OakNorth - Smart Lending to the Missing Middle

  • Kavya Nambiar
  • Jul 20, 2021
  • Interviews
OakNorth - Smart Lending to the Missing Middle title banner

The newcomers in the fintech field are dismantling the model of conventional banking and setting up a technology-driven system in its stead.


One of the leading global fintech platforms in this industry is OakNorth. This multinational digital bank has been described as the fastest-growing unicorn in European history. But the most notable factor about them is their commitment towards helping fund the growth of SMEs- the “Missing Middle.”

In an exclusive interview with Analytics Steps, Mr Raj Cherabuddi, the recently appointed VP Engineering at OakNorth in San Francisco, USA, delves into the company, its operations, and the future of the banking sector.


Recommended Blog - What is Fintech? Examples and Applications



OakNorth- Journey and Operations


OakNorth was born when its founders, Rishi Khosla and Joel Perlman, got in a bind themselves when looking for capital for their own business. Understanding the flaws in the existing system inspired the launch of OakNorth in 2015. This is also why an important part of OakNorth’s vision is what they describe as lending to the “Missing Middle.”


The OakNorth business has two parts- they offer SaaS services through their ON Credit Intelligence suite, and in the UK they offer banking services as OakNorth Bank PLC.


OakNorth is licensing software to banks and transforming commercial lending to the empowerment and benefit of entrepreneurs. 


“As an entrepreneur myself, I was drawn to OakNorth’s mission-driven and founder-led approach, as well as the positive impact the ON Credit Intelligence Suite, could have on growth businesses in communities and economies worldwide. Having worked for some of the most established software companies in the world, I’m excited about the potential of the software."


Before joining OakNorth Cherabuddi worked for over 25 years in reputed companies like Intel, Sun Microsystems, McDATA, and Teradata, and has successfully started, scaled, and sold two tech companies, and is the founder of a scaling business. At OakNorth, Cherabuddi provides operational and strategic leadership to the engineering organization and is “helping to drive a strong engineering culture” and working on their credit intelligence software.



OakNorth Bank PLC


OakNorth offers its solutions to banks on a global scale, but they only have a banking license in the UK.


“Rather than trying to obtain banking licenses for other markets and compete with existing lenders, we’d rather equip them with the tools to address the borrowing needs of businesses more effectively. That is why we license our software, the ON Credit Intelligence Suite. We feel this will enable us to address the Missing Middle funding gap much more quickly than we could do if we tried to do it on our own.”


Through innovative strategies and deploying their own credit intelligence software, OakNorth Bank PLC has even outgrown some of the more successful brick-and-mortar banks in the UK. 


“OakNorth Bank PLC… has become one of the fastest-growing businesses in Europe according to the Financial Times (FT 1000), and has performance metrics that place it amongst the top 1% of commercial banks globally in terms of ROE, efficiency ratio and Net Promoter Score…

...OakNorth Bank has lent several billion pounds to hundreds of businesses across the UK who have collectively gone on to create tens of thousands of new homes and jobs across the country.”


Some recent appearances of OakNorth in the news include granting a £2.7m loan to SGI for the development of the new community stadium at Sheffield Olympic Legacy Park, and a £7.5m loan to Springfield Healthcare for the development of a new luxury care home in East Yorkshire.


Cherabuddi describes the four points that make OakNorth Bank unique when compared to other UK lenders-


  • Speed: “We offer quick ‘yes’ or ‘no’ decisions so that we don’t waste business’ time. We will always try to find a path to ‘yes’ and will never take a computer-says-no decision.”

  • Flexibility: “We take the time to get to know a business and structure a bespoke facility for its unique needs. No off-the-shelf solutions or ready-made products – we look at each deal with a fresh pair of eyes.”

  • Transparency: “Every business we consider lending to is given the opportunity to meet our Credit Committee and discuss their borrowing needs directly with the decision-makers.”

  • An entrepreneurial approach: “We were founded by entrepreneurs, not bankers, so we have a unique understanding of the opportunities and pain points facing businesses, and speak the same language as them.” 



Credit Intelligence


“OakNorth’s (ON) Credit Intelligence Suite transforms commercial lending by helping banks build deeper relationships with their clients and open new, more profitable opportunities, whilst delivering credit decisions up to ten times faster than traditional models, with lower risk and greater efficiency. "


The ON Credit Intelligence Suite offered by OakNorth is a different approach to traditional lending, and benefits both lenders and borrowers. The software, built over five years by an engineering and credit science team of over 250 people, is now being used by a number of leading banks, most of them in the US, including Capital One, PNC, Fifth Third, SMBC, ABN Amro, Customers Bank, Old National Bank, NIBC, Modern Bank, OIMO and Lafayette Square. It is also the secret ingredient in the success of OakNorth Bank PLC.


This Credit Intelligence software from OakNorth is an intelligent system, overcoming the sort of narrow view opted by other lenders. There are three components to it:


  • Portfolio Insights: “Instantly segments borrower portfolios and rates loans based on level of vulnerability.”

  • Credit Analysis: “Gives lenders a 360-degree view of its borrowers with instant financial forecasting, sector insights, and peer analysis.”

  • Portfolio Monitoring: “Easily tracks industry trends and sets early warning alerts for potential covenant breaches.”


All of this combines to form a platform that “enables banks to lend faster, lend smarter and lend more to the Missing Middle.”


Recommended Blog - Banking on Artificial Intelligence



OakNorth in India


India has played a considerable role in the growth of OakNorth. Although the platform doesn’t offer any products or services in the country, it is strategically important for them in terms of talent, with a sizable percentage of OakNorth’s workforce based in India.


OakNorth recently set up a new location in Hyderabad, but due to the pandemic, all work is remote with no offline operations.


“Our offices in Gurugram, Bengaluru and Hyderabad are hugely important to our global operations and the development of the ON Credit Intelligence Suite. We continue to look to hire top talent working in software engineering, artificial intelligence, machine learning and credit analysis.”


Recommended Blog - Top 6 Fintech Products in India



Banking Risk Assessment and COVID-19


“When it comes to commercial lending, banks rely on risk models to make decisions. These models have been built up internally over decades of lending across thousands, if not tens of thousands of loans, but COVID-19 has exposed unexpected flaws in them.”


The banking industry got shaken up with the COVID-19 pandemic, with new challenges emerging that most are not equipped to tackle. The risk models that banks use fall short of the needs posed by this unprecedented situation.


“The first issue is that these models are based on historic data which doesn’t adequately reflect the unique situation we now find ourselves in or take into account the future challenges that the world will be facing as it enters into the worst recession in three centuries.

The second issue is that they make broad assumptions about entire sectors rather than developing an understanding of the portfolio at the granular loan level and taking into account the individuality of each business.

The third and final issue is that these models don’t take into account how quickly the situation is changing.”



COVID-19 accelerated lending in a direction that it was already slowly moving towards, which is characterized by “the need to use much more granular data and take a forward-look view.” The shift in strategies that the pandemic forced has proven to be of advantage to OakNorth, as it aligns with most of what they were already helping lenders do. The cloud-integrated nature of their operations also helps with their adaptability.


Recommended Blog - COVID-19 Impact on Financial Markets



Future of Banking


“In the future, banks are going to have to combine backward-looking data with a forward-look view, as well as take a granular, loan-by-loan approach rather than an overall portfolio or sector-level approach to credit analysis.”


The traditional banking system cannot be expected to survive for long without adapting, and the success of companies like OakNorth is proof of this.


“Our future plans are to continue deploying our software with leading banks, primarily in the US, and to continue using it to build our loan book in the UK via OakNorth Bank PLC.”


The ON Credit Intelligence Suite is the future of commercial lending for banks, especially for those that wish to cater to the Missing Middle segment of the market.