OakNorth Bank grows from AWS infrastructure-as-code
CIO Sean Hunter reveals how OakNorth Bank was able to build a knowledgeable FinTech with AWS
Cloud computing in banking was vindicated by the COVID-19 pandemic, says Sean Hunter, CIO for OakNorth. OakNorth is both a financial services provider and a FinTech; the London based business uses Amazon AWS infrastructure-as-code for both the bank and its Software-as-a-Service arm. Building a bank on AWS ensured the bank and its Fintech customers had automation and low operational costs required to cope with a pandemic.
In banking, OakNorth Bank is a commercial lender for the scale-up and entrepreneur sector that is vital to the UK's economy. According to the small business federation, in January 2020, there were 5.9 million small businesses operating. As a Fintech, OakNorth is the developer and provider of ON Credit Intelligence Suite, a machine learning (ML) data tool for commercial lenders that allows bankers to automate analysis into the relationship, risk and portfolio of loans. Hunter says:
We want to redefine how bankers loan to customers. Our bank customers are entrepreneurs and scale-ups, and they need immediate cash, but the process is manual and slow; we automate that process.
The CIO adds that OakNorth founders Rishi Khosla and Joel Perlman understand the needs of what OakNorth calls the ‘missing middle' - a market segment of businesses that are significant contributors to economic and employment growth. He says:
People underestimate that these businesses provide most of the employment and growth, and they are under-served by the banking sector. Especially as major banks are only looking at how to reduce cost, rather than looking at what the customer really needs.
OakNorth operates as both a bank and a FinTech to prove that point, its bank demonstrates that the technology works, and in the small business financial services sector, the market is competitive with the likes of Kabbage, part of the American Express empire, and London based Iwoca both growing strongly too. Hunter explains:
Automating commercial lending processes proves that we can do it. As a software business, you cannot say ‘I know how to do lending better than you,' so we have to be able to prove ourselves.
He adds that coupled with a strong understanding of the market; the founders are brave when it comes to technology.
They are very much rapid decision-makers and happy to make a bet early on. They were very smart to go with the cloud early on, and they jumped in with both feet, knowing that cloud was the bank's future.
Using cloud infrastructure and developing their own software-as-a-service offering means OakNorth is better able to respond to the needs of the customer, with increased customer contact and interaction and a greater level of data-based decision making, the CIO says.
Heading to the Amazon
OakNorth secured a banking licence in 2015, one of a small number of financial services organisations to secure banking licences in the years that followed the financial crisis of 2008 and the austerity era that began in 2010. In 2015 no banks were fully hosted on the cloud; some major banks were using the cloud for analytics. Hunter says:
The founders realised that conventional architecture would delay them and not future proof the bank. If you grow quickly, your infrastructure will not scale.
Hunter reveals that every OakNorth Bank or technology customer is provided with an individual virtual private cloud, which with infrastructure-as-code enables Hunter's team to deliver updates to every client every week. The CIO says infrastructure-as-code benefits the customer, them as a bank or technology provider and the regulators, for example, if a European customer does not want any of their data to be stored in the USA, this can be easily configured. He adds:
For each client, we can specify the hosting region, which in this example is in the EU, in either Dublin, Frankfurt or London. We use Terraform to provision the infrastructure, which uses AWS EC2 and S3 components, and these are really well understood.
The ON Credit Intelligence Suite has a team of experienced AWS developers, the CIO says, adding that almost every user of the software is on the very latest version.
In the not too distant past, banks were highly dismissive of cloud computing, but the credit crisis and now a pandemic have demonstrated that cloud is not only essential but also that many organizations have not gone far enough in their cloud adoption. Hunter explains:
Banks grow by acquisition, so you end up with a strong drive towards verticality, and so IBM or Oracle will offer you a vertically-integrated stack, and the traditional banks have become very good at large scale integrations.
But now, in the cloud, you have a new ecosystem. Because of the pandemic, the banks have realised that it would have been so much easier to respond to the lockdowns if they were fully in the cloud. For example, when we had to become a virtual business, we did a one-day test and then went into lockdown with no problems. In a way, the crisis has been a catalyst. A lot of our clients have revealed they could not move as fast as we did.
Despite the huge levels of change delivered during the pandemic and the lessons learned, Hunter believes the scale of change required by traditional banks is too large for them to emulate the cloud adoption he has led since July 2017.
Financial services organizations often cite regulators as an insurmountable obstacle to full-scale cloud adoption, so how did Hunter and OakNorth overcome the challenge? He explains:
There was some extra hesitancy from the regulator as they were worried about the cloud as it was unproven at the time, and that is rightly so.
We worked with AWS and the regulators to draft the cloud regulations. To ensure we complied, AWS had to change their service agreement, which led to Amazon creating the Financial Services Addendum, and there was a real willingness to work with us by AWS. Over the last eight years, I spent a lot of time with the regulators. Initially, their framework was too simplistic and about on-premise versus the cloud.
As the regulators began to understand that enterprise cloud computing is a closer cousin to outsourced data centres than the cloud versus on-prem debate, the level of acceptance grew. Hunter adds:
AWS and Microsoft were very, very good at producing responses, and the regulators got more comfortable, which then made it easier with the clients.
Adopting AWS not only provided OakNorth with infrastructure but also ensured the bank and FinTech could secure the developer talent it required to be competitive as a technology company itself. Hunter says:
As a software provider, the development and deployment cycle was very important, and AWS is a familiar investment for customers, and there are a lot of established developers with the right experience out there.
Hunter says new developers have to be able to check-in code on their first day on the job, and the CIO is a strong believer in creating a great place to work at OakNorth with a deep engineering culture.
If you have some good engineers, then the junior engineers will want to come and work for you. Also, we are putting in place training and career development; when you join, you will be able to have some real impact on what you are working on.
With AWS providing the infrastructure-as-code, OakNorth also counts composable banking technology provider Mambu and cloud specialists eSynergy Solutions as partners. OakNorth is Hunter's third foray into financial services, having been CIO for Signac, a joint venture between data firm Palantir and Credit Suisse, and he spent nine years with Goldman Sachs until 2011.
As a bank, once you have decided to fully adopt cloud, it has profound implications.