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P2P lending network Afluenta has become a significant Latin American player in the fintech space by transforming the loan application process and expanding access to financing in the region.
Founded by Argentine entrepreneur Alejandro Cosentino, the platform bypasses traditional financial service providers and seeks to offer lower-cost and convenient loans to borrowers while delivering attractive yields to lenders and investors. It is backed by private equity investors and was incubated by NXTP Labs, part of the Global Accelerator Network.
The platform has expanded beyond its home country of Argentina to Peru and Mexico, with Colombia up next, and future plans to venture into Brazil, Chile and Uruguay. BNamericas recently caught up with its founder and CEO in Buenos Aires.
BNamericas: How is Afluenta different from traditional banks?
Cosentino: When we founded Afluenta, our main objective was to create a more just and inclusive alternative to traditional financial products and services. In Argentina, just like in other countries in the region, interest rates are often set regardless of the risk profile and credit history of individual borrowers – even though some are more creditworthy than others. There is also a large gap between the interest rate banks offer depositors and charge borrowers. Afluenta is fairer because it connects people who have capital to deposit with people looking for a loan; those looking for a loan can receive it at a lower cost, faster and with less bureaucracy, while those with capital get a higher return.
BNamericas: How did Afluenta come about?
Cosentino: The impression I had all my life was that finance is not fair to people. Traditional banks are often badly structured, expensive, and it is almost impossible to receive good service. I first worked in financial services and then in technology. I experienced how technology is capable of completely transforming a business, making it more profitable and better at communicating. I wanted to combine both technology and finance to create better products.
BNamericas: What challenges do fintechs face in South America?
Cosentino: Almost since the beginnings of the internet there have been financial transactions: first e-brokerage, then PayPal; after that, online credit card payments were accepted. Technology had already been transforming retail business, communications and entertainment. Technology was bound to get to a stage where it was mature enough to attract venture capital investors that would support the growth of fintech. The truth is that regulators are extremely careful when it comes to innovation, particularly in finance. They have been closely looking at innovation [in fintech]. So it is necessary to research and understand the rules of every country.
BNamericas: What kind of support do fintechs want from governments?
Cosentino: It is difficult to regulate an innovation because it is something that regulators do not know and are not used to because it does not even exist yet. The authorities need to be understanding and tolerant of new business models. In 2012, regulators in Brazil were looking at a fintech that was eventually forced to close down. Entrepreneurs have been more cautious since and the authorities a little bit more tolerant and understanding of those types of companies that are just beginning to emerge.
BNamericas: How was Afluenta able to expand in Latin America?
Cosentino: We visited all the regulators before we launched a new product in a market. We have approached regulators and explained to them how the business works, our finances, how we meet the requirements of existing regulation, such as those preventing the financing of terrorism or money laundering; privacy laws, and consumer rights. If they understand, as part of their role as regulators to control risk, they usually take initiatives to develop laws and regulations that can fulfill their objectives.
Mexico, for example, is the first jurisdiction where a panel is considering all the businesses that can be classified as fintechs, such as those operating in crowd funding, crowd lending, crowd investing, bitcoin and crypto currencies, as well as all that is related to e-payment.
BNamericas: With capital scarce and interest rates so high, how can Latin American fintechs get capital to grow?
Cosentino: In terms of early stage capital, there is only friends and family. We do not have early stage investors on the scale of the UK or the US. Of course, once fintechs start to grow they can attract venture capital. There are few venture capital investors that understand fintechs as well as they understand more developed business models like those in e-commerce. The challenge is that they really need to understand financial services and leave their comfortable positions in banks to understand projects that are more innovative.
Friends and family are still the number one source of capital to grow, although – once fintechs have a project to show off – there are incubators that help them develop and take them to visit a venture capital firm that specializes in early stage financing. There are also development banks, although the drivers are mainly venture capital investors. When a fintech has already grown to a certain size, there are more professional investors. It is still difficult to attract international venture capital investment if it is a business only in Colombia or Argentina.
BNamericas: What ambitions do you have for Afluenta?
Cosentino: Afluenta has different ways to grow: expanding into other countries; reaching new client segments, and offering new products and technologies. We're now reaching more people that do not have a high degree of access to financing, people we didn't reach initially. We also have more experience and more products. Initially, we offered only products for individual borrowers, while now we offer products for small businesses. There are also new technologies to provide our services, such as digital wallets.
About Alejandro Cosentino
Afluenta founder, president and CEO Alejandro Cosentino was VP of marketing and consumer services at American Express Latin America and consumer marketing manager at Santander Rio in the 1990s. He then went on to work for The Exxel Group, and was part of technology-media companies StarMedia, Gratis1 and VOY Music. Has a Business Administration and CPA degree from Universidad Católica Argentina.
About the company
Afluenta is a Latin America peer-to-peer lending network that brings together investors and creditworthy borrowers. In May 2016 it completed a Series B funding round from the International Finance Corporation and venture capital firm Elevar Equity, which invested US$4mn each.