How We Started A Next-Generation
Credit Analysis and Monitoring Platform

Hi! Who are you and what business did you start?

I’m Rishi Khosla, Co-Founder of OakNorth, the next-generation credit analysis and monitoring platform.

Within the UK, we leverage the platform to lend off our own balance sheet via OakNorth Bank. Since the bank’s launch in September 2015, it has lent over £4bn to several hundred businesses across the UK. It has helped with the creation of 13,000 new homes and 17,000 new jobs.

Outside of the UK, we license the platform to lending partners. We provide them with the insight and foresight they need to more holistically and profitably lend to the ‘Missing Middle’ – growth businesses who are the backbone of economies and communities globally, but who have been in banking’s blind spot for decades.

“If you have a strong work ethic and hunger, there is no limit to where that can take you.”

What is your personal story and how did you come up with the idea?

In 2006, my business partner, Joel Perlman, and I were trying to secure a loan to scale our first business (Copal Amba). Despite healthy cash flows and strong projections for the future, we struggled to secure working capital. We simply didn’t have traditional assets, such as property, to act as security.

As Copal Amba kept growing, we encountered more businesses around the world who’d faced similar struggles as us in trying to secure a bank loan, quickly, bespoke to their needs.

The idea for OakNorth began to form…

Rishi Khosla - CEO, OakNorth
Rishi Khosla, CEO of OakNorth

After scaling Copal Amba to almost 3,000 employees across eleven markets, and selling it to Moody’s Corporation in 2014, we launched OakNorth. For more on our story, take a few minutes to watch this video:

What challenges did you face when creating your product/service?

If you have a strong work ethic and hunger, there is no limit to where that can take you.

With OakNorth, we decided to first prove the platform proposition / the tech in the highly regulated and highly competitive UK market. If successful within our own Bank, we’d then look to license it to other banks from there.

That meant that we were creating a pretty big challenge for ourselves from day one! We needed a banking license which is, rightly so, not an easy thing to obtain! When we were fortunate to secure ours in March 2015, we were only the third UK-based bank in 150 years to have achieved this.

Since then, we’ve gone on to use the platform to build a very strong bank in the UK (OakNorth Bank). We have been licensing the platform to other banks around the world for the last 18 months or so.

OakNorth Mobile App

Who is your target market?

Our current core focus is working with lenders in the US, Canada, Australia, Germany, Austria, the Netherlands, China and Taiwan.

The platform allows traditional financial institutions to significantly improve and accelerate their credit decisioning and monitoring capabilities. This is done by leveraging machine learning, decades of credit expertise and massive data sets (including unconventional and previously unavailable data).

The platform enables our bank partners around the world to do the in-depth credit analysis needed to provide ‘Missing Middle’ businesses with the type of bespoke deal structuring that’s typically reserved for large corporations.

In doing so, the platform enables the lenders we work with to have fundamentally different conversations and engage with borrowers in a dramatically different way. It brings credit insight about borrowers’ businesses back to the front line, democratising this knowledge so that lenders‘ relationship managers have a deeper understanding of the individual business, its industry and its sub-sector.

As a result, they have more relevant and thoughtful conversations with the business owner and build much more meaningful relationships with them. Instead of wasting time on the things that don’t matter, they are able to spend more time on the things that do – structuring a loan for their borrowers’ needs in the time frame they need it, as well as exploring cross-selling opportunities.

Oak North Credit Analysis

In the immediate term, businesses need liquidity to overcome the challenges being presented by COVID-19 and get back on their feet when the recovery begins. They are looking to banks and lenders to support them during this crucial period – either directly or through Government loan programs.

On the other hand, lenders are concerned with the impact of COVID-19 on the health of their current books.

Given the unprecedented scale and dynamics of this crisis, trying to assess credit risk based on previous risk ratings doesn’t make sense as all previous correlations are broken.

As a result, lenders need to:

  • Reassess credit risk based on forward-looking scenarios which factor in the impact that COVID-19 is having on businesses
  • Follow through on stress scenarios on a granular, loan-by-loan basis, rather than just at the portfolio level
  • Monitor all credits more closely as sectors have become more volatile post-COVID-19
  • Re-underwrite these loans at depth and bring consistency to their credit approach through the crisis, running risk analysis on a consistent basis.

“Over two thirds of qualified leads within the bank come from client referrals .”

OakNorth has developed a “COVID Vulnerability Rating” (CVR) Framework. CVR Framework integrates over 130 proprietary sub-sector specific COVID-19 stress scenarios with regional overlays, incorporating assumptions for impacts on key financial metrics such as revenue, operating costs, working capital and capex.

The Framework enables commercial lenders to re-underwrite loans and bring consistency to their credit approach through the crisis, running risk analysis on a consistent basis.

Based on the framework, the OakNorth platform helps lenders undertake portfolio diagnostics. It rates loans from 1-5 based on their vulnerability to the new economic environment (1 being least vulnerable, and 5 being most vulnerable). The ratings are based on multiple factors including liquidity, debt capacity, funding gap & profitability. The ratings can be dynamically customised to reflect the lender’s credit risk criteria and appetite.

The framework enables commercial lenders to identify the high vulnerability loans re-underwrite at depth and bring consistency to their credit approach through the crisis, running risk analysis on a consistent basis, as well as monitoring all credits more closely – given that sectors have become more volatile post-COVID-19.

How do you market your business and which approaches have been the most successful?

We do very little above-the-line marketing activities such as sponsorship or advertising. Instead, we focus on activities that will help build our community and generate strong word-of-mouth. This may be content marketing, events, and PR editorial coverage.

As a result, over two thirds of qualified leads within the bank come from client referrals.

Since you launched, what has worked in not only attracting but retaining customers?

A very clear vision and value proposition! ‘Missing Middle’ businesses in the UK know that by going to OakNorth Bank for a loan, they’ll get an experience that’s quick, transparent, bespoke and entrepreneurial. This is what we’re aiming for worldwide – i.e. for ‘Missing Middle’ businesses to know that if they want a better borrowing experience, they should go to a bank that’s leveraging the OakNorth platform.

A proof of concept: our model as a platform that also licenses to its own bank, gives us a unique perspective on the challenges and opportunities our lending partners around the world are facing.

A core value focused on customer delight: everything we do is with the customer in mind and how we can make the experience better, faster, simpler for them.

“We’re not afraid to ‘Say it how it is’ or ‘zero base’ the way things have always been done.

What kind of culture exists in your company, and how did you establish it?

We’re a very mission-driven and values-driven company. Like any fast-growing company, it’s an environment that is very intense and high-pressured. Yet, it’s fun, rewarding, collaborative and open.

We’re fortunate to continue to attract some of the most ambitious and talented people from across industries who also share our values. Those values are working together as ‘One Team’ to deliver products and services to our customers that are ‘10X’ better than the competition and deliver ‘Customer Delight’, ensuring that we put energy and ‘Momentum’ into everything we do.

We’re not afraid to ‘say it how it is’ or ‘zero base’ the way things have always been done. Joel and I have said numerous times that we want to continue building this business for the next decades. We are not looking for a quick exit. This reflects our final value of ‘Right Ambition’ and one that is shared by our team.

Almost half of our employees have taken the opportunity to become shareholders in the business. They have invested their own money and, in doing so, helped to build for the long term.

OakNorth team at the Scafell Pike peak (July 2019)
OakNorth Team at The Scafell Pike Peak (July 2019)

What software, services or tools do you use within your business?

We use a variety of software, services and tools at OakNorth to enable our team to communicate effectively and deliver an optimal experience for customers. It’s a very long list, so too many to name!

“When a company has too much capital available upfront, it tends to be built on fundamentally bloated cost structures.”

What are the most important lessons have you learned on your business journey?

If you have a strong work ethic, there is no limit to where that can take you.

Too much money in the bank when starting out is a bad thing. 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. These businesses end up operating much more efficiently.

Take the time to hire the right people who believe in the company’s vision and values.

What is your favourite aspect of being an entrepreneur?

The hunger it gives you.

What is your LEAST favourite aspect of being an entrepreneur?

I don’t have any!

What books, podcasts or other resources have inspired and influenced your business journey?

My father has been a great influence for me on my business journey so far.

Where do you see your business 2-3 years from now?

Businesses need liquidity to overcome the challenges being presented by COVID-19. It could trigger a recession and impact them for the next few years. They are looking to banks and lenders to support them in this crucial period. Either directly, or through Government loan programs. 

This is why we have developed our “COVID Vulnerability Rating” (CVR) Framework.

Where can people go to find out more about your business?

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