Coinbase partner ClearBank posts first full-year of profit

ClearBank, a British fintech company that runs payments for companies like Coinbase, posted its first full year of profit after rising interest rates contributed to a 91% increase in revenue.

The company achieved a pre-tax profit of £18.4 million ($23.3 million) in the financial year ending December 31, 2023, according to financial statements released on Thursday. This is up from a loss of £7.1 million in 2022.

The bank first achieved profitability on a monthly basis in November 2022. This is the first time it has published profitability on an annual basis.

ClearBank’s first profit resulted from a near doubling of its total revenue. ClearBank saw its overall revenue increase 91% year-on-year in 2023 to £111.3 million.

The company has benefited greatly from high interest rates, which have led to a rise in deposits as consumers and businesses look to get more bang for their buck by storing their cash in interest-bearing accounts.

Tide, one of ClearBank’s largest customers in the UK, offers a 4.33% interest rate to its business customers, with advertising on London Underground buses and trains promoting this impactful offer.

Charles McManus, CEO of ClearBank, told CNBC that the company was clearly benefiting from higher rates – but was quick to point out that ClearBank was not dependent on interest income and that transaction income had also increased significantly. healthy.

There is “no single driver” to ClearBank’s positive performance in 2023, McManus said, adding that ClearBank benefited from a number of factors, such as its clearing business for authorized e-money companies and the growth in the use of bank-to-bank payment services in the context of higher credit card fees.

“We built the bank and the business model over several years,” McManus told CNBC in an interview. “You see flavors of it in all of our business areas.”

However, it’s hard to avoid the fact that increased deposits were a key driver of ClearBank’s performance for the year. The company says net interest income rose 142% to £81.9 million as deposits reached £6.1 billion.

A key driver of ClearBank’s deposit growth last year was the collapse of Silicon Valley Bank, a key bank used by fintech startups and venture capitalists. Silicon Valley Bank’s UK division, HSBC UK Bank, has been bought by British banking giant HSBC for £1 and renamed HSBC Innovation Banking.

This led to an increase in deposits for ClearBank as SVB customers looked for alternatives.

“The market (has been) under credit stress and banks are going bankrupt, whether in Europe, the US or the UK. And because of the cash-based business model, those -these constitute a safe haven,” he added. » said McManus.

“Rather than just being a safe haven, cash is collateral for pain plans,” McManus added. “The more payments we make, the more cash we need to hold as collateral for our customers for faster payments,” which is the UK’s system for sending electronic payments in British pounds in an instant.

“Our customers actually left us with more cash rather than taking on fractional banking risk relative to Barclays during these stressed times,” McManus noted.

Founded in 2015, ClearBank is a regulated clearing bank and payment institution in the United Kingdom. It provides banking services to companies such as Coinbase, as well as other fintechs such as savings apps Chip and Raisin and merchant banking startup Tide.

All funds stored in ClearBank accounts are held at the Bank of England, meaning customers holding their money with companies using ClearBank technology can benefit from high returns on their cash.

ClearBank recorded gross fee income of £31.4 million for the full year, with the recurring platform a key driver. Integrated banking end customers, or customers of ClearBank’s customers, grew 93% year over year to 1.2 million.

McManus said ClearBank was in no rush to pursue an IPO, adding that it already had a substantial amount of cash on its balance sheet. In 2022, ClearBank raised £175 million in a funding round led by private equity firm Apax Digital.

The head of ClearBank said it was important for the company to complete its expansion into the US market before deciding on a public listing. He added that a fall in shares of Cab Payments, a UK-listed payments company, made it unattractive for a company like his to decide on a short-term listing.

ClearBank is currently seeking a European Union banking license through the Dutch central bank. The company had hoped to have its license application finalized by 2023, but now says it hopes to obtain its full European banking license later this year.

McManus said Brexit played a role in the company’s struggle to obtain a banking license in the EU, as ClearBank is being “scrutinized very closely in relation to all of this”.

The UK’s decision to leave the EU has made it more difficult for British fintech companies looking to expand their operations in the bloc, as Britain is no longer a member of the EU single market, Financial firms can no longer offer ‘passporting’ rights which allow businesses to operate a single UK license across all EU member states.