A well kept secret of the UK B2B banking sector, is now public. Clear Bank, a clearing Bank in the UK, is ready to compete with the four UK clearing banks,
- Barclays
- HSBC
- Lloyds
- Royal Bank of Scotland (RBS).
Clear Bank is the fifth UK clearing bank and the only one that is pure B2B since it does not offer services direct to the consumer.
Don’t confuse Clear Bank in the UK, with Clear in the US an early stage startup offering banking services to startups. Or Bank Clearly, a digital banking start-up in the Middle East similar to Moven (i.e. no banking license but offering banking services to startups by partnering with CBW Bank).
Back in the 60s there were 16 clearing banks in the UK. Consolidation in this part of transactional banking has left the UK currently with 4 clearing banks that process over 80 Trillion pounds annually worth of payments in the UK. This is a fee business for settling payments between institutions and individuals.
Clear Bank has no plans to offer services directly to consumers. Clear Bank’s value proposition is to make processing payments in the UK via systems like Bacs, Chaps etc, Faster & Cheaper.
Who cares?
Clear Bank will be helping Challenger banks to access the payment system at the Bank of England level, at the same level as incumbents.
Clear Bank will help the 44 UK Building societies offer current account services in a cost effective way. Right now, only 2 out of the 44 offer such capabilities to their members due to prohibitive costs.
Clear Bank will boost indirectly retail banking by reducing the substantially processing costs, which will facilitate competition for incumbents in the UK.
Clear Bank will help Fintechs by providing Banking as a service through the Cloud at a very low cost. Clear Bank will be offering an API so that Fintechs can interconnect to the ClearBank Fabric.
Who is behind this innovation?
Clear Bank has been built on the Microsoft Azure Cloud. I spoke to Richard Peers, Director of Financial services at MSFT in the UK, last week and he clarified the hybrid approach: “The application and business logic of Clear Bank is in the public cloud; connectivity to payment schemes and customer data is local in the private cloud.”
Clear Bank is built on the Azure public cloud and the Azure Service Fabric (hybrid approach). No need to understand the technical details here. What is important to know is that Clear Bank’s business model is in the category known as PaaS (Platform as a service). Most of us are mainly familiar with Saas. Microsoft has been working with financial services providers on various projects whose value proposition is delivered via Paas or Iaas. The infographic below captures the main differences. This is where we start understanding how the technology has lowered the cost and also how the Banking As a service offering is secure.
Clear Bank’s platform includes authentication of the parties involved using a combination of voice, biometrics and face recognition. As Richard pointed out “The Iaas is a technical model that delivers a business model that allows a different scale, agility, security, cost model.”
He also explained in clear business language about Azure Service Fabric, the micro services “kitchen” of MSFT:
“The current world has been operating with applications that are still client/server many tiered and typically needing significant engineering and testing across the full stack before they can be deployed, with huge dependencies between layers. So think about having to get everyone in a company as complex as Microsoft on board with a decision before you can act. In the microservices world, you can focus on a component, get it right and deploy without total dependency on everything else.”
My last question to Richard, was about the nature of the True innovation in Clear Bank’s case? I always thought of MSFT as a cloud computing player focused more on the Blockchain tech potential and now I realize that is has been instrumental in launching a clearing bank (we all expected blockchain to be the tech disrupting this part of the stack) that is NOT Blockchain powered?
“The true innovation is in the fundamentals of the business model and the scalability of the cloud when applied at its highest potential. Banks need to operate at real-time, based on an API model with the ability to reason over data at low cost, resiliently and securely. Their use of the cloud allows this, delivering a faster and more cost efficient model with the agility to add new services as the market moves. ClearBank provides a Banking as a Service (BaaS) model to other Financial institutions and Fintechs, allowing them to focus on their own products and core businesses. ClearBank provides the underlying banking infrastructure and software all as a service.”
On our radar screen
We will be watching Clear Bank’s role in the digitization of financial services. What microservices will be built on it, how much will the UK payment system save, how much will the global system interact through Clear Bank? Which of the multiple banking services that ClearBank offers, will prove to be the key by impacting the payment ecosystem?
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.
