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“Open banking is a potential disruptor in the financial system and may change the way of doing banking for both customers and banks.”—M Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI).

From SaaS (Software-as-a-Service) to social media, open banking has come as a landmark opportunity for any business or a brand to become a fintech player. Simply put, open banking implements an architecture where banks and other financial institutions involve third parties to use transactional, operational or personal data to create innovative solutions.

This data exchange is done through Application Programming Interfaces (APIs) of third-party providers, who then make it easy for other companies to launch new products and services more quickly, creating a multiplying effect on market innovation.

With banks sitting on a goldmine of customer data, fintechs are bringing in the necessary tech capabilities to build products or services at speed and scale. In the last two years, many such players have started providing the necessary “engine” with which other companies, especially the non-fintech ones, can offer innovative digital financial solutions without the need to build everything themselves.

One such engine builder is Bengaluru-based startup, Neokred Technologies, which is part of YourStory’s Tech50 cohort in 2021. Founded by Tarun Nazare and Rohith Reji, Neokred is an open banking stack startup that provides curated versions of issuance in the payment ecosystem. It has created a ‘NeoBox’ which enables corporates, fintechs and startups to launch their own banking services or financial products, including issuance of prepaid cards, facilitating ‘Buy Now Pay Later’ (BNPL) and opening virtual bank accounts, for their customers or employees with the help of modified tools.

The two-year-old startup has raised $1.2 million in seed funding from Virenxia Group, Rajesh Chandan (Founder, Veeraa Ventures and IndiaShoppe) and Nitin Agarwal (Founder, B21 Ltd and PayGlobal Ltd).

‘Any company can become a fintech’

Having worked across various organisations in the payment space, the founding duo came across several challenges by companies wanting to launch a financial product.

They were hit with the idea of Neokred during one of their assignments as colleagues at a previous organisation, OdinMo, where they were tasked with the integration of a banking partner into the company.

“It took almost 7-8 months for the whole idea to go live. You have to take permission from the RBI for every programme (issuance of cards, bank accounts, wallets etc) you onboard. This came as the biggest challenge,” says Rohith, who previously worked in commercial procurement at L&T.

He has also co-founded Artificial Intelligence (AI) development startup Onvo and tech app Expedyte. Tarun has worked with organisations such as MSS Payments, Techolution and Happay as finance executive for about four years before donning the entrepreneurial hat.

Following a brief market study to understand the extent of the problem and the other roadblocks, including compliance, issuance and regulations, faced by both banks and companies, the co-founders decided to turn these pain points into an opportunity and launched Neokred in 2019.

“The main aim was to significantly reduce the duration of launching a financial product to 30 days or even less. This is our major unique selling point (USP),” says Rohith.

Bank in a box

The startup acts like a “program manager” between a bank and a brand, for the latter to launch any financial product. It takes care of the end-to-end process, including technology, compliance, use-case and customisation.

Users can plug in the NeoBox into their existing enterprise resource planning (ERP) and select the service (launch a card, open bank account, BNPL facility etc) they wish to launch. They can further add features like insurance, investment, and credit. The Software Development Kit (SDK) is built as per the client’s requirement and plugged into their respective mobile app for faster Go-To-Market (GTM).

“Everything is bundled together in the NeoBox so that a company’s effort is minimised and it can easily focus on marketing and business use cases of it. It is like offering a bank in a box. We aim to be a one-stop platform to service any fintech use case, whether it is facilitating BNPL, issuing credit cards with loan management systems and risk underwriting, creating virtual bank accounts for salary disbursement or even having your own Point of Sale (PoS) terminal.”

The NeoBox holds greater relevance for companies in the non-financial space “as they may not have the required know-how of the financial technology or related policies”. For launching a small service like a wallet, a non-fintech company needs to understand the technology in terms of APIs and be compliant with banks and RBIs policies. “This is not in the core forte of say, a healthcare or a D2C brand, which takes away a lot of their time and effort in launching a financial service,” explains Rohith.

The startup has co-created prepaid health cards with an insurance startup, which can be availed by its clients across hospitals for a limited medical expenses, discounts and other facilities. It has also launched an attendance/payment smart card for a SaaS startup that provides ERP solutions to schools for attendance management.

In addition, Neokred is looking at embedded credit/finance as a major offering. It has tied up with a two-wheeler rental startup (which doesn’t want to be named) where it has embedded credit service into their system using recurring customers’ history. With the help of this service, the startup’s customers get an option to pay at the point of purchase without having to look out for borrowing money.

Revenue & traction

The startup has crossed Rs 200 crore in gross merchandise value (GMV), and its cards have been swiped for transactions worth over Rs 250 crore, according to the founders. It has issued close to 2 lakh cards since December 2020 and has about 35 partners, including YPay, DigiPe, Health Quarters, Jar app, ekosh, National Payments Corporation of India (NPCI) and Yes Bank.

Its revenue streams include card sale fee, platform charges, transactional income and subscription fees.

In the short term, Neokred plans to launch three new products for the business-to-business-to-consumer (B2B2C) segment and co-brand over 20 lakh cards. It is aiming to hit a revenue of $79 million by 2025.

The startup recently acquired a BNPL solutions provider PeSeva Technologies to “tap into the current demand of embedded lending”. It is also the infrastructure partner in developing contactless payments solutions ‘RuPay On-the-Go’ by NPCI and Yes Bank. The solution will allow customers to make transactions from the accessories they wear every day.

Market analysis

The startup faces competition from Bengaluru-based neo-banking platform BankOpen (now called Open Money), which is backed by Singapore-based Temasek and Tiger Global Management. It has recently launched embedded finance platform Zwitch and cloud-native banking platform BankingStack. Neokred also faces competition from fintech unicorn Razorpay’s neo-banking platform Razorpay X.

“Majority of the startups are API first. They help you build your tech stack, which is their USP, but we help in building a brand’s bank or a model. Everything is already pre-integrated on our SaaS platform and one can launch fintech products and services in a short duration. We are the enablers,” says Rohith.

Big global players like Railsbank, Rapyd, Unit and FintechOS are also tapping the Banking-as-a-Service (BaaS) model and building APIs for banking, payment cards and credit products for use by fintechs and a wide range of other kinds of businesses.

The global open banking market size accounted for $7,295 million in 2018, and is expected to reach $43,152 million by 2026, registering a compound annual growth rate (CAGR) of 24.4 percent, according to a report by Allied Market Research.

Moreover, BaaS, and other financial products as a service, is turning out to be significant for not just fintechs, but also companies across sectors looking to leverage banking instruments such as credit cards and embedded finance service to serve their users with a better experience without having to build an entire banking infrastructure underneath it to run it.