Why Moving Faster Starts With Slowing Down | ClearBank’s Emma Hagan

Speaker A: Even if you have unlimited funds, it doesn't make everything the right investment choice. Does it advance or does it help us achieve our, uh, big strategy, our uh, big goal, our big vision or objectives? Is it something our clients want? And then is it either profitable or does it help achieve some aim financially for us?

Speaker B: What do you see as sort of pros and cons of self propelled growth versus going back to the market and raising more capital?

Speaker A: Raising a new round is delective. If you're looking at whether you want to raise a new round, is there something transformational we want to do that, we could accelerate with that or not. And it would be worse doing the extra fundraise because we've got a really clear use for it that would deliver the returns that would make it meaningful to the business. Like, would it 10x the growth or 10x sustainability or 10x the reach?

Speaker B: This is the London Fintech podcast, bringing you practical insights and approaches, stories and inspiration from the innovators who are building the new world of financial services. Every leader listening has something waiting for approval. A product, a market, a partnership. And many of us tell ourselves the regulator is the reason it is slow. My guest today spent her earlier career as the person who said not yet. Emma M. Hagan was Chief Risk and Compliance Officer at ClearBank, the UK clearing bank that launched in 2017. Now she is its UK chief executive and she has to make it go fast. Emma, welcome.

Speaker A: Thank you. Uh, great to be here.

Speaker B: So you used to be the Chief Risk Officer, now you run the place, or at least run the uk. What do you see differently about growth, perhaps, ah, from when you were in the risk seat?

Speaker A: I think a lot of it is just different angles on the same issue. And I think part of this, um, certainly for me, in looking at joining Clearbank in the first place, as you say, originally as the Chief Risk and Compliance officer, I think if you join that kind of environment, I think you are the kind of risk professional that enjoys growth, um, because that's the environment you're walking into. So I look at it as kind of two sides of the same coin, which is a lot of people focus very heavily on the risk role, being about controls and the not yets and how can we, um, minimize or mitigate risk. So there's a flip side to great risk management, which is really how do we support the strategic objectives of the organization? So how do we grow safely and sustainably? Also how do we support that? Find ways of doing it in a way that would help, um, us achieve our aims and so if you like moving to the CEO role, it was a lot of using the same things that I was talking about focused on before, but now looking at how can I use that, some of that knowledge and insight that I've gained over that time to actually look for the opportunities as well, more proactively rather than kind of looking more internally focused and certainly part of the role I've enjoyed a lot. But I think the broad angle of risk roles prepares you actually quite well for CEO roles, ironically.

Speaker B: Yeah, I like that. Sort of risk management, governance and controls as an enabler.

Speaker A: Absolutely, yeah.

Speaker B: So when ClearBank wants to launch something new, what actually takes the longest?

Speaker A: I think it varies. Um, I've seen and I think one of the exciting things, and again, particularly at ClearBank, and particularly if you work in a fintech is sometimes you're doing something really innovative. And so the thing that can hold you back is that no one really knows how to do the thing that you're trying to create. And that's a good and a bad thing. And it's good in that you're forging a new path. And so to some extent you're trying to work out how to, how to launch this thing. And it's a lot of collaboration across the company and on the other hand there isn't a blueprint you can follow. Um, so the area where you're figuring it out, you're talking to people, you're asking questions, you're trying to see where it could go wrong, where the opportunity is, that takes a lot more time when you're in the kind of pure innovation space. Um, I think kind of looking at things where you're launching, uh, in areas where maybe there is a trodden path. I think the thing I've seen historically that can slow you down the most is when you need a certain expertise or skill set and you haven't got it internally, particularly if you're going in a new area because you don't know what you don't know. And you want to make sure that you're building that in a sustainable way. And having someone or a group of people who really knows that space very well to me is kind of what often helps you go faster at the outset and also kind of stops it from getting in the way because you find a last minute problem that you could have anticipated had we had that expertise and apps.

Speaker B: It's interesting because, you know, on the conference circuit there's so much we're all talking about automation and AI and oftentimes the panel discussions Boil it back. And it's, it's a lack of skills and it's a lack of human capability or it's a boring old change management and transformation which is uh, which is the bottleneck which I think is sort of kind of where you were going with that. But you also mentioned innovation versus um, well understood and uh, predefined pathways. And where would you put yourself on that spectrum for ClearBank?

Speaker A: I think we do both. So a lot of what we do and the way we started it um, back in 2017 was doing something that's well understood but in a completely different way. Um, so we started on the premise that there hadn't been a nuclear bank for over 250 years. And it's a really critical part of the infrastructure that often goes unseen because it's the gateway into payments and accounts and you need to be a direct member of those, what are quite traditional payment schemes um, and have been around mostly for quite a while, um, in order to be able to process payments. And that's been in existence for quite a while. We've added new payment rails like faster payments over time. What we were looking at was how can we do that better, how can we do it faster, more scalably, more resilience and control built in. And we did it via what was at the time again relatively new API first cloud native. So kind of use technology as a real enabler to deliver something that was truly differentiated in the market but actually combining what I'll call um, an innovative approach to delivery but with actually quite traditional, well understood sort of payment Rails. Um, and I think we do, we, we do a lot of those things at both ends because there is a core set of things that people are looking for market. But also we were founded on the premise of innovating and trying to support innovative areas of the market. And um, I'd say I quite like both. I probably on a personal level really enjoy the innovation part more because it's really exciting to see the direction that we could be going in in a few years if we're really investing and embracing that innovation.

Speaker B: Yeah, and I think this is true really for uh, very many financial institutions across the sector. Of course you're innovating in a highly regulated environment so you have to strike that balance. Uh, and I think I noted that ClearBank's been around since 2017. So no, you're coming up on the 10 year anniversary and the organization has grown very significantly. I think something like uh, is it 17 billion of deposits uh, on the platform now? So what sort of things are you bringing to market now perhaps versus what, what uh, you were doing at the beginning when you were truly coming up with well hey, let's um, let's sort of democratize the clearing and the payments capability uh, for the market and perhaps you were really uh, bringing some new models to market. Is that, do you feel that's still the case now or is it more about um, scaling out?

Speaker A: I think it's definitely both. So we definitely, I think from a, we uh, call it our clearing business. So that core clearing which is providing the indirect access to, to banks, building societies, newie money firms, payment firms, um, wealth pensions, that direct access to clearing accounts, that's still very much a uh, core part of our model where we are scaling, adding new features and functionality to support our client base. We have over 280 clients today. From that kind of standing start all those years ago, um, that's definitely a core part of our business. We're also engaging quite a lot in um, the uh, payment vision work for exactly the same reason because it's such a core part of what we do. I think if we go back probably not that long after launch, one of the things we did quite early on was work out. There was a bit of a gap in the market for as you talked about the regulatory side of it, it's quite hard work being a bank, um, because there is a lot that you have to do for all good reason because of your role in the, in financial services and in the economy. And one of the innovative things we did early on was we launched um, embedded bankings where we partner up with a non bank, typically an EMI or a payment institution. And we embed and partner together to embed a bank account into their front end so they can compete effectively with their proposition in the market against traditional banks. And what that does is opens up competition, provides more choice to consumers and SMEs and combines what a EMI or a payment firm does really well with what we do really well, which is accounts and banking and resiliency and access. And that was something we started and it's really taken off. We're now looking from an innovation perspective in a number of different areas which we talk about quite a bit, but including we started this last year launching corporate embedded banking. So again the same premise but with corporates, um, and we've got a couple. We announced partnership with Pay Captain um, last year. Again how do we deliver great um, payroll workplace savings solutions through Pay Captain and Clearbank together. So again how can we embed Financial services reduce friction for users, have that real time payment experience that's integrated as part ah of the user journey with the corporate. So that's one area of innovation. We are also working quite a lot and we launched in um, our EU bank this year because that's been another area of growth for us in terms of expansion to the eu, um, things like digital assets and stablecoins, um, and tokenized deposits and really looking at that interoperability part and again how we can support uh, those kind of new forms of transfers of value um because they're being increasingly adopted uh, in kind of cross border and wholesale. So we're kind of constantly keeping kind of one eye on what made us famous if you like today. But also what is the market, what's the um, fintech arena looking like in the future and again how can we support and be innovative in that space too?

Speaker B: Yeah and you talked about um, staying close to the regulator and being part of that and I think you sit on the retail banking um, industry board and so you're essentially in that and I believe there's actually a formal scale up unit that, and you're in the first cohort uh, so you're right at the uh, sort of the front of the innovation cycle that's being supported directly by the regulators. What does that scale up unit comprise? Um, and how does that uh, how does that help you go faster?

Speaker A: So uh, we were huge advocates of the scale up unit and we'd been talking to the FCA and PRA for quite a while and I think part of it was born from the challenge of when companies and financial services companies they go through the authorization process and you have an awful lot of engagement through that process because you are talking every day to the regulators about how you're going to do something, what your product looks like. Um, but you've got the right people, you've got the right controls, you've got the right technology and you do all of that work and go through and get your authorization and you're in then startup phase and you're still building out, you're getting clients for the first time. But then what we were finding, and particularly again because we work with so many companies um, in that space we, we had a real understanding for what, what was lacking and in conversations with many of our partners, clients, et cetera was when you're in the scale up uh, there wasn't that support wasn't there. So you were kind of past the sort of early phases of client adoption and kind of doing the Working uh, out the nits in your tech or your processes or your product. And then you were trying to scale rapidly as most fintechs want to do and there wasn't the same level of support there. So the scale up unit was founded um, and we're really thankful that it was to really help bridge the gap between startup uh, and major institutions um, for those fast growing firms because obviously what we want is a thriving UK fintech scene and we want all of those great challenger banks, fintechs to grow up and be the Barclays of the HSBCs, the world in the future. So they're kind of next wave of real competition market. Um, and so for us that really is there to support understanding um, regulatory change, to be able to get support and access to, for tailored advice, specialist advice that's really particular to fast growing fintechs. And so that's been a big part of kind of, I'll call it closing the scale up desert that existed before. And then as you mentioned, the retail payment infrastructure when again when we look ahead there's, there is um, the national payments vision and a huge kind of desire and momentum now behind delivering kind of next generation as infrastructure. Um, and again because we are a clearing bank and because we work with so many fintechs and financial services companies we see that again is really critical in delivering that vision. And so again kind of for me personally it was very important that we are there in the room. And I think it's a great group of people. Uh, you can see it's a real mix of traditional fintech, challenger bank and I think that kind of collective community hopefully will then come together to help support the delivery of that vision for the uk.

Speaker B: And with the scale up unit, is that time bound? Are you on the program for certain amount of time? You get access to sort of uh, um, advice and guidance directly from the regulators for a period of time or is that a perpetual thing? And if there are folks listening to this saying oh I wasn't in that first cohort, maybe that's something we should be doing. Does it come around again?

Speaker A: Yes, there have been um, subsequent cohorts uh, are being invited in and again it's a little bit like the Sandbox initiative that was launched a number of years ago. I think it's really great to see the FCA and the PRA so active in supporting new innovation in the market. And so I think for us, much like the Sandbox, it really took off and we saw other markets actually starting to copy the FCA's approach to that in terms of supporting and providing a safer environment for, for innovations and new products and new technologies to do tests and learn. I think the scale up unit again very much in kind of in a similar vein and so if anyone is kind of like post startup I'll call it and thinking this is actually really tough scaling uh, because it is, it's very tough but um, it's so worthwhile. I think the FCA scale up unit is a great thing to try to get into because it also gets you a community of like minded people that are going through exactly the same challenges that you are. And again there's a lot to be learned through comparing stories, sharing ideas and thoughts on how to make sure that those cohorts of those fast growing companies really do deliver on the vision and the objective um, that they were set up to do.

Speaker B: I was going to ask you about fundraising. So again if I'm right, I believe last time Clearbank did a raise was in 2022 and you've been um, trading profitably for the last three years. So you're, you're self propelled in your growth journey at the moment. And I'm curious, what do you see as sort of pros and cons of self uh, propelled growth versus going back to the market and raising more capital to perhaps go faster?

Speaker A: Yeah, I think um, I think it depends what, what you're looking to. Our goal was always become as self sustaining as early as possible um because we wanted to make sure we had a really strong foundation for growth and we from a UK bank perspective that got us our investment grade credit rating. So it was a really solid foundation. Um, and again particularly for us when we're also looking at launching the EU bank, showing a profitable business model was an important uh, proof point to our uh, EU regulators that this could work. Um, and it was scalable. So I think for us it was really, really really important. I think for you know, for there's pros and cons obviously raising a new round, um, dilutes is deletive and so I think you've got, if you're looking at whether you want to raise a new round I think for us it'd be is there something transformational we want to do that we could, we could accelerate with that or not. Um, and it would be worth uh, kind of doing the extra fundraise for that because we've got a really clear use for it that would deliver the returns that would make it meaningful to the business. Like would it 10x the growth or 10x the scalability or 10x the reach, um, versus, uh, we are profitable. We enjoy, um, being able to use that profit also to invest in our business. And that's been very good for us to date. And it works really well. But it was always our goal to be able to generate organic profit so that we could invest that for future growth.

Speaker B: And when you're making those investment decisions, and this is true when you're doing a raise and also, uh, thereafter, you know, when you're um, assigning funds to particular initiatives, other things that you've, you've looked at, you've just chosen not to invest in.

Speaker A: Absolutely right. And even if we had, even if you, even if you have unlimited funds, it doesn't make everything the right investment choice. Um, as you'll know, it's kind of being selective both in terms of does it advance or does it help us achieve our, ah, big strategy, our uh, big goal, our big vision or objectives, does it contribute to that? Um, is it something our clients want? So is it something that's meaningful to the areas that we serve? Um, and then also is it kind of like either profitable or does it help achieve some kind of aim financially for us that is meaningful enough to us? And we kind of look through those lenses. So there's been plenty of, um, things that maybe are good ideas on paper, and we've looked at it through those lenses and it just doesn't make sense for us to do it through any one of the three lenses either. It's kind of a little bit of a distraction strategically or financially. It doesn't kind of stack up in terms of other opportunities because it can be that it's not a bad idea. But you know, again, there's, there's more, there's more, there's stronger investment cases that we absolutely have to do that. I think the kind of pro is we've got more opportunity, um, than we could wish for. The con is you have to make some difficult choices along the way because you can't do everything. And even if funds are unlimited, you still got capacity and amount of change an organization can consume. And again, we have to look at that lens as well.

Speaker B: Yeah, um, it's familiar. It's surprising how quickly the inbox fills up and how many sort of great ideas hit the desk. But. And I interviewed someone, uh, earlier in the summer at one of the insurance conferences and asked him what his one takeaway was for the audience. And he just said, focus.

Speaker A: Absolutely, absolutely. Very easy to get distracted and you end up somewhere didn't plan to be.

Speaker B: Yeah, indeed. Um, so at the time of this recording, uh, in the research I understood that uh, there are a few things you're working on. Is there anything that you know, we can share that's coming next from Clearbank that you can talk about?

Speaker A: Uh, we have got some um, pretty exciting client launches coming up. Uh, both in the, a lot in, both in the clearing space but also particularly in our embedded banking space. I touched on the corporate side and obviously our regulated um, embedded banking. So we've got some exciting things coming up in that area. We've been busy working away for the last number of months on that and we've gone through. We've got a very healthy pipeline on that side too. And it actually, the really exciting part is when you see a client's vision come to life through the partnership. And I think that that is where we've got, we've got some things coming up that are for us and both they tick all the boxes, they're innovative, they're great partnerships with really interesting companies. Um, and they're a core part for us of what we were trying to achieve strategically. So we've got some exciting things there. We've got uh, product launches going on. We launched um, our UK SEPA product earlier this year and we're kind of looking at more functionality um, coming up for that again to support the cross border piece. And for us particularly on the UK side, um, again stablecoin and digital asset is something we're still working quite heavily on. So there's the um, new regulatory rules that are coming in around that. Um, pretty soon the window opens for authorizations and I know a lot of digital asset companies, crypto companies are getting ready for that and we're looking at that as kind of what are the opportunities for peer bank or what does that market need from us to be able to support it?

Speaker B: Interesting. I've actually got the FCA in a month's time coming on to talk about literally that, about the uh, um, digital assets and M Payments, um, roadmap and uh, what's coming. Um, so there's a gateway that opens shortly and a lot of firms lining up. So that's a different conversation. But what are you looking at in the digital asset space? This is as Money 2020 called it, the grand convergence. I like to call it the great rewiring of tradfi and DeFi and stablecoin and uh, token asset infrastructures coming together with established institutions. And you are not one of those um, centuries old incumbents. So I guess you have an agility advantage. But there's uh, lots of directions where you can go in the digital assets arena. And what are you looking at at the moment?

Speaker A: What we've seen on the stablecoin regime has been very helpful and again we've been, we've been quite active in talking about the need for it because the certainty gives people the guardrails, they know they can operate and no one wants to start something knowing that they it may not be workable in the future. We are looking at uh, primarily and we've always um, from a firm perspective sat as an infrastructure place. What does the infrastructure for stablecoming look like? Um we joined the Circle uh, uh payments network. Um I think it was earlier this year, maybe last year and uh, we've obviously been working on that in Europe. I think we'd love uh to be able now with that kind of stable coin, those new regulatory rules coming in to be able to um, move that forward in the UK um because there is a huge demand. We do do a lot of work with crypto companies today for Fiat on, off Rails. Um and again because for us and um what we hear from the market is people want a stable banking partner, somebody that doesn't dip in and out of the market and provide something that is a good tech experience real time. And we've been doing that pretty much since we launched. So we are looking at how do we. We um, can hold. Obviously you'd see it back in assets today but what else do our clients needs and as we've done some investment in our technology platform in readiness and we're pretty hopeful that there'll be something meaningful um as part of Circle Payments Network but also just from a stablecoin and supporting all of those business models that are going through that authorization process

Speaker B: very important and I sort of anchored this conversation about how do you go faster in a regulated environment so just sort of bringing it back. Um and you from the industry bodies that you sit on and the clients that you deal with, you get I think a good vantage point across the sector. Um what do you think folks out there in other firms perhaps might be overestimating about uh the regulatory obstacles or how regulation uh might uh, might be slowing down their progress.

Speaker A: I think there's, there's probably, there's probably two areas I think probably the ones that I would say I see the most. One is um, when. Whenever we get regulatory change and obviously there's always a change program going on on some description. I think one of the areas um, a lot of people Focus on is, I'll call it getting over the line on the compliance aspect of it, which often results in a bolt on of regulation. So you take what you do and you add more stuff in and I think the challenge for that is it over time it hurts your scalability. Um, but it also means that you lose an opportunity to rethink that process because the regulatory change is typically aiming at something and so it's a good time to relook at that process. And I think that can deliver the perception of more regulatory complexity than they're needed to be. And understandably because people are looking at the goal. Um, and I think the other part is um, thinking about rather than, I'll call it a tick box process is what's the objective. And I think there is real openness and particularly obviously through consultation periods but generally with the PRA and FCA I think we found them really open to a different way of doing things and we obviously have been innovating for 10 years in the UK and that has required a lot of collaboration as I've touched on with the PRA and fca. And sometimes there is a kind of presumption that the answer is no or a presumption it has to be done one way. Um, and that doesn't always hold true um, because business models are different ways of doing things, are different and if you can demonstrate that you are doing all the right things in a safe and controlled way, there might be another way. Um, and I think people think that has to be done one way or another way and that they can't engage proactively and I think that isn't always true.

Speaker B: Yeah, sort of approach and attitude then coming through there. So if you treat it as a box tick for what we might term sort of minimum viable compliance. So I've ticked the box. You're missing an opportunity to re engineer a workflow or um, you know, uh, strengthen a capability or a feature that you could do with the regulator. So on that uh, uh, approach that we're all in the same canoe and we're trying to solve for the same things which is uh, protecting the customers and uh, delivering more value and doing in a risk free way then I can see that sort of uh, you know you're sort of uh, compounding the creative capabilities uh, with the regulator in the uh, in the team as well. So I really like that. Um, and that's what the cohorts are all about. But so given that sort of broad um, approach pivot, is there anything practical that you'd say to anyone out there who's sort of struggling with uh, regulatory sign offs at the moment, is there anything that you'd. Would be your number one sort of top tip for this is something you could do on Monday when you get back to the office that just might help you and find a way forward.

Speaker A: So I think anticipating the question up front but also focusing on the objective and not the rule. Um, because there's an objective and I think if you're going through for example an authorization process and there are lots of questions coming on a particular topic from the prn, FCA or one or either of them, usually it's because you haven't, it could be because you haven't explained something clearly enough. Um, and actually there might be value in um, getting a call in to try to get everyone aligned around what it is that you're talking about. So common ground. Um, or it could be that you, um, I'll call it, the hint is that you just haven't quite answered the question. Um, I think thinking about that objective that you're trying to achieve rather than. I've answered that question directly but I haven't thought about what's behind it. Um, I think that that typically for me is kind of the thing that will hopefully accelerate the progress a lot faster than just answering the question or assuming that everyone knows or understands but has the same understanding with Gigi.

Speaker B: Yeah. So getting on the front foot. Okay, so we're going to run out of time shortly but uh, just taking all of that and your experience uh, so far in your career, is there anything that you would uh, you wish you knew at the beginning? So sort of you wound back to yourself when you were starting out that you'd like to share with the audience.

Speaker A: I think the thing that for me was the biggest learning was um, asking lots of questions but not being afraid to ask all the follow on questions to really, really deeply understand something that then you can reuse it down the line. Um, and I think particularly when you're working and you are working on innovation and you are trying to scale up quickly. Uh, however the understanding and the deep understanding of that usually helps you apply something practically from prior experience that doesn't look immediately applicable. But also that kind of deep understanding of something stands you in good stead when you're engaging with regulators or talking

Speaker B: to investors and it surfaces so many different formats and forums. If you go really deep and you really understand what you're doing, then that's um, sort of the foundation that you can build everything on. Yeah, I like that. Like that. Okay, well, thank you so much for coming on the show and talking to us, and, uh, best of luck with everything ahead for Clearbank.

Speaker A: Thank you.