Rishi Khosla has become somewhat used to dealing with economic crises over the past seven years.
Since his digital lender OakNorth bagged its full banking licence in 2015, he and co-founder Joel Perlman have steered the bank through the extended tumult of Brexit and the battering of the pandemic, all while avoiding the worst of a wave of small business insolvencies and loan defaults they have left in their wake.
As OakNorth’s small business customer base now braces for historic inflation and a potential recession, he says the bank is not changing tack.
“We had the Brexit vote, and since then, I would say we’ve pretty much had continuous ups and downs from a macro basis in this country,” he tells City AM.
“Now I think there’s going to be a fairly tough environment as we go forward. The market and the overall industry will experience a spike in defaults, and therefore I think our default level will definitely go up.”
Crisis planning though has become par for the course. In January 2020, as covid began to creep into the public consciousness and spark the first signs of an economic slowdown, Khosla says OakNorth bosses were already in the war room.
“By the time we were getting close to the possibility of a lockdown, we were already sitting down with our customers and actually saying ‘for your particular subsector, this is how we see you performing.’”
With the possibility of a recession now looming, he says the firm has over 270 scenarios planned for its different subsectors which it is feeding down to customers to help them prepare.
Lurching from crisis to crisis has also played its part in shifting lenders like OakNorth in the public psyche. The firm got on the front foot and dished out £1.1bn in new loans to support UK businesses between March and October 2020, including over £400m through the government’s emergency business interruption loan schemes.
“We went from banks being sort of the villain of the financial crisis to banks being the conduit to actually helping consolidate the economy during covid,” Khosla says.
That is not to say the lender has been left without blemish in the covid scramble, however. Former Chancellor Philip Hammond, who served as an advisor to the firm, mentioned its lending services to a government official for which he was rebuked amid the fallout of the Greensill lobbying scandal.
Indeed, Khosla is somewhat unique among fintech founders for his well-reported ties to the Conservative party. His name is rarely mentioned in certain sections of the press without the prefix of ‘Tory donor’.
While it is not a moniker he relishes, Khosla says donations opened doors for the firm.
“We knew nothing about commercial banking and we had no access to a seat at the table in any conversations with businesses which are regulated and influenced by government policy,” he tells City A.M.
“And if you remember that time, the government had a policy around increasing competition in banking which led to them opening up the process of getting licences for new entrants.
“And yes, personally, I donated to the Tories, and it enabled us to at least be within the ecosystem on a broad basis.”
But, he says, it is important to note that he ‘was’ a Tory donor, rather than ‘is’ a Tory donor.
Regardless of political allegiances, it has certainly been a rosy rebound from the pandemic for OakNorth. The firm reported a 73 per cent jump in pre-tax profits last year to £134.5m after a surge in lending in 2021 as businesses roared back after covid.
A 2019 $440m funding round, led by Softbank’s Vision Fund, valued the firm at $2.8bn, and Khosla has said that bumper profits mean that there is no need for another funding boost on the horizon.
While he is coy over a potential shift onto the public markets – “it’s possible we could, it’s possible we could not” – he says London has its pitfalls as a hypothetical listing destination.
“The biggest challenge with the London market is that you don’t have an evolved marketplace for growth companies,” he says.
“If you look at the nature of the London market, it’s very heavy on income producing, yield generating companies, versus NASDAQ-type growth markets.”
For the time being, he says, OakNorth will remain a private company and continue operating as it has been.
And as another economic crunch looms on the horizon, businesses around the country will hope it continues to do what it does very well.