Coinbase partner ClearBank posts first full-year profit

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ClearBank CEO Charles McManus speaks at the Innovate Finance Global Summit in April 2023.

Chris Ratcliffe | Bloomberg | getty images

ClearBank, a British fintech firm that provides payments to companies like Coinbase, posted its first full-year profit after higher interest rates helped drive a 91% rise in revenue.

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

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

Clearbank’s first profit comes as its total income almost doubled. Clearbank’s total revenue is expected to increase by 91% year-on-year to £111.3 million in 2023.

The company benefited heavily from higher interest rates, which led to an increase in deposits as consumers and businesses looked to get more for their money by depositing cash in interest-bearing accounts.

Tide, one of Clearbank’s key clients in the UK, is offering a 4.33% interest rate to its business customers, with the attractive offer being promoted on buses and London Underground trains.

ClearBank CEO Charles McManus told CNBC that the company was a clear beneficiary of the higher rates — but he was quick to emphasize that ClearBank is not dependent on interest income and transaction revenue is also growing well.

While there was “no single driver” of ClearBank’s positive performance in 2023, McManus said, ClearBank benefited from several things, such as its clearing business for authorized electronic money firms and increased use of bank-to-bank payment services. . High credit card fees.

“We’ve built the bank and the business model over many years,” McManus told CNBC in an interview. “You’re seeing flavors of it in our business lines.”

excess deposit

However, it is hard to escape the fact that higher deposits were the key driver of Clearbank’s performance for the year. The firm says net interest income rose 142% to £81.9 million, as deposits reached £6.1 billion.

A major driver of deposit growth for ClearBank last year was the collapse of Silicon Valley Bank, the dominant bank used by fintech startups and venture capitalists. HSBC UK Bank, the UK ring-fenced division of Silicon Valley Bank, was Bought by British banking giant HSBC for £1 and renamed HSBC Innovation Banking.

This led to an increase in Clearbank’s deposits, as SVB customers fled in search of alternatives.

“Market [has been] There’s stress with respect to credit, and banks going bankrupt, whether it’s Europe, the US, or concerns in the UK and because of the business model with respect to cash, it’s a safe haven,” McManus said.

“Instead of just being a safe haven, cash is collateral for distress schemes,” McManus said. “The more payments we make, the more cash we need to hold as collateral for faster payments to our customers,” which is part of the UK’s plan to send electronic, sterling payments instantly.

“Our clients have actually left us with more cash rather than taking on fractional banking risk relative to Barclays during those stress periods,” McManus said.

Established in 2015, Clearbank is a regulated clearing bank and payments institution in the UK. It provides banking services to Coinbase as well as other fintechs like savings app Chip and Raisin and business banking startup Tide.

All funds stored in Clearbank accounts are held at the Bank of England, meaning customers who hold their money with firms powered by Clearbank’s technology can benefit from higher yields on their cash.

Clearbank recorded gross fee income of £31.4 million for the full year, with the recurring platform being a key driver. The number of embedded banking end-customers, or ClearBank, customers grew 93% year over year to 1.2 million.

There is no rush for an IPO

McManus said ClearBank is in no rush to have an initial public offering, adding that it already has ample cash on its balance sheet. In 2022, Clearbank raised £175 million in a financing round led by private equity firm Apax Digital.

The Clearbank chief said it is important that the company completes its expansion into the US market before deciding on a public listing. He said the fall in shares of UK-listed payments company Cab Payments has made it unattractive for a company like his to decide on a listing in the near term.

Clearbank is currently attempting to obtain an EU banking license through the Dutch central bank. The company had hoped to complete its license application by 2023, but now says it expects to receive its full EU banking license later this year.

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

Britain’s decision to leave the European Union has made it harder for British fintech firms to expand operations in the bloc, as Britain is no longer in the EU’s single market, financial firms can no longer offer “passporting” rights that Allow companies to operate. Single UK license in all EU member states.

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