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Contxto – Fintech Finnu has scored a pre-seed financing round worth US$800,000. The investment will now launch their creative solution to the perennial problem of the lack of personal credit in the Mexican and Latin American markets.
You may notice a ton of European names there and that’s no coincidence.
You see, not only are the company’s founders from across the sea—Piotr Godzinski from Poland, Julian May from Germany, and Ruchali Dodderi of India—, to make matters stranger, their first HQ has been set up in Barcelona and their IT is run from India.
So, wait, how does this company qualify as Latin American? Well, the key is this:
Finnu does not operate a single product within Europe or Asia. Their entire focus is and will be for the foreseeable future, on the Latin American market. Their plan is to fully launch in Mexico by August 2020.
Then, they want to expand into Colombia as soon as they feel they’re established.
In an exclusive interview with Contxto, I spoke with two of the three founders. I wanted to find out what exactly made them forsake their native markets in order to opt for other (greener?) pastures.
Does Mexico need another fintech?
Finnu already has offices in Mexico City’s swanky Polanco neighborhood. That’s probably where I would have held my chat with May and Godzinski had it not been for coronavirus.
That’s the thing about Coivd-19, it makes you change plans and Finnu was no exception.
Initially, I was pretty upfront about my skepticism about the launch of yet another fintech in Mexico’s saturated market.
Turns out, this was a hurdle Finnu’s founders had to overcome early on in their development. And, boy, did they jump over it—in part, actually, thanks to the virus.
Product-market fit in saturated fintech
The reason fintech companies are so prolific in Mexico is due to the country’s perfect storm of massive, untapped market size and massive financial opportunities.
As we’ve discussed often and in-depth, Latin America is a credit desert for virtually everybody. Traditional banks simply won’t lend to people.
Concurrently, there has been a well-meaning explosion of fintech solutions in Mexico over the past few years. By our last count, just in terms of Mexican neo- and challenger banks, there are over a dozen well-established local contenders.
- Related article: Mexico’s challenger and neo-banks. Do you know the difference?
Finnu probably knew this. It’s why initially, the company’s slant was focused on the European market and on insurance, specifically on the insurance of personal devices.
But, four weeks into W1Forward from the Insurtech Hub Munich—a German accelerator program—they realized that there wasn’t a good product-market fit for their business model.
Yet, they quickly realized that they were onto something. They just had to change their approach, and business model, and hemisphere… Talk about pivoting! But it worked, since this was what landed them this pre-seed round.
Finnu’s initial plan for single-item, on-demand insurance wasn’t going to work in Europe. But they discovered that it could in Latin America. So they headed to an accelerator in Medellín where they had their next epiphany:
Sure, their solution worked in Latam, but there was an even bigger opportunity nobody was covering—personal credit.
The Covid catalyst, from a good to a brilliant solution
With all their market research into the local personal device insurance Finnu came to understand that, rather than insuring their gadgets, people often were using them as value-stores to get a hold of some cash at the pawnshop.
The fintech’s pivot was simple but clever:
Finnu would lend people money for their personal devices and the whole thing would be done simply online. Well, not completely online. The initial solution was to be a hybrid model. In it, Finnu took people’s devices as collateral with the help of logistics services like iVoy.
I shuddered at this point of the interview. Past experience has shown me the enormous difficulties faced by digital solutions dependent on physical storage and logistics. The unit economics often just don’t add up. Just look back to the recent Kichink debacle.
Strangely, Covid-19 proved to be the catalyst the company needed to truly come up with a solution to this dilemma.
In the end, Finnu went completely digital. They dispensed with the offline picking up and storing people’s phones and instead simply asked for the administrator password.
That way, the customer gets the loan, they keep their phone, and—if they don’t pay up—, easy, Finnu just starts limiting functions.
That’s how sophisticated this system can be: There is no need to even switch off the whole phone. Maybe you still get to make calls, but you can no longer access Facebook.
The future for Finnu
The tech isn’t even that new. Corporates have long been asking for company device passwords. If a dozy employee happens to lose their phone, the company just blocks any sensitive information.
The neat trick behind taking this technology to the consumer market is that, back when you had to give up your phone to the pawnbroker, you might realize you didn’t actually need it. If you’re still completely free to use it, you reaffirm your need to pay the debt, as you’re still extracting working value form the phone.
Furthermore, the complete digitalization has a number of other advantages too:
Finnu claimsthey can charge up to eight times less than other credit fintech solutions, including Kueski, Branch or Vivus. This is because they have collateral that they don’t have to move or store.
Furthermore, they can launch all across Mexico simultaneously, since they are no longer beholden to physical storage and transportation issues, just legal/regulatory ones.
“Financial democracy” and ethics in fintech
But I was more intrigued about what the future had to offer.
On one hand, the “democratization of finance” that I’ve ranted so much about, seemed to be a genuine possibility here.
This came up because May and Godzinski insisted, “we are not digital pawnbrokers”.
Instead, they said they were, well, they hadn’t quite worked out the phrasing with marketing. Their claim to difference was that, by loaning money, they were actually building up a customer’s history in the Credit Bureau. A big step away from the predatory lending often associated with pawnbrokers.
Perhaps, the term for Finnu is a collateral-backed, personal credit solution? (This is why I don’t work in marketing.
Finally, I asked the founders to look deep into the distant future. The year 2025! Or whenever the Internet of Things (IoT) becomes an even more prevalent reality.
I wondered out loud if, soon, Finnu would be able to diversify from phones, tables, and gadgets into virtually any household appliance.
It’s actually pretty creepy if you think about it. The IoT would allow them to switch off the “delicates” setting on washing machines, the smoothie function on blenders, and even AC units. Imagine being in possession of a smarthouse that simply won’t respond.
Luckily, this dystopia isn’t here for two reasons. Firstly, Godzinski noted that the IoT is up to the market more than them. Although, he noted that the tech already exists in some cars and TVs.
But, on a more ethical level, this isn’t a likely outcome. One of the short term future plans of Finnu is to engage in this famous “financial education” everyone keeps going on about.
From my point of view, if a chunk of their present investment money goes into this, at least I will grant my coveted: Financial education stamp of approval.
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