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Into the cloud: OakNorth Bank

IBS Journal talks to Francesca Gandolfo, Chief Operations Officer, OakNorth Bank, which last year became the first bank in the UK to have its core system fully hosted on the cloud

IBS Journal: Before we get to core banking systems, could you tell us about OakNorth Bank?

Francesca Gandolfo: We’re a new bank in the UK, focused on providing fast, flexible and accessible debt finance (typically between £1 million – £20 million) to entrepreneurs and mid-sized growth businesses. We are the third new retail deposit-taking bank licenced in the UK in 150 years, and the only new bank in the UK to achieve profitability within its first year of operations. We obtained our licence in March 2015 and began trading six months later. Since then, we’ve managed to grow to approximately 100 employees with a loan book of c. £300 million.

Our founders are Rishi Khosla and Joel Perlman, two seasoned entrepreneurs who, in building Copal Amba (their previous venture), encountered issues securing debt finance from UK High Street banks. Unlike the large incumbent banks, we give our clients the opportunity to discuss their loan requirements and growth ambitions directly with the Credit Committee (the decision makers). This personal and transparent process enables deals – from first meeting to disbursement of cash – to typically be completed in weeks rather than the months it takes at larger institutions. We also consider multiple collateral types – stock, debtors, plant and machinery, intellectual property, etc. – rather than defaulting to only real estate like other banks.

On the retail side, we offer four fixed term accounts ranging from 12 to 30 months, as well as easy-access accounts, and have raised c. £175 million from over 5,000 customers.

IBS Journal: Your core banking software is supplied by another relatively young firm, Mambu. What were the key factors that influenced OakNorth’s selection?

FG: To properly meet the needs of entrepreneurial growth businesses in the UK, we knew we needed a radically different approach to customer service than what was available from traditional banks. This meant merging the best practices of commercial and retail banking with the technical flexibility and dexterity of an online digital disruptor – in this case, Mambu.

Like us, Mambu was a startup, which meant they could be fast and flexible, working with us as we built our technology stack. The platform was developed for cloud, which was helpful as we knew this was what we eventually wanted.

Their infrastructure and API enable us to offer business loans with flexible terms, such as the ability to accept multiple collateral types, and streamline the loan origination process. This is essential for us to compete with traditional providers and alternative lenders, as we’re able to complete deals in a fraction of the time that it takes large banks, but with the same level of robust underwriting as them.

Mambu’s technology also enables us to rapidly bring new products (such as our recently-launched easy-access accounts) to market and focus our innovation around giving our customers great products and services with a level of agility we couldn’t get from a traditional core banking system. Our customers can open a savings account with us in three minutes or less on average – this is dramatically different to what you find at the large High Street banks.

IBS Journal: Last year, OakNorth became the first bank in the UK to have its core system fully hosted on the cloud. You wanted to launch on the cloud, but because there was no policy on cloud banking in place, were unable to. Could you talk us through the transition from running Mambu’s software on traditional servers to running it on AWS cloud infrastructure?

FG: As Mambu was originally developed for cloud, interestingly the biggest challenge was to set up our infrastructure to work in a traditional hosting setting. We worked with them and a number of partners to integrate Mambu with other non-cloud applications. We developed the features required to operate compliantly in a UK environment thus creating a self-contained banking set up. Once we were able to make the transition to cloud, we then worked closely with Mambu and Amazon Web Services (AWS) to ensure a seamless migration. Given Mambu was already cloud ready, the main challenges were around setting it up in our private cloud, as most of their clients make use of the Mambu shared cloud.

IBS Journal: Regulatory compliance has historically been one of the top factors against cloud banking. The FCA’s cloud guidelines are therefore key here. Atom Bank’s Mark Mullen recently called the FCA, “one of the most far-sighted regulators on the planet.” Would you agree? Will other regulators follow suit?

FG: In a number of ways, the FCA is very forward-looking. Look at banking competition for example; since its inception, the FCA has taken significant steps to improve competition in the UK banking industry and make it easier for new players to enter the market. An example that springs to mind was the launch of the New Bank Start-up Unit last year. Clearly its efforts haven’t been in vain as a number of new banks have been granted licences since Metro Bank in 2010, and it’s in talks with 20 more institutions. This compares with the US where only four new licences have been granted since the financial crisis.

From a technology perspective, the FCA paved the way for banks, insurers and other financial services companies to take advantage of cloud computing when it published its proposed guidance on it in November 2015. We took advantage of this and worked with the regulator and AWS to help shape policies relating to data protection, access to data, security and business continuity. Two months after we moved to the cloud, the FCA published its final guidance on it and had a real-life example to demonstrate it in practice.

The FCA wasn’t the first regulator to give cloud banking the go ahead, however; the Dutch banking watchdog, De Nederlandsche Bank (DNB), approved the use of AWS several years ago, and in the US, cloud banking guidance was published in 2012.

IBS Journal: What were the key reasons for running with AWS cloud?

FG: We chose AWS as our cloud provider for a number of reasons:

  • Bigger in this case was better: We were confident that AWS’ efforts towards security, its reputation and scale would be looked upon favourably from a regulatory standpoint.
  • State-of-the art infosec: AWS has a large number of certifications and because of its scale, is able to implement state-of-the-art infosec.
  • Global infrastructure: It is able to provide us with a global infrastructure (India, UK, etc.) under one umbrella that we wouldn’t be able to match on our own. The way it is set up allows us to maintain data sovereignty, which will be particularly relevant as we look to expand into foreign markets.
  • Flexibility: It gives us the flexibility to scale at our own pace – we pay for the products and services we’re using right now, rather than paying for things we think we’ll need in the future
  • Customer service: Our account manager was extremely supportive and helpful throughout the process.

IBS Journal: What has been the experience thus far?

FG: So far, the experience has been very positive; on the retail side, we’ve raised c. £175 million from more than 5,000 retail investors, and we’ve been able to launch our easy access accounts without any issues. We’re planning to launch notice accounts by the end of January. On the lending side, our loan book has increased to c.£300 million, with almost all of our clients commenting on how quick and efficient the process is.

The most exciting benefit that has come out of our move to the cloud so far, however, is what it has empowered and unleashed in the IT team. They’re able to benefit from creative freedom at a low cost. Why? Because it provides us with a platform that is secure, scalable and can handle rapidly increasing workloads; it allows us to benefit from the latest technology at a cost that our scale would not warrant; it enables us to avoids legacy issues being created; and finally because it provides us with flexibility. We can benefit from trial and error, testing and experimentation at a very low cost, as we don’t have to buy the infrastructure, we just pay as we use.

Another key benefit was the fact that we managed to break even in under a year. This is a significant achievement for any business to achieve within a year, but particularly for a bank as overheads are so high.

IBS Journal: Now that you’ve set a precedent, will we see more financial institutions making the move to the cloud? And, if so, are these likely to be other challenger banks rather than the big banks and their notoriously creaking legacy systems? Is it fair to say that this is not suitable for every bank?

FG: I definitely think we’ll see this with other challenger banks – in fact, we’re already seeing it. In mid-December, Metro Bank announced that it had moved its IT infrastructure, including its core banking operations (run on Temenos’ T24), its digital offerings (Backbase) and ATMs, to Rackspace’s cloud offering. It took Metro Bank 12 months, but I imagine it would take mobile-only banks such as Starling, which has built its IT system from scratch, even less time.

While it will be much harder for larger banks to move to the cloud due to their legacy IT infrastructures, more are considering it as a result of mounting pressure to cut costs and increase flexibility. Last year, Deutsche Bank admitted that it had been thinking about providers such as AWS and Azure for three years, and that while use of public cloud by big global banks is “very small,” it expects adoption to grow significantly in 2017.

I think being in the cloud is suitable for every bank, it just might not be possible for everyone. This is because of lot of banks’ biggest challenge is bureaucracy and the fact that often the IT department works completely separately to the rest of the business. If you don’t have support from the top-down, moving to the cloud will be a very laborious and painful process. At OakNorth, we had the backing of the entire board which made our move to the cloud infinitely easier.

This interview first appeared in the January issue of IBS Journal. Click here to subscribe.

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