May 31, 2017
For Sergio, the potential for disruption is greater in Brazil because of the low competition between banks and the inefficiency of the processes. With this, the costs of financial services in Brazil are very high, which is an opportunity for FinTechs.
He says that Creditas can reduce the cost of debt for consumer from 250% a year to 25% a year. That's a drop of more than 200 percentage points. For instance, in the US, as the interest rate is much lower, companies that use similar business models reduce debt from 12% to 7% a year are down by 5 percentage points.
Sergio is Spanish and has spent a long time in the financial markets of New York. I talked to him last week about entrepreneurship, the FinTech ecosystem in Brazil and in the world, and we also talked about Creditas. See the interview below:
Sergio Furio: In the beginning, we had little access to funding. So I paid out the operation for almost a year and a half – from April 2012 to October 2013. Because of this, we have chosen a model of market entry that focuses heavily on financial education. It consisted of finding clients for financial institutions.
Originally, BankFacil (former name of Creditas) was an easy way to interact with banks. The idea was that delivering a better customer education and a better experience would reduce the cost of attracting customers for financial institutions and thereby reduce the cost of financial services itself. But financial institutions were inefficient in converting customers, that is, taking the information that we sent to them and generating business.
So at the end of 2013, we made the decision to do two things: first, we focused on secured loan as a very efficient product to be able to bring down the Brazilian debt interest rate. The second decision was that it was not enough to create the first layer of customer interaction, but it was necessary to create an end-to-end platform – a digital platform that delivers credit to the final customer. With this, we were able to offer a rate of 1.15% per month plus inflation, which is well below the industry average.
SF: Yes. I think we've taken too long to listen to the feedback from potential investors. They said that this marketing layer was very difficult to implement in Brazil. So we spent more than a year focusing on having a very good financial education platform, which ultimately proved not to be the most relevant factor at the time. It was much more important to build an end-to-end platform. So in 2015, we received R$25 million in Series A funds of R$25 million – by the same investors that I had been slow to listen to.
Another mistake was that we thought of our platform only as technology. The idea was to create this digital platform and the customer would do everything through this. That was a mistake because, by the end of 2014, we realized that building an end-to-end digital platform would take years.
So what we did was, we hired people to talk to customers. That is, put people where technology wasn't yet. This is much more efficient and allows for much faster learning.
SF: It's a much younger ecosystem compared to the United States, Europe, and China, which are very mature because they are companies that started in 2007. Another feature of the Brazilian market is that the potential for disruption here is much higher than in developed countries.
In the US, the interest rate on the credit card is at 10%, 12% per year. Companies that are disrupting the credit industry in the US reduce this cost to 7%. Now, in the Brazilian market, the consumer has a credit card cost of 250% per year. And what do we do? We put the cost of the customer at 25% per year. It is a reduction of more than 200 percentage points.
The US market is much larger, with a credit volume 30 times higher than Brazil’s. The potential of the Brazilian market, therefore, is not due to the volume, but due to the margin. So I say that the Brazilian FinTechs have the potential to be among the largest in the world.
SF: We received R$3 million in 2013; R$25 million in 2015 and R$60 million now in 2017. This value we have just received is very focused on improving the technology platform. We already have an end-to-end platform, but we have many parts that need to be automated, experiences that need to be improved, and so on. So our challenge lies in attracting talent in technology, data science, and analytics.
Another part of this growth is the FIDC (fund of R$50 million that Creditas has launched to raise money that will be loaned to clients). We expect to get partners for this funding in six to seven months.
We are also thinking of expanding our product base. Today, we have two products: the refinancing of cars and houses. We are also planning to launch refinancing and financing vehicles.
Our goal is to keep pace with current growth, that is, to continue to triple in size each year. We want to keep this pace for the next three to four years.
This content was published in partnership with StartSe, the main Brazilian website about startups. The portal contains the StartSe Base, the largest database of startups in the country, with more than 5,000 registered companies.