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Building a FinTech Company in Brazil: Sergio Furio, CEO of BankFacil (Part 2)

Posted on Thursday, Feb 2nd 2017

Sramana Mitra: You were finding people online who were looking for loans and connecting them to financial institutions.

Sergio Furio: At that point, it was even broader. We were looking for people looking for financial services in general. We were offering insurance, credit cards, and credit. We were capturing some basic information and doing some pre-qualification, and then sending those customers to financial institutions. The beauty of it is it was relatively inexpensive. It was about creating good content and having a good user interface. From an investment perspective, I didn’t need a ton of money.

The bad news happened a year after that. I realized that the model didn’t make sense. The reason was that the unit economics of lead generation in Latin America are much worse than in the US. The value of a lead is much lower and the reason is the creditworthiness is much worse in Latin America than in the US. Obviously, the value for the financial institution of that lead was much lower as well. We also identified that the incumbents were not rock stars in converting those leads into actual products. That caught our attention.

We started digging deeper and deeper on that problem. Then we decided that instead of being a generalist, we wanted to be extremely focused on one vertical niche product. We changed that strategy from a horizontal portal to a vertical portal. What also happened was that we had identified a unique problem in Brazil that the big banks were not taking care of.

Sramana Mitra: What was that?

Sergio Furio: What we discovered was that Brazilians are paying 200% interest rate per year for a personal loan. At the same time, those customers had properties. The homeownership of Brazilians is higher than Americans. It’s a homeownership of 75% versus 65% in the US. What is interesting is that those apartments and cars mostly have no debt. They didn’t have mortgages or car financing.

When you connect both things, you started to question why these guys are paying such high interest rates for unsecured debt when, in reality, they own properties as a collateral. We have trillions and trillions of dollars that could be utilized to deliver cheaper financing for these guys. Then we asked why no one was doing this. The response to that is that Brazilian market is very concentrated. You have five banks that own 95% of the total assets in the economy. There is little competition.

All these banks are focusing on high-spread products and they don’t want to cannibalize their own revenues. They were not offering those products to avoid revenue cannibalization. We said, “This is a key market opportunity.” We have a super high interest rate product and a set of assets lying idle. So we wanted to create a platform that focuses on refinancing expensive debts by using the properties that all these individuals have.

That’s the moment when we decided that we wanted to be a vertical platform to deliver end-to-end financing – not only generating the lead and understanding the problem but also processing the loan, approving the loan, looking for the funding, and so on. That started the journey. It took us a couple of years in which we incrementally created this platform to make it possible.

This segment is part 2 in the series : Building a FinTech Company in Brazil: Sergio Furio, CEO of BankFacil
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