FinTech in Chile: Big Data for SMEs and Ethical Banking

We carry on this FinTech in Latin America series with Chile. You can check out my previous articles about Brazil, Mexico, Colombia and Argentina.

Chile has a much more developed banking system and it is one of the countries with the highest financial inclusion in the region, unlike other Latin American countries.

According to the 2019 report of financial inclusion in Chile, 97% of the adult population has access to a financial product - mostly current accounts. However, only a third have simultaneous access to credit, saving accounts, or personal finance products. The high level of financial inclusion is the result of the expansion of the country’s POS network and bank branches.

In addition, Chile has one of the highest smartphone penetration in Latin America - according to eMarketer, 72% of mobile phone users have a smartphone in 2019, which is around 10 million out of 18 million of the country’s population

In this scenario, the biggest challenge for the banking sector and especially for FinTechs is to make people move their money from “under the mattress” to a bank. Being innovative with disruptive solutions is a game-changer for Chilean FinTechs.

Focus on SMEs: Big Data and Machine Learning

Getting financing has always been a challenge for SMEs even in countries with a more solid startup ecosystem like Chile. Neobank OmniBnk, launched in 2016, came with the mission of helping SMEs get credit for their business.

OmniBnk uses Big Data and Machine Learning to analyse electronic invoices and provide SMEs with faster and more accurate factoring services, which allows OmniBnk to provide lines of credit to businesses that are ignored by traditional lending services.

Up to the end of 2019, OmniBnk had already built a network of over 150 lenders and 10,000 companies, mostly SMEs, looking for funding. OmniBnk launched in Colombia in May 2019 through the acquisition of local factoring provider, Capital Logistic, in 2018.

“ The secret of [OmniBnk’s] success was analyzing companies through their data, known as 

“digital fingerprint”; this technology integrates all the sources of information from these organizations and allows us to build strategies around them, through a series of products that resolve critical needs for the SME,” commented OmniBnk CEO, Diego Caicedo.

Ethical banking: Doble Impacto 

Although in Chile there is no "ethical bank" as such, there is a FinTech company with focus on social and environmental impact.  Doble Impacto is an investment platform that follows the guidelines of the so-called "ethical banking", and that has plans to have their banking license by 2022. 

Doble Impacto launched in October 2017. Since then, the company offered credit to 400 different companies and projects.

In a recent interview, Jorge Mu?oz, CEO of Doble Impacto, explained that all projects have to go through a two step analysis. First, an evaluation of the project’s impact (either social and/or environmental), then a credit risk assessment.  Mu?oz added that a study carried out during the Doble Impacto pilot phase led them to one main conclusion: that it is viable to build an ethical bank in Chile. 

In the same interview, Mu?oz explained that Doble Impacto offers interest rates similar to traditional banks. He claims that they do not want to compete for rates or have a lesser strict evaluation, because they must be responsible for their investments. What they are looking for, he says, is not to be cheaper, but to add value.

In any case, Doble Impacto does not finance startups. "We finance organizations that have already been operating for a certain number of years [...] at least two years of activities, this allows us, in our impact and risk analysis, to validate the scalability of the project," he added.

Double Impacto plans are to formally become a bank by 2022 and already applied for their banking license this year. 

Having 100% ethical banking is definitely a challenge in any market and I believe FinTechs can work towards this goal. 

Do you think it’s possible for a bank (FinTech or otherwise) to have a 100% ethical approach?

Leave your opinion in the comments!

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