Banks have not enjoyed a good press in recent years, having been condemned as either villains or scapegoats. RBS still seems a long way from repaying the taxpayer and, at the time of writing, Germany’s troubled Deutsche Bank has seen its shares plunge to its lowest ever level.
So, you might think it would call for a high degree of courage - or foolhardiness - to found a new bank in this environment, but there are plenty of shrewd operators who see opportunity amidst the challenges and have set up so-called challenger banks. We even have one in the North East, in Durham, a city famous for its university and its miners’ gala, but not for financial services.
And Atom Bank, based in Aykley Heads, in the city’s leafy outskirts, is way beyond the stage of being a twinkle in the eye. The bank was formally established in April 2014, swiftly raised £135m of capital, gained its banking licence and put in place its key technological infrastructure.
Having been set up with just six people, it now has about 250 full time staff operating from two sites in Durham and a small London office. It is now in business and is developing a full retail and commercial banking service and will shortly be announcing a new mortgage product.
The citizens of Durham, however, could be forgiven if they remain unaware of this new financial institution. When I pull up in the carpark at around 8.30am I could have arrived at one of the university’s newer colleges. The Atom staff turning up for work look more like students than bankers – young, casually dressed, often riding bikes and sporting a high concentration of hipster facial hair. It’s banking, but not as we know it.
I met Craig Iley, Atom’s managing director of business banking and one of its founders. Iley, 52, has a background in traditional banking, having started at TSB in 1983 and reaching the position of regional director for Santander. Like most of the bank’s employees, he wears a sweatshirt and casual trousers – it’s all much more Silicon Valley than Threadneedle Street.
He is fully conscious of being part of a Brave New World and it’s something he has clearly thought long and hard about. He explains in a measured, almost academic way, the nature of the changes we are all seeing.
"The world is in the middle of its third revolution and that revolution is a Digital Revolution. Unlike the Agricultural Revolution or the Industrial Revolution, the pace of change is significantly faster and as a population we will probably only get something like 20 years to adjust. This Digital Revolution will affect every aspect of life and it doesn’t really matter where you work, whether it’s in health, education, manufacturing or in banking. For banks in particular, this is going to mean a very painful adjustment.’’
He argues that banks are based on a 17th century model, designed to physically move paper around a local physical environment whereas banking in the 21st century will be a matter of moving data digitally and internationally. He cites a report by management consultancy McKinsey in February which highlighted that the worldwide trade in data is now estimated to be worth more than the economic value of all manufactured goods and associated trade.
It has been against this backdrop that Iley and his fellow founders analysed trends in financial behaviour, technological developments, the convergence of technological devices and the blurring of the distinction between work and home life.
"We believe that people are more and more seeking to have a relationship with their money rather than a relationship with their bank,’’ he says. To satisfy that need, they set about creating a new type of bank and for this new model they identified three key elements: low cost; transparency; and innovation.
Iley argues that the cost base of traditional banks is too high, leading to the development of complex and expensive products which are often unsuited to their customers’ needs.
"Transparency, I believe is the battleground for the future of banking over the next five to ten years,’’ he says, adding that banks have been allowed to develop "very opaque’’ business models making it impossible for customers to understand exactly what they are paying for and whether it represents good value. Innovation is crucial in giving consumers greater power.
"This is very much a journey and we have made significant strides in introducing things such as biometric security and access and a very interactive app which is based on gaming technology rather than simply transferring a website to a mobile platform,’’ he says. "We’re developing our systems to be more interactive and able to link with other interfaces and we’ve developed a very slick process to allow us to lend money to SMEs. There remains much to do but we’re excited by the possibilities.’’
The app has been developed for Apple and Android devices and Atom has built a deposit product to provide the business’s liquidity and fund its business lending product and it will soon unveil its new mortgage product. It is also working on personal and business current accounts and debit and credit cards.
"While these products will be recognisable as traditional banking products, we have some surprises that we believe will delight the market,’’ says Iley.
For liquidity Atom Bank will rely on depositors and not the interbank market. "If you look back to the financial crash of 2008/ 2009, some of the businesses that got caught up in that were actually solvent but because liquidity markets froze around the world they were unable to fund their ongoing business models,’’ he says. This will particularly strike a chord in the North East, as Newcastle-based Northern Rock was just such a business.
Atom’s deposit product has allowed it to reach the stage where it is now lending to support business growth. "At the moment we are lending to SMEs which have a requirement to borrow and we are looking to balance that with a sensible credit appetite and sensible security requirements,’’ he says.
Atom will be willing to secure loans against assets other than bricks and mortar, such as an occupational lease or a debtor book. While the bank will be highly automated and technology driven, it will still place great importance on manual underwriting. "That is really important. Because of the variation we get in SMEs across the UK no bank has managed to successfully automate the lending process in the sense of the decision making,’’ says Iley.
"But what you can do,’’ he adds, "is improve the process.’’
Traditionally that process would involve visits to the bank, supplying financial records, the relationship manager forwarding an application to Credit who would analyse it and ask their own questions – a process which could take six weeks. Iley says Atom Bank can complete the process in 72 hours. How?
Iley explains that Atom uses its UK-wide network of intermediaries, made up of SMEs’ trusted advisors such as financial advisors and brokers and accountants. "We work with a small group because we have to have confidence in the quality of the information that comes to us and we do extensive due diligence on these partners,’’ he says. Technology then comes into play with Atom’s Digital Bridge which links to the borrower’s accounting package allowing it to submit information electronically.
"By giving them the opportunity to do it digitally, it takes away a lot of the hassle factor for them,’’ he says. "But it does much more than that behind the scenes, it also helps us understand how the accounts have been compiled and it means we don’t have to keep going back asking for information because the information they submit tends to be more complete.’’
The information can be fed directly into the underwriter’s analysis tools giving them more information in a more streamlined way. Iley adds: "What it also allows us to do is to share information back with the client and their advisor who can use this information to help them improve the operation of their business.
"We are saying that as part of your banking you can have all this information back for free. In the past banks have taken information from SMEs and have used that to make sure the balance of power in that relationship sat with the bank.’’
He believes this anticipates far-reaching changes which are coming to business, with it becoming increasingly necessary for firms to digitise their accounting, as HMRC, for example, moves increasingly to online and digital processing. Atom’s ambition is to act as a thought leader and work with businesses in adapting to, and adopting, the new technology.
If Atom’s vision is realised then Durham could be the place from which a banking revolution is launched and the bank will be happy to put the city and region on the map. Iley says: "The vast majority of our original investors were from the North East. We’ve had a huge amount of support because we are creating something different and bringing high quality jobs to the North.
"If you want to have regional autonomy, you have to have a strong financial base otherwise you have to go continually to London where the purse strings are controlled. The idea of having a financial centre isn’t just unique to the North East, it has planted a seed for other areas but the fact that the idea has come out of the North East is great. The fact that we can do it in little old Durham I hope will give confidence to businesses everywhere that in the digital world it’s possible to do things wherever you are.’’
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