*by Alex Franco
The year 2023 starts off quite challenging from a socioeconomic point of view. Delinquency by companies and consumers hit historical records (6.5 and 70.5 million, respectively in February, according to Serasa Experian's Delinquency Indicator), not to mention the various news about layoffs or massive layoffs. Companies from different segments were affected by this scenario, including the ecosystem of fintechs and digital banks.
Despite this, Central Bank reports showed that the participation of these institutions in the unsecured credit market, such as credit cards, personal loans, etc., has been increasing. In 2022 alone, it reached 14% and, considering how young fintechs and digital banks are in the Brazilian market, it is a very expressive number.
However, profitability (operating profit) does not grow at the same level. The net worth of traditional financial institutions, for example, was 12.2% (median returns) in 2022, while that of fintechs/digital banks was only 1.3% (median returns).
With these numbers, it is clear that the fintechs and digital banks need to develop business strategies based on information and technology for safer and more profitable decision-making, in order to overcome the great current challenge: working more on the question of efficiency than expansion.
Credit Granting
Historically, fintechs and digital banks have more risk appetite than traditional banks, which is part of their strategy to increase market share. In the beginning, startups found opportunities for growth in unbanked and people less attractive to the credit market. At the time, this was considered new and revolutionary.
However, what the current scenario shows us is that the increased participation of fintechs and digital banks in the credit market has not been accompanied by unbridled lending. On the contrary, the fintechs and digital banks adopted a more cautious posture, with greater risk control and more rigorous analysis of customer profiles.
And this has an explanation: the consensus of the ecosystem is that the coming months will be dedicated to maintaining the sustainability and efficiency of these companies, thinking about traction and survival, especially in an uncertain moment for the Brazilian economy.
In this scenario, how to maintain the financial health of companies while helping Brazilians who need it most? In the search for this solution, Serasa Experian reinvented itself a lot. The company, which is already a leader in data services for companies to make the best decisions, has developed products, improved technologies and become more agile to keep up with market changes like these. In this way, it could support fintechs and digital banks in their mission to include consumers in the credit market without neglecting the balance between risk and security in business.
What we do not want, and cannot do, is to let the fintechs – who are born as innovators – die on the beach after swimming so hard in a red sea to revolutionize the financial sector. The secret is to create opportunities for financial institutions to walk on the same journey to provide financial health to Brazilians.
Growth opportunities throughout the business journey
From the point of view of a specialist in credit services, I can say that there is a way out. In fact, three initial ones, which form a financial tripod: new credit modalities, portfolio management and data-based sustainability.
1. New credit modalities
There are already some new credit models that are discussed in the innovation forums with the fintechs and digital banks, such as buy now, pay later (BNPL). It is a modality that allows the consumer to buy a product or service now and pay later, in installments. Generally, these installments are smaller than common financing, without interest or with lower rates than traditional loans. It is more or less like the credit card we have in Brazil.
A 2022 Experian Global survey showed that in the United States, where BNPL and conventional lending are beginning to crawl and gain popularity, the majority of consumers (69%) use this format up to three times a year and the main reason is to buy clothing (58%). Younger people, particularly millennials and Gen Z, are the majority consumers (19% and 30%, respectively).
Other new credit models that should emerge, to be brief, are microcredit (low amounts, flexible conditions and simplified risk analysis), collaborative credit via online platforms (something similar to Crowdfunding), instant credit and green credit. O Open Finance it is not part of the modality, but it can have a positive impact, since it offers access to user data among financial institutions.
2. Portfolio Management
The second pillar is investing in portfolio management, that is, having an in-depth and analytical look at the behavior of customers already won to identify opportunities, a crucial activity to guarantee the profitability and security of investments by financial institutions and their consumers. It involves analyzing the buying behavior of these people and defining investment strategies, selecting the most suitable financial assets for the portfolio, allocating resources and constantly monitoring the performance of investments according to each profile. In the end, the main objectives are to make customized offers according to the purchasing power of each user, maximize the financial return and manage the risks involved.
Sustainability based on efficient and effective management
Sustainability based on efficiency and effectiveness comes third, which is the adoption of sustainable practices to help reduce operating costs and optimize credit policies to maximize return on investments. Resorting to technology and information intelligence is essential to draw more concise and optimized plans. Automation here is the soul of the business. Manual analyzes and time-consuming processes give way to decision engines and new analytical solutions that reduce turnaround time and the risk of human error in the process, in addition to maximizing value creation. In addition, it contributes to building a more positive image in the market and society.
The secret to the success of this tripod is, without a doubt, Risk Analysis, which is increasingly improved and automated when analytical intelligence and technology are involved. This is the perfect opportunity for fintechs and digital banks to maintain their innovative and inclusive essence and, at the same time, become increasingly solid and profitable.
* Alex Franco is Director of Credit Services at Serasa Experian
Notice: The opinion presented in this article is the responsibility of its author and not of ABES - Brazilian Association of Software Companies
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