Em Conversa looks to uncover the secrets in Latin America (LatAm) that have caused the fintech market to boom, from being worth less than $50million in 2016, to $2.1billion in 2022. This week we spoke to Adalberto (Adal) Flores, CEO and co-founder of Kueski, to further understand the digital payments scene in Mexico.
Kueski is a online consumer lender in Mexico, that provides financial services for users who are ineligible for traditional bank loans. Thanks to its technology and data analysis criteria, the company has positioned itself as a market leader.
In 2016, Adalberto Flores, CEO and Co-founder of Kueski, was recognised as Mexican Entrepreneur of the Year by Endeavor. Tuesday Capital, Victory Park Capital, Sobrato Family, Angel Ventures Mexico, Rise Capital, Core Ventures Group, are among the companies betting on this project. The Fintech Times sat down with Flores to understand how the Mexican digital payments market has been impacted by the pandemic and how it compares to other countries in LatAm:
How has the Mexican market been impacted by the increase in digital payments?
For the third consecutive year, Mexico is positioned among the top five countries with the highest growth in e-commerce activity and volume, exceeding the world’s average growth by more than 10 points. So, despite our economy’s high informality rate and corresponding low banking penetration, we continue to see the e-commerce market expand exponentially and therefore, the use of digital payments.
At Kueski, we’re working to expand financial access to the Mexican population, while educating consumers on the benefits of participating in the financial services system. Given these developments, we’re seeing a lot of opportunities for Kueski as Mexicans are increasingly adopting digital payment methods and becoming comfortable with shopping online.
Has this varied from the rest of the region?
We are seeing some similarities in other Latin American countries. For example, consumers are increasingly shopping online and adopting innovative payment solutions, which results in exceptionally strong growth projections for the region. As a matter of fact, Mexico, Brazil and Argentina made up three of the top five countries with the highest e-commerce growth last year.
On the other hand, we are also seeing differences with regards to the financial situation in each country. For example, Brazil has a much higher banking penetration rate (more than 70 per cent) compared to Mexico (less than 40 per cent). This can be explained by the fact that Mexico has a much higher informality rate than Brazil. And this is where the biggest opportunity in Mexico lies ahead.
What have been some of the biggest challenges in Kueski’s expansion?
While the pandemic served as a catalyst for e-commerce growth, it also led to a sharp increase in online fraud. This development affects every player in this industry, but we believe that Kueski is in an advantageous position here given our years of experience and the vast data sets we leverage to assess an individual’s willingness – in the case of fraud – and ability to repay a loan.
Another big challenge Kueski has been facing is that parts of the Mexican population are still hesitant to try online shopping. Given our economy’s high informality rate of nearly 60 per cent – which means that workers are paid in cash and often don’t have bank accounts – cash remains the number one payment method in the country. Because of these circumstances, many people think that buying products and services online is almost impossible for them, based on the lack of payment solutions that cater to their specific banking situation. So, a big part of our work around our BNPL product “Kueski Pay” is to enable them to buy online. With Kueski Pay, we are not requiring people to have a bank account or even a credit history. Rather, we use machine learning to underwrite consumers instantaneously and enable them to be part of the e-commerce community. Given Kueski Pay’s substantial and sustained growth over the past year, we’re very confident that we’re moving in the right direction.
Are Kueski’s offerings tailored specifically for the LatAm market or could they be adopted worldwide?
We’re building an incredibly strong portfolio of products for Mexican consumers, which currently consists of Kueski Pay, our BNPL solution, Kueski Cash, our inaugural cash loan product, and Kueski Up, an earned wage advance product that allows employees to advance their payroll interest-free. We have a few other innovative products on our roadmap that we’re currently working on, but are not quite ready to announce yet.
Our short-term goal is to serve the Mexican market first, considering it is the third largest financial inclusion opportunity globally (based on the percentage of Mexico’s unbanked population and the size of Mexico’s GDP). Once we’ve achieved this goal, we will consider expanding into other markets where we can leverage our competitive advantages.
What is the company’s road map and growth plan?
Our goal has always been to improve the financial lives of people living in Mexico. We’re planning to launch a few products soon and will eventually expand internationally. Stay tuned!
How has the pandemic affected the LatAm market and Kueski?
We’ve seen a fundamental shift in Latin America as consumers throughout the region are now increasingly adopting new technologies and services they weren’t interested in before. There are also hundreds of new companies that are now offering a myriad of mobile and digital products. The pandemic also accelerated the growth of the e-commerce market – particularly in Latin America, which provided tailwinds for our business as well. In 2021, we were able to grow our Kueski Pay merchant network from 56 partners to thousands as of today. Kueski Cash disbursed more than 600,000 loans, while Kueski Up provided advances on thousands of salaries last year.
Is the BNPL hype going to continue in 2022 and beyond?
BNPL is the perfect example of a product category that took many years to become an ‘overnight success’. Although the category has been getting significant attention recently, the reality is that many companies around the world have been offering BNPL products for years.
What is particularly interesting about BNPL is that it has become a ‘disruptive innovation’ (under Clayton Christensen’s definition) to the credit card industry – by changing the business model, acquisition channel and target market. Incumbents will have a very hard time replicating the model and big tech companies will try to get a piece of the cake as well (see Apple Pay Later rumors). The disruption is even more pronounced in countries like Mexico, where BNPL is literally enabling most of the population to shop online – without forcing them to have a bank account or credit history.
It is also worth noting that we believe that BNPL will not become (or stay) a standalone product by itself. Given the competitive dynamics of the space, the fees that BNPL providers charge to merchants might eventually become commoditised, and this will hurt BNPL providers in the short term. This is why smart companies will offer BNPL as part of a bigger ecosystem of financial products and services.
What must companies like Kueski do to stay competitive in an extremely demanding region and field?
We believe that our track record of successfully underwriting instant online consumer loans for almost 10 years has given us a significant competitive advantage in Mexico. We have a series of data network effects that we’re leveraging to offer credit solutions in a country that tends to be risky for lenders.
But in the long run, we are not just building a specific business or product, we are building an organization with the people, systems and culture that can innovate quickly and sustain itself for decades. That is our ultimate goal.