Neobank Down Rounds could herald a consolidation

  • Atom Bank’s latest capital increase indicates a valuation close to half of what it was in 2019.
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finalizes £ 40million ($ 51.3million) fundraiser, through News from the sky. The capital injection was expected, but the news that Atom would be valued at just under half of its 2019 the assessment was a surprise.

United Kingdom quarterly investment in fintech venture capital 1st quarter 2019 2nd quarter 2020

Neobank’s bearish towers could herald a consolidation.

Insider Information

One of the main reasons for the potential drop is that a fund managed by one of Atom’s largest shareholders, Schroders, cannot participate due to its ties to controversial fund manager Neil Woodford.

The unexpected drop in valuation should not create a crisis of confidence for the neobank. Insider Intelligence describes two reasons why:

  • Atom’s straightforward approach to banking shows promising results. The neobank recently indicated as it approaches profitability, fueled by strong growth Across its three key products: Small business lending is expected to have more than tripled to £ 700million ($ 897.7million) in the past 12 months, its Instant Saver account has already racked up £ 600million sterling ($ 769.4 million) in deposits since launch last fall, and £ 362million ($ 464.2million) of mortgages were added to its portfolio in the second half of this fiscal year (ended March 31, 2021) alone.
  • It streamlines its loan application process. The neobank plans to support £ 1.00 billion ($ 1.28 billion) in additional loans to 10,000 small and medium-sized enterprises (SMEs) over the next two years. To do this, Atom has in partnership with three separate financial API providers in recent months: Codat, Plaid and Credit Kudos. Each business groups data into various categories including e-commerce, banking, and accounting. This increased access to customer information not only speeds up the application process for customers and SMEs, but also generates unique insights into a potential borrower’s financial health that could improve Atom’s underwriting capacity. .

The fall in valuations of challenger banks could make it an attractive takeover target for incumbents. British incumbents in particular are in trouble offer compelling services that get ahead of customers wear to more technologically advanced neobanks. European challengers faced their own problems over the past year, with UK based Monzo experience its own turn down last month.

The leaders of Revolut and Bunq even recognized that the industry may be ripe for consolidation. Historically, incumbents have kept their distance due to skyrocketing valuations, but lower prices on small neobanks that have lost ground to leading competitors like Starling could make them prime candidates for acquisition.

Given its simple business model and its potential for profitability, Atom Bank could be a particularly attractive target, as it would complement the existing product offering of an incumbent and increase the latter’s chances of remaining the main bank of the incumbent. ‘a customer.

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