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 Booking.com 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).
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
Redefining banking: AI
This is an exciting time for financial services as a new era of interrelated technologies, including artificial intelligence (AI), robotics, blockchain, machine learning, cloud computing and data science, are causing widespread technological and digital disruption in the industry...
Apple introduces Apple Card
Apple has announced the creation of its first credit card 'Apple Card', which will be made available in the US this summer...
FCA proposes changes to help mortgage prisoners
The FCA has proposed changes to how lenders assess the affordability of a loan...
Hanley Economic BS strengthens shared ownership range
Hanley Economic Building Society has bolstered its shared ownership product range through the addition of a no-fee, shared ownership variable discount mortgage for term with a headline rate of 2.89%...
Al Rayan Bank confirms appointment of new CCO
Al Rayan Bank has appointed Maisam Fazal (pictured above) as chief commercial officer (CCO)...
AI Rayan provides £228 million of property finance to expats
Al Rayan Bank has announced that it has financed £228m in residential property finance to UK nationals living and working overseas...
Vanquis Bank names new MD
Provident Financial PLC has announced the appointment of Neil Chandler (pictured above) as managing director at Vanquis Bank...
Wyelands Bank hires two new regional directors
Wyelands Bank has made two additions to its working capital solutions team...
Triodos Bank reports 17% growth in sustainable lending
Triodos Bank has reported a 17% year-on-year growth in sustainable lending for the year ended 31st December 2018...
Tandem introduces new savings account powered by AUTOSAVINGS
Tandem has launched a new savings account which pays 0.5% interest...
Project BankNorth picks nCino to provide digital banking platform
Project BankNorth has partnered with cloud-banking fintech nCino...