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The future of finance in LatAm & the Caribbean

July 30, 2021

With partnerships, fintechs and FIs gain speed and innovation

Dec 15, 2020

By Fabiola Seminario
Partnerships

Collaborative approaches have proven to be a win-win situation in the financial industry. Thanks to partnerships, startups can scale quickly, and traditional financial institutions acquire disruptive technology

Mastercard
What will the future look like in 5 years? How about a decade from now?

These are important questions for any company seeking expansion and longevity. They are especially relevant in the financial services industry, a rapidly changing sector that aims to deliver innovative technology and disruptive business models to clients.

To answer these questions, strategic partnerships between startups and companies with a track record are an effective strategy: the experience and global presence of corporations bring growth, speed and presence to startups – while the creativity and inventiveness of new players increases the agility of traditional players.

“For fintech startups, which are small companies that need to expand, there is clearly the dilemma of ‘let’s expand organically and by our own efforts’. But this requires a lot more time, versus having a global partner,” explains Murilo Menezes, general manager of Juvo, a startup focused on financial identity as a service.

“A partnership can open doors in higher places for you with all your commercial clients, in a faster way,” adds the executive, as part of a webinar organized by iupana and Mastercard, a company they work with to generate credit records of people without information in the financial system, using new data.

To foster these types of partnerships, Mastercard has the Start Path program, which helps selected fintechs with contacts and mentoring, and where they create new collaborative strategies that allow them to accelerate business results for both parties.

“A partnership can open doors in higher places for you with all your commercial clients, in a faster way” – Murilo Menezes, Juvo

Start Path links are made through fintech associations and organizations in each local ecosystem. Approximately 1,500 companies apply each cycle, but roughly 40 are selected.

“For fintech companies, it means opening the door for experts, resources, technology and markets where Mastercard operates […] And on our part, there is also an acceleration of learning, faster thinking and creation of new products,” says Thiago Dias, Mastercard’s VP of fintech strategy and labs, Latin America and the Caribbean.

According to the company’s data, the number of its collaborations with fintech companies grew by 40% this year, at a time when the COVID-19 pandemic changed financial transactions as we know them.

At the same time, financial inclusion in Latin America rose by 25%, according to a Mastercard survey, largely supported by services and digital products developed in collaboration between banks and startups, and generated in record time to distribute the huge subsidies paid out in response to the pandemic’s economic toll.

Mo Technologies, a fintech company that generates alternative credit scoring using Artificial Intelligence (AI), is also part of Start Path.

“To be able to massify innovation, we need collaborative models between financial institutions and fintechs,” says Paolo Fidanza, general manager of Mo, a company operating in nine countries.

“We want to extend our services globally […] accelerating that expansion alone would take us much longer without Mastercard, because we now have access to their global network,” he explains at the webinar held earlier in December.

See also: Beyond an account: The challenges of financial inclusion in Latin America

Fintech partnerships: What’s next

Experts say it is important to find the right partner to make the most of partnerships. And to do so, the parties must share the same business objectives, communicate regularly and directly, and generate benefits for all involved.

“It is very important to align the same morals, vision and objectives,” says Fidanza. “And a partnership works when all parties realize they are benefiting.”

Start Path uses Business Sponsors to ensure that direct communication keeps flowing with the founders of the fintech companies. This speeds up response times, prevents initiatives from dying out without delivering results, and translates into “vital, innovative and competitive” products and services, says Dias.

“To be able to massify innovation, we need collaborative models between financial institutions and fintechs” – Paolo Fidanza, Mo Technologies

The past year has seen tremendous progress in the creation of digital wallets throughout Latin America. According to Mastercard’s study, some 40 million people accessed the financial system in Brazil, Argentina and Colombia alone, using digital wallets as a gateway, a solution that usually provides the convenience of a bank account, but which also allows for digital onboarding of new users.

“Now we see the next wave clearly: investing in solutions, companies or partners that develop digital platforms for savings, investments, personal loans and personal finance tools. To me, these are the three hot topics for fintech companies,” explains Dias.

Juvo and Mastercard are working together to generate credit scores for people who do not have access to loans because financial institutions lack information about them, but who, paradoxically, can’t develop repayment histories because they have never had credit.

To produce records from scratch, Juvo partnered with cell phone carriers, lending to users who run out of credit to recharge their prepaid services. Customers then return the funds to the fintech, creating an opportunity to assess the customer’s ability and willingness to pay.

Mo also uses various forms of AI to evaluate credits for users with no history, and even without formal income, opening a potential source of income in emerging economies.

In addition to public variables, Mo has dynamic open data platforms that allow the user to take pictures of receipts or bank statements, to obtain more data and a better credit score. This platform automatically normalizes all data extracted from these documents which can then be automatically used in the scoring platform. This platform also allows automatic verification of the users who have had recent income (for example in the last 30 days), to be able to issue a credit card.

These measures allow the lending institutions to limit their risks – and those who have opted for this tool have doubled their card issuance without increasing delinquencies, notes Fidanza.

See also: Video: LatAm fintech growth and partnerships

The future of partnerships

Mo and Mastercard are also working on promoting the Mo platform to reduce declined transactions due to lack of funds in prepaid and debit cards, generating real-time analysis (in less than 200 milliseconds), to give users credit for the balance to be covered.

The mechanism is useful when transactions are rejected for marginal amounts – even cents -, creating friction for the user and costs for the institutions. Fidanza states that, in the process of innovation, it is necessary to adopt more collaborative approaches, not worrying about the competition.

“It’s not about competing with the institutions’ risk area. No. It is about giving us the opportunity to extend them. Our product reaches places where the traditional system doesn’t,” says Fidanza.

“For fintech companies, it means opening the door for experts, resources, technology and markets where Mastercard operates…And on our part, there is also an acceleration of learning, faster thinking and creation of new products” – Thiago Dias, Mastercard.

“We want to improve the ‘economy of yes’, to give people their first chance,” explains Menezes, agreeing that this is a goal they share with their partners at Mastercard.

The experts agree that the solutions they are developing together must have reignition of the economy as their goal and be specifically focused on SMBs and economically vulnerable populations.

In the case of small and medium size companies, which represent most of the Latin American economy, they require digital solutions with low costs and easy access to data to boost their businesses.

And as for the groups that are receiving emergency assistance from the government, they now need “credits of all sizes; from pennies and nano-credits, to more relevant amounts,” says Dias.

Together with its partners, the payment platform hopes to help bring 1 billion people into the global financial system, preferably using digital channels.

See also: Inclusion: Digital trust’s pivotal role in economic growth

They also try to stay ahead of trends, with research and constant innovation, an aspect that is strengthened in collaborative ecosystems, they say.

For example, at Juvo, one of the benefits they see is the technological research area that Mastercard has, which is focused 24/7 on considering future scenarios within the next 5 to 10 years.

“It’s very interesting to be in contact with this group of people and identifying mutual ideas. It opens a new opportunity for work, which perhaps we would not have noticed on our own before,” concludes Menezes.

This article is part of a series on technology and financial services in association with Mastercard. Explore the full series here.

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