FinTech giant Oaknorth is bracing for a new economic downturn which may see it shouldering the first default since it launched its small business loans service in 2015, according to founder and chief executive Rishi Khosla.

Speaking at the Money 20/20 conference in Amsterdam, Khosla said Oaknorth - which became Europe’s highest valued FinTech after raising $440 million in February - was proud of its record of zero credit defaults on its loan book, but acknowledged that an economic slowdown was inevitable, which could lead to defaults and potential losses.

“Is there going to be a downturn? Of course there’s going to be a downturn,” said Khosla. “I believe in business cycles, I don’t believe in a new paradigms; I absolutely believe there’s going to be a downturn,” he stressed.

Asked to put a timeframe on the slowdown, he replied: “I don’t have a crystal ball.”

“Clearly the fact that we’ve had no defaults to date is something we hold onto, but at some point we will absolutely have defaults,” said Khosla, pointing to the $4 billion lent out to customers in four years.

“We’ve done several hundred loans so far, lent over four billion dollars, and had several hundred million - seven hundred million to be exact - back, so we feel like we’re doing something right,” he said.

However, while Khosla said he was taking a realistic approach to the likelihood of darker economic times ahead, he was confident that Oaknorth has better technological and institutional strength to withstand oncoming headwinds than incumbent banks.

“I am extremely confident that we will have lower defaults, lower losses, than the market in general, both because we do so much more work in terms of actually analysing a companies before we go in, but also we monitor a loan in a totally different way to the way large commercial banks monitor their loan books,” he said.

“So a combination of those two things makes us highly confident that we will actually come out of the downturn better than other players, and I would say materially better than other players,” he continued.

Nevertheless, despite Oaknorth’s rapid growth, Khosla said he and co-founder Joel Perlman - with whom he founded previous research and analytics business Copal Amba (sold to Moody’s in 2014) - had no plans to imitate fellow FinTech founders by selling their business to a larger, more established incumbents.

“The approach of both my co-founder and myself, both in our last business and in this business is that we’re building a business to own for life,” he said. “That is our approach, we’re not building this business on the basis that we want to exit, either to the public markets - by the way which I don’t think is an exit - or to a trade buyer.”

The business is often referred to as the most valuable of the UK’s challenger banks, however Khosla hit back at this characterisation as an upstart looking to take market share from established banking giants, and suggested that Oaknorth saw itself as a business looking to disrupt the SME lending industry.

“The concept of challenger bank, I hate the term and I hate to be branded as one, so I don’t feel like we are one,” he stressed. “But if you look at a lot of other players in that space, they’ve gone in and said they want to challenge the larger banks in that segment, whereas we’re taking a horizontal view and saying ‘SME lending is broken and we want to solve that on a global basis’,” he concluded.

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