One of the biggest tests for FinTech in the coming years is how well it can serve businesses that don’t have easy or efficient access to credit. That test is playing out in Brazil, the largest country in South America, and one of the largest emerging economies in the world.
Artificial intelligence (AI) and blockchain technology can boost the odds in favor of those credit-seeking businesses. That’s one of the main messages of a new PYMNTS interview with Regio Martins, CEO and founder of nobli, which aims to enable businesses to offer more forms of collateral when seeking loans — the company's personal loans are secured by financial collateral. In essence, nobli functions as a financial planning tool, using investments for loan collateral.
As Martins said, the country’s financial system and central bank have restrictive rules about what types of collateral — or “leverage” — businesses can offer when seeking loans. That has limited credit, and led to a rise of what he called retail brokers, some 90 of whom help businesses in Brazil navigate that tight credit landscape.
However, things are changing, if a bit slowly. Evidence of that comes from the nobli origin story — nobli is a concept incubated by LIFTlab, the innovation hub within the Central Bank of Brazil.
“They invited in projects related to increasing the efficiency of the financial system in Brazil,” Martins told PYMNTS. “[Projects] had to be related to the strategic goal of decreasing the cost of credit in Brazil.”
Simply put, the process is designed to work like this: A borrower decides the size of the potential loan, then nobli, via AI and the Corda blockchain, analyzes the potential securities — stocks, treasury bonds, mutual fund shares and the like — that could serve as collateral. Should the loan not be paid back, nobli can recoup its losses via returns on those investments. As it stands now in Brazil, “you can only use very liquid stocks” in such a way, Martins told PYMNTS. “We expand that to include almost every type of financial asset.”
nobli performs its own risk model, handles the back-end legal work and — via the AI algorithm — can offer borrowers choices about what securities to put up. “We will be able to suggest to clients different baskets,” he said. For instance, one basket might be focused on the minimum amount of collateral that a client could put up to secure the desired loan. Another basket might be based around the lowest risk potential. The aim is to offer credit at 30 percent to 50 percent lower cost than is otherwise available in Brazil.
nobli is part of a larger trend centered around using AI to craft better lending offers and programs.
A recent example comes from Kreditech, an AI-based loan startup that targets emerging markets, which has raised $22 million in its latest funding round. Based in Hamburg, Germany, the company offers not only loans, but point-of-sale financing to near-prime borrowers in countries like Russia, India, Poland and Spain. Kreditech was started on the premise that AI would be better able to analyze possible borrowers in developing countries, as well as handle the underwriting. The company said it will clear €1 billion (more than $1.1 billion USD) in revenues by 2025.
In addition, nobli is part of the broader trend of loosening credit and expanding financial services in Brazil. Indeed, about two months ago, news emerged that the largest FinTech startup in Latin America — Brazil’s Nubank — reported a 25 percent increase in the number of clients since August. The digital bank said at the Brazil Investment Forum in Sao Paulo that it has 15 million clients, according to Nubank Founder and CEO David Vélez. He added that 10 million out of the 15 million clients are holders of the bank’s credit card. The FinTech has expanded beyond fee-free credit cards, and now offers bank accounts and associated services for both businesses and individuals.
That’s hardly the only FinTech and financial services growth happening in Brazil. Earlier in December, Rebel, a Brazilian FinTech that offers unsecured credit to middle-class citizens in the country, said it had raised $10 million in new equity funding, according to a press release. The money will be used to invest in new products and technology, help with distribution channels, feed a growing customer base and go into cash reserves.
Clearly, FinTech is on the rise in Brazil, which promises to bring more credit to businesses and consumers, among other financial services. However, don’t underestimate the power of the incumbent banks, Martins told PYMNTS, nor the power of the relatively restrictive legacy systems and processes.
“The trend in last few years has been for new players, niche players, to attack different segments [attended to by] the big banks,” he said. “This will continue.”
Bigger changes will take time, though.
“I don’t see any more break-throughs in the next 12 months,” he said. “But in the next five to 10 years, the situation in Brazil will be very different.”