MIAMI, Fla. — The rise in interest rates in Latin America has led to banks and fintechs cutting down on lending in the face of greater risk and economies bearing the brunt of the monetary tightening.
For companies like Stori, one of Mexico’s fintech unicorns, that is an opportunity.
Speaking at Fintech Nexus Latam 2022, Bin Chen, CEO and co-founder, said a lower supply of credit in the economy is expanding gaps among Mexicans in access to credit. To combat inflation, Banco de Mexico raised interest rates to 10% from about 4% two years ago.
“In this environment, (credit) supply is disappearing across the board,” he said at a panel about financial inclusion. “And not only for the underbanked but also for the relatively wealthy population.”
Cater to the underserved
Stori’s goal, he said, is to cater to these underserved customers. “This is an opportunity.”
The Mexican unicorn is one of the most prominent fintech startups in the country. It reports almost 2 million customers, and its main product is a credit card.
The vast majority of these clients, he said, had their credit cards approved for the first time when they turned to Stori.
“Mexico turned out to be the right market for innovation,” he said. “Credit penetration is very low, where more than 85% of Mexicans cannot access loans or credit cards or any other bank product.”
Stori and its recent funding
Stori became a so-called unicorn company after a $150 million Series C funding in July. The round was led by investors such as BAI Capital, Singapore’s GIC, and GGV Capital. Stori said back then that it would apply the funding to continue expanding its credit card product.
To take advantage of the credit opportunity, as the executive put it, having secured cash recently is a phenomenal advantage.
“Money went from free to expensive,” he said when asked about the current risk-off mode in venture capital markets. “That is one thing every founder must be very cautious about now.”
Economy cooling down
Mexico’s economists expect the economy to cool down next year as the brunt of higher rates undermines growth. Recently, the central bank raised its estimates for this year, up to 3% in 2022 from 2.2% before. Although it also marked up 2023 estimates, it expects the Mexican economy to slow down to 1.8% next year.
Despite the challenges, Stori’s Chen is doubling its bets to include more Mexicans in the financial system. “We want to continue as one of the strongest in the industry, both in good or bad times,” he said.
Although digitization is making progress in several of the economies in Latin America, Chen underscored the need to still have plastic as opposed to a virtual credit card. “The reality today is that 70% of transactions are still happening at brick-and-mortar stores,” he said. “It makes sense from a customer perspective to have that product available.”
Related:
- Nubank, LatAm fintechs pivot to profitability pursuit amid rising rates
- LatAm’s Mercado Libre fintech revenue rises by 94%
- Brazil’s Nubank reaches break-even, reports 70 million customers
He showed confidence that the underlying drivers in Latin America still prevail, despite the lower capital funding and the economic complexities the industry will likely face in the next two years.
“In the United States, half of Americans did not have access to credit 30 years ago. In China, those figures went from 5% to 50% today. It can be done. And we are very passionate about that.”
