Open Banking is Disrupting the Traditional Banking System and Indian Neo Banks are Gearing up for it
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In today’s age of digitisation, it is all about the customer and improving his/her experience. To achieve this goal, banks and fintech companies have to support each other. This change in the ecosystem has invented the concept of neo banking which can be rightly dubbed as the new era of the banking industry.
Neo-banking platform Open has raised $30 million, roughly around INR 210 crore, in a Series B round. The recent funding was led by Tiger Global Management along with Tanglin Venture Partners Advisors and existing investors 3one4 Capital, Speedinvest and Better Capital AngelList Syndicate have also participated in the round.
Though globally, especially in the US and Europe, neo-banking is a well-known concept, In India, the model is yet to gain pace and there are no more than five-six start-ups in this space.
“There are more than 16 neo banking companies globally and most of them are doing really well. In other words, banks are open to partner with neo banks and clients are open to adopting a digital bank. So we felt like, there is a good opportunity to bring this model to the Indian market as domestic SMEs are adopting online services more than ever,” Anish Achuthan, Founder of Open said to Entrepreneur India in a previous interview.
Since most of the traditional banks are overloaded by its legacy-based infrastructure they fail to help SMEs with cash flow management and other multi-use interfaces for services like a payment gateway, separate invoicing software, accounting tools as against an integrated platform.
With most of the banks now realizing that open banking is the next big thing, bankers are now discussing to open their APIs to fintech startups to build solutions around it. Achuthan opines that there are a lot of opportunities for businesses to innovate with this operating model.
“Neo- banking is not just about financial inclusion; it's also about bundling banking services with other financial services. So in India, neo banking can work as an extension to solve for the financial inclusion challenges. Secondly, we are seeing fintech start-ups build niche solutions focusing on blue collar jobs and that’s the way forward,” he added.
The Investor Attraction
According to company’s press release, Open is planning to new use the fresh funds to scale up the team, launch more products and value-added services while expanding its reach to 1 million SMEs in the next one year. Presently, the platform works with about 1 lakh SMEs.
On an immediate basis, the start-up will launch two new products to enhance its business banking proposition i.e. the Open+ card, a business credit card with a 30-day interest-free credit line for venture-backed start-ups and Layer, a unique programmable bank account for developers.
The start-up is also looking to enhance its API banking suite with the introduction of Layer - a programmable bank account. This feature will enable developers to control money programmatically, build their own features on top of the bank account and securely integrate with other services, Open added in its statement.
Talking about what makes Open attractive in the fintech space, the startup’s existing investor Anil Joshi from Unicorn says there is no doubt that digital banking is disrupting the banking sector. It not only helps bank retain clients but also helps them host digital services over normal banking services.
“As Open is helping in easing banking services with a layer of digital services is preferred for all customers. Since the market is wide and virgin it offers a lot of scope to scale up and hence investors finding it attractive,” he added.
With open banking already disrupting the global banking ecosystem, it is only a matter of time and the Indian ecosystem would say hello to new banks..oops we mean neo bank!