Alternative Lending in Mexico

alternative finance Mexico

Albeit a bit late, Latin America has finally joined the global fintech revolution and Mexico is right at the forefront. Mexico has the largest fintech ecosystem in Latin America ahead of Brazil (230 startups) as per a recent report published by IDB and Finnovista in the second quarter of 2017. Alternative lending saw 41 startups and […]

alternative finance Mexico

Albeit a bit late, Latin America has finally joined the global fintech revolution and Mexico is right at the forefront. Mexico has the largest fintech ecosystem in Latin America ahead of Brazil (230 startups) as per a recent report published by IDB and Finnovista in the second quarter of 2017. Alternative lending saw 41 startups and accounted for 17% of the total.

Source:

Mexico was the largest player in the Latin American market with a volume of $114 million in 2016. The marketplace/ p2p lending model saw a 6x growth with over $40 million in 2016 lending.

Source:

Alternative Lending Regulation in Mexico

The fintech lending industry enjoyed little to no regulatory oversight in Mexico, but path-breaking growth made it necessary to have safeguards for the burgeoning market. Hence, in the beginning of December 2017, the Senate passed a bill called “The Law to Regulate Financial Technology”, and in the beginning of 2018, it will be presented in the lower House. If passed, the bill will help enhance financial stability and bring a clear and concise legal framework to alternative lending. It will also help improve credit access to millions of Mexicans.

Opportunity for Alternative Lenders

The majority of people in Mexico use Socaps (savings and loan cooperative societies) since they live in rural areas where there are no banks. As per Condusef data, only 800 municipalities out of 2,492 have bank branches. More alarmingly, Mexico had just 1.5 bank branches per 10,000 adults compared to 4.7 in Brazil in 2016, according to the National Report on Financial Inclusion. Furthermore, only 39% above the age of 15 have bank accounts as per data from the World Bank. These numbers clearly suggest Mexicans are underserved when it comes to banking activities, which presents a huge window of opportunity to the fintech lending sector.

Leading Fintech Lenders

  • Kueski – Kueski was founded in 2012 by Adalberto Flores and Leonardo de la Cerda. Its headquarters is in Guadalajara, Jalisco, Mexico. Kueski is the online lender for the middle class of Mexico and Latin America. The company uses big data and advanced analytics to approve and deliver loans in a matter of minutes. The company has become the fastest growing platform of its kind in the region and has raised almost $39 million. It offers loan ranging from $1,000-$2,000 and term ranges from 1-30 days.
  • Konfio – Launched in 2013 by David Arana and Francisco Padilla, Konfio is headquartered in Mexico City. It has raised $18 million from the Accion Frontier Inclusion Fund managed by Quona Capital, QED Investors, Kaszek Ventures, and Jaguar Ventures to strengthen the platform’s operations, grow its user base, and adopt corporate practices. Konfio is an online Mexican lending platform that helps financially underserved micro-enterprises in Latin America to obtain convenient and affordable loans through a proprietary algorithm. It offers loans ranging from MXN $10,000 to $350,000 for terms ranging from 4-36 months.
  • MiMoni – MiMoni was founded in 2008 and is headquartered in Mexico City. It has raised over $15 million in various rounds of funding. MiMoni analyzes submitted loan requests and approves them enabling its users to get access to benefits provided by the platform. Members are able to ask for loans whenever they need and after when they have settled their previous loans. It allows its users to make biweekly payments based on the amounts they have received as loans. It offers three loan amounts–$4000, $5,000 and $6,000–at an annual fixed rate of 401%.
  • Kubo.Financiero was founded in 2012 by Allan Seidman, Tomas Hernandez, and Vicente Fenoll. Since its inception, it has raised over $11 million in various rounds of funding. Kubo.financiero is a Mexican P2P lending platform regulated by local authorities including The Bank of México, CNBV (equivalent to the SEC in the US) and CONDUSEF. After five years, it is now one of Mexico’s leading P2P lending platforms with over 10,000 loans providing for a total of MXP$254m (USD$14m) and around 1,000 investors funding 60%-80% of the total loan value over the last 18 months. It issues loans ranging from ~US$200 to $25,000 with payments being made weekly, bi-weekly, or monthly over 16-36 months. All borrowers have a minimum score of 620 with the Buro de Crédito (equivalent to FICO).
  • Yotepresto – Started in 2014 by Luis Chavez, Yotepresto has raised $1.2 million in various rounds of funding. It is the fastest growing Mexican-based marketplace lending platform connecting individual and institutional investors to near-prime borrowers applying for a personal loan. It has more than 130,000 registered users and has originated $75 million in loans so far. It offers loans ranging from MXN $10,000-$300,000 with terms ranging from 6-36 months with rates starting from as low as 5.9%.

Apart from these leading players, there are a few more alternative lending platforms, such as Aspiria, El Buen Socio, Credilikeme, Doopla, Finv, and Cohete. These lenders are trying to break into the untouched Mexican market.

Conclusion

With new legislation set to roll out, and leading international players like Startupbootcamp FinTech using Mexico as the launching pad to establish their foothold in the Latin American market, it is easy to conclude that Mexico is set to be the fintech hub of the LATAM region. Considering many social and economic factors support the fintech-lending ecosystem, there is no doubt VCs and investors likewise will be lining up to fund and support altermatove lending startups in the region.

Author:

Written by Heena Dhir.

Marketplace lending in Mexico

Marketplace lending in Mexico

Kueski is targeting the microfinance space, for the new borrowers they lend up to Pesos 2,000, for a maximum of 30 days. The whole process is online, so no hassle of going to the bank, collect endless paperwork or wait days for approval for personal credit. In addition, the bank usually asks for a guarantee […]

Marketplace lending in Mexico

Kueski is targeting the microfinance space, for the new borrowers they lend up to Pesos 2,000, for a maximum of 30 days.

The whole process is online, so no hassle of going to the bank, collect endless paperwork or wait days for approval for personal credit. In addition, the bank usually asks for a guarantee among other requirements, turning off new borrowers.

Timely repayment of loans at Kueski is awarded by bigger loans size, longer tenure and low-interest rate for recurring customers. It also helps to build a good credit rating in the credit bureau profile, which can be beneficial to get other credits such as mortgage or auto loan in the future. It is the most convenient lending platform for those who need an immediate loan. The company has become the fastest growing platform of its kind in the region and has already granted thousands of loans.

Kueski is disrupting the consumer lending industry in Latin America and changing the way credit risk is assessed with machine learning, big data, and other novel technologies and has grown ten folds year after year. The company’s portfolio has been profitable since July 2014 with thousands of loans in volume. Though initial loss rate was high, but with constant changes in the algorithm, losses have been cut down drastically.  The average rate of interest is 1.16% daily and can go down to as low as 0.5%.

Underwriting

Kueski underwriting process is first of its kind in Mexico Fintech industry. They have developed analytics with a mixture of traditional features and socio-demographic, email account info, Facebook info etc, which enables them to gather all details of the users for the internal model that they have developed.

The team behind Kueski comes from big data and analytics background that enables Kueski to provide loans to people who don’t even have a credit score. Users are able to apply online for a small loan in the range of 80-350$, specifying how much money they need and when would they like to pay it back. Kueski leverages user’s credit history, their social graph and other online information available to build a credit risk model that will approve or reject loan applications in a matter of minutes in real time.

The firm also gets detailed information from Stat Institute about socio- demographics and socio-economic characteristics of the Mexican population, thus enabling them to leverage new variables and patterns in their algorithm. They have the technology to identify the application and correlate with the address of where people work. Information is used to develop a model using topology analytics, allowing them to create predictions about their users. This proprietary analytics technology is one of the reasons why they can give credit to people who don’t have access to banks or other credit institutions.

To lower their default rates, they have also started using Machine learning. It allows them to use different variables which are strongly correlated with other demographic characteristics. This has helped them improve their default prediction by 10-20%. The company’s technology and algorithms will be the key success factor in winning the Latin American market.

Mexican market specifics

The Mexican market functions in multiple dimensions:

–    More than half of the population of Mexico does not have a bank account, presenting with a huge market opportunity for Kueski.

–    People of Mexico are technology adopters at all ages; even at the age of 60, they are creating their Facebook accounts. This population segment is familiar with the internet, online processes, and technology. Using their digital footprint, the company decides whether to lend them the money or not.

Accessing affordable capital is a longstanding problem in Mexico as 85% of the population does not qualify for a wide range of financial services such as loans and credit cards because of low or non-existent credit scores. Kueski was founded in 2012 to solve this issue and is now the fastest micro-lending service in Latin America.  If the loan is approved, a wire transfer will be made immediately. Service is simple, paperless and available 24/7.

Kueski history

Kueski, one of the leading online lenders to the middle-class demographic in Mexico was founded by Leonardo de la Cerda and Adalberto Flores and has its headquarters in Guadalajara, Mexico. Adalberto Flores was part of Ooyala, an online video technology company, which was later acquired by Telstra two years back. The founder was in charge of operations in Mexico and thus understood the credit bottlenecks in the Mexican economy. He looked at exploring an array of products like purchase financing, P2P lending, installment loans etc. but once the market needs were understood, they decided to offer short-term micro loans to the customers.

The company has raised $35 million in funding recently, of which $10 million was in equity and $25 million in debt funding, with the potential to increase up to $100 million. The Series A round was led by Richmond Global Ventures, Rise Capital, the Crunch Fund and Variv Capital. It also included Victory Park Capital, Angel Ventures Mexico, Core Ventures Group, and Auria Capital. The company has raised more than $5 million in equity in previous rounds.

Kueski aims its business at middle-class customers. Like other competitive lenders, they claim their own special analysis of a particular combination of indicators for someone’s creditworthiness. They look at applicants “digital footprint” which allow their algorithms to execute the credit approval process in minutes versus the weeks of lag time at traditional brick and mortar financial institutions.

75 million Mexicans still lack access to financial services

 

Over the past 5 years, access to bank accounts in Mexico has grown to 39%, an increase of 10% since 2010. While the progress is promising, 75 million Mexicans still lack the access to financial services needed to support their families, their businesses (SMBs), as well as to protect themselves from unforeseen financial shocks. The massive fundraising and the proprietary technology would help Kueski solve the problem of access to credit in Mexico. The team also has a first mover’s advantage to tap the massive growth opportunity in entire Latin America.

Author: George Popescu, Heena Dhir

George Popescu