Neobank for MSMEs Open Financial Technologies, a connected banking platform for business payments that simplifies the process of sending, receiving, and reconciling payments for businesses, “is the market leader in this segment,” said its Cofounder and CEO Anish Achuthan in an interaction with FE Aspire.
Launched in 2017 and turning unicorn in 2022, Open has of late made certain business bets to pay off well as it aims to become profitable before the end of next year even as it reportedly posted a net loss of Rs 242 crore for the financial year 2022-23 at an operating revenue of Rs 30 crore.
As Achuthan explained the company’s journey so far, he also dove deep into elaborating on the decisions taken to steer the company towards profitability which is his “biggest priority right now.” For that, he is confident of not requiring immediate capital infusion. Edited Excerpts:
How many businesses are you serving currently and total transactions processed annually?
Anish Achuthan (AA): Currently, we power over 40 lakh businesses in the country, managing about $40 billion (annually) in accounts receivable and payable for clients. Out of the total businesses served, around 2.5 lakh are larger ones. Last year, we obtained a couple of licenses, one being the payment aggregator/payment gateway (PA/PG) license from the Reserve Bank of India (RBI). We also got into the cross-border Sandbox which was successfully executed. Additionally, we manage business banking for a few large banks such as HDFC and Axis, which went live just a month ago. Now, all existing bank customers will also gain access to this service.
What is the total addressable market for you and how are you positioned?
AA: When you look at the larger market with 61-70 million MSMEs, which includes a lot of long-tailed businesses, even if you focus only on the GST-registered businesses and upwards, there are 2-3 million businesses, which today use larger ERP systems starting from Tally to SAP, and that is our target market. From a market opportunity standpoint, the market is as big as ERP, easily $3-4 billion.
In this space, today, there are not many direct players. There is Razorpay certainly with its RazorpayX product. Except for that, there are vertical providers focusing on account receivables, payables, etc. There are new waves of fintechs and startups trying to solve the same thing, and the market has also evolved in the last two to three years, but we are the market leader in this space.
Having said that, there are enough players eyeing this opportunity; some have their strengths, and it is not a solution that one player can solve. For example, a problem in manufacturing can be solved by a vertical player itself, whereas we are more like a horizontal player.
Last year you received final approval from the RBI for the payment aggregator license. How is that panning out for your business?
AA: By obtaining a PA/PG license, we can also offer payment gateway services. This means that, for example, when I’m creating an invoice for a business, which is in my let’s say, Tally, I can attach a payment link so that I can give an option (to the business) to pay through credit card or debit card. So, this becomes like a natural extension of our existing services. This is where the PA license becomes important.
After the license, we have partnered with HDFC Bank. Through Open, we will be rolling out payment gateway functionalities and will also be rolling out through the customers of HDFC Bank because we have deployed our financial automation platform to all their internet banking customers. So, financially, we are looking at close to around 10,000 transactions to be processed through the PA/PG route.
This is different from what you have been doing so far focusing on small businesses?
AA: One part of our business has been the larger long-tail businesses, which include micro and small enterprises. In the past, the majority of our businesses were in the long tail with up to Rs 5 crore turnover. However, over the last few years, especially when banks started distributing our platform, mid-sized SMEs and enterprises have started using our platform even as they face more challenges than small businesses because they use a higher number of tools, etc.
Therefore, we have divided our distribution strategy into two parts. One is for the long tail, which is more like a do-it-yourself platform where businesses can come and use it, and the second is the dedicated focus on mid-sized businesses and enterprises. Over the last year, we have found that probably the way to make money on subscriptions in India is not purely on the long tail because micro and small enterprises rarely pay for subscriptions. However, the moment you process around 2-3 crore transactions, businesses are willing to pay for the solutions.
So going forward, the focus would more be on mid-sized and large enterprises?
AA: Today some banks like HDFC and Axis have replaced their internet banking platform to offer our solutions under their brand name. Both these banks have 2.8 million to 4.5 million overall customer bases including the long tail customers (micro and small enterprises). So, I can’t ignore the long tail market because naturally, when they log into their internet banking platform, they get access to Open.
However, at the same time, these banks also bring me access to large SMEs and enterprises on our platform as well. Therefore, we will definitely focus 60 per cent on the largest segment of mid-sized SMEs and onwards.
What new product or solution you’re working on?
AA: Since we have a large base of customers, we’re pitching a 30-45-day credit line product, where manufacturers can offer their smaller SMEs or customers 30-45 days credit for purchasing. This is something that was experimented with and went live in March this year with a select set of around 30 clients right now, and this month onwards, we’ll be rolling it out to all the users on our platform.
Secondly, with AI, there are a lot more opportunities for us because ERP systems and internal systems themselves contain a lot of data that a business owner or financial analyst may want to search for and gain insights into. So, we’re currently working on a product where they can have a co-pilot to search for their information and charts, etc.
Can you throw light on the credit offering?
AA: Yes, the first part is the credit line. Let’s assume you’re a small manufacturer, and you have buyers purchasing from you, who are either retailers or distributors. Through Open, we are offering them a 30 to 45-day credit line. Whenever they make a payment, they receive a credit line for 30-45 days. This credit line is completely powered and underwritten by our partnered banks/NBFCs. It’s like a recycling credit line, similar to a buy now pay later (BNPL) kind of product. This isn’t just for our larger enterprises or SMEs; we are also able to offer a credit line to their sub-distributors, who in turn become customers of OPEN or are directly provided to the long tail customers.
Do you think that you’re slightly late to this as businesses competing directly or indirectly with you have already been lending?
AA: We had taken conscious calls that we don’t want to be a lending company. I may be completely wrong, but at least our view was that we are a SaaS-based financial automation product right from the beginning, or a business banking automation product. We don’t want to be a company that ultimately says, “Hey, we make revenues from lending,” and always be an enabler in the industry.
The advantage our partner banks have is that for our customers, we have access to their ERPs, which include their receivables, payables, invoices, etc. So for us, it’s a natural cross-sell. At any point in time, we will ensure that lending will only be 20 per cent of our business.
What kind of potential do you see in this BNPL kind of a model?
AA: We believe this can be a much bigger opportunity because the (SME) credit gap is big enough to be solved but within regulations, how do you create a solution? From a regulator’s view, we will expect more and more regulatory push, which is more favourable towards banks than fintechs. So, how do you become an enabler for the banks and ride on that? That’s the approach that we take. It also depends on how you execute it, but that is an opportunity.
You last raised capital in 2022. Are you looking for more infusion?
AA: No, currently, we have a good runway for at least three-four years. Turning into a cashflow-positive business and how we get to profitability is the biggest priority right now. The good part is that we don’t need to raise too much money. But yes, execution becomes the key, and how we execute will decide whether we succeed or fail in that.
When do you expect the business to turn profitable?
AA: Another year or a year and a half is what we are looking at.