BNPL’s startups booming in Latin America

The Buy Now, Pay Later-based fintech model is taking off in Latin America as an alternative to short-term finance and financial inclusion.

Kueski, a Mexican company specializing in BNPL, recently announced that it had raised $ 202 million in equity and debt financing. StepStone Group and Victory Park Capital led the respective funding rounds.

The deal comes in an industry that has attracted growing interest around the world through the expansion of e-commerce. The credit card-less installment loan model is particularly aimed at the younger segments of the population who are unwilling to use card banking products or who cannot afford the high interest on their loans. In Latin America, however, it remains an infant industry.

But that could change soon enough.

Mexican company Kueski was founded in 2012 as an online consumer lender that offers BNPL deals to its users. Unlike other BNPL companies, it allows users to generate credit history as it signals when customers pay on time or when they default on their loans.

“The new generations have a positive perception of this model as opposed to traditional loans,” said Regina Moreno Prieto, senior manager of Kueski. “Only 53% of adults in Mexico have a bank account, and only 7 in 10 of them have access to credit.”

BNPL arrangements are becoming an increasingly popular payment option around the world, especially for online purchases. They allow consumers to pay for their purchases on an agreed future date, usually at short notice. Its popularity increased in 2020, with the rise of e-commerce, and has remained an important trend for investors.

Financial inclusion

In Latin America, as opposed to the developed world, BNPL is also seen as a tool to advance financial inclusion.

Moreno Prieto said the region’s low banking levels represent “huge potential” for serving BNPL products. In an area where citizens are often unable to obtain a bank loan, BNPL products are often easier to approve because they do not necessarily require a history of debt.

Outside Latin America, US giant Square announced this year that it will make some $ 29 billion available to Australian firm BNPL Afterpay, creating a global payments giant. Paypal has introduced a point-of-sale installment loan program along the same routes.

Yet Latin America remains an under-penetrated market in BNPL’s growing space. “85% of the population in Latin America does not have a credit card and is therefore excluded from the financial system,” said Ezequiel Bucai, CEO and co-founder of Wibond, a BNPL company present in Chile and Argentina.

“With BNPL’s business model, people can access the loan that traditional banks don’t give them,” he said.

The participation of e-commerce in the region’s GDP was once one of the lowest in the world. A pre-pandemic survey by the Inter-American Development Bank showed that only 26% of Latin Americans have made purchases online or were ready to do so.

Then came COVID-19, and the use of digital channels blew up the charts.

The growth of e-commerce has exploded

“This has accelerated a trend that was already nascent before the pandemic, but slow by the standards of developed economies,” reads a CELAC report. “In particular, domestic e-commerce has seen unprecedented growth rates (as) businesses and consumers have turned overwhelmingly to digital and online channels to bypass social distancing measures.”

In 2020, the COVID-19 epidemic marked a watershed moment in online consumer behavior in Latin America.

“Digital business transactions have exploded, as has the number of people shopping online,” the report adds.

With the Buy Now, Pay Later system, users can access credit directly on e-commerce platforms without the need for a card. BNPL models rely on machine learning technology to assess a borrower’s ability to repay with little or no credit bureaus records.

But challenges remain. Financial education is scarce in Latin America, and many adults are unfamiliar with credit cards or any financial products.

In Mexico, Kueski is not alone. This year, Nelo, a startup founded by former Uber employees, started offering BNPL services. He recently raised $ 20 million to help him cross the border.

For Moreno Prieto, this is just the start.

“BNPL will soon cease to be a novelty and become a growing demand, especially from millennials and centennials who do not feel identified with the current offer of traditional banking. ”

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