As a challenger bank, OakNorth charts a different course. While Revolut, Monzo, and N26 focus on putting their digital current accounts in the hands of millions, OakNorth doesn’t even offer a current account. While other challengers are racing to acquire banking licenses all over the world, OakNorth is happy with just a UK license.
OakNorth provides debt financing to entrepreneurs in growing businesses, lending £0.5M to £40M to profitable, scale-up, British businesses. To fund its underwriting, OakNorth offers digital savings accounts. It currently has 40,000 customers with digital savings accounts and has lend £3 billion in under four years.
OakNorth does have global aspirations, though. When it started looking at different options, the company chose not to assemble commando teams to acquire banking licenses across the world.
“We are definitely going global,” said Cristina Alba Ochoa, OakNorth’s CFO. “The labor, time, and money it would take to acquire licenses and run banking operations would be very hard to scale, though.”
Instead, the firm spun out its technology into a subsidiary, OakNorth Analytical Intelligence. OakNorth AI takes the same underwriting platform and portfolio monitoring tools that OakNorth uses on its own loan portfolio and provides it to banks and other lenders.
In this model, OakNorth AI works with banks that have a regulated entity and a balance sheet, but want to start or grow an SMB lending business. OakNorth offers a white label solution that handles credit analysis, culminating in the delivery of the documentation needed for a client to make a credit decision, and proactive monitoring of a loan portfolio.
“We capture all the information the banks collect from the borrower, process it, and within days, they have a full credit paper they can bring to a committee to make a decision quickly,” said Ochoa, who spent 18 years at GE Capital.
“Credit papers and processes are so different even within the same institution — they appreciate our standardized approach.”
The growth of OakNorth AI points to a larger trend of digital lenders licensing out their lending platforms to financial partners. Kabbage, for example, licenses its lending technology to banks like Santander for originating SMB loans. Funding Circle employs a similar model.
Ultimately, the technology in a platform like OakNorth AI can enable and accelerate SMB lending for a financial institution that couldn’t build something like this for itself. “It’s not machine replacing man — it’s machine enhancing man,” said Ochoa. “Our goal is to work with credit committees using our AI and process automation, so that the time to make documentation and proposals is shortened.”
In the UK, OakNorth has an exclusivity agreement to use OakNorth AI’s platform, but for the rest of the world, OakNorth wants to work closely with lenders and banks. The company has opened small regional offices in places like Shenzen and Bangalore to help with distribution of its platform and customer support. Most of the development of the OakNorth AI technology happens between the firm’s London and Singapore offices.
OakNorth AI is also in the process of expanding to the U.S., funded by its recent $440 million investment round lead by SoftBank’s Vision Fund. Here, the bank is taking a slightly different approach, generating a credit decision itself and then deploying its banking partners’ capital into SMB loans.
“We’ll have one originations team, a head of credit, and a head of legal as if we were doing the lending ourselves, but using other banks’ balance sheets to do it,” said Ochoa. “We don’t want to compete with U.S. banks and we don’t want a license in the US.”
OakNorth claims about 45 percent of its loan originations come from existing clients. This network effect helps to power the banks growth, since it doesn’t do any advertising.
Informally inside the bank, Ochoa says that they refer to their borrowers as the OakNorth Club. Borrowers are entrepreneurs in growth mode and tend to socialize with others in similar stages of building their companies. The company has two clients in the restaurant space that are currently discussing a merger after meeting at an OakNorth hosted event last October.
“It makes sense,” said Ochoa. “Our loan process does like 95 percent of the due diligence for an entrepreneur to say that ‘this is the type of business I want to do business with’. It’s a solvency check to see if a partner is trustworthy.”