Frustration, innovation & collaboration: The 3 ingredients necessary to increase access to finance
Mexicans seek more options for affordable financial services. So what’s the industry doing about it?
When Carlos Rosso and Cesar Manduca founded financial technology (FinTech) startup MR Presta, they had spent the past 15 years working in financial services. And they were frustrated. They saw some of the largest financial institutions try over and over again to attend to the needs of small and medium business (SMB) owners, and fail each time.
They studied markets like Mexico, where SMBs account for three-quarters of jobs in the country and over 70% of SMBs flop; where loans are so inaccessible for 40% of the population that people need to borrow from friends, family, and often usurious informal lenders, with interest rates over 60% on average — nearly double the global average.
So they decided to take initiative and innovate. Using what they learned about credit and risk scoring at traditional financial institutions, Carlos and Cesar created a data-centric approach to assess small business creditworthiness, by using proxies for typical creditworthiness metrics like free cash flow and leverage of other past loans.
For banks and other financial institutions, it’s no secret that the Carloses and Cesars of the world are taking a step in the right direction. In fact, 82% of leaders in financial institutions agree that innovation is a critical factor in growing their businesses; but half of them admit that innovation still doesn’t play any role in their strategic planning processes.
So what are Mexican financial institutions doing to address market needs?
This year, PayPal and Village Capital expanded their relationship to support entrepreneurs around the world focused on democratizing access to financial services for underserved individuals, families, and SMBs. With additional support from BlackRock, we recently concluded our first venture development program for 2016 in Mexico.
Village Capital FinTech: Mexico 2016 recruited the top 11 Mexican ventures improving access to financial services in Mexico, presented them to 150 mentors through a 3-month venture development program, and then, through the “peer-selection” investment model, gave the entrepreneurs the power to decide which two companies among their cohort would receive US$75,000 in funding from Village Capital and co-investor Pomona Impact. The two teams that earned the peer-selected investment for this cohort were Monterrey-based ventures providing access to affordable loans, MR Presta and ePesos. Check out all of the program grads at the end of this article.
Natural Partners in Innovation
Given their strategic focus on entrepreneurship and innovation in financial services, PayPal and BlackRock were natural partners for Village Capital in running this program.
PayPal is a global technology platform and payments leader. Blas Caraballo, Country Manager of PayPal Mexico, explained that:
“To achieve our vision of delivering more affordable, convenient, and secure financial options, we need to work with partners from the private sector, public sector and nonprofit organizations.”
Their commitment to improving financial health for individuals and businesses around the world has made them true allies in supporting entrepreneurs with innovations in financial technology.
Investment firm BlackRock is another dynamic financial institution that since its founding in 1988 has grown to become the largest global investment manager, managing approximately US$4.9 trillion dollars of assets. BlackRock recognizes that to stay relevant and best meet the needs of its clients, innovation is a constant process.
Armando Senra, Head of the Latin America & Iberia Region at BlackRock put it this way:
“We can never feel too comfortable or complacent in our position as market leader, because so many things are changing today in the financial industry, fueled by innovation and technology, that if we stand still, we will be displaced by better ideas. So, we have to constantly think, ‘this is how it has worked in the past, but it’s not how it’s going to work in the future’… We have to stay ahead of the change.”
Using a community-centric approach, the program was also supported by financial institutions Crédito Real, Gentera, and BBVA Bancomer, each of whom have unique initiatives to enable emerging financial technology innovation. To continue to serve individuals typically excluded by the financial system, Mexican consumer financing company Crédito Real actively sources and invests in early-stage financial technology (FinTech) ventures, like Credilikeme, which increases access to credit for young low-file borrowers. Various others are now literally opening their doors through “innovation centers” to attract and promote entrepreneurship in the finance sector, like the BBVA Bancomer Innovation Center and Gentera Innovation Center.
PayPal, BlackRock, and many others in Mexico are innovating in the sector by providing services to institutions and individuals who otherwise wouldn’t or couldn’t access these options. The question remains: What new products and services can startups bring to the table, and where else can we have impact together?
Change is coming
Financial institutions in Mexico know that change is coming. Change must come. And FinTech innovation will be an increasingly powerful driver for improving access to financial services across the globe. There’s still so much to be done to improve access to affordable finance options for the underserved, and no one organization will be able to solve it alone. Going forward, collaboration across the ecosystem will be critical to ensure that the financial needs are met for millennials, senior citizens, students, mom-and-pop shop owners, and men and women across Mexico — and, indeed, around the world.
We applaud the financial institutions mentioned in this article for embracing change and building an ecosystem that supports FinTech entrepreneurs, especially those who are working to address the real world challenges of the un- and under-banked and SMBs. We look forward to lots more impact to come, and hope you’ll join us. Together, we’ll change the world.
You are the future of financial services. What are you doing to create the future of finance? We’d love to hear more models for corporate innovation and entrepreneurship in financial services in the comments section below.
The entrepreneurs that participated in the Village Capital FinTech: Mexico 2016 program are listed below. To find out more about the program, the entrepreneurs, and Village Capital, please visit www.vilcap.com or contact me, the author, Amanda Jacobson at amanda@vilcap.com.
● AhorroLibre (Tijuana) — Builds relevant, accessible, and low-cost financial services for middle income segment.
● Contarte (Tijuana) — A friendly cloud accounting system that allows small business owners and their accountants to interact and learn.
● ePesos (Monterrey) — Offers a revolving line of credit available 24/7 to small business with minimum requirements, as well as value-added services like P2P mobile transfers, airtime top-ups, and bill payments.
● Mercado de Crédito (Mexico City) — An online loan comparison tool, in which people access transparent information to make the best decisions for their personal needs.
● meXBT (Mexico City) — Provides low-cost and efficient cross-border payments between the developing world using Blockchain technology
● MR Presta (Monterrey) — Produces credit scores using non-traditional data sources for a fast and cost-effective risk assessment of micro- and small businesses, currently focused on e-commerce marketplace information to determine its clients’ revenues and business size.
● Proyecto PYME (Querétaro) — Promotes social development by providing credit to entrepreneurs and micro-business, using innovative credit scoring based off a sociological algorithm, combined with a biometric component and unique distribution services.
● Salud Cercana (Mexico City) — Mexico’s first integrated delivery health system. It democratizes access to health with technological, financial, and service innovation.
● Tenoli (Mexico City) — Operates and modernizes a network of mom-and-pop shops at the base of the pyramid through three pillars: train and inform, provide resources and technology, and generate new business opportunities.
● UnDosTres.com.mx (Mexico City) — Lets users pay for cell phone recharges and other bills instantly and safely, while offering coupons to help users save money with every payment.
● Visor ADL (Mexico City) — Helps lenders proactively identify high-potential SMEs right when they need financing by pre-screening the SMEs for credit and behavior scores and partnering with multinationals to support the businesses in their supply chains.
