The fintech model based on Buy Now, Pay Later is taking off in Latin America as an alternative for short-term financing and financial inclusion.
Kueski, a Mexico-based firm specializing in BNPL, recently announced it had raised $202 million in equity and debt funding. StepStone Group and Victory Park Capital led the respective funding rounds.
The deal is set in an industry that has drawn growing interest worldwide on the back of e-commerce expansion. The model of installment loans with no credit cards appeal in particular to younger segments of the population that do not want to use bank products card or cannot afford the expensive interest on their loans. In Latin America, however, it remains an incipient industry.
But that could change soon enough.
Mexican firm Kueski was founded in 2012 as an online consumer lender which provides BNPL arrangements to its users. Unlike some other BNPL firms, it allows users to generate a credit history because it reports when customers pay on time or default on their loans.
“There is a positive perception from new generations towards this model as opposed to traditional loans,” said Regina Moreno Prieto, senior director with Kueski. “Only 53% of adults in Mexico do have a bank account, and just 7 out of 10 of them have access to credit”.
BNPL arrangements are becoming an increasingly popular payment option worldwide, especially online shopping. They allow consumers to pay for their purchases at a future convened date, usually short-term. Its popularity grew during 2020, with the rise of e-commerce, and has remained a significant trend for investors.
Financial inclusion
In Latin America, as opposed to the developed world, BNPL is also seen as a tool for advancing financial inclusion.
Moreno Prieto said that the region’s low banking levels make for an “enormous potential” to serve BNPL products. In an area where citizens are frequently unable to get a bank loan, BNPL products are often easier to approve since they do not necessarily require previous debt history.
Outside of Latin America, U.S. giant Square announced this year it would put up some $29 billion for Australian BNPL firm Afterpay, creating a global payments giant. Paypal has introduced a point of sale installment loan program along the same lanes.
Still, Latin America remains an under-penetrated market in the growing space of BNPL. “85% of the population in Latin America do not have a credit card and is therefore excluded by the financial system,” said Ezequiel Bucai, CEO and co-founder at Wibond, a BNPL firm operating in Chile and Argentina.
“With the BNPL business model, people can have access to the loan that traditional banks do not grant to them,” he said.
The participation of e-commerce related to GDP in the region used to be one of the lowest in the world. A pre-pandemic survey by the Inter-American Development Bank showed that just 26% of Latin Americans made online purchases or were willing to do so.
Then came COVID-19, and the usage of digital channels blew off the charts.
E-commerce growth skyrocketed
“It accelerated a trend that was already incipient before the pandemic, but slow by standards of developed economies,” a report by the CELAC read. “In particular, domestic e-commerce saw unprecedented growth rates (as) businesses and consumers shifted massively to digital and online channels to circumvent social distancing measures.”
In 2020, the COVID-19 outbreak marked a decisive moment in LatinAmerica’ss online consumer behavior.
“Digital trade transactions skyrocketed, as did the number of people buying online,” the report added.
With the Buy Now, Pay Later system, users can access credit directly on e-commerce platforms without the need for a card. BNPL models depend on machine learning technology to gauge the repayment capacity of a borrower with little or no records in credit bureaus.
But challenges remain. Financial education is scarce in Latin America, and many adults are familiar with neither credit cards nor any financial product.
In Mexico, Kueski is not alone. This year, Nelo, a startup founded by former Uber employees, began offering BNPL services. It raised $20 million recently to help it go cross-border.
For Moreno Prieto, this is just the beginning.
“BNPL will soon cease to be a novelty to become a growing demand, especially from millennials and centennials who do not feel identified with the current offer of traditional banking.”
