Neobank Open reduces losses to Rs 170 crore in FY24, but faces revenue challenges amid cost cuts

Open's total revenue reached Rs 46.11 crore for the year, including Rs 21.3 crore from interest and gains on current investments, categorized as non-operating income (Representative image)

MSME-focused neobank Open reported a loss of Rs 169.6 crore in FY24, marking an improvement from the Rs 242.2-crore loss in FY23, largely driven by aggressive cost-cutting measures.

However, this narrowing of losses came alongside a 17 percent decline in operational revenue, which fell to Rs 24.81 crore from Rs 29.9 crore in the previous fiscal year, according to the filings sourced from TheKredible.

Open's total revenue reached Rs 46.11 crore for the year, including Rs 21.3 crore from interest and gains on current investments, categorized as non-operating income. This significant dependence on non-operating income highlights the challenges the company encounters in growing its core business operations.

Founded in 2017 by Anish Achuthan, Mabel Chacko, Deena Jacob, and Ajeesh Achuthan, Open works with banks to provide digital banking solutions tailored to MSMEs.

The company generates revenue primarily from subscription fees for its digital business platform, which offers small businesses tools to manage finances, accounting, and a credit line via lending partners. It also earns income from transaction fees, card interchange, and a percentage of bank transfers, known as TDR income. Additionally, Open offers technical and analytical support to its group companies, generating revenue through markups on costs.

As of FY24, Open claims to have powered over 40 lakh businesses, managing approximately $40 billion annually in accounts receivable and payable for its clients. This year, it also launched business banking services for Axis bank, besides existing client HDFC.

Cost reduction 

A sharp focus on reducing expenses played a key role in narrowing Open’s losses. Total expenses dropped by 34.4 percent to Rs 194.65 crore in FY24, down from Rs 296.5 crore in the previous year. Employee benefits, which made up 60 percent of total costs, fell by 21.6 percent to Rs 117.08 crore, including Rs 37 crore allocated to its Employee Stock Option Plan (ESOP).

Other major cost reductions included a 13.2 percent decrease in IT and payment gateway expenses, which fell to Rs 25.34 crore, and an 84.7 percent cut in advertising and promotion costs, which dropped to Rs 8.85 crore from Rs 57.67 crore in FY23.

These cost-saving efforts helped Open reduce its net losses by 30 percent. Operating cash outflows also improved, decreasing by 55.4 percent to Rs 91.57 crore. However, the decline in outflows suggests a slowdown in the company’s operational activities, rather than an uptick in core business growth.

In 2022, Open secured a payment aggregator license from the Reserve Bank of India to offer payment gateway services. It also raised $50 million in a funding round led by IIFL and Tiger Global, attaining unicorn status. To date, Open has raised approximately $190 million from investors including Temasek Holdings and 3one4 Capital.

Despite its status, Open, which plans to reach profitability by the end of 2025, faces direct competition from Razorpay X, which also caters to MSMEs.  The broader neobank sector in India continues to grapple with limited differentiation from traditional banks and regulatory uncertainties, which have stifled growth. In an effort to grow scale, many, including Jupiter and Fi Money, are attempting to venture into lending through an NBFC license.