By Sam Sidhu, Vice Chairman & Chief Operating Officer of Customers Bancorp
Most banks operate in the stone age, hindered by legacy technology and processes. At Customers Bank, we have been able to compete with some of the largest and most established lenders, growing assets from $250 million to $18 billion over the last decade, by taking a “high tech, high touch” approach.
Partnerships with leading fintechs and confidence to be a first mover have been keys to this growth. Our partnership with OakNorth, an enterprise software business focused on commercial lending, especially highlights this technology-driven first mover advantage. I was first introduced to OakNorth at the end of 2019 and it proved fortuitous timing given the pandemic struck only a few months later.
OakNorth’s cloud software, the ON Credit Intelligence Suite, is made up of three components: credit analysis, portfolio monitoring and portfolio insights. However, OakNorth is set apart by the fact that it also runs its own bank in the UK, OakNorth Bank. The bank secured its Charter in 2015 – making it only the third UK bank to do so in 150 years – and since then, its ROE performance, efficiency ratio and credit track record have been particularly impressive.
Often, platforms and fintech products are developed by teams who have a general knowledge of banking but have never actually done banking themselves. OakNorth’s experience as a charter bank meant we were able to move much faster than we otherwise would have. With banking in its DNA, OakNorth and their bank partners have strong cultural alignment from the outset – a congruence that proved to be important as we began to assess how best to manage the portfolio risk in our book resulting from COVID-19.
As a lender, we have always strived for operational excellence, continuously assessing how to be better in terms of managing our portfolio risk, and how to use data to be proactive, rather than reactive. When COVID-19 hit, our immediate concerns were business continuity and portfolio risk management. Instead of deprioritizing our OakNorth partnership, we actually thought about how to leverage them to help play an even more substantial role in weathering the crisis.
There were two ways OakNorth ultimately helped: standing up Paycheck Protection Program (PPP) loans and portfolio management. On PPP, OakNorth extended the ON Credit Intelligence Suite to develop an end-to-end solution to support lenders such as ourselves. The process design ensured we retain complete control of key decision-making and risk-management processes. We were able to get the solution up and running within 72 hours, which enabled us to become one of the first community banks offering PPP loans. Through embracing partnership with fintechs such as OakNorth, and willingness to be a first mover for solutions such as its PPP product, we were able to provide over 100,000 loans and become the sixth most active PPP lender in the US – a substantial feat for a bank our size.
The other way OakNorth supported us was with portfolio monitoring – OakNorth enabled us to take a granular, bottoms-up approach, with a companywide view of credit quality and industry exposure. As a result, we identified the most vulnerable businesses and took proactive measures to support them. We encouraged them to top off their interest reserves, fund additional escrow accounts to cover interest shortfalls, offer niche stimulus or government assistance programs such as the PPP, or extend extra credit even if the borrower doesn’t need it immediately. This automated loan-by-loan review has not only enabled us to be nimbler and manage risk better, but has also meant we can have more consultative discussions with our borrowers.
Many banks are reluctant to be first movers – it seems almost counterintuitive for a sector as heavily regulated as this – but in Customers Bank’s case, it’s provided us with a competitive advantage and the ability to compete with larger institutions. By combining this agility with best-in-class technology products such as OakNorth’s Credit Intelligence Suite, we are meeting the aspiration of our name and supporting our customers through good times and bad.