Ironically, according to Dima Kats, CEO of Clear Junction, banks and financial institutions are probably some of the most unbanked segments in the world.
From high fees to long settlement times, regulatory pressures to difficulty in accessing multi-country payment options, the issues and barriers facing financial institutions, banks, remittance companies, payment service providers, and crypto companies have been largely overlooked and ignored.
So, who helps the banks to bank?
Dima from Clear Junction has looked into how financial institutions can get the payment services they need so badly.
Through proprietary technology, Dima created a way to clear payments and a junction between banking partners and industries to speed up safe transaction flows – facilitating access to correspondent banking, e-money accounts, virtual IBANs, and treasury services.
During its first five Clear Junction’s revenue reportedly increased to 35 million EUR, and its revenue is forecast to increase over three times as much in the next three years. Dima also built this all without investment to allow him to focus his efforts on the business and its solutions.
Dima discusses how and why he set up Clear Junction and its differentiators. He goes over his approach to risk management – since Clear Junction operates in what is considered a very risky area of the industry.
Our conversation with Dima Kats is shared below.
Crowdfund Insider: Can you provide a brief overview of your background and what led you to establish Clear Junction?
Dima Kats: After I finished my military service in Israel in 2000, I commenced my career in fintech – this was as the industry was starting and no one knew the term ‘fintech’ yet. I joined a company called E4X, which provided FX hedging services for online global merchants. I spent about seven years there working between Israel and New York, before moving to Payoneer, which is one of the largest fintechs in the world today. I worked as VP of Product responsible for the Commonwealth of Independent States region which evolved into Payoneer’s largest market.
In 2012, I left to provide consulting services to payment, fintech and financial companies. At this point, my clients were asking me to advise them on how they could build certain payment and banking relationships. It became clear to me that they didn’t need my advice – they needed those banking services and relationships.
That’s what led to me moving to the UK and founding Clear Junction in 2016; our whole philosophy is to give financial institutions the payment services they need so badly. Our niche is correspondent banking, providing services to financial institutions, banks, remittance companies, payment service providers and crypto companies.
The reason we believe in this niche is because all these segments have been badly underserved and unbanked in recent years. It’s a funny thing to say, but banks and financial institutions are probably some of the most unbanked segments in the world.
Banks do not want to work with other banks, and they shy away from providing services to their peers because of the risk considerations. We decided that we wanted to build the right controls, the right risk management, methodology, and the technology to handle those risks properly. That’s how we provide services to those segments.
We broke even in 2019. Despite the pandemic, 2020 was a strong year for us, and 2021 was huge. Since then, we’ve been profitable and growing, and now we operate from three major offices, employing more than 120 people across the UK, Latvia and Poland.
Crowdfund Insider: How do you conduct your sales process with these institutions?
Dima Kats: There is definitely much demand, and we enjoy a nice flow of inbound leads, but we don’t want to rely solely on the inbound flow so we’re very active in going out to prospective clients. The sales process isn’t simple, though. What we do is considered a very risky area of the industry. For that reason, we must be extremely cautious when we onboard new clients.
Traditionally, banks and payment companies are conservative. Onboarding a bank is a long process. When banks get onboarded with us, we also need to go through their onboarding and vetting process. It can take months as we need to be careful. We run extremely rigorous due diligence on potential clients before we decide whether to process their transactions.
Crowdfund Insider: Moving forward, where do you see Clear Junction in one to five years from now? What strategies are you taking to future-proof your services to ensure that you can still bring new customers?
Dima Kats: The regulatory pressure on banks will only increase, which means that their appetite to serve their peers will decrease further – even as the need for correspondent banking services remains and will likely grow even stronger. Data shows that the number of correspondent accounts in the world is decreasing since banks don’t want to offer those services, even though globalisation trends mean there is more need for cross-border transactions. Hence there is a growing need for our services.
Secondly, the existing approaches for payments, and cross-border payments specifically, are undergoing some challenges, including the shift into cryptocurrencies and the convergence of crypto and fiat. We can’t ignore that. The crypto industry has been evolving for the last 10 years, but the banking community has been relatively conservative and sceptical about crypto. One of the reasons is that there are not many proven uses of crypto. As of today, the majority of crypto dealings are related to investment and speculation.
I do believe that there are some very practical uses of crypto, especially in the B2B payments world. For remittance companies, for example, there is an opportunity to incorporate stablecoins into treasury.
That is the reason we recently acquired Altalix, which specialises in crypto trading. With that acquisition we can complement our existing payment capabilities with crypto capabilities. We want to provide our clients with the ability to make and receive payments in traditional fiat ways, but also with innovative approaches to using crypto, including stablecoins for inbound and outbound payments.
I’m very pleased with how the whole acquisition process has gone so far. This is the first time we’ve acquired a company, and we’ve learned a lot through this process. It’s taken some time, it wasn’t easy, but I’m very glad we’ve done it. And now we know how to do that, we are open to doing it again if we see similar opportunity to bolster our offering for our customers. For Clear Junction at this stage, we can grow organically. But now we know we can also grow through M&A with a proven track record.
Crowdfund Insider: What are Clear Junction’s differentiators?
Dima Kats: From the start, we bootstrapped the company. We never attracted any external funding, so we had to break even pretty fast. We had to be very controlled and cautious as we couldn’t afford to make mistakes. When Clear Junction started, other fintech businesses were getting huge amounts of money, and could afford to make lots of mistakes. Now, raising money is much harder for those businesses, especially if they’re not profitable. To that extent, we are a completely different story from anything else you can see in the market.
That’s one of the reasons why we haven’t sought external funding. I fully respect people who’ve raised a lot of money from investors. But if I decided to go that way, I would need to spend more time on managing investors and arranging investment rounds for the company. I prefer being very much hands-on with the business.
We always try to do things better than our competitors. We respect them. But competition isn’t something that restricts our growth. What does predominantly restrict us is our own risk appetite. We understand that we do something that is considered very risky. We could probably grow faster if we weren’t so picky in selecting our clients and ensuring strict adherence to compliance requirements.
The only way to successfully do what we do is to have perfect risk management, so we are always working on perfecting this methodology. About one third of our company is tasked with risk management. For example, we have a large AML and compliance group and a big part of our IT team builds the systems and platforms supporting that group.
There are more companies who want to work with us and be clients of ours than we are willing to accept. We could accept more clients if we were less cautious in relation to our risk appetite. We are cautious because we want to be here for a long time. We do not want to open the doors for illegitimate players.
Crowdfund Insider: What about the wider company? Can you tell me about the team and the strategies you’ve employed to retain top talent in the industry?
Dima Kats: We really have a unique group of people here, and we have worked together for many years. In my view, the best way to fill the top positions is to develop people internally. Those placements have probably been the most successful ones for us.
When we work with a person for some time, that person understands the company, and becomes a part of the company philosophy. That makes it easier to promote a person and we find it’s more successful as opposed to bringing in outsiders. It’s been very beneficial for them and for the company. Some of the people have worked with me personally for over six or seven years, and that builds a lot of mutual trust.
More than 50% of our senior management team are women. We didn’t hire them because they were women, we hired them and kept them because they’re professionals – they just happen to be women.
Crowdfund Insider: Real-time payment systems and instant settlements are becoming increasingly important. How will they shape Clear Junction’s direction and strategies?
Dima Kats: We joined Faster Payments around five years ago, and we joined the SEPA Instant Credit Transfer scheme as soon as it became possible through our provider network. We are committed to providing those payments in real time.
When you are waiting for money, you always want it to come to you as soon as possible. When you want to buy something, when you’re waiting online for your payment to be processed, you’re not going to want to wait for even a minute.
There are opportunities for increasing efficiencies here. Merchant services traditionally has been an area dominated by the card companies, but regulators are pushing Open Banking to become a major channel in merchant services, and that will require real-time payments between the banks.
Crowdfund Insider: Looking at emerging technologies and other trends, what opportunities are there for Clear Junction? How do you see the industry evolving?
Dima Kats: AI is really sexy. I love it. There is potential for AI to be used in transaction screening as currently that process is still largely manually driven, prone to mistakes, and is still very painful for businesses. The value that AI could provide in automating and speeding up that process is tremendous. But you still need to make sure that AI solutions are reliable enough.
It’s great that you can talk to large language models, but the number of mistakes they make is alarming. With transaction screening, you can’t afford to make a single mistake. For example, mistakenly enabling a sanctioned entity to get money is just not acceptable. I’m all for adopting innovative services, but we can’t afford to make any mistakes on that.
I’m not sure we’re at the point where we can rely on those sexy technologies. We’re not there yet. I wouldn’t want to get on board a plane flown by AI yet. But in the next few years, who knows?
Crowdfund Insider: What does success look like for your clients?
Dima Kats: We provide services to institutions, but on the other side of those institutions are families who depend on those services. We provide an efficient, fast and cheap channel for payment companies to receive those remittances through the issuance of our core virtual accounts which we set up for families in the destination country, enabling people to send money home.
One of our success stories is Monobank, which is one of the largest neobanks in Ukraine, moving billions of euros in remittances to people there. We enable several payment and e-wallet companies in Africa and Turkey to receive remittance flows from Europe and the UK. Those hundreds of millions of euros and pounds in remittances go through our pipes.
Crowdfund Insider: How can you ensure that scalability and resilience of Clear Junction’s services as you onboard more customers and tap into new markets?
Dima Kats: If you want to do business for the long term, you need to start thinking ahead of time. How to do things in the right way, how to avoid risks, and how to avoid making any stupid mistakes that you will need to pay for at some point.
We decided that we wanted to adhere to the strictest security standards from the very beginning, including PCI DSS. Then we started looking for other standards to evidence that we have the right controls, so we selected the ISO 27001, which is one of the most demanding data security standards today. It’s taken us about eight months to be certified for ISO 270001 compliance. Having that standard shows our resilience and stability.
We’re always measuring our operational capabilities, and we operate at about 25% of our capacity, which means I can sleep well at night knowing that we’re not going to be halted by a significant increase in load. We can accommodate all our clients’ traffic, and we always upgrade our capacities as we increase our operations.