The edge a serial entrepreneur sees in challenger banks

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Challenger bank entrepreneur Anthony Thomson has had several lives in banking and fintech.

In 2010, with Commerce Bank founder Vernon Hill, he co-founded Metro Bank, which started with one location in London and now has more than 56 branches and 2,800 employees. Thomson founded a second challenger bank in 2014 called Atom Bank, the first mobile-only bank in the U.K. As of March, it had 1.3 billion pounds of deposits and lent 1.2 billion pounds in mortgages and small-business loans.

Thomson is currently working on his third institution, called 86,400, a mobile-first challenger bank slated to launch in Australia in early 2019.

So it's fair to say Thomson has learned a lot about what it takes to raise money and how to make it as a neobank entrepreneur. In an interview with American Banker, he also revealed why he chose such an unusual name for his latest venture and why he feels traditional banks have failed in reaching customers. Following is an edited transcript.

What drove you to start up Metro Bank, Atom and now 86,400?

ANTHONY THOMSON: Big banks around the world have forgotten about the customer, and they simply think they exist to make money. Customers are starting to see through this. The banks argue that everybody is very satisfied, they don't switch. They're not not switching out of loyalty, they're not switching out of inertia.

There's a body of psychological evidence that says there are two types of trust. The first is called cognitive trust and it means, do I trust you, my bank, to be competent? Do I trust you that if I deposit my salary on the first day of the month it will still be there the last day of the month? Do I trust you that on the third Thursday my mortgage will get paid? Do I trust you that if I go to an ATM to draw out cash, my card will work? Yes I do. I trust you to be competent.

The second kind of trust is called sociative. Sociative trust is about intention: Do I trust you, my bank, to have my best interest at heart? The answer is [for most banks], "No, I bloody don't."

That's one of the great opportunities that exists for new challenger banks, is to have customers understand that we generally put their needs first.

The challenger banks have to have cognitive trust, too, because if customers go to an ATM and their card doesn’t work, they panic.

Absolutely. If it's Chase or Wells Fargo you might go back in an hour or try a different ATM. If it's a new bank, you go, "Oh my God, is my money safe?" That is probably the single most significant risk facing a challenger bank, the operational sustainability of it.

What are the main differences between Atom and Metro?

Metro was innovative at the time. The thing that attracted me to the model back in 2006-7 was that Commerce Bank had the highest customer satisfaction scores of any bank in America, at the time there were 8,500 banks in U.S. It also had the highest shareholder return. I thought, we can give customers great service, superior returns to shareholders. But by 2012, all the market data were telling me the future of banking would be digital and mobile in particular. I told my colleagues, I thought we needed to move our strategy. Vernon argued in favor of franchise banking.

So I left and started Atom, which was the first mobile-only bank in the U.K. and one of the first in Europe.

If you had to do things all over again with Atom, is there anything you would do differently?

In a sense that's what I've done with 86,400.

How did you come up with that name, 86,400?

We were sitting over a year ago at an off-site trying to drill down into what was our customer proposition. It stemmed from research that tells us most people have a difficult relationship with money. Most consumers worry about money, they're fearful, they don't know how much they've got. We said we should recognize that fear and we should be able to use data analytics, big data, AI to look after people's money every second of every minute of every day so they don't have to. And if they do want to, we can help support them to make better decisions.

One of our engineers said, "86 400." We all went, “What?” He said, “That's the number of seconds in a day.” We said, “That's us.” Using technology, we can look at their money and come up with ideas every second of every minute of every day, so that they don't need to. Let people go on with living the lives they want.

What kinds of ideas about their money will you come up with?

Predictive balances is an interesting one, one we thought about it in the Atom days. By accessing your bank data and other sources of data you give us permission to look at, we can start to recognize patterns in your spending behavior that you might not recognize yourself. So it becomes apparent over time that every August you go on holiday and every September school fees come up. We can start to model this, we can see by September you're going to run out of money. We can recommend you either start saving $10 a month now or we can make you a facility available at that time. It's about giving you next month's bank statement and the month after and starting to understand your relationship with money.

Some people are hobbyists; they like analyzing data. We can give those data junkies all the fixes they want. Other people don't want that. They just go, "How do I get through this month; how do I make sure I'm going to be OK next month?" We can help guide them. The more they’re willing to trust us to do that, the more help we can be. Which is why unlike Atom Bank, we’re leading with the transaction account. It enables us to interact with you many times during a week or a day as you're accessing your finances through your mobile.

What did you lead with at Atom?

Liabilities deployed as mortgages. With the benefit of hindsight, perhaps we should have introduced transaction accounts earlier.

What is the biggest challenge for challenger banks?

It's not about how good their consumer proposition is, how innovative or different their use of technology is, it's more, can they raise the capital? Banks are very capital-consumptive by their nature, especially growing banks. Generally if your business is growing, you go back to your shareholders and go: "Hey, things are going really well. Here's some money back." In banks, you go: "Hey, things are going really well. Give us some more money."

Is it hard for new challenger banks to raise capital?

The pool of capital for new banks is quite finite. Everybody thinks the world is awash in investment money looking for a good home. But within the pool of capital there are those companies who cannot or will not invest in illiquid stocks, there are those that are not mandated to invest in loss-making businesses, then there are those who are not mandated to invest in pre-revenue businesses. The actual pool of capital for new banks is very small at outset.

As they go on their journey the kinds of providers of capital change. On day one, private equity firms aren't interested in you because you're too small. It's the venture capital firms, family trusts, ultra-high-net-worth individuals and some people who do invest in high-risk, high-return startups.

What were some of your funding wins at Metro Bank, Atom, and 86,400?

I’ve raised about $1 billion in capital, and with one exception, it's been really, really tough. Metro Bank could not get any traction in U.K. Everybody said, "You're going to start a new bank with one branch and you're going to take on Barclays and Lloyds and TSB and HSBC?" We said, "Yeah." They said, "You're crazy."

We raised the money here [in the U.S.] in 2008. My co-founder Vernon Hill and I spent three weeks doing road shows in Philadelphia, Baltimore, New York, Connecticut and Boston. We got commitments to $160 million over that three-week period. I flew back home on a Friday night to the U.K. The following Monday morning Lehman Brothers went bust. That week, $65 million of the $160 million disappeared. Some of the companies disappeared over the following weeks.

The people in the business of investing will sit through an awful lot of presentations, some they don't even have any intention of investing in, just because their currency is information. You often pitch to people who have no intention of investing with you; they just want to know how that sits with their investment thesis on a sector or their investment in another player already. Then there are others with very different investment horizons, some who are looking for longer, some for shorter, very different return structures. Finding somebody who likes your pitch, your capital consumption, your time to break even, your prospective returns. It's not easy.

What was the one exception?

There's a famous U.K. investor, Neil Woodford. I was introduced to him, pitched the idea to him, and I'd been told Neil doesn't like to sit through long decks. I took our deck down from 30 pages to 11 slides. At the end, he said how much are you looking for from me? I said, 10 million pounds. He said, may I invest 10 million pounds? I said, yes you may. That was the one and only time in my entire fundraising career that somebody said yes in a meeting. All the other $990 million was tough.

What does it take to make it as a fintech entrepreneur?

I’m co-authoring a book on raising capital, called "How I Raised the Money." It’s a series of interviews with people who built businesses, the ups and downs of their journeys. If there was one trait that applies to them all, its persistence — they just keep going.

Editor at Large Penny Crosman welcomes feedback at

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