Credit cards serve as a stepping stone for fintechs when the time comes to scale their business. But when it comes to execution, they find deployment can be complex and require a lot of investment and powerful technologies.
That’s often why prepaid cards are the preferred financial product for many fintechs when they first launch. The technological requirements are basic, they require less capital as users fund their own accounts, and they can be marketed under attractive premises such as “no fees” or “no maintenance.”
However, growth under this business model is slow.
“Credit solutions are the most profitable and revenue-generating for any financial institution,” said Kevin Fox, executive vice president and head of global sales at i2c, a global payments and card technology company, in an interview with iupana.
Once they enter the market and sign up their first prepaid customers, fintechs “need to see how they can add more value to their portfolio; how they can maximize, differentiate, and diversify their offerings to be more competitive,” Fox said.
For example, i2c is working on the deployment of an American Express card for Mexican fintech Credijusto, which is expanding its offering to become a “universal bank” for small and medium-sized enterprises. Having a card aimed at SMEs is essential for its growth strategy.
The ABCs of credit
To offer credit products, startups require not only the financial resources to fund operations; they also need to establish the criteria for lending approvals and have the technological support to synchronize transactions using robust digital infrastructure.
In terms of financial resources, these seem to be flowing. Investment in the fintech sector this year has broken records: the region attracted around US$7.6 billion in the first half of the year, according to data from Latam Fintech Hub. And according to the consulting firm KoreFusion, payment and lending fintechs and neobanks are attracting most of the capital.
The next step is to choose a technological partner that contributes to the diversification of products—and their proper functioning—but without disrupting the fintech’s brand identity as it focuses on developing a good user experience (UX).
Customers shy away from slow, insecure processes and constant bugs. The time to market must also be fast and on target for the business to thrive in an ecosystem that’s getting increasingly competitive.
“When you’re looking for any credit solution, you’re faced with a very traditional world that has little flexibility,” says Fox of i2c, a platform that enables credit in any currency, including cryptoassets.
The company adapts to the requirements of businesses as it implements configurable modules that make it easier to get credit products into the hands of end users. This mechanism doesn’t break the interface developed by the fintech; on the contrary, it mimics the applications, reducing friction and improving the user experience.
Technology is the key to credit
It’s well accepted that the enablement, processing, management, and handling of credit accounts are all complex processes, but technology can help speed them up. And agile microservices platforms based on APIs have a role to play.
Here, i2c says it offers a ‘building block’ system with robust processing technology that’s adaptable to any type of application or web page.
“The information for the credit application; the decision process to know whether you are going to grant it; the funding of the credit line; presenting it to the client first with a virtual card and then a plastic card; and managing all the back-end movements and all the associated requirements—all of that is achieved through APIs,” says Fox.
Likewise, issuing credit always carries the risk of non-payment, so fintechs must be clear on their approval criteria and let the technology partner manage and apply these criteria and, if necessary, even deliver credit in real time.
However, the technology will adapt only to the path set by the fintech, which is responsible for shaping credit analysis.
“Different credit solution providers have different abilities for establishing methodologies to do their internal analysis and determine with whom they do, with whom they don’t, and to determine how much and how [to lend],” said the executive.
The technology partner should assist the fintech in these situations and simplify the extensive process of enabling credit products; but Fox warns that the options in the market are limited.
The choice of technology providers becomes more limited as more complementary products appear: buy now, pay later alternatives, installment lines of credit, loyalty solutions and fraud service enablement—all of which require a provider able to drive this diversification.