CXO Bytes

How is fintech transforming lending to SMEs

New technologies deployed by the global financial industry continue to transform and evolve how banks support the growth ambitions of SMEs. Tech spending by commercial lenders is predicted to achieve double-digit growth this year, with those based in the US and China taking the lead. A sensible prediction given that in JPMorgan Chase’s earnings call at the start of 2022, the $3.76 trillion (in assets) bank announced it plans to increase its annual technology budget to $12 billion – a 26% increase compared to what it spent in 2020[1].


At the recent Fintech Festival India, the Minister of State for Electronics and Information Technology, Skill Development and Entrepreneurship, Rajeev Chandrasekhar, said that India is among the fastest growing fintech ecosystems in the world and is helping drive innovation across the country. According to the latest government figures, the Indian fintech industry’s market size totalled $31B in 2021 and now has the highest fintech adoption rate in the world at 87%. Further proof of the huge impact that new technologies are having on the financial industry across the country, including within the commercial lending sector.


Several technologies developed by leading fintechs, including OakNorth Credit Intelligence, have been central to this rise in digital transformation and adoption by commercial lenders – these include, machine learning and artificial intelligence (ML & AI), Data Science and cloud computing.



A study last year from Tribe Payments revealed that 70% of global fintechs are using ML or AI today, with it also being predicted to dominate the market through to 2025.


When it comes to the commercial lending space, we’re firm believers that AI and ML can be leveraged to enhance humans, not replace them. This hybrid approach is a pragmatic compromise where computers perform various tasks to allow the credit analyst to be more efficient, but the analyst remains in the driving seat and is able to train the models and direct and shape the final outputs to ensure they are coherent and understandable.


Due to the complexity of the space, we at OakNorth don’t believe full automation is a desirable end goal, and aim instead to achieve c.80% automation, with a human analyst always involved in the process. This critically allows human judgement to always have an influence on the outcome and helps ensure understandability of outputs.


It also means that a key part of commercial lending remains – the relationship. At the end of the day, commercial lending is a very relationships-driven business. At OakNorth Bank in the UK, 80% of new leads come via non-paid referrals, with 40% of borrowers being repeat customers. This demonstrates the importance of relationships and the human being involved in the process, while utilising technology to unlock efficiencies at the back end.


Data Science

When it comes to commercial lending, banks need to assess the ability of a business to sustain a certain level of debt and repay loans. This is where data science comes in.


The only way commercial banks can effectively assess commercial credit risk is by using multiple data sources – including what may be unconventional or previously unavailable data – rather than just relying on what they’ve used in the past. At OakNorth, we apply Data Science techniques to create unique models that provide a granular level of analysis on each borrower. By combining borrower-provided data with our vast repository of external data, we are able to add depth to point-in-time analysis and monitoring.


Cloud Computing

Throughout the rest of 2022 and continuing into 2023, we will very likely see continued adoption of cloud computing, with predictions from Gartner revealing global spending on cloud services is expected to reach over $482 billion this year, up from $313 billion in 2020.


The technology offers many benefits to commercial lenders, including added flexibility and speed, a reduction of costs, increased adaptability, and a strengthening of security. OakNorth Bank has been fully-cloud hosted since May 2016 when it became the first UK bank to achieve this.

(The author is Mr. Praveen Agrawal, Co-Head, India at OakNorth and the views expressed in this article are his own)

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