Metro Bank founder launches new online bank

* Aims to take advantage of decline in bank branch usage

* Will provide services to individuals, businesses

* Backed by range of private, institutional investors

* In process of applying for banking licence

* More branch closures expected as customers move online (Adds background on industry-wide decline in branch use)

By Matt Scuffham and Steve Slater

LONDON, April 9 (Reuters) - The founder of British banking newcomer Metro Bank plans to launch an online lender, hoping to take advantage of a sharp decline in the number of customers using branches and challenge established rivals.

Anthony Thomson, who stepped down as Metro Bank chairman in 2012, said he would lead the new venture called Atom alongside Mark Mullen, who last month resigned as chief executive of First Direct, the online bank run by HSBC.

Britain's financial regulator and lawmakers are keen to see new banks emerge to break the dominance of the country's biggest banks - Lloyds Banking Group, Barclays (LSE: BARC.L - news) , HSBC and Royal Bank of Scotland (LSE: RBS.L - news) - which control about three-quarters of the personal current account market.

They believe a lack of competition was a factor in scandals such as the mis-selling of loan insurance and complex interest rate hedging products, which have cost banks around 25 billion pounds in compensation payouts.

Thomson said on Wednesday there was a growing trend for customers to bank online instead of in branches and the marketplace had changed dramatically since 2010, when Metro (Berlin: MEO.BE - news) became Britain's first new high-street bank for over a century.

"Bank branch usage has fallen off a cliff. Telephony as a means of accessing bank accounts is in decline. All of the explosive growth is in digital generally and mobile in particular," Thomson said.

Thomson is one of several British retail bank executives to have told Reuters that the proportion of transactions taking place within branches is falling and that the pace of that decline is accelerating.

A senior executive at one of Britain's biggest banks said the number of transactions taking place inside branches was falling by about 8 percent a year and that number was corroborated by other industry sources.

RBS said this month that branch footfall had fallen 30 percent in the last three years and announced the closure of 44 branches. Industry sources say hundreds more could be shut by Britain's biggest banks in the next few years.

The biggest five British banks have cut 912 UK branches since 2007.

Lloyds, Britain's biggest retail bank with the largest branch network, pledged in February 2012 to keep all of its 2,900 branches open for at least three years, but industry sources expect Chief Executive Antonio Horta-Osorio to re-assess that commitment as part of a strategic update later this year.

HSBC has cut 284 branches, or 19 percent of its network, and Santander, RBS and Barclays have cut 9-12 percent. The reduction has been gradual - Barclays, for example, has closed about 30 branches in each of the last five years.

Thomson said he still believed there was a role for branch banking but forecast that the proportion of transactions taking place online will continue to rise.

He intends to retain his "significant" shareholding in Metro Bank which has 22 branches and plans to expand to 150 by 2020.

"There is absolutely a space for Metro Bank because there are still people who use branches. We're not saying Atom is a bank for everyone," he said.

Banks are expected to encourage customers to stop using branches for routine transactions and are changing layouts to better use technology, and will increasingly consolidate several branches into a more open "flagship" site.

Thomson expects Atom, which will have no branches, to open for business in 2015. It will offer a full range of services to personal and business customers including current accounts.

(Editing by Erica Billingham and Keiron Henderson)