After becoming Brazil’s latest unicorn and reaching a valuation of $1.75 billion, Brazilian secured lending fintech Creditas is gearing up for further growth as the country’s payment landscape gets a revamp with instant payments and open banking.
Creditas is focused on secured lending with multiple credit products surrounding three types of collateral: real estate, vehicles and salary. Following the $255 million Series E round announced last Friday (19), Creditas joined the select club of 10 other Brazilian startups valued at $1 billion and above.
Existing backers SoftBank Vision Fund 1, SoftBank Latin America Fund, VEF, Kaszek Ventures and Amadeus Capital joined the round. In addition, Creditas attracted new investors, including LGT Lightstone fund, Tarsadia Capital, Wellington Management, e.ventures and Advent International, through its affiliate Sunley House Capital.
According to the founder and CEO at Creditas, Sergio Furio, this was the fastest-ever round ever raised by the company: the board decided to move forward with the process in mid-September and the investment was concluded in early December. “In a way, the process was more efficient than usual because it was done remotely. Being able to meet investors based in five different countries on the same day helped us move faster and meant the discussions went straight to the point”, the founder told Forbes.
However, the Spaniard noted the company’s numbers during the pandemic spoke for themselves. The fintech’s credit portfolio in the third quarter almost doubled compared to the same period in 2019, exceeding 1 billion reais ($191 million). Over the first nine months of 2020, the company’s revenue reached 232 million reais ($44 million), more than doubling the result delivered over the same period in the previous year.
“Our Q3 numbers were really good and pointed to a very strong fourth quarter. The numbers were another validation from the investors’ perspective and they could see that even during a pandemic, Creditas benefits from [collateral-based lending] and the fact the process is entirely digital”, Furio noted. At 30.4 million reais ($5.8 million), the firm’s revenue for the quarter ending September 2020 is almost back to pre-Covid levels. The company has also decided to release its results quarterly: according to Furio, this should contribute towards better functioning of the capital markets.
The company’s management through the crisis also stood out. In March, the firm drastically reduced investments in marketing, which was one of the company’s biggest expenses at the time and stopped hiring. The actions meant the company’s cash flow was positive for the first time since its foundation in 2012. In July, the startup saw default rates were low – according to credit reporting agency Serasa Experian, consumer demand for credit in Brazil has grown steadily, at at average of 5% since October, driven by high levels of unemployment and the need to renegotiate financial commitments, with cheaper loans to cover existing debt.
Creditas then resumed recruitment – at the start of the Covid-19 crisis, it had 1,500 staff, and it is ending 2020 with 1,800 people on the payroll – realized capital was still available and decided to raise another round to boost its growth ambitions.
THE OPEN BANKING OPPORTUNITY
Going forward, the fintech will be using the new funding to accelerate its international expansion in Mexico, where it has 60 staff. According o Furio, there are no plans to launch in another country, at least for the next two years.
Additionally, Creditas will be exploring the possibilities of Pix, the instant payment system launched by the Brazilian Central Bank last month. “[Pix] is an improvement in the customer experience and an expansion in terms of our ability to deliver credit”, Furio pointed out.
“Customers can [request credit] through our platform at 2pm on a Saturday and at 8pm that same day the money is available in their account: [Pix] brings a significant improvement to the customer experience.”
However, the real leap should come with the further advancement of the financial services set-up in Brazil, in particular when it comes to open banking, a model that will be implemented in Brazil in stages from 2021 and will allow sharing of consumers’ financial data, with their consent, between institutions. “Open banking will allow us to get a clearer view about the client’s life and the opportunities that can be extracted [from clients]”, Furio said.
Currently, Creditas needs various types of information to release credit, such as proof of income. Open banking should cut corners in that process, which means not only an improvement in the experience, but also a reduction in operating costs, which, according to Furio, should result in lower costs for consumers.
In addition, the new arrangement under open banking will also enable Creditas to have a more assertive long-term relationship with the customer base. In a hypothetical scenario, a customer who has a secured loan with Creditas and a salary account will be able to integrate open banking, which would allow the startup to know when the consumer has reached an overdraft. A consumer could then create a payment order with Creditas whereby the credit limit could be increased and the amount sent to the account automatically to cover the limit, thus avoiding interest fees.
“We always talk about the need for financial education in Brazil, but this is a long-term battle. You can’t educate the population and expect they will know how to calculate compound interest overnight. What we need to do in the meantime is to create products that protect consumers from bad things,” the founder noted, referring to the ability to use credit provided by the company as an “autopilot” of sorts. “It’s kind of being able to have a partner that helps you optimize your personal life.”
On the topic of doing good things, the founder noted that fast-growing companies like Creditas also have a big social responsibility to drive structural change. “Companies are a critical part of the social fabric and the creation of a series of concepts that gradually transform society. The responsibility is huge and permeates multiple areas, from education through to innovation, diversity and values”, the founder argued.
“Among our investors, we have several funds that seek [social impact], in addition to our responsibility for transforming the universe in which we operate directly, to give loans a positive spin through very low interest rates. But there is still a lot to do”.