Friday Briefing: BNPL under pressure

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July 15, 2022

Good morning!

This week, we analyze the future of BNPL from Kueski’s perspective, PicPay Bank gets the green light in Brazil and Itaú acquires a digital broker. In addition, Mercado Pago obtains a credit line from Goldman Sachs.

All this, together with the region’s latest regulatory changes, in our weekly briefing.👇👇👇

#TopStory 🔝

Loan delinquency, unemployment and inflation… BNPL comes under pressure 

The prospects for buy now, pay later (BNPL) models in Latin America are being scrutinized more closely amid harsher economic conditions, higher credit risk and rising interest rates.

Mexican fintech Kueski says its business is moving forward despite the tougher operating environment, as its adaptive risk model evolves in tandem with its operations. However, it’s following the market closely and if the adversities continue, the firm warns that the sector will have to make changes to its financing
model.

“If conditions persist, institutions and fintechs will be more careful and more strategic in how they use their resources in terms of growth. That could lead some companies to slow down a little,” Luis Rangel, director and head of lending at Kueski, tells iupana.

BNPL companies will take action if employment starts to rise, pushing up loan delinquency rates, he said.

So far, the non-performing loan ratio of Mexico’s financial system has remained stable, according to official figures, despite the increase in consumer
prices and the sustained rise in interest rates. However, the Bank of Mexico (like the rest of the region’s central banks) has said it will continue to raise the cost of credit, putting pressure on borrowers.

The current sentiment towards the BNPL is mixed. Sweden’s Klarna, a pioneer of the vertical, saw its valuation drop nearly seven-fold this week in a sign that the buzz around the lending model is fading. But in Latin America, local as well as global players continue to bank on
favorable market dynamics. For example, U.S.-based Sezzle recently entered the Brazilian market with an ambitious growth plan.

Kueski is part of the select club of fintechs that raised funding in late 2021, which was a year of record investment rounds. This ensures it has the capacity to continue with its strategy
in Mexico, without raising interest rates on credit products, Rangel said.

#Regulation ⚖️

🇨🇱 Roboadvisors under regulatory scrutiny in Chile

As of Tuesday, any person or company advising on investment with financial instruments has to be registered with Chile’s Financial Market Commission (CMF).  We’re looking at you, robo-advisors.

🇵🇪 It’s getting easier to handle electronic money in Peru, but….

Peru extended a relaxation of rules for Electronic Money Issuing Companies (EEDE) but the sector’s lackluster growth suggests the regulation requires further changes, according to a local lawyer.

#Strategic Plays 📊

PicPay is now a bank in Brazil

Brazil has a new neobank after the Central Bank approved a license request for PicPay. This means PicPay Bank will now be able to use customer deposits to finance lending, in addition to continuing payment-initiator operations. It comes as PicPay shapes its super-app strategy for its almost 66 million users.

Itaú buys
Avenue Securities stake

Itaú Unibanco entered into an agreement to buy 35% of Avenue Securities, a digital broker that provides Brazilians access to foreign markets, as the bank diversifies its core business. It will acquire the stake gradually and has the option of becoming Avenue’s majority shareholder.

Brazil’s C6 touts car equity loans

Brazilian neobank C6 launched a car equity loan product that’s available on its app, with approvals within one business day. The lender offers loans of up to 70% of the vehicle’s value and an option to spread out installments over 48 months.

Nubank launches Money Boxes

Nubank introduced a new savings product called Money Boxes. It allows users to divide their deposits and set personal goals. In addition, the
caixinhas (as they are called in Portuguese) can pay more than double the interest of an Interbank Certificate of Deposit (CDI) from day one, according to the company.

Betterfly expands to Spain

Chilean unicorn Betterfly acquired Spanish employee benefits firm Flexoh, its seventh acquisition and its first foray into Europe. It expects to enter the Portuguese market in the coming months.

Tenpo closes partnership with PayPal in Chile

Digital wallet Tenpo, part of Peru’s Credicorp group, now lets customers access their dollar accounts on PayPal. As part of the tie-up, Chilean users will be able to open an account in the United States for their savings.

Mexico’s Cumplo lands in Peru

Cumplo, which provides credit solutions to SMEs, has entered the Peruvian market with a factoring product offering. The
fintech targets US$5 million in operations by December.

#Investment  📈

Mercado Pago receives US$233m from Goldman Sachs

Mercado Pago obtained private financing for US$233 million from Goldman Sachs to increase lending in Mexico and Brazil, through its Mercado Crédito division. Of the total, US$106 million will go to individuals and SMEs in Brazil, while US$127 million is earmarked for Mexico.

Headline VC raises investment fund
that includes LatAm

San Francisco-based venture capital firm Headline will invest US$170 million in early-stage startups in Latin America, in rounds of up to US$15 million. Headline raised a total of US$950 million for its investment funds globally.

#iupanaExclusive 🔥

New BNPL players in Brazil, Sezzle and Letsbank, lay out their strategies for the financing point-of-sale loan model. Sezzle targets individuals that are unable to access traditional sources of financing while Letsbank offers microcredits for SMEs.

• Sezzle is integrating with e-commerce platforms such as Nuvemshop (Tiendanube) and VTEX to expand its reach.
• The fintech says its target market is the roughly 100 million Brazilians who don’t qualify for a credit card.
• Lestsbank has a corporate focus and offers mobile installment payments for
  merchants.

Find out more about Sezzle and Letsbank’s plans in this week’s lead story.