More than two-thirds of Americans have at least one credit card. In fact, the median number of cards per person is almost four. Although access to fair credit is still an issue, it’s safe to say the banking system in the United States is robust and well used. But in many countries around the world, the financial services ecosystem is limited to a few powerful banks who cater mostly to the top decile of the population, leaving the rest of the population with minimum access to banking services and credit. In much of Latin America, for example, less than 20% of the population has a credit card; in Colombia that number is only 14%!
The credit we take for granted in the US–being able to easily put any purchase on a credit card, or using a point of sale financing solution–just does not exist in the same way for most of the world. Reliable, money-earning citizens are often deemed un-creditworthy only because the infrastructure doesn’t support being able to figure out if they are. Underwriting, can look like this: the credit applicant hands over the names of three friends as reference points to be called by the bank (literally, phone a friend!). At least one of them must have a landline, and if they aren’t home when called, you cannot get approved. Other processes require scanning a fingerprinted form; if the human analyst can’t read it, you have to do it all over again. These processes sometimes even happen while waiting in line at a store. Imagine the impatient line growing behind you as this manual credit check process unfolds… and consider how many credit cards you’d probably have if you had to go through the process this way.
But in these same countries smartphone penetration continues to scale dramatically, and often by several multiples of credit card users. In Colombia, for example, more than 70% of the population uses smartphones (versus 14% for credit cards). The economic growth of the last decade–better education, leading in turn to better paid jobs–has driven a large and continuing expansion of the middle class. For the millions of people now entering that middle class, looking for credit to expand their businesses, finance key purchases, fund education, and more, the traditional credit options available are painful to get, limited, and often carry extreme interest rates.
What this means is that in the same way many countries leapfrogged the landline and went straight to the cell phone, they are now beginning to leapfrog traditional banking. Rather than waiting for banks to provide the old model of credit cards, new financial services are emerging to meet consumers where they are: on their phones, and at the point of purchase. The distribution layer of the financial services of the future will not be banks. It will be the phone.
ADDI uses technology to give consumers affordable, simple, and fair credit at the point of sale. Instead of calling a friend and enduring up to an hour wait time, Addi underwrites you in minutes, with only your ID & phone number. ADDI’s credit scoring algorithm rewards borrowers who have good credit history with lower rates (we take this risk based approach for granted in the US, but it does not exist in the same form in many places). For some of ADDI’s users, this is the first financing option available. In a very short period of time, the team built a lending & decisioning engine from the ground up, signed leading retail partnerships and has already gone live in 200+ stores–in the process giving thousands of customers access to affordable, transparent credit.
I first met ADDI’s CEO, Santiago Suarez, years ago when he was running the “New Product Development & Emerging Technologies” group at J.P. Morgan. He was clearly incredibly sharp and had a deep understanding of many areas of financial services. Over the years, Santiago–who then moved to LendingClub to run strategy and corporate development–became one of the people I most enjoyed talking future of FinTech with. Santiago also grew up in Colombia with a family in retail, often visiting stores at the mall with his father on the weekends. When he decided to move back home I was very interested to hear what would come next.
Santiago recruited 2 cofounders to fill out the team: Elmer Ortega, who was most recently head of risk management at a private hedge fund. After several unsuccessful bids using external vendors, Elmer taught himself to code and built a unique platform to manage the hedge fund’s operations, valuation, and risks. And Daniel Vallejo quickly joined as well, bringing his knowledge from McKinsey of the inner workings of his large bank clients.
It is difficult to build a new financial services company in any country. But it is especially challenging when breaking entirely new ground with minimal existing infrastructure. Together, Santiago, Elmer & Daniel represent a unique mix of traditional financial services and FinTech experience in both countries, go-to-market relationships in Colombia and beyond, and the technical and capital markets skills needed to build a product from scratch. This strong team, the rapid execution they have already demonstrated, and the large opportunity ahead is why we are very excited to be partnering with ADDI.
ADDI’s first product is point of sale financing for Colombians. But more than that, it is ushering in a new era of modern financial services: in our view, it will soon be the entry point of clear, affordable credit to the millions who perhaps need it most.
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