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UK neobank Kroo has expanded its partnership with compatriot banking infrastructure provider ClearBank to enable access to all UK payment schemes and accounts for its operational funds.
The announcement comes on the heels of Kroo’s procurement of a full UK banking licence from the Bank of England’s Prudential Regulation Authority (PRA) in June 2022.
ClearBank supported Kroo’s journey to becoming a fully licenced entity by creating an operational account that facilitated all payments related to the bank’s launch. Additionally, the partnership enabled Kroo to integrate with ClearBank’s API ahead of regulatory approval to build their own tech to establish the end-to-end service capabilities prior to receiving the banking licence.
According to an email statement from Kroo, it chose to work with ClearBank following a selection process because its technology was a “better fit” with Kroo’s own infrastructure.
The entire selection process took more than a year, Kroo noted, adding it was in no rush to select a partner given it had started the process long before implementation was needed. The bank declined to comment on how many participants took part in the selection process.
Kroo secured its banking licence last month, and now plans to launch a personal account expanding its capabilities beyond pre-paid digital cards. The neobank will initially make current accounts available to existing prepaid card customers, before launching them to new customers later this year.
Kroo’s launch plans are backed by the $30.6 million (£26 million) Series B funding it raised in May 2022 to support its growth and development.
The accelerated adoption of digitalisation has prompted several digital-only banks to emerge and challenge the status quo of traditional banks, attracting digital-savvy account holders in the process.
According to Insider Intelligence, by 2025, digital-only banks will have captured 51.4% of the UK’s digital banking users, almost 40% of the UK adults. In July 2022, Fiinu became the latest neobank to secure its UK banking licence, joining the ranks of Monzo, Kroo, and Starling, among others.
Another well-known fintech, Revolut, is also awaiting a decision on its UK banking licence application, having applied for it in January 2021. It has already secured a European banking license from the European Central Bank.
Revolut recently partnered with Swedish open banking platform, Tink, to use its payments initiation service (PIS) technology across its European business.
Neobanks have also begun flexing their capabilities in terms of the products and services they offer. Last year, Starling Bank acquired buy-to-let mortgage lender Fleet mortgages in a £50 million cash and share deal. The move acted as an entry point for Starling to move into the mortgage sector.
In June 2022, the challenger bank was reported to have acquired a £500 million mortgage book from Masthaven Bank following its decision to withdraw from the savings and mortgage markets.
Despite the increasing popularity and expansion of neobanks, they are not without their own challenges. According to consultant Simon-Kucher & Partners, neobanks’ growth and valuation have not translated into profitability.
In its report, The Future of Neobanking, the firm states that less than 5% of the challenger banks around the world have reached breakeven.
In the UK, the Financial Conduct Authority raised concerns over the challenger banks’ inadequate financial crime risk assessment for their customers.
In light of the findings, Sarah Pritchard, executive director, markets at the UK’s Financial Conduct Authority said, “There cannot be a trade-off between quick and easy account opening and robust financial crime controls.”
“Challenger banks should consider the findings of this review and continue enhancing their own financial crime systems to prevent harm.’
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