We had the privilege of speaking with Joel Perlman, Senior Managing Director and Co-Founder of OakNorth, about his entrepreneurial journey and how the digital-first bank is reshaping SME lending. From his early experiences with failure to the creation of OakNorth, Joel shares how the bank is empowering mid-market businesses with a data-driven approach to credit.
Curious about the story behind OakNorth’s success and the future of SME lending? Read on as Joel dives into his inspiration for co-founding OakNorth, the challenges entrepreneurs face, and how the bank is driving change in the financial industry.
Did you always know you wanted to be an entrepreneur, or did you get bit by the bug later in life?
“The entrepreneur bug was definitely instilled in me from an early age, as I come from a family of entrepreneurs, so being unafraid to try and fail was part of my upbringing. My brother and I started this dot-com incubator and during the dotcom bust, most of the businesses failed, so it taught me a lot about failure and resilience. However, there was one business borne out of that which did very well and is still being run by my brothers today – the dance fitness company called Zumba.”
Tell us why you co-founded OakNorth?
“OakNorth was founded in September 2015 with one fundamental purpose: to empower the lower mid-market (businesses with £1m-£100m turnover) to support growth, prosperity, and innovation for the benefit of all. These businesses seeking to scale are routinely underserved or overlooked by traditional banks: what we call “scale-ups.
“My business partner, Rishi Khosla, and I experienced this first-hand while scaling our previous company — Copal. In 2005, three years after launching the business, we applied for a bank loan and the ‘computer said ‘no’’, despite the business being profitable and having strong cashflow. As entrepreneurs, our natural response was to build a digital bank for entrepreneurs, by entrepreneurs, ensuring businesses like ours get the products, services, and experience they need to succeed and scale.”
OakNorth has built a reputation for using data-driven models to assess credit risk in lending. Can you share how the bank’s approach to this has been central to its mission to better serve SMEs?
“Our unique approach to lending has been and continues to be a core part of our mission to empower the lower mid-market. It is down to this approach that has seen us provide c.£12.5bn to these businesses across a wide range of sectors, achieving performance metrics that place us amongst the top 1% of commercial banks globally.
“One of the core elements that defines our approach is how we look at the business world – rather than using broad assumptions to split the economy into a dozen or so sectors, we use an analytical framework powered by vast commercial loan data, covering over 270 industries. This allows us to take a highly detailed, data-driven, and forward-thinking approach to serving a range of different sectors and subsectors that other lenders often retract from. Furthermore, this approach enables us to incorporate scenario analysis, historical trends, and peer performance into our monitoring and review process, meaning we can take a risk-based approach to action and continue confidently lending through the cycle without a stop/start approach.
How do you view the competitive landscape of digital-first banks and traditional financial institutions in the SME lending space?
“The competitive landscape between digital-first banks and traditional financial institutions in the SME lending space is increasingly dynamic, defined by a shift toward speed, accessibility, and customer-centricity.
“We can’t speak for others, but what sets OakNorth apart from our more traditional peers, is not just our commitment to innovation and bespoke solutions, but also our focus on flexibility. Recognising that businesses evolve over time, we ensure that our lending solutions can adapt to meet changing needs and circumstances. We pride ourselves on providing our customers with an efficient and integrated banking experience. This agility enables our customers to navigate challenges and capitalise on opportunities with confidence.
As you look to the future, do you anticipate any significant shifts in the type of businesses that OakNorth will be supporting with loans. Where do you see large growth opportunities?
“Looking ahead, we will continue focusing on empower the lower mid-market (businesses with £1m-£100m turnover), given we understand the outsized contribution scale-ups have on the UK economy. For example, our research with the Social Market Foundation found that these businesses that make up just 1% of SMEs, contribute c.£500b to the economy.
“In terms of where we’re seeing large growth opportunities, the second half of 2023 saw us start supporting the most ambitious and innovative businesses in the US, and in August last year, we secured approval from the Federal Reserve and the New York State Department of Financial Services (NYDFS) for a Representative Office in New York, which enabled OakNorth to proactively market its products and services from its US office. Then most recently in March this year, we announced our acquisition of Community Unity Bank, the home-grown, FDIC-insured community bank based in Birmingham, Michigan, in a stock for stock transaction (subject to regulatory approval). This acquisition will enable us, through CUB, to expand our business lending throughout the U.S., as well as in Michigan.”
Want to hear more from Joel and be part of the discussion shaping the future of fintech? Join us at the FTT Fintech Festival on 10-11 November at The Brewery, London. Don’t miss the chance to engage with thought leaders, explore the latest innovations, and connect with the people transforming the financial services industry from the inside out.
