‘Finance is all about data; from analytics for risk management or regulatory reporting, to customer analytics.’
Digital is eating every single business, from the publishing and music industry to the banking and finance world. The latter has seen how new only-digital players have been born while many traditional institutions are eliminating hundreds of their old branches and cutting thousands of jobs. But unlike the book industry where the number of sales of ebooks is plunging -perhaps because of the aesthetics of paper books-, it looks that digitalisation in banking is definitely an unstoppable trend.
Today we talk with David McCarthy about his experiences as CFO at Atom Bank – the first mobile-only bank worldwide.
What is distinctive about Atom’s business model?
Atom is a full-licensed bank, so we are pretty conventional in terms of accepting deposits from savers and selling mortgages and loans to retail customers and businesses. What makes us different from traditional institutions – and pioneers in the UK – is our digital-first model. This means that our products are mainly offered through apps – although we have other distribution channels, too. This model provides great convenience to our customers, since they can carry their bank with them without needing to go the branch or calling a contact center.
Second, much of our potential comes from the use of analytics to provide our customers with information that really helps them to manage their financial affairs more efficiently. And third, running an app-based model where interactions are highly automated implies that we are much more efficient, especially in terms of costs, which allow us to provide more price-attractive products to our customers.
You have worked in the financial industry for many years, how does the CFO role and finance department differ in a ‘neobank’ versus a traditional bank?
Every bank CFO has to worry about managing its treasury, risk, liquidity, capital needs, (which implies a lot of investor relations work) as well as managing the interest margin and the cost base.
But beyond these common tasks, I think the nuance of my work at Atom is that focus of attention rests on a cost base which is highly automated. So, I neither have to worry about thousands of branches or a very old system that need maintaining; nor dealing with historical problems – e.g. compliance issues. That also allows me to be much more forward-looking, and also be more focused in analytics and investing in new things.
But also, when we are doing things like managing treasury, we do that using the latest systems available to us, really trying to manage our balance sheet on an optimal basis.
What have been your priorities during your years at Atom?
First, apart from being CFO, I am also one of the founders of the company, which implies that my priorities have changed a lot. We started with a blank sheet of paper, producing a business plan and starting our process to get a banking license from our regulators. This included raising all the capital and getting new shareholders in to make the bank work. And then we had to build the entire system from scratch. Now, the challenge has changed from building to running, i.e. growing our customer base and making sure they have the best customer experience.
Raising a substantial amount of capital was not easy, since it requires you to convince people that we are a risk of worth taking. That means we needed a very compelling business plan, and I guess we did well since we have some tremendous investors. Particularly when you are starting out with nothing behind you –that includes having zero customers –- persuading organizations to back you is one of the most challenging tasks.
And this also could be said regarding the technicalities of building systems that are truly capable of handling customer numbers at scale. We got a mixture of some established banking systems and some very cutting systems in terms of how the app works, how the middleware works and how we do automated credit decisions. And they come with all the overhead of testing them, market researching them, and that sort of things.
Some traditional banks define neobanks as ‘hype’, arguing that these new players don’t pose a real challenge to their models.
The established models are quite different from ours. Obviously, if you’ve invested in building a branch network, you are committed to that model for quite some time. But we don’t want to follow that path since first, there are many people doing that already; and second, we see a real strong growth potential in digital channels which has been extensively documented by different market research studies.
Of course, it’s going to take a while before we create the customer numbers that really show that we’ve transformed the industry. But we are still in the pretty early days and although most of products have been off the ground for a few months, momentum is very strong. For example, we got very strong growth in our new mortgage product, which is highly digitized –the whole customer journey takes place entirely within an app. This product launched just before Christmas and we already have high levels of flow there. And we are getting good numbers in our saving products too. I think this evidences that there is appetite for these products, and that the value we add goes beyond hype.
What are the main attributes do you think a CFO should have?
Finance is complex, so you need the skills, knowledge, expertise in banking, and really an understanding in how they make money and how they manage their risk. Also, although I would say all startup and entrepreneurial operations are very exciting, there are lots of challenges too that require you to be capable to deal with the up and downs, which is also a key ability.
Additionally, you need to be interested in innovating and moving things into a new level. That requires you to focus very much on the future, looking for ways of improving things rather than accepting the way things have been done on the past. It sounds very simple, but I think that having this mindset is essential.
How many people currently make up your finance department?
We are about 250 people in Atom. But we don’t have a big finance department, especially since we have systems that make the whole process more efficient; and we don’t have to spend time sorting our historic issues either. We got very skilled people in treasury, and equally in data analytics, which is part of finance too.
But we keep the traditional areas, financial planning and financial reporting, to a quite small number of people, since we don’t want to make things more complex or more manual than they need to be. So, we need some excellent tools to help us.
It’s interesting that analytics or BI works under the finance department.
Data is definitely one of the pillars of our philosophy, and of course, finance is all about data; from analytics for risk management or regulatory reporting to customer analytics. Reporting, for example, is an essential task that traditionally involves a huge number of people from the finance department. Since we are a startup, we are able to buy systems that automate that process pretty effectively.
Besides, I’m sitting in the board as well, which requires me to be involved in strategy. And for a new business today, data analytics plays a fundamental role for its strategic success. That’s why I work out what’s the best way of adding value for our shareholders in a way that creates value for our customers too.
Could you give me an example of how Atom is bringing innovation to traditional banking products?
Of course, let’s look at the mortgage, which in the UK is traditionally a process that hasn’t changed for many years. Here, lots of the introductions come from intermediaries; they advise what product is most suitable for the customer. After that, it goes into a complex process where there’s lots of paper that goes back and forth between the broker, the customer, the lawyer, the valuer, and so on.
So we have set up a process in which, first of all, when clients apply for a mortgage, we can give a decision on the same day. And second, the whole process is managed within the app, with a series of alerts, so the customer, the broker and all the other parties involved get alerts at exactly the same time, telling them when we’ve done the valuation, when we’ve got the certificate of title for legal purposes and so on, so it leads you through the whole process. This is both much quicker and informative for the customer, and also much cheaper for us, meaning that we can provide more attractive prices.
What is your approach regarding Open Banking and Marketplace Banking?
Our IT system architecture has been designed from the beginning around open APIs. So apart from manufacturing products, we are also distributing them through these channels. For example, our mortgages can be sold by other banks that can connect to our APIs.
Being a marketplace is also one of our strategies. I’m seeing that some challenger banks are following a pure marketplace, a model which seems pretty risky to me, since its viability has not been proven yet.
While I do think that this is the direction of travel, although I wonder whether the banking industry is a little bit ahead of customer expectations and customer demands. Of course, we need to be positioned for that so we can be prepared to react to developments, but I don’t think this is something that is going to transform the industry overnight, it will take a little bit longer.
* * * * * *
Feel free to use our comments section if you have any questions or remarks. We would love to hear from you! You can read more interviews at: