Traditional banks 'may have to cannibalise themselves'
A key figure at $2.3 billion challenger bank OakNorth believes its high street rivals could be eroded as they attempt to update their technology.
COO Amir Nooriala said the combination of out-of-date systems and a profitable but large customer base will make the introduction of new systems difficult without suffering losses.
“[Traditional banks] have a dilemma: they can either rebuild all of their technology or migrate people and create a new bank, under a new banner,” the former Barclays director told BusinessCloud.
“They've got too many systems which they don't understand.”
According to Nooriala, high street banks hoping to start from scratch with new technology would lose some of their existing client base during the transition.
“For them to migrate users over, they've got to cannibalise themselves, and accept that they will make less money for a few years while they transition,” he said.
Nooriala said that all this gives challenger banks such as OakNorth a unique opportunity to gain a technological advantage.
“It gives us quite a few years to set out our stall and scale. In time they will decide that they too have to do this because they are being eroded too heavily,” he explained.
Founded in 2015, OakNorth focuses on business and property loans. The bank is one of the first to base its operations entirely in the cloud and uses artificial intelligence and machine learning to help it make lending decisions.
Since its launch in 2015, it has lent £2.6 billion, while in 2017 it posted £10.5m in pre-tax profits.
Based in London, it plans to launch a Northern lending team in Manchester this March.
The company has always had an operations team based in Manchester, which has grown to 15 people, but says increasing demand for its loans across the regions means it must look to have people on the ground who can make credit decisions based on their local knowledge and experience.
“We worked with MIDAS and Andy Burnham's team to identify the right site for us,” said Nooriala.
Last year OakNorth completed several transactions with businesses in the North, including a £40.2m loan to Select Property, a £33 million loan to Mabec Property and providing The Inn Collection Group with finance to fund its expansion.
Speaking to BusinessCloud last year about what makes a successful FinTech start-up, OakNorth co-founder Joel Perlman first piece of advice was: Don't sell too soon.
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