Bancolombia spin-off Nequi quickly grew to be Colombia’s most-used digital wallet, capturing 11 million active users and 16.7 million total customers. But now it faces a new wave of competition from other highly-successful neobanks, such as Ualá and Nubank, which are bringing their technology and know-how to the Colombian market.
Nequi itself has international influence, with Banco de Guayaquil recently saying that its digital bank, PeiGO, is following the route of the Colombian wallet. And CEO Andrés Vásquez says Nequi’s experience has also served to shake up the rest of the bank, which went from a traditional structure to a more dynamic one, leaving it better positioned take advantage of national projects such as payment interoperability and the construction of an open data scheme.
“For the organization, Nequi has been a spearhead in technological innovation. For example, in ways of working, in developing the business model: having the path to profitability through a model that does not charge commissions for the basics”, explains Vásquez.
The innovation driven by Nequi has made the whole group more efficient, he says: “The traditional customer acquisition cost of an organization like Bancolombia was very high. Now, we are tending to zero in the cost of customer acquisition.”
Nequi’s profitability metrics have been increasing steadily, according to Bancolombia’s financial reports. As of the second quarter of 2023, it reported a customer monetization rate of 53% at Nequi, up from 34% a year earlier. Similarly, average revenue per user (ARPU) grew 13.8% year-over-year.
Nequi offers a savings account, debit card, credit, insurance and remittance services. It will soon add a micro-investment product, in partnership with fintech Trii. It might issue credit cards in the future, too, although the CEO says that first will come less complex services, such as the nanocredits offered through the platform.
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What is missing for interoperability in Colombia?
Colombia is in the process of building an interoperable payments system through QR codes, as well as a platform for immediate retail transfers. But until that takes place, small businesses must have different stickers displayed for each of the banks or fintechs that process QR payments, creating additional friction.
These closed-loop payment systems goes against the regional trend toward a single QR code system for digital payments, such as seen with Pix in Brazil or Transferencias 3.0 in Argentina.
“Nequi has been convinced that promoting actions to trap people’s money in a closed ecosystem is not the way. That was the value that allowed us to grow. We believe that interoperability is a necessity, and it is something that the market has to offer,” says Vásquez.
However, the CEO notes that an integrated system will present challenges. “Interoperability over traditional rails has had costs that make linking businesses complex. In addition, counterparty risk issues and interoperability management. That is why we believe that it must be done, reducing these frictions.”
Colombia, a country of more than 51 million people, of which 60% of adults have a savings account, according to the World Bank in 2021, is the cradle of local digital alternatives such as Daviplata from Banco Davivienda, which has 16.4 million users, Lulo Bank of the Gilinski Group with just over 300,000 clients and Movii, a wallet with 4 million users.
In addition, unicorns such as Ualá and Nubank have landed in the country, under the regulation of financing companies. (Nequi itself was authorized by the Colombian regulator as a financing company in August 2022, formally separating from Bancolombia but remaining part of the holding group.)
As Colombians increasingly take up digital payments, the central bank is working to implement an instant payment system for small sums. The project is in the regulatory discussion phase, which suggests that execution will be ready soon.
“What has been the barrier for massification of interoperability? I think it has to do a bit with the user experience that we, the entities, have designed for these mechanisms. In other words, we made it easier for payments and transfers in the closed ecosystem. We didn’t make it as easy for interoperable instant transfers,” acknowledges Vásquez.
How to compete with Ualá and Nu in Colombia
The payment integration project goes hand in hand with the broader legal framework of open data, a standardized system that allows players from different industries to share user data to improve products, and which requires strict risk management controls and clear information for the end user.
“We are convinced that open data –more than open finance– is the possibility that competition and information [help] enrich credit models,” says the CEO. A vision limited to open finance, while promoting competition, fails to create momentum for financial inclusion, he says.
Instead, information from various sources can help create and adjust more robust and varied credit models, particularly in economic contexts like the current one. The wallet, which targets Colombians who have not previously had a traditional credit history, has changed its risk matrix several times this year.
“We have to innovate in the way we do credit analysis. This year alone we have made two new credit analysis models for the different types of customer segments that we have. So yes, it is a permanent challenge,” says Vásquez.
Although it doesn’t offer a classic credit card, Nequi does grant loans that can be spent through a debit card. The nanocredits, from US$25 to US$120, are collected in a period of 30 days. Nequi also offers bigger loans, of up to $1,220, which can be paid off over 36 months.
The new competition from neobanks such as Ualá or Nubank are not accelerating Nequi’s credit card issuance plans. And Vásquez believes that its technological rivals –which are growing rapidly in their markets of origin with aggressive acquisition and credit strategies– have a complex profitability outlook in Colombia; despite the fact that he acknowledges that they will help diversify the market in the hands of banks.
“When Nu arrived in Brazil, for example, the maximum rates for credit card charges were very high. They made a bet, with a very good service, without handling fees, but with rates that allowed the profitability of the business to develop”, he comments.
“In Colombia, there are maximum [interest] rates to be charged to customers […] This limitation on rates poses a significant challenge in the development of the business model and profitability,” notes Vásquez.