Descubre el futuro de las finanzas en América Latina y el Caribe

The future of finance in LatAm & the Caribbean

O futuro das finanças na América Latina e no Caribe



Banco de Guayaquil wants to open up new markets with ‘nanocredits’

Jul 17, 2023

By Antony Pinedo

The Ecuadorian bank’s digital spin-off plans to introduce new microcredit products, following the example of peers in the region, such as Yape, Daviplata and Nequi

Banco de Guayaquil, Ecuador’s second largest bank by earnings, is gearing up to launch a series of digital products using its new PeiGO wallet, as it looks to expand its customer base and develop new markets.

The wallet is getting ready to offer microcredit and insurance products in an effort to broaden its digital horizons and become the country’s first neobank. It’s closely following the experiences of peers in other countries and their digital platforms, such as Banco de Crédito del Perú with Yape, Colombia’s Davivienda (Daviplata) and Bancolombia (Nequi). It comes at a time when the number of digital spin-offs by Latin American banks is growing as lenders try to lure new customers with more flexible products and services.

Introducing a credit card is on the cards for 2024, Rodrigo Andrade, CEO of PeiGO, tells iupana in an interview. The plan is to “grant very small credits, what we call ‘nanocredit,’” Andrade says, adding that lending will initially be capped at US$25 to US$50, he says.

Banco de Guayaquil already operates a microcredit program with loans of US$300 to US$500. “We want to go to a lower segment and from there offer a series of other products, such as insurance, service payments and others, which will begin to generate profitability,” he adds.

PeiGO began operations in August last year, offering a digital account with a prepaid card. A debit card followed in December. The wallet has attracted 200,000 users so far and aims to hit 500,000 by the end of the year. “We’ve already issued 50,000 Visa debit cards. We’ve become the largest issuer of prepaid cards in a short space of time,” Andrade says.

Accumulated earnings from fees on the prepaid and debit cards are expected to reach US$10 million through the end of this year, though the longer-term plan is to bolster PeiGO’s offering with more profitable products, he says.

“We have a plan to develop capabilities and new products through 2029,” Andrade adds.

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Credits in a dollarized economy

The region’s fintechs and banks are looking to digital lending as a way to generate higher returns. It’s a business that requires adjusted risk models to keep default rates in check and PeiGO’s CEO is optimistic about the prospects for its pending digital credit foray.

Ecuador is one of the region’s only dollarized economies, which provides an element of stability to the credit markets. “The interesting thing about Ecuador is that it has a dollarized economy, with a high export component, and it has little dependence on or exposure to international fluctuations,” Andrade notes.

However, accessing bank financing in Ecuador is more difficult than other countries in the region. Only 23% of adults borrow from formal financial institutions, compared with the Latin American and Caribbean average of 31%, according to the World Bank’s Findex 2021 study.

Andrade says that Banco de Guayaquil utilizes alternative data to build profiles for customers that lack conventional credit histories, although he acknowledges this approach works better for basic products, such as small loans.

“We plan to use it for simple products. We’ve already run some models and simulations with alternative data and it gives us default probability ratios in line with expectations,” he says.


Peru and Colombia as examples

Platforms such as PeiGO represent a first step for banks looking to build complete ecosystems of digital products, starting with free services such as payments, upon which more profitable functionalities can be added, such as loans and investments. They’ve also proven to be effective ways to attract new customers and promote financial inclusion.

In Peru, a country with a population of about 34 million, Yape had 12 million users as of March as well as almost 2.5 million business customers. And in Colombia, the CEO of Nequi said in August last year that the wallet was growing at a rate of 400,000 users each month.

The platforms are important reference points for PeiGO, given they operate in countries with a similar sociodemographic composition to Ecuador, says Andrade.

“When we started this project, many people said Ecuadorians in the lower-middle segment don’t use the telephone and they’ll never understand this. My answer was: How could it have been done in Colombia and Peru?”

According to the World Bank, 64% of Ecuadorian adults had at least one savings account in 2021. PeiGO says that 80% of its users already hold a bank account.

“There’s still significant room for more bankarization and we think that with a 100% digital model, and without the cost of traditional banking and all the overheads that this entails, it’s possible to make profits from this [market segment],” says Andrade.

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