Up and Atom: How the Durham-based digital bank is taking on the high street stalwarts
Lending, according to Atom Bank boss Mark Mullen, is back in vogue. While it’s a view that might run counter to some of the political disquiet towards Britain’s big high street lenders, for Durham-based digital lender Atom, it’s hard to argue with.
The firm has tempted in hordes of customers this year and is on the cusp of reporting its first 12 months of profitability in March, all while making headlines throughout the year for a forward-thinking four day working week. Still, Mullen tells Morning Wire, 2022 was by no means a walk in the park.
“It’s been a very, shall we say, interesting, challenging, unpredictable world. And it is not likely to become stable anytime soon,” he says. “At least not [in] the way we used to think of.”
But Atom, founded in 2014 by Anthony Thomson, co-founder of Metro Bank, and Mullen, a former senior exec at HSBC and First Direct, has to some extent been shaped by volatility.
‘Turbulent and uncertain world‘
The branchless digital lender won its full unrestricted banking licence on the day the UK voted to leave the EU in 2016 and has been forced to navigate the “Brexit shambles” and “one crisis after another” since then, Mullen says.
But the bank has undeniably benefited from the more tumultuous economic backdrop the UK currently finds itself in.
While the fintech sector has been rocked by a downturn as investors sour on loss-making high-growth startups and bosses force through layoffs, Atom – like some of its high street bank rivals – has been on the up.
The firm notched an operating profit of £4.5m in the three months to December and bosses say it is on track to reveal its first full year of profitability in March. Sharp rate hikes by the Bank of England helped push its net interest income – the amount of cash it makes via interest rates – to £21.1m, up from £16.7m in the previous quarter.
However, Atom chalks up its success partly to passing on higher rates to savers rather than widening its interest margins like the major banks. Its customer base now tops 200,000 and the firm notched a 35 per cent surge in customers in the last quarter after raising its rates.
And that growth came despite the market – and political figures – at times acting against them. Mullen says growth in its loan book was hobbled by the “special financial operation that was the ill-fated Truss-Kwarteng mini-budget”, as Atom joined a host of banks to quickly yank mortgage products from the market.
“Initially we repriced up, but we were just too alarmed by the thought of being found to be the only one on sale. So in common with pretty much the whole industry for a period of time, we just switched off the lights,” he says.
Looking out at its loan book now, however, he claims there is little cause for alarm.
“Our [default] provisions are very, very small. And the number of cases in arrears is very, very small,” Mullen says. However, he warns there is “no reason to be complacent in what is a very turbulent and uncertain world”.
Investors unperturbed
Atom’s investors seem similarly unphased by the impact of any economic turbulence on the fundamentals of the firm. It won the further backing of its long term investors, the Spanish bank BBVA and private equity firm Tosca, in a £30m fundraising round in November.
Mullen says Atom is an appealing proposition in the current environment as financiers shift away from the high-volume capital-light model of payments and toward profits.
“Suddenly lending has become fashionable again,” he says. “Now we’re in a position where actually lending to customers generates interest income, and that’s how banks actually make most of their money.
“And that model prospers when you’ve got a rising rate environment.”
Even with the fortuitous boon of interest rates bolstering its balance sheet, it’s not all gone according to plan for the firm this year.
Unlike many of its fintech peers, Atom has been naked in its ambition to move on to the public markets. Historic volatility caused the firm to shelve its plans until 2024 at the earliest, and the destination of the float remains a topic of hot debate in the Square Mile.
However, as Morning Wire revealed yesterday, Mullen is unequivocal in his intention.
“I think that there need be no ambiguity whatsoever,” he tells Morning Wire “Our default assumption is London.” He adds that “the only plan we’ve ever made ourselves would be based upon listing in London.”
‘Run the company on outputs‘
It is perhaps testament to Atom’s year that a temporarily scuppered IPO has not been the reason it has made headlines.
The firm burst into the mainstream conversation in late 2021 when it became the biggest UK firm to trial a four day working week. Atom then made the move permanent in early 2022 and Mullen says it has been a success.
“I run the company on the basis of its outputs,” he says. “What are we supposed to be producing? How much is it supposed to be costing us? Not on the basis of its inputs.”
Atom’s increasingly positive “outputs” suggest its staff will be able to hold onto their three day weekend for a while.