Entrepreneur Rishi Khosla created OakNorth Bank to cater for ambitious, creative people struggling with conventional banking services. Speed and flexibility are at the heart of the business, with early stage yes/no decisions on loans and bespoke funding structures to fit each client’s business. James Lawson finds out how they applied the same criteria when choosing their core banking system.
“The existing [core banking] platforms in the market were all fundamentally the ones used by the larger banks,” says CEO of OakNorth Bank Rishi Khosla. “These have evolved over decades and are an amalgamation of a number of acquisitions. Instead of being a neat new web-architected platform, they use a collection of much more clunky older technology that the providers have stitched together.”
According to Khosla, the complexity of those legacy codebases makes these platforms very slow to deploy and requires extra maintenance. Making any changes to add new products or cater for altered processes also becomes a long-winded affair.
“They typically take 12–24 months to implement,” he says. “Then any time you need to make a change, you have to add in extra time for that. It gets to a point where your business is dictated to by your computer-build team rather than your system being able to evolve at the same speed as the business.”
Instead, Khosla and OakNorth co-founder Joel Perlman went with Mambu, a modern, web-architected solution purpose-built for cloud hosting. At the time, Mambu had been used to support microfinance institutions and credit unions, but hadn’t previously been used by any bank.
“The work it had done with credit unions had got it close to where we wanted to be,” explains Khosla. “We decided that, given the flexibility of the code and that it’s all based on web technology, it would be a much more flexible solution over the medium term as long as we were willing to invest time to effectively help develop it into a full banking platform.”
OakNorth’s IT team specified all the additional functions needed for a core banking platform and Mambu developed it to that specification. For example, in its original form, Mambu could only deal with very simple-term loans but OakNorth wanted to offer a wide variety of bespoke products: non-amortising, amortising with different amortisation profiles, loans for property development and so on.
“Dealing with all these products on the lending side required a certain amount of coding work,” says Khosla. “Likewise, linking up the platform to your accounting or regulatory reporting systems required APIs and the like to be written.”
But even these fundamental changes took surprisingly little time to complete, showing the advantages of modern code bases and development tools. Starting from scratch, Mambu had the system ready within five months.
“If you compare that with the 12–24 months proposed by the incumbent vendors, we had developed, customised and implemented within a significantly shorter time period,” says Khosla. “We’d already proved to ourselves that we’d taken the right approach.”
Hosting Mambu on Amazon Web Services (AWS) completed the package. “Scalability, security, stability and reliability in the cloud are dramatically different to being in a co-hosted environment,” says Khosla. “It’s day and night.”
“If we want to go from the 30 servers we’re using today to 80 servers, we can do that by this afternoon,” he continues. “It takes absolutely no time whatsoever. To do that in a co-hosted environment with all the configuration, all the balancing and so on would be a full-time project and take weeks, if not two or three months.”
The cloud-payment model was also attractive, with companies able to ‘switch on’ cloud applications and then pay monthly rather than stumping up a sizeable licence fee at the outset. However, that was a bonus rather than part of the original reason to choose a cloud solution.
“Sure, the pricing model is better but I wouldn’t say that is a real driver,” says Khosla, revealing that one banking platform vendor had offered their licence for free. “We chose not to take it because you might save on the licence part but it will cost you in the speed, flexibility and agility of the business.”
The final systems challenge came in proving to the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) that the cloud platform complied with all regulatory requirements in order to obtain OakNorth’s banking licence. The FCA in particular has historically been a little wary of cloud systems.
There were many requirements for security and continuity, but ultimately the FCA’s concerns were predominantly around the ability to monitor OakNorth’s systems. As per SYSC 8 and CRD IV in the FCA handbook, the regulator states that banks should not outsource “important operational functions in such a way as to impair materially the ability of the appropriate regulator to monitor the firm’s compliance with all obligations under the regulatory system”.
“That was specifically about their access to data centres,” explains Khosla. “I think there were some cases in the US where the federal authorities weren’t able to get access to data centres based with cloud providers and they had to obtain multiple court orders to do so. The FCA and the PRA obviously didn’t want to put themselves in that position.”
OakNorth worked with AWS to convince the FCA that cloud was suitable as a core banking platform, proving among other issues that all data would reside physically within the EU. Most critically, AWS was able to supply the access rights that the regulator required. “Following that, they were comfortable with our proposition,” says Khosla.
Head in the cloud
Based largely on its engagement with OakNorth, the FCA issued detailed cloud guidelines in late 2015. These restated the need for “appropriate safeguards” but note that cloud technology will “facilitate entry and/or expansion, and increase the ability of financial services providers, overall, to renew their IT systems in a more efficient manner”.
It also recognises that cloud-service providers like AWS, “may, for legitimate security reasons, limit physical access to some sites – such as data centres”. This clarifies the previous ambiguity of requiring “access to assets”.
The guidance also recognises that offering regulators purely digital access to data can be more effective and safer than physically accessing data centres, letting banks and their service providers employ distributed and clustered technology where data is scattered across multiple physical locations to enhance performance, reliability and security.
OakNorth secured its full banking licence in March 2015, and began deposit taking and lending six months later. Its IT team now takes care of day-to-day operations while Mambu provides technical support. As well as the cloud-specific benefits outlined above, Mambu quickly showed that its development environment could rapidly incorporate new products and processes.
“It means our business is never constrained by systems limitations,” says Khosla. “We can react quickly to market opportunities with new products on the lending as well as on the deposit side.”
OakNorth’s deposit operation is a good example. Now serving more than 3,000 customers, this side of the business can be managed by just three extra full-time employees.
The Mambu system makes a complete customer-referenced view of products, contacts and other history available. Whether third-party applications query the Mambu database directly or extract its data into their own databases, they can rapidly plug in via modern cloud-integration protocols and the REST standard API. That makes for a pain-free set up even if – as was the case at OakNorth – many of those applications had never been used with Mambu before.
That means that whether it’s the direct sales team, call centre agents, the website content management system or back-office analysts reporting on marketing campaign performance, they can all work based on the same consistent picture of the bank’s customers and transactions.
“Because we have a single customer view database, when you are speaking to a customer, you can pull out all the history with that customer in one go,” says Khosla. “You can have a much more valuable and rewarding conversation for the client and the bank.”
Start as you mean to go on
Being a start-up obviously helps here too, with no legacy databases to stitch together. However, Mambu will also aid any future data-integration projects.
“Even if we were to evolve, the platform will enable us to move our data from one system to another very easily,” says Khosla. “Most of the banking platforms don’t necessarily offer this as they don’t warehouse everything in a central database and then pull from that in the way that a web-architected platform can.”
Now fully operational with 80 employees and many thousands of customers, OakNorth has a lot of momentum behind it. In August 2016, the bank completed its largest deal to date, lending £19 million to Leon to help the fast-food chain open 50 new stores and create 1,000 new jobs by 2020.
“We will continually evolve,” says Khosla. “Given the nature of our platform, it’s easy for us to try things, to plug things in and we’ll continue doing just that.”
Systems as a source of competitive advantage is a well-worn theme in IT – one that’s often been devalued by long, painful expensive deployments. But with easy customisation, instant scalability and simple integration that can keep pace with every business initiative, OakNorth’s cloud-banking platform and its AWS infrastructure are delivering exactly that.