“Fintechs address the need for a payment and credit infrastructure for unbanked customers”

According to the Landscape Tech Latin America 2023 report by the Distrito platform, 13% of all Latin American startups currently in existence are in the fintech sector, around 4,300 in total. This makes Fintech the vertical with the highest number of companies in the region, as well as the one that attracts the most investment (US$3,352 million in 2022, according to LAVCA data). In Mexico, where Finnovating estimates that there are 1,359 fintechs, the sector made 567 million in 2022. Digital payments and lending solutions were the most active sectors, accounting for 19% and 18% of total deals, respectively.

Perhaps due to the combination of both services —paytech and lending— the Mexican fintech Kueski has already reached more than two million people in Mexico. The scaleup was founded in 2012 as an online lending company, and in 2020 incorporated a buy now, pay later (or BNPL) service, Kueski Pay. The company’s growth, according to Vice President and Chief Financial Officer Andrew Seiz, relies on it being profitable and sustainable: “we make sure that we execute our strategy well and enter businesses where we have a competitive advantage and that are aligned with our mission, which is financial inclusion.”

How has the company grown over the years? What are some of the milestones achieved along the way?

Kueski was founded more than 10 years ago. We started with Kueski Préstamos Personales (Personal Loans), our cash loan product, and three years ago we launched Kueski Pay, a buy now, pay later solution. Since we were founded, we have granted more than 13 million loans, mostly to people who don’t have a bank account.

Our loans have grown, our balance sheet has grown, and we have raised capital (both equity and debt) to support this growth. Demand for our cash loan product remains significant and continues to grow exponentially. But there are also significant growth opportunities for our BNPL product as we increase the number of merchants in our network and more people have access to purchase products from sellers who use us as a financing solution.

Kueski raised more than $200 million in a Series C funding round in 2021, in the form of both venture capital and debt. What has Kueski’s experience been like in getting funding in one way or another?

I think the technology investment situation is getting better and better. In general, 2022 was a difficult year as venture capital investors became much more cautious; but the market seems to be improving. What VCs are looking for now are sustainable business models: they want to see that companies can become profitable.

On the debt side, there has been quite a remarkable growth in private debt funds. There is a strong demand for deals where investors can feel comfortable with the business model they are supporting, the security it provides, and lend directly to the company. So there has been a movement towards private debt funds and away from public markets, because with the former you can choose the type of risk you want and work together to develop a lending instrument that meets the needs of both parties.

Debt (and especially venture debt) is growing as a financing alternative for entrepreneurs, as raising venture capital has become more difficult. Why can this type of financing be interesting for a startup? When is it strategic for a company to choose one type of financing over the other?

With venture capital financing, the company’s equity needs are covered and there is more permanent capital as you move down the capital structure. So when a company wants to grow, venture capital funding is important. It is about making investors feel comfortable with the technology that the company is implementing and the need that it is addressing —in our case, financial inclusion— and demonstrating that it will be able to scale up and ultimately do so profitably.

In terms of debt financing, it is more of a resource for operating and executing your business plan. For Kueski, as a payments and lending company, debt financing is necessary to grow our portfolio.

What is the relationship like between Kueski and BBVA Spark?

It’s a great relationship overall. We really appreciate the BBVA Spark team’s interest in learning about our business and all its aspects, as well as the support they have given Kueski to grow our portfolio. I think the most important thing is that they understand what we do and are familiar with our model, which makes discussions with BBVA Spark easier and allows us to get good advice.

Given the large number of fintech startups in Latin America and Mexico in particular, how can a startup stand out from the competition and attract the interest of investors and customers?

In our case, I think we distinguish ourselves by developing products that offer a good user experience. Transparency with all our stakeholders is also important; keeping them up to date with what we are doing, being very open with them about what is going well and also what is not going well in a particular month or quarter. In addition, having a very strong corporate culture and a clear mission focused on financial inclusion translates into a motivated workforce, which means that we can really provide a value-added solution to the people who need it.

BNPL’s services, such as the Kueski Pay solution, are gaining traction in Latin America. How is fintech innovation helping to solve structural economic problems in countries like Mexico where access to banking services is limited?

In Latin America, banks structurally dominate consumer finance. The larger institutions in each country have generally been quite profitable, even if they only serve a certain segment of the population, so there has been less need to bank or to try to expand to other users. I also think that the payments infrastructure is generally not as sophisticated or established as in markets where there is more financial inclusion, because the big banks have not been incentivised to develop it.

Fintechs, as a group, are trying to address this need for a payment and credit infrastructure with a business model that adapts to customers unbanked by traditional institutions, and that relies on technology. For example, advances in machine learning and artificial intelligence have improved the ability to assess the credit risk of individuals and companies more efficiently.

What should the role of the CFO be in this changing environment? What challenges are you facing and what advice would you give to other startup finance managers?

It is important to stay flexible. In this type of role you always have to prepare for rainy days and make sure you talk to the different departments of your company as well as work closely with them on their business plans, cost management, growth opportunity areas, etc. You should also be in regular contact with your investors and get their perspective on the state of the funding ecosystem.

I think the best advice is to prepare for different scenarios, because external markets are volatile at the moment. You also need to pay attention to the areas in which you operate, because in an environment like the one we are in now, there are structural changes in the market and opportunities for growth. The industry is changing rapidly, and if there is a downturn in the market, it moves even faster.