IIFL Finance Ltd., one of India’s largest non-banking financial companies (NBFC) and Open Financial Technologies Private Ltd., Asia’s largest SME focused neo-banking platform announced a joint venture (JV) to launch India’s first neobank that would cater to banking and credit requirements of Micro and Small Enterprises (MSMEs). Initial capital of the joint venture company will be INR 120 crore. The JV composition between IIFL Finance and Open is 51:49. The name of the joint venture would be IIFL Open Fintech.

Through this JV, Open would get a recurring annual SAAS fees per customer for offering technology services to the JV. Additionally, they would also be able to leverage the lending book and infrastructure of IIFL Finance to offer lending solutions to the merchants on their platform. The lending solutions can be offered by Open without taking any lending/First Loss Default Guarantee risk. Open would get incremental revenue from fees generated for lending solutions provided.

With this JV, IIFL Finance would be able to offer neo-banking services to all its customers. Banking, Accounting, Billing and Reconciliation services would be offered at a click to IIFL Finance’s customers. This would help in getting complete insights into user’s business transaction leading to better underwriting decisions. Additionally, the credit solutions to Open’s existing 2 million merchants would lead to incremental lending book formation.

For the JV entity (IIFL Open Fintech Private Limited) created there would be no technology capital expenditure as the same is being Offered by Open on a per-customer basis. IIFL Finance’s existing customer and branch network would be utilized for customer acquisition leading to lower customer acquisition cost. This would also give a head-start to the JV compared to all other newer neo banks. The JV would be earning a revenue fee from IIFL Finance for offering lending services. Additionally, transaction revenue from all payments, cards and value-added services would accrue to the JV.

The JV is expected to be a profitable FinTech in the first year itself with 1 million customer mark reached within a year’s time and $2 billion lending book is likely to be created in 2 years.

Commenting on launch of the IIFL Open Fintech Neobank Nirmal Jain, Founder, IIFL Group and Managing Director, IIFL Finance said, “We are excited to announce this joint venture which can genuinely transform banking and borrowing experience of millions of MSMEs. Currently the long tail of 63.3 million MSMEs is deprived of credit and therefore growth. The unfulfilled credit need for such customers is estimated to be INR 37 trillion. What these MSMEs need is simplified banking and what banks need is verified transaction and business data. The neo-banking that this JV proposes to offer, will meet requirements of both sides and drive financial inclusion and economic growth at bottom of the pyramid.”

Jain further said, “The joint venture will enable customers to open an account in less than two minutes without visiting any physical branch and access all banking features on the app itself. The best part for the customer is that accounting and reconciliation will be auto-matched. Its unique structure of technology and credit underwriting for a variable fee, can potentially make it profitable from the first year itself.”

Commenting on this strategic partnership, Anish Achuthan, Co-founder and CEO, Open said, “We have always felt that the needs of micro-businesses are a lot different than the current MSMEs which we cater to at Open and Open has never been focused on the consumer neo-banking space. We are excited to join hands with IIFL Finance in launching a neo-banking offering for the micro businesses and consumers combining the strengths of Open in the neo-banking space and IIFL Finance on the lending side with access to its 8 million customers. Further the joint venture can add a lot of synergies to Open as we are getting ready to launch innovative products like revenue-based financing, early settlement, working capital loans and business credit cards on the Open Money platform.”