London-based digital business bank OakNorth announced Tuesday it has received permission from the Federal Reserve and New York Department of Financial Services to open a representative office. The grant allows the nine-year-old OakNorth to actively market its products and services to U.S. borrowers.
OakNorth, which has operated in the U.K. since 2015, targets what it describes as lower-middle-market companies — those with revenues of $1 million to $100 million. Despite the outsize role they play driving overall economic growth, OakNorth believes lower-middle-market companies are underserved by U.S. banks.
"Without doing any marketing, we've done about three times more business in the U.S. over the last year than we thought we would have done by this point," Rishi Khosla, OakNorth's founder and CEO, said Tuesday in a press release. "This is a clear demonstration of the demand from the lower middle market for a banking partner like OakNorth, which can provide the speed, flexibility, transparency and entrepreneurial approach these businesses need to succeed and scale."
OakNorth has been lending in the United States since July 2023. Backed by little more than word of mouth, it has amassed $600 in loans, as well as a "very, very strong pipeline," Corporate Affairs Director Valentina Kristensen said Tuesday in an interview, adding the portfolio could reach $1 billion by the end of 2024.
OakNorth applied to open a representative office in September. According to the Federal Reserve's August 26 order approving the application, OakNorth's new representative office can "act as a liaison with current and prospective U.S. customers of the bank. It [can] promote and market the bank's products and services, perform back-office functions, conduct market research, and facilitate lending to U.S. customers."
Kristensen called the ability to promote itself "crucial" for OakNorth. "I don't know yet if we would look to have a dedicated marketing person or marketing team on the ground in the U.S. We could probably do quite a bit from here in the U.K., but we can actually do that marketing, which is something we couldn't do before. I think it is very significant."
Indeed, OakNorth's U.S. loan production the past 12 months is double the amount of lending it did in its first year of business in Britain, where it possessed a charter and the right to advertise, according to Kristensen. "Hopefully, that's a very clear demonstration of the demand for the offering in the U.S., and the fact there are businesses that are looking for the types of lending we can provide," Kristensen said.
During the first six months of 2024, OakNorth reported lending about $1 billion in its core U.K. market. In the U.S., the goal is a charter, which would permit OakNorth to take deposits, as well as make loans. As things stand, the $7.4 billion-asset company is funding its operation here with deposits gathered in the U.K., a much smaller market. OakNorth's preference is to
OakNorth isn't the first European challenger bank to
OakNorth is different, according to Kristensen. In addition to traditional banking, the company has created sophisticated credit analysis and portfolio monitoring software, which it has licensed to several large regional and community banks in the U.S., including the $196.3 billion-asset Huntington Bancshares in Columbus, Ohio; the $213.3 billion-asset Fifth Third Bancorp in Cincinnati; and the $556.6 billion-asset PNC Financial Services Group in Pittsburgh. Those links give OakNorth an inside look at about $550 billion of U.S.-based loans, Kristensen said.
