More than 250 miles from the Square Mile and Canary Wharf, one bank is doing things very differently.
Atom became the UK’s first app-based bank when it launched in 2016. It is headquartered in Durham, staff have a four-day working week, and for two years the bank boasted US rapper Will.i.am as a board advisor.
Its chief executive is Mark Mullen, an Irishman who spent 25 years at HSBC, including as CEO of First Direct for three years. He departed in 2014 to set up Atom with Anthony Thomson – the Metro Bank co-founder who left after opposing its commitment to costly branches.
Speaking to City A.M., Mullen is surprisingly direct about his competitors.
“We’re the highest-rated retail bank on Trustpilot by a distance, and we’ve got a net promoter score of plus 88 – it’s massively better than the industry average, which is still below 20,” he says.
“We’re more focused. We’re not trying to be all things to all people and in the process delivering mediocrity.”
The bank offers mortgages and savings, as well as secured business lending for small and medium-sized enterprises.
It has grown rapidly, nearly doubling its customer base to 224,000 in the last financial year. The bank unveiled its first annual profit of £4m in 2023 and expects to far exceed this figure for the current financial year.
While bigger banks have been in the firing line for ramping up borrowing costs and failing to pass on the Bank of England’s base rate hikes to savers, Atom has swung to a profit by tempting customers with eye-catching deals – more than doubling its savings deposits to £6.6bn last year.
Mullen says Atom’s deposit beta – the share of rate hikes that banks pass on to interest rates on deposits – stands at 71 per cent, while the industry average languishes around 40 per cent. “Some of the big banks are in the early 20s,” he adds.
‘No rush’ to IPO
A public listing for Atom is much anticipated and would come at a time when policymakers are trying to make it more attractive for homegrown tech firms to IPO in London.
While Mullen refuses to put an exact date on it, less ambiguous is his preferred location. “We’re a UK business serving UK customers, so the most logical place we would look to list would be the UK,” he says.
“Is that a cast-iron guarantee? No. But there’s no other agenda here. We’d be too small to list in America. We’re not a business that’s operating there. But the bigger question is why would anyone, especially a banker, be in a rush to get to a public listing given the valuations?”
Despite many posting bumper profits on the back of interest rate hikes, UK banks’ shares have struggled in recent times. Analysts have blamed economic uncertainty, margin pressure and a public image that has failed to fully recover from the financial crisis.
“Most general investors don’t invest in banks, and those that do don’t value banks, so they don’t invest any more than they have to,” Mullen says.
“The banking sector has got to get to the point where it is actually self-sustaining without government subsidy and taxpayer support to make the valuations make sense.”
He adds: “We have to be patient. We have to get to the point where we’ve got a track record that people can truly hang on to.”
Investors have pumped more than £650m of equity capital into Atom since its foundation. However, its valuation took a hit last November after raising more than £100m from existing shareholders including Spanish bank BBVA and private equity firm Toscafund. The funding round valued Atom at £362m, down from £435m at the start of 2022.
“We have seen private company valuations be all over the place in the last 10 years since we started,” Mullen says. “The ones that still exist are the ones shareholders believe in, and the valuation is less important to them than the belief they have in the business.
“I’m a bit of a sceptic about private company valuations because I wonder whether it’s serving the needs of the investors or a reflection of the health of the company.”
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Shifting sands
Times are changing for the UK’s challenger banks as a wave of exits and tie-ups sweeps through the sector.
In the last few months alone, Sainsbury’s announced it would exit its core banking business, Barclays agreed to buy most of Tesco Bank, and Coventry Building Society entered exclusive talks to potentially merge with The Co-operative Bank.
Then came a big surprise this month. Nationwide struck a £2.9bn takevover deal with Richard Branson’s challenger bank Virgin Money to create the UK’s second-largest mortgage and savings provider.
“They’re almost saying it’s not possible to succeed by ourselves, so we’ll basically give up,” says Mullen. “The tier one banks are the one-stop shops, all things to all people, and they’ve all grown through M&A.
“If the market doesn’t like the tier ones, it hates the tier twos – because they’re not big enough, not powerful enough, but still pretending they can compete on all fronts with the tier ones. And they’re a dying breed if you follow the Nationwide Virgin Money logic.”
Mullen argues that Atom’s simplicity is what sets it apart from the other challengers. “You can describe us by what we don’t do more easily than what we do do,” he says.
“We don’t offer current accounts because people won’t pay for them. We don’t offer credit cards because they only work if people can’t pay their balance. If you want to make an honest buck in banking, it’s harder, but you’ve got to be more focused, and you’ve got to be more disciplined.
“The big banks are like gamblers who can’t leave money on the table. They’ll have any money they can, even if it makes no economic sense. I’ve been 35 years in the game, and I’ve worked in one the biggest of them, so it’s not like I’m second guessing how it works.”
As economists expect multiple interest rate cuts this year, lenders face squeezed margins and further pressure to lower their borrowing costs.
“Fundamentally, it’s a very simple story,” says Mullen. “Keep it simple and grow the company sustainably. Avoid bad debts, keep your costs tight and build some more products. That’s the story of Atom for the next 12 months.”