In the start-up world, hitting the $1-billion mark, which accords the “Unicorn” tag, is a milestone.
Enterprises typically reach the milestone only by series C or series D, or three to four funding rounds later.
Zeta achieved it at the first one.
On May 25, the six-year-old banking tech firm raised $250 million from Japanese conglomerate SoftBank, at a post-money valuation of $1.45 billion.
“This is the first time we have raised institutional money,” Zeta co-founder Bhavin Turakhia beamed on the conference call.
This trajectory is uncommon in start-ups.
Founders usually rake in millions in venture capital to grow fast in the early years.
The feat of getting SoftBank, which is usually a later-stage investor, makes the firm an outlier.
SoftBank’s interest is a function of the magnitude of the problem Zeta has set out to solve.
Zeta is modernising banking, which has long relied on legacy tech, with modern cloud-based API-first technology (APIs, or Application Programming Interfaces are software modules that embed in consumer tech applications — making cross-service integrations seamless).
The space, known by many names such as neo-banking, cloud-banking and challenger banks, is one of the moonshot sectors globally.
Since 2010, more than 310 neobanks have been launched around the world, attracting an estimated 39 million users globally as of January 2021, according to Insider Intelligence.
It is also one of the main baggers of capital within the larger fintech universe.
Put against Turakhia’s solid credentials, it was an obvious outcome for Zeta. Mumbai-born Turakhia has been coding since age 10 and launched his first start-up at 17.
He sold Directi, a domains and web hosting business, for $160 million in 2014, and used the money to launch other firms, Zeta being one of them.
He now lives in London and shuttles between Dubai and Bengaluru (or used to pre-pandemic) to “keep a tab on global innovation”.
“Banking technology has been, funnily enough, the last frontier in terms of disruption,” said Turakhia.
“If you think of any other software — CRM, accounting, ERP or HR — the software that we use today didn’t exist 20 or 30 years ago.
"But all banks globally continue to use legacy technology platforms that have been around since the 1970s.”
The problem has had banks worried. Some of the core tech platforms that power banks, such as FIS, SWIFT, Jack Henry and Finserv, need a refresh.
Even though prominent banking institutions have developed their own digital banking services — 811 by Kotak or YONO by SBI, Digibank by DBS, being some examples — upgrades to core internal applications have long been in the offing.
Zeta offers banking tech solutions to launch specific products for niche customers.
For example, HDFC and Axis Bank use Zeta for a specific reimbursement account for corporate employees.
Some banks have also launched credit cards, with experimental terms, on Zeta.
The company says this helps banks test new products faster and without having to set up new infrastructure on their own. India has seen some early strides, led in part due to Aadhaar, which showed that API-based architecture is faster and cost-efficient.
This birthed start-ups such as Setu, an API infrastructure provider for financial firms; and Open and Niyo, two neo-banks that offer banking functionality in a more automated and “digital” fashion.
Major investors such as Tiger have given their stamp of approval.
Experts said the ability to collect, analyse data and understand consumer behaviour — besides faster disbursal of loans and banking services — is a strong moat for neobanks.
“We’re seeing a steady rise in challengers who either provide ‘last digital mile’ services, or partner as neobanks with smaller commercial banks to compete with the larger ones,” said Vijay Mani, partner-Core Business Operations, Deloitte India.
Globally, too, the space is hot.
Nubank, the biggest neo-bank in Latin America, was recently valued at $25 billion.
Most Asia Pacific countries — Hong Kong, Taiwan, Singapore, Thailand and Malaysia — have either rolled out, or are in the process of rolling out, virtual banking licences to bidders.
Even legacy e-commerce players such as Alibaba, WeBank have stepped up digital lending play through a neo-banking platform called MyBank.
In only four years (to 2019), MyBank had disbursed $300 billion worth of loans to 16 million small companies.
Turakhia and co-founder Ramki Gaddipati launched Zeta in 2015.
The enterprise started by building modules that power various functions in a bank.
It got its first customer in 2016 in RBL Bank, which took up Zeta stack to offer prepaid cards to some corporate customers.
In no time, the company bagged a massive client.
“In 2017 we nailed a strategic partnership with one of the world’s largest financial institutions, Sodexo, based in France.
"Sodexo has globally 350,000 corporate customers and 13 million users.
"They selected Zeta as their de-facto platform to power their payments across the globe,” said Turakhia.
A year later, Sodexo made an undisclosed investment in Zeta, valuing the company at $300 million.
The firm then embarked on a global expansion spree, launching in Italy, Spain, Brazil, Vietnam and the Philippines over 2018-2019.
At the same time, local business continues to grow.
By 2020, the firm’s roster had grown to include Axis Bank, Kotak Bank, IndusInd Bank, and HDFC Bank, the largest private bank in India.
Zeta works with 10 banks and a bunch of other payment institutions including Visa and Mastercard.
“With the rise of new-age, agile, digital-only banks it will be exciting to see the ensuing battles cum collaborations,” noted Keshav Bagri from VC firm Bertelsmann India, an active investor in fintech lending space with bets like Lendingkart and Repeek.
The storied entrepreneur Sachin Bansal of Flipkart, too, is launching digital bank Navi, albeit through a different route which involves him taking a full-fledged banking licence.