IIFL Finance Ltd and Open Financial Technologies Private Ltd have announced a joint venture (JV) to launch a neo-bank that will cater to banking and credit requirements of Micro and Small Enterprises (MSMEs).
Initial capital for the JV company will be ₹120 crore, with IIFL Finance and Open taking 51 per cent and 49 per cent stake, respectively, according to an IIFL Finance statement. The joint venture will be named IIFL Open Fintech Private Ltd.
The venture is expected to be a profitable fintech in the first year itself, with 10 lakh customer mark likely to be reached within a year’s time, and $2 billion lending book likely to be created in two years, IIFL Finance said..
IIFL Finance is a retail focused non-banking financial company (NBFC) engaged in the business of loans and mortgages along with its subsidiaries - IIFL Home Finance and IIFL Samasta Finance.
Open, which is backed by global investors such as Temasek, Google, Visa, and Tiger Global, is an SME focused neo-banking platform, with over 2.3 million small and medium business merchants on boarded on its Open Money platform, according to the statement.
IIFL Finance will leverage Open’s consumer neo-banking platform to offer additional services to its clients, it added.
Neo-banks have digital as the only or predominant channel for engaging with customers and challenge either the products, user experience or business models of traditional banks and other financial services organisations
With this JV, IIFL Finance said it would be able to offer neo-banking services to its 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…Customers will also have access to savings, insurance, payment, card and other solutions, customized for their needs.,” the NBFC said.
Additionally the credit solutions to Open’s existing 20 lakh merchants would lead to incremental lending book formation.
SAAS fees per customer
“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 innovative lending solutions to the merchants on their platform,” IIFL Finance said.
Nirmal Jain, Founder, IIFL Group and Managing Director, IIFL Finance said, “…Currently, the long tail of 6.33 crore MSMEs is deprived of credit and therefore growth. The unfulfilled credit need for such customers is estimated to be Rs 37 lakh crore.
“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.”
Credit underwriting for a variable fee
Jain underscored that the JV 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.
“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.”