Digital Banking: UK’s Atom Bank Expected to Profit from Low-Cost Business Model

After its first monthly operating profit in Q1 FY22, Atom Bank has “delivered three further consecutive quarters of operating profit.”

Underlying operating loss “narrowed to £2m – a £34m improvement over the previous year.”

Income grew “by over 200%, with costs increasing by just 6%, reflecting Atom’s focus on automation and cost management, whilst continuing to offer great rates to both savers and borrowers.”

Atom bank, which is the UK’s first app-based bank, has “reported a year of significant financial progress, as it continues to focus on serving the needs of savers and people who want to own their own homes or build their own businesses.”

After recording its first month of operating profit in Q1 FY22, Atom has “recorded operating profits for the remaining three quarters of the year to 31st March 2022.”

Net interest margin (NIM) “rose significantly to 127bps (compared to 54bps in 2021) driven by lending growth across the residential and business portfolio.” A sharp focus on efficiency “coupled with impressive income growth has resulted in Atom narrowing its underlying operating loss significantly to £2m (2021: £36m).”

Operating costs have “remained under close control, demonstrating the efficient scalability of Atom’s lean and digitally native business model, which aims to make the experience of borrowing and saving simpler, faster and better value than anyone else.”

Consequently, while Atom’s income “grew by over 200% in the year, running costs increased by only 6%.”

The growth in income is “attributed to increases in the loan book across both business and residential lending, with Atom’s total loan book reaching £3.3bn (up from £2.7bn in FY21).”

Atom had “a record-breaking year for business lending, growing the book to £1bn (from £0.7bn in FY21) having participated in the government’s CBILS scheme.” To date, all business lending has “been fraud free and was achieved with a table-topping business customer Net Promoter Score of +88.”

Residential mortgages and savings also “grew substantially during the year.” Atom expanded its residential lending assets “to include Near-Prime retail mortgages and grew its on-balance sheet residential mortgage lending to £1.5bn (up from £1bn in FY21 and well over £3bn in total since launch).”

Atom continues “to offer better rates to savers.”

The Instant Access Saver (currently paying 1.35%), launched in 2021, “has become a reliable source of low-cost funding, with balances increasing to £1.3bn during the year (2021: £0.7bn).”

Total deposit balances at year end “stood at £3.2bn, a billion more than a year earlier (2021: £2.2bn).”

Today the total “exceeds £3.5bn and continues to grow.”

Atom successfully “raised £117m in new capital during the year, with this capital predominantly being used to fund income generating lending.” This year Atom plans “to achieve full year profitability and continue its growth journey.”

Throughout the year Atom has continued “to invest in automating business processes, ensuring that the bank moves towards profitability without compromising the customer’s experience.”

This approach was “evident in customer feedback, with Atom ending the financial year with a Trust Pilot score of 4.6/5 (currently at 4.7/5), an App Store rating of 4.7/5 and a customer Net Promoter Score of +87.”

Atom’s introduction of a four-day week “with no loss of pay in November 2021 has so far been a resounding success.”

Over six months on, employees are “reporting being happier and healthier, with increased employee engagement and decreased sickness and attrition levels.”

Crucially, and despite what critics may have predicted, customer satisfaction “has increased since the change, with Atom’s Trustpilot score hitting 4.7/5.0 this year (2021: 4.6/5.0), and Net Promoter Score reaching +87 (2021: 76).”

As covered, Atom bank launched operations in April 2016, “offering Fixed Saver accounts and secured business lending for small and medium-sized enterprises (SMEs), followed by its automated mobile mortgage proposition in December 2016.”

Atom launched “an Instant Saver in September 2020.”

With a competitive rate, no short-term bonus, no limits on withdrawals and no minimum amount required at opening, the instant saver “offers people much-needed flexibility while their cash works harder for them.”

Atom is “a mobile only and customer first bank.”

Based in the North East of England with a team of over 470 people, they’re here to do the right thing by their customers “with outstanding levels of customer experience whilst taking the fight to the incumbents with exceptional levels of efficiency.”

At the heart of the bank is the app, with a support team on hand “to help with any queries through phone, chat, email and social media.”

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