Mark Mullen is the CEO of Atom Bank, a challenger startup bank that received its banking licence from the Bank of England in June, and is one of our Small Business Decision Makers 2016.
Mullen has been a vocal critic of the way that big, established financial services firms treat micro firms. Business Advice spoke to him about how the lending landscape has let down SMEs in the past and how it’s changing now.
if you think back to the banking crisis, banks focused on restructuring, and they closed down lending to higher risk segments, he explained. ‘sME lending fell off a cliff, and the new banks filling the gap, such as Secure Trusts and Alemore, have been very recent developments which came too late for some of the SMEs which have had to delay investments because they couldnt get funding.
the crisis led to a fundamental shift in the risk profile of banks, and so small businesses no longer look at banks as natural places to turn to for funding, he added.
There are signs that new avenues are opening up for small firms seeking funding from innovative new sources. Europe was the fastest-growing financial technology (fintech) region in the world last year, and saw an increase in investment of 215 per cent to $148bn. But Mullen was cautious about the significance of new types of funding.
the growth in alternative sources has been very slow, and represents a very small part of overall lending it shouldnt be overstated. At the moment peer-to-peer lending and crowdfunding arent credible alternatives. SMEs are still hostage to big banks when it comes to lending. But they do indicate a change in direction, even though I don’t buy that they are having a big mechanical impact.
Mullen also argued that many established banks are not providing the face-to-face reassurance that small businesses might look to from lenders with high street premises.Relationship banking is a nice idea, but it doesnt happen. The reason for this is that the cost of relationship managers is so high that it’s prohibitive frankly, it’s inaccessible.
Atom Bank will serve both business and personal customers through an app stripping away the face-to-face contact that small firms might have previously hoped for from dealings with local banks. But Mullen thinks that there is an appetite for financial services firms that win customers over by providing a good product all the time, rather than occasionally delivering a good in-branch experience.
the fundamental question is about who businesses trust. At the moment, that isnt banks. But businesses are talking to each other and to the CBI, and using local enterprise partnerships to get information and advice. Those relationships are important. It shows that there’s an appetite in the market for trust but weve got the earn the right to be trusted.
Mullen also argued that challenger banks like Atom can relate to small firms in a way that traditional lenders cannot. We know what it’s like to be a growing business. We know what cost management is, for example. We carry the badge of being a startup at heart, and that isnt something we carry lightly, he said.
Atom Bank’s CEO agreed that a lack of technology could be an impediment for micro businesses hoping to take advantage of developments in financial services but insisted that this is something that new small businesses need to overcome in order to survive. it’s ridiculous that we should underinvest in technology, and frankly nonsensical that firms co-locate in business parks with poor connectivity.
the idea that you can create a successful business without digital literacy is ludicrous every part of the supply chain today involves technology, he added.
Whatever pace the funding landscape evolves at, small firms are going to have to embrace digital to make the most of the new opportunities out there. And when they do, it seems likely that Mullen and his colleagues at Atom Bank, with first-hand knowledge of the challenges that young businesses face, will have a more SME friendly brand of business banking to offer.