American technology and payments companies like Amazon, Google and Visa are looking to foray into India’s neobanking space through investment in a Bengaluru-based startup, Open, which is looking to raise up to $200 million at a valuation of $600-$700 million.
Sources familiar with the matter told the Economic Times that Amazon and Google are expected to invest by buying minority stakes to avoid conflict.
“Visa is already a partner for Open and is in talks to participate in this round alongside Amazon and Google. The final contours are being worked out now and should be done over the next six weeks or so,” a source was quoted as saying by the publication.
The report added that the startup is also in talks with a leading sovereign wealth fund and private equity firm TPG. “The sovereign wealth fund may end up leading the new round,” another person informed the publication.
Open has already raised $45-50 million from investors like Tiger Global, 3one4 Capital, Speedinvest and BetterCapital.
Neobanks are typically digital entities and operate online to offer financial services in the form of a transactional platform for merchants, a lending service provider or an account manager.
In India, neobanks don’t follow any standard regulatory code and don’t take bank licenses of their own to operate instead of relying on already accredited banking partners for licensed services. India’s banking regulator, the Reserve Bank of India (RBI), has not permitted a 100% digital bank model in India yet.
There are around 10 neobanks in India, with Open, Jupiter, RazorpayX and Niyo being prominent. In addition, global neobank Revolut is also planning to enter the Indian market.
While the Indian neobank market is still in the nascent stages, the global market was worth $18.6 billion in 2018 and is expected to accelerate at a compounded annual growth rate (CAGR) of around 46.5% between 2019 and 2026, generating around $394.6 billion by 2026.
Investment by Google and Amazon in Open is expected to give a much-needed push to the country’s neobanking space.
Amazon and Paytm are looking to enter this space. Notably, the Jeff Bezos-led company is also developing its own digital banking platform, allowing its local seller partners to open current accounts, manage expenses, and avail lines of credit from an array of partner banks, as per the report.
Founded in 2017, Open has reportedly recorded a near ten-fold growth over the last 18 months driven by digital adoption, especially by small and medium businesses in the country. The report said that Open is onboarding close to 50,000 new businesses every month.
The company, which currently offers business banking, payments and expense management services to over one million small and medium enterprises, is now aiming to reach 5 million paid subscribers by the end of the year. Open recently claimed that it processes $24 billion in transactions annually.