fintech-chile
Finance

A vibrant startup ecosystem benefits Chile's fintechs

I was hoping not to start the third article about the expansion of finance technology firms in Latin America with the theme of financial inclusion. But it seems to be just about impossible not to talk about it when you approach LatAm entrepreneurs: proof that the use of technology in the fight against financial exclusion is not at all about charity, but truly a good business opportunity to explore in the continent.

“We saw that in emerging markets millions of people were excluded from financial services due to lack of financial information. This ‘chicken and egg’ problem only can be solved by reducing the asymmetries of information between the person and the financial institutions,” says Sebastián Ugarte, CEO and co-founder of the Destácame, a Chilean web-based platform that allows users to show financial institutions that they are creditworthy.

While studying for an MBA at the US’s prestigious Massachusetts Institute of Technology (MIT) Ugarte and his friends came across the concept of ‘Alternative Data’ where the startup uses a customer’s payment record for everyday bills (like electricity and water supply) in order to build a credit profile.

“Alternative Data is the information that people own. It is not related directly to financial services, but you can use it as a good proxy for understanding the person’s behaviour and characteristics. The company’s website states:

“Currently, the credit evaluation process does not reward you for being responsible in the past. We want to help people asking for a loan, so that the analysis can be clear and objective and not only based on how much they earn and where they live.”

It also highlights that the service is free and it will always be. The startup makes money by charging a small fee to financial institutions interested in working with Destácame.             

 

Chile’s hot ecosystem

With the support of the government-backed accelerator program Startup Chile, Destácame was launched in 2014. A couple of months ago, the team then won follow-on funding from Startup Chile’s SCALE. SCALE offers 60 million Chilean pesos (around 85,500 US dollars) to companies that need extra capital to expand to the rest of Latin America and the world. And that is exactly what the company is going to do. According to Ugarte, Destácame in going to be launched in Mexico in the following months with the help of two large banks.   

“The best [strength] is the ecosystem that we have here in Chile. You are able to find very talented people that want to take the leap into creating something new and with a strong social impact,” says Ugarte.       

This positive ecosystem for startups in Chile is at least partially due to Startup Chile. Created in 2010 with the ambition of putting Chile on the global map when it comes to innovation and entrepreneurialism, Startup Chile has grown into the number one accelerator in Latin America and one of the most successful programs of its type in the world, having helped more than 1,200 startups from 72 different countries.

 

No cows, just gifts

Another Fintech company supported by the Chilean government program is Tu Vakita, an online crowd-gifting platform. ‘Hacer una vaca’ in the Spanish-speaking countries of Latin America has nothing to do with cows (vacas); it is an expression that means to raise money between friends or family for a gift or a specific goal.

“Our users are young people between 18 and 35 years old. They are at the university or starting their very first jobs, so for them to party or simply to hang out with friends is really, really important,” writes Tu Vakita CEO and co-founder Felipe Parragué in an email.

“We have, however, another profile as well: people interested mostly in helping other people. I would say mainly women between 35 and 45 years old. Once the ‘vakita’ is done, the user has two options: get the money into their account but pay a seven per cent charge for the use of the platform, or just use the total amount collected with online shops that we are associated with.”

Besides the opportunities created by the financial exclusion, another constant theme mentioned by LatAm entrepreneurs is the difficulty of getting deals with traditional financial institutions.

“The worst is that in Chile big corporations don't have the incentives to innovate. They feel very comfortable in their current status. Therefore, getting a deal with a bank, for example, is a very long and daunting process,” says Ugarte from Destácame.

“I think banks are interested in innovation, but still the process of getting to work with them is too long and often ends up in nothing,” adds Parragué from Tu Vakita. 

 

Also read:

Trust and technology boost Colombia’s financial inclusion

Brazil’s fintechs bank on more deals, less red tape

Cornershop aims for slice of groceries e-commerce in Chile

eMerge showcases LatAm tech talent

How one US startup made it… in Chile

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