UK's new clearing bank unveils model

BI Intelligence

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Although the UK boasts one of the world's most fintech-friendly regulatory environments, its financial services industry has struggled to boost competition in some areas.

In particular, the clearing bank market has been dominated by just four players — Barclays, HSBC, Lloyds Group, and RBS. However, a new entrant may be set to change this: ClearBank — which was recently authorized as the UK's fifth clearing bank — revealed on Tuesday the details of its operating model, Business Insider reports. Clearing banks are authorized to move money between organizations (e.g. other banks) and individuals via UK payments systems like Faster Payments and Bacs.

And while other banks have achieved clearing status through acquisition by incumbents over the past few decades, ClearBank claims to be the first purpose-built clearing bank in centuries. It plans to open for business by fall 2017.

The company claims it will boost competition in the financial services market. ClearBank says it differs from other challenger banks in that it won't offer banking products directly to consumers. Instead, it will enable other players like digital banks, building societies, and credit unions to more easily launch such products — including current accounts, money transfers, and credit cards — for their customers.

Providing banking services requires firms to connect to existing payments systems, a costly endeavor for players using legacy IT infrastructures, or those struggling to scale due to limited resources. ClearBank aims to address this problem with its cloud-based technology platform, which leverages Microsoft's Azure, and by establishing an open application program interface (API). This will enable it to offer easy, direct access to payments systems for its customers. Moreover, ClearBank is the first and only UK clearing bank authorized to connect to all of the payments systems in the country. Ultimately, the company says, by allowing smaller players to offer more services to consumers, it will promote competition and lower prices in the financial market.

This is likely to prove a major boon to the UK's increasing number of challenger banks. While the UK is the undisputed leader when it comes to challenger bank numbers, many of these new players are struggling to differentiate from each other, diversify their product suites, and therefore onboard customers and monetize. By making it cheaper for challenger banks to launch profit-generating services such as overdrafts (via current accounts), and by reducing the time it takes to bring these products to market, ClearBank will solve a major pain point. Going forward, the firm is likely to see high demand for its services; and we might even see more challenger banks achieve profitability.

The growth of challenger banksis yet another indicator that we’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs. No firm is immune from the coming disruption and every company must have a strategy to harness the powerful advantages of the new fintech revolution.

The battle already underway will create surprising winners and stunned losers among some of the most powerful names in the financial world: The most contentious conflicts (and partnerships) will be between startups that are completely reengineering decades-old practices, traditional power players who are furiously trying to adapt with their own innovations, and total disruption of established technology & processes:

• Traditional Retail Banks vs. Online-Only Banks: Traditional retail banks provide a valuable service, but online-only banks can offer many of the same services with higher rates and lower fees

• Traditional Lenders vs. Peer-to-Peer Marketplaces: P2P lending marketplaces are growing much faster than traditional lenders—only time will tell if the banks strategy of creating their own small loan networks will be successful

• Traditional Asset Managers vs. Robo Advisors: Robo advisors like Betterment offer lower fees, lower minimums and solid returns to investors, but the much larger traditional asset managers are creating their own robo-products while providing the kind of handholding that high net worth clients are willing to pay handsomely for.

As you can see, this very fluid environment is creating winners and losers before your eyes…and it’s also creating the potential for new cost savings or growth opportunities for both you and your company.

After months of researching and reporting this important trend, Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has put together an essential report on the fintech ecosystem that explains the new landscape, identifies the ripest areas for disruption, and highlights the some of the most exciting new companies. These new players have the potential to become the next Visa, Paypal or Charles Schwab because they have the potential to transform important areas of the financial services industry like:

• Retail banking

• Lending and Financing

• Payments and Transfers
• 
Wealth and Asset Management

• Markets and Exchanges

• Insurance

• Blockchain Transactions


If you work in any of these sectors, it’s important for you to understand how the fintech revolution will change your business and possibly even your career. And if you’re employed in any part of the digital economy, you’ll want to know how you can exploit these new technologies to make your employer more efficient, flexible and profitable.

Among the big picture insights you'll get from The Fintech Ecosystem Report: Measuring the effects of technology on the entire financial services industry:

• Fintech investment continues to grow. After landing at $19 billion in total in 2015, global fintech funding had already reached $15 billion by mid-August 2016.
• The areas of fintech attracting media and investor attention are changing. Insurtech, robo advisors, and digital-only banks are only a few of the segments making waves. B2B fintechs are also playing an increasingly prominent role in the ecosystem. 
• It's not all good news for fintechs. Major hurdles, including customer acquisition and profitability, remain. As a result, many are becoming more willing to enter partnerships and adjust their business models. 
• Incumbents are enacting strategies to ensure they remain relevant. Many financial firms have woken up to the threat posed by fintechs and are implementing innovation strategies to stave off disruption. The majority of these strategies involve some interaction with fintech firms. 
• The relationship between incumbents and fintechs continues to evolve. Fintechs are no longer viewed exclusively as a threat, nor can they be ignored. They are increasingly viewed as partners, but that narrative alone is too simple — in reality, a more nuanced connection is taking hold. 

This exclusive report also:

• Assesses the state of the fintech industry. 
• Gives details on the drivers of its growth. 
• Explains which areas of fintech are gaining traction. 
• Outlines the range of current and potential models for fintech and incumbent interaction. 

The Fintech Ecosystem Report: Measuring the effects of technology on the entire financial services industry is how you get the full story on the fintech revolution.

To get your copy of this invaluable guide to the fintech revolution, choose one of these options:

1. Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
2. Purchase the report and download it immediately from our research store. >> BUY THE REPORT

The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of the fast-moving world of financial technology.