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
Investec launches 10-year BTL fixed rate product
Investec Private Bank has developed a 10-year buy-to-let fixed rate product...
Redwood Bank bolsters lending and credit teams
Redwood Bank has strengthened its lending and credit teams after appointing five new specialists...
Monese introduces student account
Monese has launched a student account for international and domestic students...
Tide secures £8m of funding
Tide has received £8m of new funding as it plans to move into its next stage of growth...
Starling Bank introduces personal loan products
Starling Bank has launched its first personal loan products offering up to £5,000...
Industry reacts to bank service league tables
Earlier this week, the Competition and Markets Authority (CMA) released the survey results ranking banks on their quality of service...
So you've signed up to the Women in Finance Charter – what now?
In July, it was revealed that 272 companies had signed up to HM Treasury’s Women in Finance Charter, covering over 760,000 financial services employees in the UK...
OakNorth completes its largest deal to date
OakNorth has completed its largest deal to date with a £40.2m property investment loan to Select Property Group...
Industry predicts the future of banking
Banking is forever evolving, with new entrants to the market and modern technology being introduced on a regular basis...
Triodos Bank provides £7m facility to First Choice Housing Association
Triodos Bank has provided £7m of funding to First Choice Housing Association (FCHA), which provides accommodation for vulnerable people across Wales and Shropshire...
The role of banks in the smart city
Smart city is a great buzzword. The term envisages a city where information and communication technologies like ‘the internet of things’ are connected to enhance the quality and performance of urban cities and thus urban living itself...