Chilean digital account issuer Tenpo is days away from receiving a license to offer credit cards, in what it sees as a milestone on the road to becoming the country’s first neobank—despite the challenging economic environment.
The platform, which is owned by Peru’s largest financial services company, Credicorp, has been gradually adding products to its platform as part of a strategy to gain space in the Chilean retail banking segment. But to become a true challenger, Tenpo needed a lending product, which led it to apply for a permit to operate as a credit card issuer, according to Fernando Araya, its co-founder and CEO.
Tenpo acknowledges that issuing cards in the current economic climate of weak or negative growth, high inflation and slow consumer demand will test its technological capacity to control non-performing loan (NPL) rates.
“We always prepare ourselves, not for a scenario where you have the wind in your favor but rather the other way around; in the adverse scenario, how do you build a business?” Araya told iupana in an interview during the Chile Fintech Forum in Santiago.
“Technology allows us to build risk models and engines, systems that support complex and stress scenarios, both regarding funding and levels of human risk,” he adds.
Latin American credit fintechs have had to change their approach to wooing customers in the last year. After channeling their efforts into creating massive lending portfolios and seeking profitability through scale, they are now sacrificing growth and focusing on the health of their portfolios.
“Lending is very easy; collecting is very difficult. That is why you have to lend well,” says Jorge Ospina, CEO of Nubit, a financial innovation consultancy. “It’s key to have an onboarding process that gives us knowledge about our client, do a good credit scoring and not wait months—work in real time,” he said during the webinar “Lending in LatAm: how to maintain a healthy portfolio in a scenario of crisis” organized by iupana.
You may also like: Navigating the headwinds: Fintechs see risk indicators rise
Building a neobank
Like its Chilean fintech rivals Mach, Chek and Go Bice, Tenpo has the financial support of a banking group that’s building a financial supermarket to reach different audiences with multiple products.
“The objective is to consolidate our value proposition in what’s known in other markets as neobanking,” says Araya. “This concept doesn’t exist in Chile, but it’s understood as a 100% mobile app solution that solves a large part of the needs when it comes to financial solutions.”
It’s a model being led in the region by firms such as Nubank and Mercado Pago, which have been incorporating verticals into their platforms in order to become the main service provider for their clients. However, even the fintechs with the strongest traction have noticed a deterioration in their credit metrics. Mercado Pago, for example, has slowed down the pace of origination and taken a conservative approach to maintaining the health of its portfolio.
And in Mexico, the NPL rate of Nubank’s credit card is almost quadruple the average for the local banking system.
Tenpo will join the ranks of non-bank Chilean credit card issuers, which currently number about 10. Such lenders typically have higher NPL rates: 16% versus 3% for traditional banks, according to official figures.
Preparing the launch
Tenpo isn’t Credicorp’s only digital lending product waiting in the wings. In Peru, it unveiled the iO credit card at the end of April.
As for Tenpo’s credit card, Araya says the initial target audience will be the platform’s 2.1 million users, although he stresses that the fintech will filter applicants carefully.
“What we’re not going to do is grant credit to someone whose entire history indicates that they don’t have the capacity, either because they have higher debts or are at their payment capacity limit, or because they definitely do not have disposable income to cover critical needs,” he says.
The platform currently offers users a savings account, prepaid card, transfers, as well as insurance and investment products. Araya says the firm will follow the traditional, phased route for the credit card’s launch, adjusting the scoring models to generate sustained growth.
This constant refreshing of risk engines is the recipe followed by regional peers such as Kueski and Aplazo, fintechs specializing in buy now, pay later loans that rely on advanced analytics to adjust their lending criteria and forecasting. It’s something that Tenpo plans to emulate.
“We’re a technology company and therefore that’s where we invest a significant part of our capital,” says Araya. “And unlike the products and solutions we created at the beginning, we now have a very rich base [of existing users] upon which to build.”
You may also like: Financial supermarkets in Chile: Ripley tests remittances and Bice microcredit