Google has invested in Bangalore-based Open, becoming the latest high-profile investor to back a neobanking platform.
Open said on Tuesday it has raised $100 million in a Series C financing round. Singapore’s sovereign wealth fund Temasek led the round, and Google and Japan's SBI Investment (not to be confused with India's SBI bank) as well as existing investors Tiger Global and 3one4 Capital participated in it.
The new round, which brings the four-year-old startup’s all-time raise to $137 million, values Open at $500 million, according to a source familiar with the matter. TechCrunch reported in June that Open was in talks with Temasek and Google among others to raise $100 million.
Another round is already in the works and investors such as Visa are likely to join, another source familiar with the matter said.
Open operates a neo-bank that offers small and medium-sized businesses as well as enterprises nearly all the features of the bank with additional tools to serve the needs of a business. Millions of small and medium sized businesses in India struggle with maintaining multiple bank accounts, bookkeeping of their daily spending, and bandying out payments to employees.
The startup, which has partnerships with over a dozen top banks in India, says more than 2 million businesses are using its platform.
In recent quarters, Open has expanded its offerings. The startup now provides its neobanking technology to banks in a white-label licensing arrangement, who then sell it to their customers, said Anish Achuthan, founder and chief executive of Open, in an interview with TechCrunch.
“We are helping banks build their own new-age digital banking platforms,” he said. The startup is now also helping other fintech startups to build their embedded finance or other fintech solutions, he said.
“We realized that we have the infrastructure required to help other fintech businesses build their own card issuance and other digital bank services,” he said. Open calls this part of its business offering Zwitch.
Key offerings of neobanks. Data: RBI, Jefferies. Image credits: Jefferies
The growth of Open in recent years, which has led to several other startups expand to and innovate in this category, has dramatically changed the relationship between banks and fintechs. Just a few years ago, most banks in India were skeptical of neobanks and it was very difficult to persuade any of them for a partnership, fintech founders have told TechCrunch.
"Neobanks are gaining prominence as platforms to digitise banking or bank-like services for millennials and SMEs. Top-4 global neobanks are worth $100 billion and Indian fintechs have made a start through likes of Open, RazorpayX, Fi, and Jupiter,” wrote analysts at Jefferies in a report last month.
“In fact, many Indian fintechs plan to expand from 1-2 platforms now to neobank over 3-5 years. Incumbent banks/NBFCs are partnering with them. Monetisation is some time away,” they added.
That last part is still a big question for the industry. At a virtual conference last year organized by Razorpay, Pine Labs chief executive Amrish Rau jokingly commented that between him and CRED founder Kunal Shah, they have backed every neobanking startup in the country in the hopes that these firms will figure out a way to make money in this category someday.
“The challenge here [for neobanks aimed at millennials] is that payment fees are negligible in India, BNPL is still small and mostly gets non-prime clients. Quality of relationship and leveraging of partnerships for cross-sell will drive success. On the other hand, SME-focussed neobanks are building engagement with business- clients through their ability to provide solutions like automated invoicing, collections/payments, accounting, inventory and sales mgt., taxes and in some cases interest on current deposits as well (banks can't pay interest). This may help to ramp- up and upfront their monetisation prospects,” Jefferies analysts wrote.
Open, which employs about 500 people, said that it plans to deploy the capital to broaden its offerings and also expand to international markets such as Southeast Asia, Europe, and the U.S. The startup will begin its expansion with the Southeast Asian market, said Achuthan. “We have already partnered with one bank in Vietnam and one in the Philippines,” he said. “There the entry point is the enterprise business.”
The startup is also eyeing strategic merger and acquisitions opportunities in India and other markets and is looking to hire more talent, he said.
“The team at Open have combined deep domain expertise and product-focused rigor to deploy a full-stack solution that places SMEs at the center of a universe of innovation. This platform has set the standard for business banking and will take this full stack approach into new adjacencies and geographies. We are excited to continue our partnership as Open scales into a global fintech innovation engine,” said Pranav Pai, Founding Partner and CIO at 3one4 Capital, in a statement.
Open is the latest of a series of investments by Google in India in the past one year. The company, which has committed to invest $10 billion in the next couple of years, has also backed Indian startups Glance and DailyHunt. YouTube acquired social commerce startup SimSim in July this year.