The UK-based, app-only neobank is finalizing a £40 million ($51.3 million) fundraise, per Sky News. The capital injection was expected, but the news that Atom will reportedly be valued at just under half its 2019 valuation came as a surprise. One of the larger reasons for the potential down round is that a fund managed by one of Atom’s largest shareholders, Schroders, cannot participate due to its connections to controversial fund manager Neil Woodford.
The unexpected decline in valuation shouldn’t create a crisis of confidence for the neobank. Here are two reasons why:
Falling challenger bank valuations could make them an attractive takeover target for incumbents. UK incumbents in particular are struggling to offer enticing services that forestall customer attrition to more technologically advanced neobanks. European challengers have faced their own issues over the past year, with UK-based Monzo experiencing its own down round last month. Executives at Revolut and Bunq have even acknowledged that the industry could be ripe for consolidation. Historically, incumbents have kept their distance due to sky-high valuations, but lower price tags on smaller neobanks that have lost ground to leading competitors like Starling could make them prime acquisition candidates. Given its simple business model and potential for profitability, Atom Bank could be an especially attractive target, as it would complement an incumbent’s existing product offering and increase the latter’s likelihood of remaining a customer’s primary bank.