Zeta has rewritten entire banking stack, this hasn't been done before: Co-founder Bhavin Turakhia

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Serial entrepreneur Bhavin Turakhia's banking software startup Zeta became India's newest unicorn this week after it raised $250 million at a valuation of $1.45 Billion, in a round led by SoftBank.

While Zeta derives a majority of its current $10-$11 million revenue from a single client Sodexo, Turakhia believes this has the potential to scale to hundreds of millions of dollars in revenue over the next decade, tapping into the $300 billion market for banking software globally.

It wants to reimagine the core banking stack for traditional banks- which currently use older solutions like Finacle and Flexcube from IT frms and wants to provide banks and fintechs with a mobile-first platform to create accounts, help customers track their expenses and apply for loans & credit cards seamlessly.

Turakhia spoke to Moneycontrol over a Zoom call from London hours after the funding announcement.

Edited excerpts.

This is the first time you have raised money from an institutional investor, for any of your ventures. What does SoftBank bring on board?

Apart from capital, SoftBank is a large investor in pretty much every large fintech and commerce company across the globe and what Zeta has is the comprehensive banking platform and tie ups with underlying banks that can be leveraged by those fintechs and etailers.

There is a huge potential opportunity in North America and Asia Pacific to take Zeta's technology to SoftBank companies. Zeta is a pure banking tech provider- so we power tech in banks and power tech in fintech and SoftBank has the right connections in the right places. It gives us the right opportunity to work closely with those portfolio companies.

You also spoke about the banking tie ups you have in India- with the likes of HDFC Bank and RBL Bank. In what capacity are you working with them right now ?

They are clients and partners in the sense that we are working with them to launch a new credit card program for them on our stack instead of using legacy software. They are using our cloud native platform to launch credit card programs, debit card programs, to launch wallets, to launch savings accounts and deposits, and loans. Any banking product that they are going to launch with a modern mobile app, platform for those programs

Are any of these products live yet-the banks that you are working with?

Yes, employee benefit cards are live, gift cards, prepaid wallets , quite a few products are live with fintechs across the globe. Many are in various stages of going live.

Right, you have 10 banks and 25 fintechs as clients. How many of these currently generate revenue for you? Based on what we understand, Sodexo contributes to a majority of your revenue, they also own a minority stake?

3-4 banks have started generating meaningful revenue. RBL Bank, IDFC bank are amongst them. On the fin tech side, 10 fintechs are generating revenue. Sodexo was our first client on the issuer side, they have been with us since 2016, so they contribute to a meaningful share but that has been shifting and will shift more in the coming years based on all the contracts that we have signed up

How much has Zeta earned till date, what has your revenue been?

We are not disclosing revenue numbers yet. We are generating revenue every year but we haven't disclosed it in any forum yet

From a SaaS company standpoint, would it also be fair to say that the average revenue that you would generate from a client would be higher than what most SaaS companies would do? The average large SaaS company would have 50-60 clients and generate 3-4 mn revenue but you would have 20-30 clients who can generate $50 mn each...Would you agree?

That would be a very correct way of looking at it. In fact I think at scale in the next 5-7 years, I would say majority of our revenue would come from say 30-40 clients, and some of the contracts can be worth $50-100 million at a time once we scale up, which may take 5 years. We are targeting the top 300 banks in the world and each contract is worth a sizable chunk in revenue.

What kind of projections are you looking at? From what we understand, you have projected revenue of $100-200 mn over the next 5-10 years?

The way we see it, our existing signed contracts should take us above $200-300 million in revenue over the course of the next few years, by 2025. These are already signed contracts. Additional contracts should at least triple that. Banks spend more than $200 billion in IT expenses and our goal is to get a fair share of that

What is the comparison here? Are you trying to reimagine what an iFlex or a Finacle has done, because you are trying to architect a different form of core banking software? Would that be the right way of looking at it?

In some ways, I can draw a comparison, in some ways, there is almost no comparison. It is a paradigm shift. It is almost like comparing a smartphone and feature phone, a data center, and a cloud. What we are doing right now has never been done before. Zeta has rewritten the entire banking stack- not just core banking or payment processing, not just mobile apps but everything- the whole stack from scratch. This hasn't been done before- in the last 50 years no company has reinvented banking from scratch. We are essentially building a full-stack, cloud-native, mobile-first, 100 percent API coverage modern tech platform.

Is there a difference country-wise when you talk to banks from India as opposed to other countries? Are banks in India receptive to tech companies for central partnerships?

We are working with various sorts of banks in the country and have seen a very high degree of receptiveness.

We see the same level of receptiveness in other countries, when I say other countries, so far from a pure banking standpoint our experience is largely based on North America and India and few other smaller areas than that so I still have to explore Latin America much more deeply. One key difference that immediately comes to mind is the pricing.

A typical credit card solution in India, a full credit card platform will end up selling around $4-$6 per active user per annum, in the US the exact same platform will fetch around $25-$40 per active user in the platform. So six times more revenue for the exact same product. So that's a key economic difference. The other differences are regulatory differences in terms of level of regulatory readiness.

What are your foremost risks or challenges?

A thing that keeps us up at night is how we accelerate our expansion into markets. We want to continue being the market leader in this space. And I think the second thing is direct acquisition, you know, bringing in the smartest people will help us, you know everything we have done today is of testament to the kind of individuals we have the team we have built, how do we accelerate that work the kind of demand that we have already generated, i think those are the challenges we focus on now.

Bhavin, you have three companies- Radix, Flock and Zeta. How are you going to divide your time going forward ?

I don't run Radix anymore. I am currently the owner and Chairman. So I spend less than 5% of my time,so I divide my time between Zeta and Flock. It does take its toll but given the kind of individuals I get to work with, they take a lot of the burden off my shoulders so it becomes easy to manage.

Zeta is also India’s 14th unicorn in five months. This is unprecedented. Do you see froth in the market? Are the valuations realistic?

I think most of these new industry paradigms go through sort of an inflection point. This year has become the inflection point for many startups, many companies have matured to a point where they have generated meaningful value and created amazing products. With regards to India, a lot of companies have perfected the model of building something in India for a global audience, which will give a significant benefit in generating revenue.