What makes us a challenger bank
20-02-2019

Amir Nooriala, OakNorth’s Chief Operating Officer, explains what makes OakNorth a challenger

Definitions of the different types of banks

When I tell people I’m the COO of a challenger bank, I often get asked “what is a challenger bank?” Google and you’ll see the description “a relatively small retail bank set up with the intention of competing for business with large, long-established national banks.” This definition is missing what challenger banks bring in terms of better rates, more flexible product offerings and better customer service and is also wrong about them being retail focused. OakNorth for example is both retail (deposit) and business (lending) banking focused.

Additionally, not all challenger banks have been set up to compete with large, long-established ones. In the UK we do this, but everywhere else in the world, we partner and collaborate with other banks, enabling them to replicate our SME lending model in their own market/s via our OakNorth Analytical Intelligence platform.

Another question we hear often is “what are ‘neo’ banks? And how are they different to challenger banks?” In a way answering this question is a better way of answering the question of “what are challenger banks?” A ‘neo’ bank is a marketing term for the large amount of FinTech apps we are now seeing which aren’t actually regulated banks but rather offer some sort of transaction based functionality. Your money is not (FSCS) insured with them and their managers are not carefully vetted by the FCA and PRA like senior managers in a regulated (challenger or high street) bank.

So you could say there is no difference between a challenger bank and a high-street bank functionally and the FSCS backed peace of mind you get, but challenger banks have been built ground-up with the newest technology and offer better rates and services to their clients than traditional banks.

Finally, I also often see the question of “what is a digital bank?” A digital bank is one without branches, so all interactions with the bank are done through the website and/or a mobile app. So in summary OakNorth is a digital challenger bank!

How is the high-street being challenged?

For those that are challenging the dominance of the ‘big five’ banks (Barclays, HSBC, Santander, Lloyds and RBS), there are a number of ways in which they’re doing it. Some are offering customers more transparency, lower fees and more competitive savings rates, others are providing faster services and a slicker user experience. Some are combining all of these and in doing so, they’re biting at the heels of high streets banks and increasing competition in the marketplace.

A key factor that is enabling this increase in competition to happen is technological innovation. Something that the traditional high-street banks mentioned above, have been slow to take advantage of due to their IT legacy issues that have been built up over decades. At OakNorth, it is our technology stack that has enabled us to design a user journey for our savings customers whereby they can apply for and fund an account online via our website in minutes.

What’s more is that despite having over 34,000 savings customers, the entire function is managed by less than a handful of people and because we don’t have any branches, we avoid the expensive overheads of bricks and mortar that burdens our larger rivals. The savings we make from being digitally-led get passed on to our customers in the form of more competitive savings rates. So, on the savings or retail side of our business, we compete with traditional banks in terms of our rates and our user journey which is quick, simple and efficient. Customers have responded very positively to this giving us an average Feefo rating of 4.5 stars across thousands of reviews.

On the lending side, we compete with traditional banks in four key ways:

  1. Transparency – we give every prospective borrower the opportunity to meet Credit Committee and discuss their lending needs directly with the decision makers, rather than what you find at a traditional bank where the lending director pitches on the borrower’s behalf;
  2. Flexibility – we look beyond real estate assets (e.g. stock, debtors, plant and machinery, intellectual property and alternative assets such as art) to deepen the collateral pool, as well as accepting loans on cash flow and personal guarantee;
  3. Speed – our entire process is designed to transact loans as quickly and efficiently as possible (weeks compared to the months it takes traditional lenders) so that our entrepreneur clients can get back to running their business;
  4. Finally, an entrepreneurial approach – as we were founded by entrepreneurs, rather than bankers, we know how beneficial it can be for business leaders to meet their peers and exchange advice, tips and experience. That’s why we facilitate introductions and arrange several events throughout the year that give our clients the opportunity to meet one another.

The combination of these four factors has enabled us to lend £2.6bn in just three years, profitably and without a single default to date, whilst generating a new business pipeline whereby more than 30 percent of new leads come from existing clients.

We know that 34,000 savings customers and a total lending portfolio of £2.6bn means we’ve still got a long way to go, but hopefully it’s getting customers – both on the savings and lending sides of our business – to think a bit differently, expect more from banks, and recognise that a challenger might be a better fit for their needs.