OakNorth Turns Risk into Opportunity with Tech

Sean Hunter, ONAI CIO

By now, it’s commonplace for banks to claim the mantle of “tech company.” But for OakNorth, tech and banking truly go hand-in-hand. Its data and technology platform, OakNorth Analytical Intelligence (ONAI), allows it to do balance sheet lending via OakNorth Bank in the UK, profitably originating over £2 billion without a single default or late payment since its launch in September 2015. Outside the UK, it licences its ONAI platform to banks and other lenders, operating as a PaaS business on the strength of its unique tech.

OakNorth leverages big data and machine learning to collaborate with banks and lenders outside of the UK, enabling them to unlock the potential in customized loans to businesses. According to Sean Hunter, the CIO of ONAI, this has to do with its focus on an underserved segment of the market—medium-sized businesses.

“Historically, there’s been a massive focus on tech efficiency within the retail and small SME lending space, and a massive focus on people within the corporate- and large-business lending space,” Hunter says. “Whether you’re an owner-managed business looking for a £500k loan, or a small-cap listed business looking for a £40 million loan, the issue is the same, and your requirement for a bespoke, structured lending solution is the same.”

“OakNorth Analytical Intelligence, or oaknorth.ai, is how we’re solving this problem globally,” he continues. “This was always the plan and, in our view, it’s the fastest and most effective way to scale and own this space globally across major markets.”

So what does that mean in practice? For one thing, the ONAI platform allows OakNorth to operate with much greater speed. Their platform enables OakNorth Bank to complete transactions (from first meeting to cash disbursement) in weeks, rather than the months it takes traditional lenders. Further, it lets the bank operate with greater flexibility. The lender is able to look beyond real estate and consider other assets (stock, debtors, plants and machinery, intellectual property, and even alternative assets such as art) to deepen the collateral pool, because the platform can analyze risk with greater confidence.

“When it comes to decision-making, we try to let data be our guide as much as possible,” says Hunter. OakNorth is “reassured by the fact that we do an extremely robust credit analysis on all our loans, coupled with proactive monitoring so that we get an early warning if anything isn’t going to plan.” But this tech is coupled with the founders’ experience of being entrepreneurs themselves. “They understand how painful the process of taking out a bank loan can be, so everything in the bank is set up to make the borrowing process as quick and smooth as possible,” Hunter explains. That way, “entrepreneurs can get back to running their business.”

Because they developed the platform organically for their own needs before expanding into a PaaS business, their technology has gone through multiple iterations since assuming its current form. They’ve had the luck to operate with collaborative state regulators in the UK as well as partners like AWS, which turned out to be a highly beneficial partnership, Hunter says. In May 2016, OakNorth became the first UK bank to be fully cloud-hosted after months of working with AWS and the regulators to drive the regulation forward. “AWS worked with us and the UK banking regulators to win approval for UK banks to operate in the cloud,” Hunter says.

But it hasn’t all been luck. OakNorth has faced relatively robust technical challenges over the past year as they’ve grown, including building the infrastructure to create separate VPCs for each client to ensure their data is segregated “while making sure that our continuous build and integration infrastructure is able to push changes to all of these VPCs,” explains Hunter. It’s “been a big challenge, but something that works great on AWS.”

In the coming year, the business will have to figure out how to ramp up capacity as its bank / lender customers transition from pilot to full production on the ONAI platform, and new clients sign on to it. “There is a lot of demand for what we do, as banks recognise that SMEs are underserved and overlooked and are looking for ways to serve them better, while at the same time, improving their margins and processes when it comes to SME lending,” says Hunter. “From a tech perspective, this year is going to be all about increasing automation through the pipeline and improving our capacity so we can handle this fire hose of demand.”

As the market enters a new period of volatility, segments that are historically overlooked by lenders may be further isolated from necessary credit for building their business. But for ONAI, that’s no problem. “Many banks might want to retreat from lending to small businesses—with the ONAI platform, we have the opportunity to step up and meet their needs,” Hunter states.

For OakNorth, their ONAI technology fundamentally allows them to relate to the market differently than legacy banks. Their outlook is that “uncertainty is not only a threat, it gives rise to opportunities, too.”