Anthony Thomson: what it takes to build a digital bank

Anthony Thomson has just stepped down as chairman of Atom Bank, the first fully digital bank launched in Europe, which he founded. He spoke with DigFin – first on stage and then on the sidelines at NextMoney’s Fintech Finals in Hong Kong on January 31.

Aside from WeBank in China, there is no full-on challenger bank in Asia. And China is a different proposition from the rest of the world.

It’s an oddity of Asia’s dynamics that the closest thing to one is digibank in India and Indonesia, an all-digital bank backed by DBS (whose debut has since sparked me-too offerings from Indian competitors). The app-based “banks” that are emerging chip away at niche and obscure corners of traditional banks’ clientele. But there’s no full-blooded direct attack on traditional, bricks-and-mortar consumer banking.

New regulations
That is likely to change, however, as regulators in Australia, Hong Kong and Singapore seem keen to provide the licensing to enable such an attempt.

These new licensing regimes are modeled after the one introduced by the U.K. in 2007 – which was based on a revision process in which Thomson took part. The effort then was about making rules for digital banks shorter, simpler, and with lighter capital requirements.

So what will it take for Asian challengers to survive, if not thrive? From Thomson’s experience, once the licensing is in place, the tallest hurdle is capital.

“At the early stage, we needed access to capital, in order to scale our infrastructure, develop risk frameworks, and attract talent,” he said.

But licensing remains paramount. Today, eleven years in, Atom Bank has yet to offer current accounts to its retail customers. That means no checkbooks, no debit cards and no overdrafts. Thomson says the bank is waiting for an expected change in regulation that, if it comes through this year, will make it economically viable for the bank to get into this business.

Capital and more capital
If a challenger bank succeeds, it can then begin to fund itself through retained profits. But Atom Bank, which launched in 2014, is still raising huge amounts of outside capital: it is now closing a £150 million round, bringing its total funding to £400 million ($567 million). Its biggest investor: Spanish lender BBVA. Thomson says the bank should finally break even in the next 18 months.

Thomson says the problem with traditional banks – what makes them easy targets – is that they lost their sense of customer service. “Banks think they’re just there to make money, not to serve customers,” he said.

He says that while profits are important, to reward risk-taking investors and to ensure the long-term health of the institution, businesses are also about leaving a legacy.

Thomson has a legacy: he’s founded not one but two banks. He also set up the U.K.’s Metro Bank in 2010 with a single branch. Metro was a take on bricks-and-mortar banking with a simple aim of making customer service, rather than product sales, the only KPI for front-line staff. It’s worked; today Metro has over 50 branches serving over 1 million accounts. And then there’s Atom, which has a much smaller capital base than Metro (about £250 million versus Metro’s £3 billion) but is a global pioneer.

Atom’s future

But he’s leaving, and for the time being marketing a book. This is not surprising: Thomson’s background is not a storied career in finance, but in marketing. Only a marketer would invite Will.i.am to be its consultant, shareholder, and advisor on user experience. (If you’re unfamiliar with Will.i.am is, then you need to get out more.)

The timing for Thomson’s exit from Atom seems awkward: to depart in the midst of a large fundraising. But he says he loves the building-from-scratch phase. “Once you get past 50 employees you can’t remember their names,” he said. So he’s off, saying the bank’s team and strategy is now established.

I asked him if he’s being selfish – is it a good time for Anthony to leave, and hang whether it’s a good time for Atom Bank? But he seems sanguine that he’s not adding a lot of value at this stage in the game.

What are the prospects for challenger banks? So far in the U.K. or Europe, none have gone bust. But most are failing to achieve scale, so they face being gobbled up by a traditional player, or the prospect of stumbling on like zombies until their capital dries up.

As for Atom’s future – as an IPO or as a strategic acquisition by BBVA – Thomson says an IPO has always been the goal, but with him stepping aside, it will be up to the management team to decide.

Apps+blockchain=?
Look ahead, Anthony: where does blockchain and crypto-currency fit into this? Can app-based banks go crypto?

“Distributed ledger technology [DLT] is going to be huge,” he said. The ability to use crypto assets to transfer money – across borders, without friction, almost for free – is a game-changer. But, aside from regulatory issues, the challenge is that these coins are not acting like fiat currencies. They’re wildly volatile, which means they might be a good asset class, but they’re not useful as currencies.

Atom Bank has looked at DLT. Thomson says there are use cases worth pursuing, such as mortgages: putting property records on a blockchain would save potential buyers loads of time and legal expenses. But whether the bank pulls the blockchain trigger is a decision for the new management, to be led by Bridgett Rosewell, who’s served as chair of Atom’s audit committee.

I can’t resist one last question. Not many bank founders would have chased Will.i.am to provide advice into digital development, and Thomson is an avid collector of electric guitars. His all-time favorite musician? For once, I’ve asked him something he doesn’t have a ready answer for.

“Jimi Hendrix,” he finally says. “If I could play guitar like Jimi Hendrix…”

Now that really would be a challenge too far.