Meet the entrepreneurs who have made life easier for MSMEs with neo-banking

Open is a start-up that offers a current account with integrated tools like invoicing, online payments and automated accounting engine to help MSMEs manage their business finances

In the age of Digital India, neo-banking isn't getting the attention it deserves. Yet, Open, a neo-banking platform, is ensuring life becomes simpler for thousands of unconnected small and medium businesses in India.

Put simply, neo-banking is a near 100 per cent digital bank, which only operates through apps and online systems and has no physical branch. Pioneered in the United Kingdom, neo-banks are gaining popularity in countries like Australia and India.

"Small businesses owners struggle when it comes to tracking cash flows on their current account, dealing with multiple interfaces such as invoicing, payment gateways and accounting. This compels business owners and finance teams to spend a lot of time and energy in reconciling and managing their business finances and shift focus away from the core business," says Anish Achuthan, co-founder and chief executive at Bengaluru-based Open. 

Having worked in the fintech sector for over six years, both Achutan and co-founder Mabel Chacko spotted an opportunity in helping smoothen these issues for SMBs (small and medium businesses). Both have worked with PayU and Citrus in the past.

The idea was simple: Open offers a current account with integrated business finance tools such as invoicing, online payments and an automated accounting engine to help small and medium businesses manage and automate their business finances.

Essentially, it is like a super app that integrates and makes otherwise unconnected financial functions interoperable for SMBs, making them easily manageable through an app.

For a small business, the ability to connect its existing bank accounts for viewing real time balances, reconciling bank statements and also connecting the bank account with external applications like desktop accounting systems, payroll softwares, tax and GST filing applications would solve a big part of its financial management.

The Open platform is built on top of the banks’ existing infrastructure and uses technology to reconcile and identify bank transactions and process payments. It also automates accounting and integrates with various third party applications or services using APIs, said Achutan.

Given that the neo-banking industry is still nascent -- the first neo banks made an entry about five to six years ago -- market size estimates vary. Independent research pegs the opportunity at anywhere between $356 million to $14.2 billion within the next 5-6 years.

Open, which launched in 2017, already has over 80,000 clients and processes transactions worth over $5 billion. It has partnerships with 11 banks in India, including a major one with ICICI Bank.

The company claims it is adding 20,000 SMBs a month. The opportunity is again huge, considering India has over 40 million SMBs, according to several estimates.

Open has been backed by venture capital funds such as Beenext, Speed Invest, Recruit group Japan, 3ONE4 Capital previously and the series A round was closed in February 2019.

It is looking to raise funds in the future and is currently operating in a freemium model. 

“We plan to monetise through various premium services like advanced accounting, GST & tax filing, payroll, lending and wealth management services that are offered on the platform,” added Achutan.

Globally, the big names in neo-banking include UK-based Tide, Atom Bank, Monzo, Revolut and Starling Bank; US-based Azlo; Australia-based Tyro Payments and Volt Bank; Germany-based N26 and Netherlands-based bunq.

While these banks have had varying degrees of success in their respective markets, some challenges remain.

Though majority of the neo-banks have become successful in their respective markets, the key challenges they face include building trust among their prospective customers and acquiring customers, says Achutan. “This is because, most of the banks are used to acquiring customers through feet on street against digital acquisition channels adopted by the fintech industry.”

In India, neo-banking players include names like NiYo and InstantPay. Banks like Kotak Mahindra and State Bank of India also offer digital bank account capability.

Going forward, Open this year plans to launch more services around wealth management and lending to help small businesses better manage and grow their business.