Tell us more about OakNorth including what makes your vision unique?
OakNorth is the next-generation credit platform that is redefining lending to lower mid-market businesses globally.
Historically, there’s been a massive focus on tech efficiency within the retail banking space, and a massive focus on people within the corporate and large business banking spaces.
As a result, the segment of the market that we focus on (the lower mid-market where loan sizes are typically between $1m-$25m) has been overlooked and underserved for decades.
The platform helps our bank and lending partners to more holistically and profitably cater to this market segment. It supplements the traditional method of relying on backward-looking historical data sourced from the borrower, and scenario analysis based on standard haircuts that are not necessarily linked to industry drivers (Level 1 and 2 analysis), with technology and massive data sets, to model a forward-looking view that’s informed by industry benchmarks, macroeconomic drivers, and scenario analysis specific to each business (Level 3 and 4 analysis).
Within the UK, we use the platform to do our own balance sheet lending (via OakNorth Bank), and throughout the rest of the world, we license it to other banks and lenders such as NIBC Bank in the Netherlands, so that they can replicate our success with SME lending in the UK, in their own markets.
Since its inception, the business has secured over $1bn from leading investors, including: Clermont Group, Coltrane, EDBI of Singapore, GIC, Indiabulls, NIBC, Toscafund, and SoftBank’s Vision Fund.
The business was founded by Rishi Khosla and Joel Perlman who were inspired to launch the business following the challenges they faced in securing debt finance from high street banks for their previous business, Copal Amba.
What have been the key drivers of OakNorth’s high growth trajectory over the past few years?
A clear and focused proposition that genuinely addresses an unmet market need, a world-class team who believe in the mission and the vision and genuinely care about fixing lower mid-market business lending globally, and world-class technology (superficially the application of machine learning and big data) to deliver that proposition, and of course, incredible support from both our investors and our customers.
How has OakNorth’s communication and PR strategy evolved as the business has scaled?
Before we launched, had any clients, or had proven our proposition, our strategy was focused on promoting our strengths as a lender and highlighting how there is an unmet market need. So, we talked about our banking license, the strength of our board and executive team, our tech stack and why the SME lending market is ripe for disruption.
Once we launched and started to build our loan book, our focus moved much more to promoting the transactions we were doing with SMEs and how they were using the finance from us to scale. Over time, as we’ve transacted more and more loans, we’ve had to find ways to still promote them all. This has meant putting processes in place to ensure sign off is as quick and efficient as possible, that we start the PR conversation early and have a press release worked up and signed off so that it’s ready to be issued as soon as the deal closes.
The strategy now also includes promotion of the platform and how this has helped us to build such a successful bank in the UK.
OakNorth is currently in the process of establishing itself in several additional countries, including the US and Singapore. Which have been the most challenging countries to expand into, and why?
For the Bank, we have offices in London, Manchester, and Gurgaon.
For the platform, we have offices in NYC, London, Singapore, Shanghai, Hong Kong, Gurgaon and Bangalore. Many of these are markets that our founders, Rishi and Joel, had operations in for their previous business (Copal Amba), so they understand the regulatory landscape well, know where to find the best talent, etc. Having experience in news markets or seeking advice from someone does is really important for start-ups to ensure that all bases have been covered before launch.
Everyone knows the positive multiplier effect of lending to SMEs who are the backbone of the economy. New jobs will be created, new homes will be built, and there will be more GDP growth. So, as a business that is helping banks to unlock some of that additional potential and lend to SMEs more effectively, the reception in each market we’ve expanded to has generally been very positive.
OakNorth places emphasis on its lending solutions being custom-built, which typically requires a more manual approach. How does OakNorth balance this with the need to maintain fast set-up times and low costs through automating processes?
This is exactly what our platform enables us to do – incredibly robust and in-depth underwriting and credit analysis, so that we can structure bespoke debt finance facilities quickly. The platform uses artificial intelligence and machine learning to enable credit papers, the 30-40-page documents that banks’ credit committees use to make informed lending decisions, to be pulled together in days rather than the weeks it would normally take. The platform then proactively monitors the financial and operational data of every borrower in a bank’s portfolio, flagging up any potential issues to assist in reducing the likelihood of a late payment or default in the future.
What element(s) do you think will drive the most growth for OakNorth, and other digital only UK SME lenders, in the next few years?
Historically, businesses have taken a one-stop shop approach to banking, typically getting all their ancillary products and services (credit cards, loans, savings products, etc.) from their current account provider. However, over the next few years, I think we’re going to see a greater shift to the model that we’re seeing in the retail space – i.e. where people shop around for the best provider for their needs and have products and services from multiple providers.
The key driver of this change is going to come from FinTechs maturing – a lot of SMEs are still reluctant to switch to a challenger brand as they’re less familiar with them, there may be a perception that they’re less secure, etc. However, as FinTechs evolve from the start-ups they are today to mature scale-ups with profits and proven business models, we’ll see more SMEs switching to them.
For OakNorth specifically, our growth in the UK is going to be in our loan book and outside of the UK, it’s going to be in licensing our platform to other banks and lending institutions.
What are some of the key trends that you see to be impacting the FinTech space more widely?
Collaboration – between FinTechs, between FinTechs and large financial institutions, between large financial institutions and big tech, and possibly even between FinTechs and big tech one day if the FinTechs can reach a scale that makes them interesting enough for big tech to collaborate with.
What advice would you give to growing FinTechs looking to scale?
Operate from a mindset of frugality and make sure you have a clear business model and path to profitability from the outset.
When a company has too much capital available upfront, it tends to be built on fundamentally bloated cost structures. Spending more money than is necessary becomes a part of the company’s DNA and changing this is hard. Having little to no money forces businesses to operate from a mentality of scarcity, and these businesses end up operating much more efficiently. Our co-founders, Rishi Khosla and Joel Perlman, started their first business (Copal) with just £40k so even though it was much easier to raise capital to start OakNorth, they still took a very frugal approach, ensuring they didn’t spend a penny more than they absolutely needed to. That has remained their philosophy throughout the OakNorth journey so far and as a result, we’re one of the few unicorns in the world that is profitable.