OakNorth bank chief Rishi Khosla ponders London listing

He may not be as famous as his namesake in Number 11 Downing Street, but Rishi Khosla has some impressive achievements under his belt. Since 2015, the 46-year-old chief executive of OakNorth Bank has built up a £3.8billion lender, using slick technology to offer loans to small firms. 

Small businesses, he says, have been ‘ignored’ by mainstream banks since the financial crisis. Stepping into the breach, he has created one of the UK’s leading fin-tech businesses and is now eyeing a stock market float, with London the most likely venue. 

‘We’re very driven in our mission to help entrepreneurs and small businesses,’ says Khosla, who co-founded the bank. ‘We’ve helped create 30,000 new jobs in the UK,’ he enthuses, referring to the employment generated by the companies his bank has backed. 

OakNorth is a name with a familiar ring to followers of political spats. The bank was at the centre of a Westminster storm after it emerged that former Chancellor Lord Philip Hammond, who took on a role as an adviser at OakNorth in 2020 after quitting frontline politics, had contacted the Government on its behalf. 

Lobbying is a sensitive subject after the scandal over former Prime Minister David Cameron’s efforts on behalf of failed finance firm Greensill. In this case, Hammond had mentioned OakNorth’s lending services for businesses hit by the pandemic to a senior Treasury official. Khosla points out that these services were being offered on a not-for-profit basis. 

Hammond was rebuked for his behaviour although he was cleared of breaching the lobbying rules. ‘Our view was we were trying to do something good,’ says Khosla. ‘It’s unfortunate that there was a trip in the process.’ 

On a happier note, OakNorth is one of the few start-ups to have quickly turned a profit. It reported a 73 per cent jump in pre-tax profits last year to £134.5million. 

The bank uses cutting-edge technology to assess the risks of lending sums of between £250,000 and tens of millions of pounds to firms. So far, it has dished out £7.5billion to businesses, including high street restaurant chain Leon. 

It uses advanced algorithms to help predict how potential borrowers will fare against rivals and in different economic climates. 

The lender – set up by Khosla and his business partner Joel Perlman, in 2015 – was among the tide of digital banks that surfaced after the financial crisis to fill the gaps left by the big banks as they shied away from business perceived as risky. 

‘We wanted to build a bank using state of the art technology that allowed us to serve businesses who were just getting ignored by the commercial banks, who I call the missing middle,’ Khosla explains. 

The company raised $440million (£340 million) from investors including Japanese investment giant SoftBank in 2019, making it Europe’s most highly valued tech firm at the time. 

So what’s it like working with one of the world’s biggest tech investors and its billionaire founder, Masayoshi Son? ‘Masa is a pretty unique character,’ says Khosla. ‘He looks for businesses that can be very large, disruptive, can have an edge. And clearly he’s not afraid to take risks.’ 

OakNorth is now making waves in the US, licensing its loan software to other finance firms, including credit card giant Capital One. The technology helps banks to monitor their loan books to keep a check on potential defaults, which has been especially useful during the pandemic.

‘Our ambition is to help solve the way commercial banking works, so [they] can better service entrepreneurs,’ Khosla explains. ‘We have $420billion of US commercial lending data through our systems which monitor the loans.’ 

OakNorth has prided itself on very few of its loans turning sour. But once the pandemic took hold, it set aside £21.6million to cover potential bad debts. The situation improved last year, though, and OakNorth was able to claw back £3.7million of the money set aside. 

Does Khosla expect more defaults given the state of the economy? ‘If you’re in the lending business, of course you can expect defaults. It would be abnormal not to have defaults on a regular basis, because that’s the business we’re in,’ he says. ‘The fact we went six and a half years with just over a dozen defaults I think is exceptional. Do we think we’ll continue to have low defaults? Absolutely. But will we have defaults and losses? Absolutely.’ 

Khosla, a Tory donor and an avid collector of fine art, is a tech entrepreneur to his bones and dresses the part. He can be spotted in the bank’s trendy Soho offices wearing a hoodie and walking on his treadmill desk with attached workstation. But he also knows when to don a tailored suit, notably at soirees with other Tory donors and politicians. 

He grew up in West London and attended the prestigious Merchant Taylors’ school. ‘My father used to work incredibly hard, so while he was doing his main job, he was setting up a business in the evenings and weekends. He would regularly go to sleep at 2am and be on a 7am train to London, to his office.’ 

An initial public offering of the company’s shares to investors may be on the cards ‘some time in the future’, Khosla says. Will OakNorth list in London? ‘To be decided,’ he chuckles. ‘Probably. When you look at what London has today in terms of tech growth firms, there are some, but it’s still pretty limited.’

A float would be welcomed by the City after the quiet deferring of a series of potential listings. The UK already lags the US and China, accounting for just 5 per cent of global listings from 2015 to 2020. 

The other Rishi – Sunak – has been very keen to encourage tech firms in the UK to emulate the giants of Silicon Valley. 

To that end, Khosla lauds a Government-commissioned plan to overhaul the stock exchange by allowing entrepreneurs, potentially including himself, to keep greater control of their company. 

He says such a plan could prompt more firms to list in London. ‘The approach taken by the Government is super positive,’ he enthuses. ‘By doing this, you’re attracting good businesses to stay listed in the UK.’ 

Then he says, they are more likely to focus on this country when creating jobs and growth.