The rise of the challenger

“A ‘yes’ means yes and a ‘no’ means no,” says Richard Paul, Partner at Nyman Libson Paul Chartered Accountants (NLPCA) of his interactions with ‘challenger’ OakNorth Bank.

It’s not immediately clear why this is so important for Paul, who has been advising clients for over 20 years. Ben Barbanel, Head of Debt Finance at OakNorth Bank, explains why through an example of a deal the bank did with NLPCA about 18 months ago.

“The deal was for a business that had banked with their incumbent bank for generations. It was one of these situations where the bank said ‘yeah, yeah, yeah. We’ll do it, we’ll do it, we’ll do it’ and right at the last minute, they said: ‘actually, we don’t like this’.

“Nothing had changed. It was the same deal all along. No new information had come out. And they just let their long-standing customer down.

“It wasn’t the most straightforward of deals. A lot of lenders would have would have found obvious reasons to shy away from it. It was a complex structure, there was an offshore trust behind them. It was development of an office building, that was speculative. So, it didn’t have any income. It didn’t have any tenants lined up.”

But as is becoming typical of challengers, OakNorth Bank (alongside NLPCA) moved fast. The deal, worth over £14m, was done and has gone well.

“It was good. It was quick. It was easy,” says Barbanel.

Looking to the future

Nyman Libson Paul are in many ways a traditional accounting firm. They deal with compliance, tax returns, payroll and personal tax returns. But key to them now more than ever, are relationships.

“We have quite close relationships with our clients. And so, we are very much dealing with the present and the future. Whereas most accountants are simply dealing in the past which is the reporting function,” says Paul.

“A lot of our work with our clients is about ‘what are you doing now?’ and ‘what do you want to do in the future?’

Speed and simplicity the key?

Paul believes that quick and certain service is paramount and too often his experience with the banks when looking for financing solutions for clients was poor.

“The banks’ processes for dealing with clients, especially if they’re new clients, are serpentine. They will take forever to deal with someone,” says Paul.

“For most of these clients, that’s too long for them. They need to know what course they are travelling and so you need someone who’s quite responsive,” he adds.

Not only was the customer experience with the banks slow and indecisive, Paul often found himself in the dark over why a proposal had been refused.

“A bank doesn’t always explain to you why they turn it down, they’re usually quite ambiguous. It’s very important to us because we’ve got to explain it to the client. We’re sort of the universal translator to our clients,” Paul says.

Cultural changes harming banks?

Barbanel believes that cultural shifts are affecting a traditional banks’ ability to respond to their clients. The world has become an instantaneous place thanks to the immediacy of smart phones, for example, and perhaps the banks were struggling to adapt to the times.

“Everybody just wants stuff done now, immediately. None of this ‘I’ll call you back in however long’.

“And unfortunately, when you’re bogged down with huge portfolios and huge legacy issues, huge back books of deals that have gone wrong and you’re chasing market share, you can’t be responsive when you have got processes in place that have been there for 300 years.

“There’s evidence now that they’re too big as well. They can’t change. It’s just not possible to morph when you’re that size,” he adds.

The right digital mindset

In the battle between traditional banks and their FinTech challengers, much has been made of the “digital mindset” that the challengers have. Their culture of speedy and flexible customer service powered by technology is seen as one of the key reasons why they are shaking up the finance industry.

But Barbanel dismisses this idea. Instead he says their outlook is in many ways “old fashioned”.

“The digital stuff helps us with our credit analysis and monitoring. But the culture of the place is such that my team know that when a customer or an accountant phones them with a deal, they’re thrilled to respond ASAP.”

For Valentina Kristensen, OakNorth’s Director of Growth & Communications, it was about using technology in the right way so that staff have time to focus on their clients.

“We have created algorithms that can find you that data much faster than a human can, so that the humans – the relationship managers on our team can transact up to eight times more in a year than they would at Santander or Lloyd’s.

“And that’s not by taking shortcuts, it’s that everything that historically has been manual, we can now use technology to do that so that you can then focus on getting another customer and having a proper relationship with them,” she adds.

OakNorth Bullish

And what of the banks, how are they responding to the challenge of firms like OakNorth?

Barbanel says that his previous employer just announced a partnership with the platform OakNorth used to design their mainframe banking system and that there’s a new challenger bank trying to get a licence in England that have decided to use “North” in their title.

It’s obvious where he’s going with this but Barbanel becomes bullish at any suggestion that OakNorth are looking over their shoulders.

“Clearly we’ve stirred up a lot of interest with existing banks and new banks. But my firm view is that I don’t focus on what the competitors are doing,” Barbanel adds.

“Having spent a good 18 years in them, I know they don’t have the ability to move and there’s no joined-up approach. You will see little pockets of reactiveness.

“But whatever. It’s short lived.”