[The Turning Point] Here’s why fintech startup Open built a neobank for SMEs
, a neobanking platform focussed on small and medium enterprises (SMEs), became the 100th entrant to India’s unicorn club earlier this month.
The Bengaluru-headquartered startup raised $50 million in Series D round from IIFL, along with existing investors Temasek Holdings, Tiger Global Management, and 3one4 Capital.
Founded by Mabel Chacko, Anish Achuthan, Ajeesh Achuthan, and Deena Jacob in 2017, the fintech platform helps SMEs automate their finances depending on the tools they use and integrates these with their bank accounts. The platform claims SMEs can easily collect, send, and reconcile payments, manage payroll and expenses, automate accounting, and avail credit to grow their business.
After working with fintech companies, the co-founders understood the pain points of small businesses.
As an entrepreneur running these businesses, Mabel says, “I struggled a lot in managing my finances and doing the operational part of running a business. It takes so much of your time that you don't have enough time to focus on marketing, sales, or hiring the right team.”
Mabel says she had to rely on external finance professionals to help her manage the company’s financial records.
However, she realised this was a problem faced by many, including SMEs. These small businesses struggled managing their invoices, payments, and keeping track of who paid how much.
That’s when she, along with the other co-founders, decided to build something to solve these problems – from the banking side.
According to the team, SMEs in India use many tools to manage their finances, which are disjoint from the banking layer.
“We started out to solve this by integrating banking with the tools used by small businesses to manage their finances -- invoicing, payouts, reconciliation, accounting, expense management, payroll, etc,” Mabel told YourStory in a previous interview.
Open launched its first alpha version in December 2017, which was focused on enabling businesses to open a digital-only account to collect money and link a bank account to withdraw money. It rolled out this version to select 500 businesses for a period of three months.
“I distinctly remember how difficult it was in the early days to onboard a banking partner, particularly since the concept of neobanking was so new to India,” Anish said.
Based on the feedback, Open improved the product to include payment collection and bulk payout methods in its beta version, which was launched in April 2018. It had more than 10,000 businesses using this version.
“We were the first neobank in Asia and no one understood the product we were building. We did face early mover troubles, but every round of fundraise brought with it a different challenge,” Deena told HerStory.
“We had to rely on user feedback and product experience to crack it. The key learning, and in many ways the eureka moment for us, was the importance of having a proper current account and the ability to link existing ERP/accounting softwares on the Open platform,” said Mabel.
Currently, Open has three offerings -- Open Money and Openbook (to help businesses automate their finances), BankingStack (a platform that enables financial institutions to launch new digital banking products) and Zwitch, a no-code embedded finance layer for businesses to embed financial services into their platforms.
The platform has more than 2.3 million SMEs as its customers and processes over $30 billion in annualised transactions. It claims to be adding over 100,000 SMEs every month.
The startup is now gearing up to launch three new products -- Open Flo, a revenue-based financing product for ecommerce businesses; Open Settl, an early settlement credit offering, and Open Capital, a working capital lending offering for SMEs.