Disrupting business banking from the cloud
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Disrupting business banking from the cloud

Jim Mortleman — July 2017

Faced with a financial services environment that was failing entrepreneurs and growth businesses, UK challenger bank OakNorth explains how cloud technology has given it the agility and cost-structure to grasp that opportunity.

OakNorth Bank opened for business in 2015 with the aim of disrupting the industry by employing cloud technology to be more agile and meet the customer needs that traditional banks were failing to achieve. The inspiration behind its launch came from its entrepreneurial founders’ difficulties in being able to secure a business loan without having property collateral. Francesca Gandolfo, COO of OakNorth, explains: “It was a story they heard time and time again from fellow entrepreneurs. So for their next venture they decided to set up a bank that would invest in successful entrepreneurs with really sound businesses even if they didn’t have any bricks and mortar.”

Since most traditional banks are comparatively slow to respond to market needs with IT offerings — not least because many of their core systems are based on legacy platforms — OakNorth resolved to build a bank that would never encounter similar sluggishness by creating a bank built entirely in the cloud.

In May 2016, just a month before the UK’s Brexit referendum, it achieved that ambition of becoming the “first fully cloud-based bank.” While the vote on Brexit was viewed as bad news by most of the UK’s banking industry, threatening the City of London’s cherished place as the capital of European finance, Gandolfo says that: “from the perspective of our business, it has been the best thing since sliced bread.”

As the big banks retrenched from the market to absorb the vote’s implications on their businesses, challenger OakNorth, which lends between £0.5 million ($0.6m) and £20 million ($26m) to small and mid-sized growth businesses, saw an opportunity to move in. “We aggressively went out to market and, over the second half of 2016, tripled our loan book which is now worth well over £300 million ($390m),” says Gandolfo. The bank also secured more than £280 million ($363m) in retail deposits from more than 7,000 savers. And, without the cloud, none of this would have been possible.
From hybrid to cloud-only

During its first year of operation, OakNorth had been running in a ‘halfway house’ environment consisting of a closely monitored, hosted private cloud/SaaS environment – while it wrangled with the regulatory issues of running a bank entirely in the public cloud. “The regulation in this area was very immature since nobody else had really attempted what we wanted to do. There are a lot of banks with bits and pieces in the cloud, but we literally have everything on there, including our core banking platform,” says Gandolfo.

A key benefit it has seen is a true ‘flex-to-fit’ infrastructure. Gandolfo says: “In a traditional hosted environment, every time you want to add server capacity or do something different you typically get into lengthy contractual discussions that slow you down. Our team just goes on the console and spins up some servers. We pay a few pennies per hour and if we misjudge what’s needed, it’s no big deal. This allows us to be more creative. We can experiment, play around with sandboxes, do whatever we want within a good control framework.”
Pick and mix

Since it knows its cloud provider will continually innovate in terms of technology, it doesn’t have to worry about falling behind competitors in areas such as security or processing power. “We don’t have the resources that a big infrastructure provider has, so being hosted by a cloud provider that has millions of dollars to invest in state-of-the-art technology, we can gain the benefits of things we could never afford on our own. We can pick and choose what they offer and upgrade or downgrade as we see fit for our business – all without having to worry about legacy.”

Neither does OakNorth worry about placing core business functions with a third-party provider over whose fate and business strategy it has no control. Its short history and decision to go fully cloud-based means it can operate with greater flexibility. “We came from a hosted solution and we rebuilt the bank twice within a year. And, of course, we continue to review our architecture. But we know that if the universe falls apart we can come back quite quickly.”

And this ability to operate in an enviable agile way has seen the business look at the IT team with great levels of respect. Gandolfo, who oversees IT, says: “Within two months they managed to move the entire bank to the cloud — it’s such an achievement that they’re really highly regarded in the organization.”

She says if she were advising others on how to move to cloud, she’d stress the importance of ensuring you’re comfortable with your service provider. “Treat the engagement like you would any major outsourcing contract and don’t try to optimize too early — give things time to settle down,” she says.

Reflecting on the challenger brand’s short history, Gandolfo attributes its success — the bank broke even within a year — to a focused technology strategy. “Technology is core to our business model, but we’ve been sure only to invest in what’s core to our business,” she says.

• Francesca Gandolfo was speaking at Cloud Expo Europe

First published July 2017
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