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Opinion > OakNorth

Artificial intelligence: the buzz behind the buzzword

By Joel Perlman, co-founder of OakNorth and ACORN machine | 07:27 Wednesday 9th May 2018

A report published last year by IDC revealed that 67% of organisations globally have already adopted or plan to adopt AI in the next five years, with an estimated $58bn being spent on AI across industries in that same period.

Currently, the most common uses of machine learning in financial services are: fraud detection, chatbots, marketing intelligence – including customised product and service recommendations – and automated due diligence and compliance checks.

Over the next five years, I think we'll see greater investment and innovation in areas such as credit analysis and underwriting (like we're doing), as well as attempts to automate certain processes, such as initial public offerings, and the analysis of legal documents.

How we leverage AI

To improve processes – we use big data and machine learning to improve processes and credit decisions across the loan lifecycle. The ACORN machine platform which is what OakNorth is built on, uses technology to apply the rigorous credit analysis methodology used for large corporate loans in a much more efficient and less manual way, and applies the private equity approach to monitoring, to commercial lending.

The platform collects millions of data items on SMEs across various parameters, sectors, and markets, and uses machine learning algorithms to identify data that lenders need to make more informed credit decisions through detailed line-item underwriting. For example, for a hotel transaction, it will look at financial data such as cash flow, gross margin, EBITDA, etc. but it will also look at operational information such as occupancy rates, and reviews from sites such as and Trip Advisor.

ACORN's team of credit analysts and data scientists manage the process, training the machine learning algorithms, so that the platform continues to evolve and get smarter.

To improve customer experience

As a result of the above, we're typically able to complete loans in weeks – from first meeting to disbursement of cash – rather than the months it takes larger lenders. This speed is one of our biggest competitive advantages and a key part of why our borrowers choose to come to us as opposed to their clearing bank.

Another benefit of the above is that we're able to be a lot more flexible in terms of structuring loans. For example - if a restaurant business wants to open several new sites, we can adjust the covenants to the overall business, rather than the individual openings. At large banks what tends to happen is that covenants and the growth of the lending facility are tied to every new opening, so every new site has to be profitable before the restaurant can open a new one. What our technology enables us to do is take a holistic view of the company and determine whether existing sites have sufficient capacity to pay debt to fund two or three new openings each year. This flexibility is another key part of what attracts entrepreneurs to our proposition.

Upon closing a £250m fundraising round at the end of last year, we have begun commercialising our ACORN machine platform, licensing it out to banks across the world so that they can replicate what we do with SME lending here in the UK, in their own market(s).



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