevant, and this is being felt in a number of places with an outlook for rising operating costs. As a business, our focus needs to remain in the same places, serving our clients’ needs, automating our manual processes as such as possible and attracting new customers to our platform.

Much of the innovation in the fintech space has been built on top of legacy infrastructure. However, ClearBank has built its own infrastructure from the ground up. How does that differentiate you from other disruptors in the fintech space and would you describe yourself as a true challenger to existing incumbents?

I think we are probably better described as attractive partners for incumbent banks, the emerging challenger banks and other technology driven businesses in the UK. We are clearly winning market share from the incumbent banks, but we are also opening up the opportunity for innovative business models to thrive which were not facilitated by the legacy systems of UK’s larger market participants.

What is particularly exciting for the future is the fact that we already serve as the payments infrastructure to a number of the UK’s newer banks and the list is growing. We can provide specialist support and technology to drive their business and we won’t compete for their clients.

With the ever-increasing cost of development in the payments space, many business leaders are asking why they shouldn’t use the best in the market and focus their efforts on what differentiates them to their target clients. That’s what we do best, and more and more clients are working with us in this way. In theory, there is nothing stopping one of the incumbent players also using our systems and capabilities to serve their more tech-enabled clients. Bring it on!

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