Fresh off a $400 million funding led by SoftBank, fintech lender OakNorth is close to establishing its first bank partnership in the U.S., which will also serve as its entry into the country, Bank Innovation has learned.

Based in London, OakNorth is part challenger bank, part vendor. Founded in 2015, OakNorth is a digital-based SME lender in the U.K., but outside its home market, the company licenses its digital lending platform to banks. This platform, called OakNorth Analytical Intelligence, enables OakNorth to work with banks instead of competing with them, Sean Hunter, OakNorth CIO, told Bank Innovation. 

OakNorth does not see other fintech lenders as competition.

“It’s important to understand the problem in the SME space,” Hunter said. “There are players like OnDeck, SoFi, and Kabbage which use bureau data, automate the process and provide loans to small businesses. That works for the really small businesses. At the high-end, there are players like JP Morgan that cater to bigger borrowers. They lend huge amounts and have a whole deal team working on a single loan.”

It is the middle range of businesses that OakNorth is targeting, Hunter explained. “The businesses that are way too big for the automated, commoditized products, but too small for a loan from a traditional bank. These SMEs typically have to settle for invoicing products or credit line loans. It’s a very unsatisfactory model.”

Enter OakNorth. In the U.K., OakNorth’s loans range between £500,000 ($655,000) to £45 million ($59 million). In the U.S., it will focus on a range between $500,000 to $25 million. 

Currently, OakNorth has 13 bank partners across the world, Hunter said. He declined to provide names. In the U.S. market, OakNorth has multiple partnerships in the pipeline, one of which will be made public in the coming months, Hunter said.

“We identified the U.S. as a huge target market from a growth perspective,” Hunter said. “The U.S. has thousands of banks and a significant medium-sized business sector.”

Indeed, SME lending has become a key market for fintech. Bank Innovation previously reported that 27% of SME owners in the U.S. have used an alternative lender in 2018, and that number is expected to continue rising in coming years.

OakNorth distinguishes its platform from other fintechs through its “non-traditional credit analysis,” Hunter said.

The OakNorth Analytical Intelligence platform combines data science and human expertise. This means using machine learning and artificial intelligence to automate as much as possible, and then provide additional human expertise on loan decisioning. All prospective borrowers are given the opportunity to meet the credit committee to discuss their lending needs, Hunter explained.

Another differentiating factor is that the platform doesn’t use data from bureaus, but instead looks at sector-specific data and trends, performance data and consumer sentiment data, among other things.

“We will look at other nontraditional data sources,” Hunter explained. “So, for a restaurant business client, we will look at customer sentiment via reviews and texts. That’s one example.”

Additionally, OakNorth has a “rigorous monitoring team” that actively tracks the borrower’s financials even after a loan is approved, he said. This is done by connecting to borrower’s business management system and keeping track of cash-flow, trends, expenses and other metrics.

“We don’t monitor the finances of the business, per se,” Hunter explained. “We look at key metrics that lead to the company’s financials. This allows us to highlight possible problems long before they start.”

As a result, OakNorth has had no defaults or late repayments since its establishment over three years ago.

“We intervene early on a friendly basis thanks to our intensive monitoring,” he said. “And customers, most of whom do not have sophisticated management monitoring systems, appreciate the data and insights we provide them.”

Since its launch in 2015, the platform has originated over $2.6 billion in the U.K., with 20% repayment. More than 30% of its new leads come from existing clients.

Last month, OakNorth announced a $400 million funding round led by SoftBank’s Vision Fund. The round included the Singapore investment firm Clermont Group as an investor, bringing the company’s total funding to over $1 billion.

While Hunter did not disclose where the money will be used specifically, he suggested some of it will be put towards technology enhancements.

One platform feature that’s on the roadmap is a multi-cloud plug-in, Hunter said. This will allow OakNorth to seamlessly plug into different cloud servers simultaneously. This comes in handy when the partnered bank has a different cloud from OakNorth. It’s also useful for banks – like those in certain Asian markets that can only use a specific server. For instance, in China, Amazon’s cloud service AWS is not available, and banks have to use Alibaba’s cloud or other country-specific cloud servers.

Hunter did not provide a timeline for this product’s roll-out.

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