Google-backed neobank Open becomes unicorn with new funding

India has 100 unicorns now. The Bengaluru-headquartered neobank Open entered the coveted club on Monday with a new funding round, it said.

The five-year-old startup did not disclose the size of its Series D funding, but a source familiar with the matter said it’s $50 million. The new round, which valued Open at $1 billion, was led by Mumbai-headquartered investment firm IIFL, the two said. Existing backers Tiger Global, Temasek and 3one4 Capital also participated in the round, which comes just seven months after Open announced its Series C funding at $500 million valuation. Open has raised about $187 million to date.

Open operates a neobank that offers small and medium-sized businesses as well as enterprises nearly all the features of the bank with additional tools to better serve the customers’ needs. 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, is used by more than 2.3 million businesses, it said. Open processes over $30 billion worth transactions each year, it said.

In recent years, the startup has expanded its offerings to provide its neobanking technology stack to banks in a white-label licensing arrangement, who then sell it to their own customers.

The startup said it is looking to launch three new products — revenue-based financing Flo, early settlement card offering Settl and working capital lending Capital — in the coming months to further broaden its offerings. It is targeting to disburse $1 billion in lending through its new products within the next 12 months, it said.

“We are excited to partner with IIFL and existing investors Tiger Global, Temasek and 3one4 Capital for our series D round. We see a lot of synergies with IIFL especially on leveraging the lending book, as we are getting ready to launch innovative products like revenue-based financing, early settlement, working capital loan and business credit cards to SMEs on our platform,” said Anish Achuthan, co-founder and chief executive of Open, in a statement.

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 year.

“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.

Today’s announcement marks a major milestone for the Indian ecosystem, home to a tenth of the world’s unicorns. It was more than a decade ago when India found its first unicorn, a startup with $1 billion or higher valuation, in adtech startup InMobi in 2012, when startups were rare and funding was hard to come by. Things have changed dramatically in the past decade with an increasingly growing number of entrepreneurs finding the conviction to build something of their own. More than 60 Indian startups have entered the unicorn club since last year.