A growing number of fintechs are waging a battle to win over distrustful SME customers in a market that has traditionally resisted financial services. To do so, they’re leveraging data from their payment operations to deepen their digital financial—and non-financial—offering.
Mexican unicorn Clip is one of the fintechs that have successfully tapped into this market. The company caught the attention of users with a portable card reader linked to an app, and introduced its first credit service in late 2020: a loan that can be taken out digitally and repaid with a portion of the user’s sales.
More recently, in mid-2021 it launched the Clip Empresas platform, which allows terminals to be linked with sales floor management software in order to create a control panel with the overall performance of the business, such as daily revenue and sales records—services that are not necessarily conventional or financial and with which they hope to capture the attention of business owners.
“The historical [data] is what’s generating these options and offerings that we can provide, because today what they require is precisely liquidity, in order to modernize their business and expand it. Options like ours let them gain access to those cash advances,” Ricardo Muñoz, Clip’s marketing director, told iupana.
“The challenge we face is how to innovate and how to complement the portfolio,” he says. “We’re trying to compete with cash.”
According to the United Nation’s Economic Commission for Latin America and the Caribbean (ECLAC), 99% of the region’s companies are micro, small and medium-sized enterprises and 70% of these are informal. This informality limits companies’ access to financial products such as credit through traditional channels; but it also creates opportunities and represents a huge market for alternative institutions such as fintechs.
Treinta, a Colombian fintech that provides accounting solutions, told iupana that it’s experimenting with enabling loans for SMEs using sales data entered into its application by clients.
The firm, which began operating in 2020, has four million customers and is present in 18 Latin American countries. In the next few months, it plans to launch a dataphone, or POS terminal, for businesses in Colombia that will be integrated into its app. The new service is designed to allow more efficient data capture, which will reinforce its alternative lending strategy while bringing in additional revenue from the fees it generates.
“The fact that we know the data—which we don’t share or sell—will allow us to offer other things to good credit candidates and better conditions than they would get in the traditional financial sector,” says Lluis Cañadell, co-founder of Treinta.
Payments for SMEs: an opportunity for innovation
Mexican fintech Tribal, which offers digital tools for companies, also grants loans of between US$10,000 and US$2 million, depending on the size of the company, and based on its own risk model.
Sonia Michaca, Tribal’s regional manager for Latin America, says that user growth in Mexico has been rising by double digits each month and reached 90% for all of 2021. Companies using its platform receive an alternative credit assessment, she says.
“One is our underwriting model: we have a score with different variables that we evaluate to see companies’ ability to pay and their risk,” Michaca says. The firm looks at the data alongside information from Mexico’s tax office and with the companies’ financial accounts.
Latin American SMEs have historically had a distant relationship with banking. In Mexico, for example, only 23.7% of small businesses obtain bank loans, according to a study by IPADE Business School and technology company Bring Global that was published in November 2021.
In this context, bringing services to SMEs has vast untapped potential. But to capitalize on it, fintechs must overcome the same barriers as their competitors: cost, ensuring convenience, and distrust.
One of the keys to start winning in the sector is to offer companies simplified payment services, which is fundamental for any business.
Tribal, for its part, identified that payments to international suppliers is one of the main pain points for any business, large or small.
In partnership with Stellar, a decentralized finance protocol (DeFi), and the Mexican exchange platform Bitso, it created a cross-border payment system that streamlines the process with the use of cryptocurrencies, such as USD Coin (USDC).
“We are making international transfers through USDC, with stable currencies, which allows us to be much more efficient because in timing, a transaction can be executed in five seconds and with almost zero cost,” says Michaca.
The fintech initially offered corporate credit cards, and its solutions now even include paying wages through its platform. Last year, it started operations in Colombia, Chile and Peru all at the same time and this year set up shop in Brazil.
Undoubtedly, success stories such as Nubank and Rappi are helping to change the general perception of new financial service companies.
“I think the main challenge that SMEs have had is to break the taboo of technology,” adds Clip’s Muñoz.