OakNorth’s mission is to enable entrepreneurs worldwide to access customised mid-sized loans. Within the UK, the business does this via balance sheet lending and throughout the rest of the world, it does it with partner balance sheets through tech licensing.
Since its inception in 2015, the business has grown rapidly and was recently the recipient of US$100m in investment from NICB Bank and the Economic Development Board of Singapore (as well as existing investors: Coltrane, GIC and Clermont Group), valuing the company at $2.3 billion. We caught up with COO Amir Nooriala in London recently to get his views on OakNorth’s explosive growth, the role of AI in financial services, open banking and this unicorn’s plans for the future.
Fintech Disruptors: What have been the major challenges for your business since it was established four years ago?
Amir Nooriala: Our challenges are the result of our success. It’s hard for us to keep pace with the high levels of growth we’ve been seeing. At the moment, it’s all about making sure we offer the same excellent service and don’t dilute or reduce our product offering. Net lending overall in the UK is negative, but we’re still responsible for a significant proportion of net new lending, which shows how quickly we’re growing. We’ve lent more than £2 billion, which has directly helped with the development of 8,500 new homes and more than 8,000 jobs in the UK – and that’s just the lending business. We have over 25,000 savings customers as well.
What we’ve shown is that it’s possible to scale a business profitably without taking undue risk. We are lending to more SMEs more quickly than traditional banks, thanks to our fintech platform, which has been a tremendous success. The capacity to use AI and machine learning to offer SMEs customized mid-market loans in a much shorter time frame has proven highly popular, as the recent investment round has shown.
For a successful fintech, there’s also the challenge of making sure we stay compliant with regulatory demands as a relatively new business – and we’re committed to full compliance, even where regulation isn’t required, such as in our use of cloud computing.
Fintech Disruptors: What role do you see AI having in financial services in the future?
Amir Nooriala: I studied AI 20 years ago, so it’s great to see it being put into action now at OakNorth. I think our firm has an important role to play in any discussion about AI. Right now, we use AI to help our team make swifter, and more informed credit decisions. This work is based on structured data that we deploy into the platform to help us make more informed lending decisions. Beyond this, there’s the potentially more interesting area of unstructured data – information that originates in phone calls, tweets and emails, etc – which AI has the potential to help us make sense of and categorise. Across the board, it’s important to emphasise that AI helps us to add value as operators by pointing things out that we might not have noticed. It’s not a substitute for human engagement.
While I think the potential for AI to change lives is huge, I don’t think this will happen overnight. In 2019, we’ll see lots of consolidation and partnerships, as well as a lot of the capital that’s been raised being burned through. In practice, I think you’ll see most of the action over the next five years: we think that creating platforms for AI engines which can then be licensed is the best way to proceed – it will be interesting to see who’s still around in five years’ time.
Fintech Disruptors: What about open banking?
Amir Nooriala: We’re in favour of open banking and shared APIs. It’s an area we are exploring quite heavily, even though it’s arguably less relevant for us than it is for other players as we don’t offer transactional banking products such as current accounts. The advantages are pretty clear – if you have standardised interfaces, it makes partnership between companies faster and cheaper. I would say there’s been quite a bit of media scaremongering about open APIs, but I think that most consumers understand their money is safe in the bank.
Hopefully one thing which comes out of the open banking era is improved customer service for all consumers, which is something we’re passionate about and have been able to deliver from day one, as we’re not burdened by legacy systems and infrastructure. There’s a lot of talk about customer service from the big high street banks, so it would be great to see them taking some action.
Fintech Disruptors: What do you see for the future – in your business, and across the sector?
Amir Nooriala: For OakNorth, our plans are to continue scaling up the business, always focusing on quality customer service and value-added products. We’ll also be opening a European office for our fintech platform so we can serve the growing number of European banks who are interested in partnering with us.
In the UK, I see OakNorth as being engaged in a virtuous cycle of benefit for the UK economy. We’re based here, we lend to British companies, and we employ staff in the UK. We’ve also rigorously stress-tested our loan book for various recessionary outcomes.
As regards the wider industry, I’m somewhat skeptical about the arrival of non-financial services players in the financial sector, by which I mean the advent of Facebook or Amazon as a bank. One big reason for this is consumer inertia – it takes a lot to get someone to switch bank. Even after the TSB scandal, only 1% of customers left them. Another reason I’m not sure we’ll see Facebook or Google move in to banking is the regulatory complexity of the sector. At the moment, the big internet players are more or less unregulated and aren’t used to negotiating the complex regulatory environment we’ve faced in financial services for decades.
MagnaCarta will launch its report, “Fintech Disruptors 2019”, in London this December. For more information about this study please go to www.fintechdisruptors.org