Atom Bank extends funding as backers inject £113m into lender

A new app-based consumer bank is on the verge of completing a cash call that will take the total sum it has raised to almost £250m – one of the biggest pools of money injected into a UK technology start-up.

Sky News has learnt that Atom Bank will announce on Friday that it has expanded its latest funding round to take in £113m from the Spanish bank BBVA (LSE: 931474.L - news) , Toscafund and Woodford Investment Management.

The capital-raising will value Atom Bank at £270m, and is said to be the first time that the lender's wider management team will also be investing funds in the business.

News of the deal comes days after it emerged that the rapper and producer Will.i.am had struck an agreement with Atom Bank to act as a technology consultant and spokesman for it.

The tie-up, which is also expected to be confirmed in the next few days, represents an attempt by Atom Bank to distinguish itself in a market inundated with new entrants.

Under the deal, Will.i.am will have an option to acquire up to 3.55 million shares in Atom Bank at a price of £1.15-per-share during a three-year period.

In return, he will be expected to engage in public relations activity for Atom, attend board meetings and publish social media posts about the company.

Atom is due to hold a shareholder meeting on Friday to approve its latest fundraising plan.

Insiders said Atom's cash call had been fully subscribed by a trio of existing shareholders, with BBVA expected to own more than 30% of the company - a level that would usually trigger a mandatory offer for the remaining shares under the UK's takeover code.

Atom is said to have sought a waiver from the Takeover Panel to avoid that outcome, as well as the approval of banking regulators, which is required when a single shareholder owns at least 30% of a regulated financial institution.

The completion of its latest fundraising - which insiders say will take the aggregate amount raised by co-founder Anthony Thomson since he conceived of the digital-only bank to £249m - will represent a big boost to Atom's prospects.

The company, whose chief executive is Mark Mullen, the former boss of First Direct, said in December that it had taken more than £110m in deposits across its fixed-rate saver accounts.

It intends to diversify into mortgage products in the coming months.

The new capital will be used to fund anticipated early-year losses at Atom, as well as increasing regulatory capital to enable the bank to build its balance sheet.

Atom's founders believe there is a significant opportunity for a service-led bank with few of the overheads associated with high street branch networks.

The company has already attracted a list of blue-chip shareholders, including Lord O'Neill, the former Goldman Sachs (NYSE: GS-PB - news) economist and ex-Treasury minister, and Neil Woodford, the star fund manager who has indicated his antipathy towards bank shares because of huge misconduct costs.

Headquartered in Durham, Atom now employs more than 250 people.

Mr Thomson, who spearheaded Metro Bank (Frankfurt: 6MB.F - news) 's launch as the first new high street lender in more than a century and has become one of the sector's most respected figures, believes Atom will be well-placed to exploit the fast-growing demand for digital banking.

Lenders such as HSBC, Lloyds Banking Group and Barclays (LSE: BARC.L - news) are in the process of closing hundreds of branches, citing data which has highlighted an explosion in the use of mobile banking services.

To date, however, efforts to encourage a new wave of challenger banks have resulted in a number of licences being approved by watchdogs, but new players have yet to make a significant impact on the industry.

Among the industry's other new players are Tandem Bank, Starling Bank and Redwood, while on Tuesday, Nick Ogden, the founder of Worldpay, launched ClearBank, the UK's first new clearing bank for 250 years.

An Atom spokeswoman declined to comment.