Online banking in the UK continues to develop at a rapid pace and the summer of 2015 saw the launch of Atom Bank, the newest player on the scene.

It is marketing itself as “the bank in your pocket” due to its strategy of using mobile phone apps instead of physical branches. It has secured a licence from the Bank of England, paving the way for the group to offer the full range of banking services from current accounts, personal lending and mortgages to individuals and small businesses.

Atom says it will champion customer experience with a low cost model, transparent pricing and digital innovation. It will be developing a range of banking products and services that will be delivered using mobile apps, with a desktop version following later.

While other online brands — such as Egg, Smile and Cahoot — have launched in the past, the regulator said Atom is the first bank focused on a mobile app to gain a licence.

Kevin Mountford, Head of Banking at comparison site Moneysupermarket, says, “As a first in the UK, it will be interesting to see what type of products they will launch with and how their app-based approach will differentiate them from their high street competitors.”

The bank has 100 staff, and plans to recruit more. Its head office and a call centre are both based in Durham in the north east of England.

Atom CEO Mark Mullen says, “Atom will offer a quality of digital experience without parallel in this sector or in many others. Our team reflects this. Between us, we’ve built and run some of the most highly respected banks in the UK, brought ground-breaking innovation to manufacturing and service businesses, and created great software with a worldwide reach.

“Now all of this is being poured into building Atom so that customers will have a bank in their pocket that is ready whenever and wherever they need it.”

Dave McCarthy, Chief Financial Officer, Atom Bank was  previously with Home and Savings Bank

Dave McCarthy, Chief Financial Officer, Atom Bank was previously with Home and Savings Bank

The bank’s leadership has an impressive track record in the UK online banking sector. Mullen was CEO of online pioneer First Direct between 2011 and 2014. Taking the role of chairman is Anthony Thomson, who is the co-founder and former chairman of Metro Bank. When it was launched in 2010, Metro became the first new British high street bank in more than a century.

The duo are joined by Chief Financial Officer Dave McCarthy, who was previously with Home and Savings Bank and Britannia Building Society, while Edward Twiddy the Chief Operating and Innovation Officer, was recruited following a two-year secondment at the North East Local Enterprise Partnership from HM Treasury.

The team has already raised £25 million to build the bank, with investors including star fund manager Neil Woodford and Jim O’Neill, the former Goldman Sachs economist.

However, it now needs to attract new institutional and strategic partners to help take it to £75 million of capital to lend to individuals and small-business customers.

Atom will have lower costs than established high street lenders as it will not have branches to run and will have a clean balance sheet. It is targeting a cost-income ratio of about 30%, considerably lower than many larger banks.

Atom says it is on track for full launch late in 2015 and plans to break even over the next three to five years.

Edward Twiddy the Chief Operating and Innovation Officer

Edward Twiddy the Chief Operating and Innovation Officer

Thomson says, “It’s a testament to the talent and the dedication of our extraordinary team here in Durham and to the support and vision of our investors. It’s also a positive endorsement of our business plan and model from the Prudential Regulation

Authority and the Financial Conduct Authority. We now have the mandate that only comes with a banking licence – to change banking permanently for the better.”

Atom says its app aims to set new standards for the banking sector and will bring pioneering technology to Europe for the first time. It also claims to be leading the way in delivering the ultimate easy and convenient banking experience. Biometric security and in-app account opening are just some of the features being developed to deliver a branch-free, paper-free and stress-free bank.

Mullen says, “We’ve set about designing a banking app that’s in tune with how people think about their money. Taking an app-based approach allows us to use all the features of your mobile device to provide a slick and highly personalised experience.

“The likelihood that we’ll put our bank online in any traditional way is very small. We’ll let our customers download an app onto their desktop. There are advantages for us from a data security point of view operating it as an app.

app-mobile“Attitudes to banking are changing much quicker than any of us could have expected. There’s a whole generate of people for whom apps are the internet. It will offer total control and transparency with a depth that is beyond anything else on offer in the market today.

“I can’t guarantee we will never have an IT problem, but we are building and testing a bespoke system. We are in a hurry to get it right.”

Atom Bank will be the latest in a line of challenger banks that have arrived on the British banking scene since the financial crisis erupted in 2007. Other new entrants include Thomson’s Metro Bank, Richard Branson’s Virgin Money, which hived off the profitable parts of Northern Rock and Aldermore.

Targets for Atom Bank are nothing if not ambitious with Mullen claiming that from a standing start it is possible that his bank may have five million current accounts by 2020, which is 5% of the UK market. Although the bank expects to predominantly attract 18 to 34-year-olds it is optimistic that its technology will appeal to a broad range of people beyond this age group.

Thomson says, “We think that is very ambitious but all of the things we hear are that

mobile banking is the way forward. Ours is the right model at the right time.”

The latest figures from the British Banking Association (BBA) appear to back Atom’s confidence with a major change in the way people do their banking well underway.

A total of 74 million transactions a year are done in the UK via telephone, 427 million at branches, 705 million by the internet and 895 million via mobile devices. In five years, mobile has gone from being the least common way to bank to being the most popular.

The BBA estimates mobile will be used three times as much as branches and telephone banking combined.

Mullen agrees, “It is entirely possible if you are brave enough and good enough to transform the industry. Trust in banks is pretty low, and the customer needs to have a better experience.”

The mainstream UK banks have been dogged by public mistrust since the financial crisis and the bailouts it necessitated. Scandals such as LIBOR rigging and PPI mis-selling have hurt both reputations and bottom lines. And ageing IT systems have suffered a number of embarrassing and costly failures lately.

The most recent such incident saw the websites of Royal Bank of Scotland (RBS), NatWest and Yorkshire Bank disabled by hackers on July 31, 2015 leaving thousands of customers unable to access their internet banking.

An RBS spokesman said, “The issues that some customers experienced accessing online banking were due to a surge in internet traffic deliberately directed at the website. This deliberate surge of traffic is commonly known as a distributed denial of service attack. At no time was there any risk to customers. We apologise for the inconvenience caused.”

RBS has been beset by IT problems in the past, with the Financial Conduct Authority fining the lender a record £42 million last year following an IT meltdown in 2012, which left millions of customers without access to their accounts.

Nic Merriman, Chief Technology Officer at Avanade UK, says, “New entrants to the market, new business models, changing customer expectations and fragmentation of traditional services are all contributing to put traditional banks under pressure.

“Services like Barclays PingIt and Zapp demonstrate that disruptive services can significantly move customers away from traditional banking offerings. The appetite for such services is clearly there from consumers, and the maturity and take-up of them can only move on an upward trajectory.

“Indeed, changes are afoot and the physical manifestation of these changes is also apparent. At a macro level, the branch appears to be in decline with most established brands reducing their footprint. Cash is no longer king and mobile payments are increasing in popularity, with research from BuzzCity revealing that 42 per cent of all mobile users now routinely make payments through their mobile devices.

“Banking is becoming more democratised by technology and new services are changing the way we think about banking, our money and the application and capability of technology.”

It is these changes that Atom hopes to capitalise on as it builds its brand and customer base.

Mullen concludes, “I’ve always believed in at as a fundamentally superior way of delivering banking services. The data doesn’t lie. The UK’s most satisfied customers in the banking sector are customers who use digital channels to consume banking services. That’s not a recent phenomenon, as you can trace this back 15 years or more.”