Coinbase partner ClearBank reports an annual profit for the primary time

ClearBank, a British financial technology company that processes payments for firms like Coinbase, posted its first full yr of profits after higher rates of interest helped fuel a 91% jump in revenue.

The company made a pre-tax profit of 18.4 million kilos ($23.3 million) within the fiscal yr ended Dec. 31, 2023, in accordance with financial reports released Thursday. That’s up from a lack of £7.1 million in 2022.

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

ClearBank’s first profit comes from nearly doubling its total revenue. ClearBank saw total revenue rise 91% year-on-year to £111.3m in 2023.

The company has benefited greatly from high rates of interest, which have led to a surge in deposits as consumers and businesses seek to get more bang for his or her buck by storing money in interest-bearing accounts.

Tide, considered one of ClearBank’s important customers within the UK, is offering a 4.33% rate of interest to its business customers, with advertisements on buses and London Underground touting the attractive offer.

ClearBank CEO Charles McManus told CNBC that the corporate was a transparent beneficiary of upper rates of interest – but was quick to emphasise that ClearBank doesn’t depend on interest income and that transaction revenue has also grown strongly.

There is “no single driver” for ClearBank’s positive performance in 2023, McManus said, adding that ClearBank benefited from a variety of things, reminiscent of its clearing business for authorized electronic money firms and growth higher bank card fees when using bank-to-bank payment services.

“We built the bank and the business model over several years,” McManus said in an interview with CNBC. “You see different aspects of this in our business areas.”

However, it’s hard to disregard the indisputable fact that higher deposits were a key driver of ClearBank’s annual performance. According to the corporate, net interest income rose 142% to £81.9m, while deposits reached £6.1bn.

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

This led to a surge in deposits at ClearBank as SVB customers searched for alternatives.

“The market [has been] “We are getting stressed on credit and banks are going bust, be it in Europe, the US or the UK. And because of the business model around cash, it’s a safe haven,” McManus said.

“Rather than just being a safe haven, cash serves as collateral for the pain programs,” McManus added. “The more payments we make, the more cash we actually need to hold as collateral for our customers for Faster Payments,” the UK system for sending instant electronic payments in sterling.

“Our customers have actually left more cash with us during these stressful periods, rather than taking on the marginal banking risk compared to Barclays,” McManus noted.

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

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

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

McManus said ClearBank is in no rush to go public, adding that it already has a significant amount of cash on its balance sheet. In 2022, ClearBank raised £175 million in a funding round led by private equity firm Apax Digital.

ClearBank’s boss said it was important for the company to complete its expansion into the US market before deciding to list. He added that a plunge in shares of Cab Payments, a U.K.-listed payments company, had made it unattractive for a company like his to opt for a stock market listing in the near future.

ClearBank is currently seeking a European Union banking license through the Dutch Central Bank. The company had hoped to have its license application completed by 2023, but now says it expects to receive its full EU banking license this year.

McManus said Brexit had played a role in the company’s fight for a banking license in the EU, with ClearBank “under plenty of scrutiny in reference to all of this.”

The UK’s decision to leave the EU has made it more difficult for British fintech firms looking to expand their activities in the bloc, as financial firms have no “passporting” rights since Britain is not any longer within the EU’s single market can offer more, allowing firms to operate a single UK license for all EU member states.