Accelerating BNPL in Spain and LATAM, with Jaime Marin Merlo
Is this another BNPL episode? Of course, it is.
But what can I say, the world seems to have an unquenchable thirst for the model right now 😁
Plus, this one is a little different as I’m now speaking to a BNPL provider, but rather to Jaime Marin Merlo of Fiizy, an Estonian fintech that focuses on bringing lenders and merchants into that BNPL boom.
Jaime is the director of business development for Fiizy’s Spanish ambitions, but we touch on the LATAM market too. We talk about the limits of the Spanish data environment, we talk about the new customer niches BNPL is opening up, and we talk about the win-win-win situation that can arise for lenders, consumers, and merchants alike when the model is well-implemented.
You can learn more about Fiizy at their website
You can contact Jaime via his LinkedIn page or by emailing him at jaime.marin.merlo@fiizy.com
If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Regards,
Brendan
The full written transcript, with timestamps, is below:
Jaime Marin 0:00
We build an end-to-end buy now pay later platform with the value proposition for merchants that we optimise conversion rates through a mix of lender with different rates appetite in order to improve overall approval and conversion rates. So at the end we are in the sight of the merchant.
Brendan Le Grange 0:46
Welcome back to How to Lend Money to Strangers, the podcast about lending strategies around the world and across the credit lifecycle. I'm your host Brendan le Grange and today I'm speaking to Jaime Morin, Director of Business Development for BNPL solutions at Fiizy, the Estonian FinTech with operations in Spain, Poland, Mexico, and soon-to-be Brazil. There aren't many headlines in the consumer credit space these days that don't include some mention of BNPL, so we talk about its growth - for consumers and for merchants - and we talk about how to keep that growth positive for all stakeholders concerned.
Jaime and I actually know each other from about 10 years ago, when we both worked in the same global consulting team. We met on, I think it was a Sunday night, in Nottingham, it was about 10pm and I was heading home from dinner, when we passed each other in the hotel lobby as he was heading out. Unfortunately, unlike Madrid, at 10pm on a Sunday night, there aren't many open restaurants in Nottingham (at least they weren't in 2010) and so I think he had to make do with a vending machine dinner that night - fortunately, things are going better for him these days so let's catch up.
Perhaps before we dive too deep, Jaime, would you like to introduce yourself and talk a little bit about fizzy and the work you're doing? Well,
Jaime Marin 2:12
My background has been always in the banking industry. I've been working from risk management, to heading business lines, and also consulting. Lately, I've also been engaged in the retail financing industry before joining Fiizy, where I'm directing business development activities in mostly in Spain, where we are providing a new business model for BNPL.
Brendan Le Grange 2:47
Obviously, by now pay later is the hot topic at the moment, but you seem to be taking a little bit of a different approach to it: so it's not so much that you're a buy now pay later provider, but rather that you guys are enabling that... if I understand it correctly.
Jaime Marin 3:05
Correctly, yes. Our value proposition is just to give personalised financing solution per customer. Fiizy is an Estonian FinTech has been in business for nine years where they will have been working with the financial sector generating leads through three major channels of acquisition: search engine optimization and lately, through all the data assets we manage, we direct marketing campaigns in the name of financial entities. That has been proven to be a successful business model for the last 10 years, and so the company decided that it was time to grow through another business line, and that's how, in the last year, the BNPL was created.
We just implemented an end-to-end BNPL solution that connects financial institutions, merchants, we provide the IT solution to manage the whole BNPL process. And also, we bring the merchant network in order to consolidate a new channel of customer acquisition and business. Because, at the end, one of the very interesting things of BNPL is that it gives you access to different customer profiles in the marketplace that are difficult to get, to do cross-selling with other credit cards, personal loans or any other product that the financial institution can cross-sell to them.
And also we provide services like open banking, so any financial entity who is not accessing the benefits of open banking because they don't have the technology implemented in the system, etc. we can do all that for them. So at the end, our value proposition for the merchants is maximizing the conversion rate, but also for the financial services is helping them to maximise their conversion rates, using any data that they require to do the credit decision. And I mean, this, this is a long term business, and not a short term. So wherever it is required to help the financial entity to make better decisions, it is our mission to do the best to to help them.
And that's what we are really doing now, implementing and consolidating the business in Spain with two growth path: one is Latin America, we have presence in Mexico and in Brazil in the near future, but also we're in analysing opportunities to grow across all the European markets.
Brendan Le Grange 6:07
So one of the questions that gets put forward when people are discussing the growth we've seen in BNPL valuations and the rapid threat that's arisen to traditional lenders from this space, is this question of 'is buy now pay later a feature, or is it a standalone business?' It's similar to a number of products that we've issued in the past, it's not a foreign concept, and that, to me, makes it feel like it's more about implementation. t's more about how do you get this out there. And that's been tricky for a traditional lender to compete on experience, to get an app out there, and maybe even to build those relationships with the merchants. But now you're stepping in it, you're allowing many more people who are interested in buy now pay later as a solution for their customers, as one of the solutions, as one of the aspects of their bigger product offering. They can provide that without needing to from-the-ground-up build buy now pay later.
Jaime Marin 7:05
Yes, exactly. At the end, I see the BNPL as a new channel of customer acquisition, letting the financial entities to do what they know better, which is to manage their credit risk appetite.
While we are providing the platform - or the highway - in order to capture those new customers at the end, is going back to the traditional lending business through a new channel. There is no no new people accessing the credit markets is a question of new people deciding to finance when they don't need to because it's easy and convenient for them. So I haven't used my credit card in revolving, but if I acquire something online, and in three minutes I could have my, I odn't know, my helmet, the helmet of my motorbike, paid in seven or six instalments with an interesting rate, why wouldn't I do it if I it is very convenient.
Online is easy, it's through my mobile, at the end it's providing facilities to the consumer in order to decide how they want to buy.
Brendan Le Grange 8:22
You said in your introduction, and I know because obviously we worked together, that you come from a background of credit risk management, is there a way that people are looking at risk differently in buy now pay later? Or do you just think it's more about the fact that we can now offer smaller loans, that lenders can take that on and feel a little bit more secure? Are you seeing any different styles of risk management, of loan decisioning, in this space compared to what you've known from your career?
Jaime Marin 8:50
Okay, good question, a constraint of the BNPL businesses is that at the end you have to make decisions in real time. So that, a little bit, limits the ability to access new data which could improve the credit decisioning. But also remember that the in the credit bureaus in Spain are only negative so that brings some challeng into the equation, but I think that at the end, we are profiling a different customer segments very much eager to finance some purchase online with all different profiles that that gives you access to.
And also in some lenders, they have the challenge to integrate as part of the decisioning process, the information from the merchant and the information from the customer. I think that is the key ability that you need to have that is not only providing access to the person, but also understanding that the channel, the merchant, it gives you some insights about the quality of the average profile. We are seeing in the market that different profiles of merchants bring different portfolios of customer with different risk, even though they have the same merchant activity, and that is because the brand of the merchant also has an effect on credit performance. And I think that is something that will develop in the future once we have started to build the historical performance in this portfolio.
Brendan Le Grange 10:33
When you talk about these consumer populations as having been unable to qualify in the past, Spain is a market that is pretty well banked. So these, well I imagine these, are not so much consumers who have not had a bank account - is this because they're higher risk? Or is there actually a sizable population of consumers whose files on the credit bureaus are too thin to grant credit in the traditional way?
Jaime Marin 10:56
Yes. Now the point is that most of the FinTech players rely very much on consumers having a credit card, that is something that we're breaking with our solution, because at the end, the formalisation of the credit facility can be in loans, credit cards, wherever each lender decides.
Brendan Le Grange 11:20
I think there's two storylines, one in markets where there's a huge unbanked population, and this is more about access to credit. And then there's markets where traditional credit is available, it's just not necessarily in the most convenient format. But one of the big name players here just ran a campaign with Domino's Pizza which, I think quite rightfully, got a bit of flack - because yeah, you shouldn't really be encouraging somebody to pay a pizza over six months.
But I think what is interesting is that in the old model, with a credit card, if you decided to pay minimum balance, everything would be on minimum balance. So if you needed that motorbike helmet, and you did need to pay it over six months, or 12 months, 24 months, you would have to put your entire balance over that period. And then by default, all your small little expenses are getting bundled there. And, sure, there were ways to work around that but they weren't easy. Of course, by now pay later can be abused, but actually, it's allowing consumers to be a lot more specific. And so they can just take that one big item and put it over over a few months, and pay everything else in full with a debit card that gives you that freedom, and possibly to consumers who haven't had that in the past. You know, at the top end of the market, people might have been sitting with four or five credit cards, one of which they use for big expenses and pay down, but everything else goes on another card and so this is just letting everybody have that same flexibility.
Jaime Marin 12:43
Definitely, I think that especially in the people that are not used to financing, because they haven't had the chance or all they need to do it, it's a good way to learn how to manage their financials - it's a win-win in the sense that merchants can sell more and consumers can pay their purchase easily.
But of course, underneath messages of educating. I think that's part of why we have regulators. If I can find something in the offline world, now I can do the same in the online world with the capabilities and the value added of the technology. I can do it from home in an easy way, which is appreciated by the consumer. Of course, there are limits. You mentioned one and I fully agree that one of the things that all the players in the BNPL industry need to be careful about is 'how do I educate the people? What are the messages being sent', because at the end, we want to assure that the reputation of the business is good. And there is no misbehaviour by any player in the market but as any other it happens in the credit card business, in the personal loan side, as you will know. So it's it's a question of sometimes self-regulation inside the industry.
Brendan Le Grange 14:16
And you mentioned that Spain has a negative only credit bureau system. Is there a way for lenders to share exposure data or affordability data to let them know a consumers running up significant amounts of any type of debt, including buy now pay later?
Jaime Marin 14:33
No, there is not the only single entity that provide that data is the Bank of Spain, the regulated Central Bank of Spain, but they only provide the data and only for banks that are been supervised by the Bank of Spain and I think that is one of the weaknesses of the credit system. When we were in Experian, we launched some initiative to build the positive bureau in Spain, but we were unsuccessful. At the end, the negative credit bureau is an entry barrier for new competitors. So I think that it has been some consolidation in the market 70-80% of the lending market is concentrated in five large banks. And the reaction to that consolidation, in terms of market offering, is lets keep competitors away, as much as possible.
Brendan Le Grange 15:39
It will be interesting to see what Open Banking does, and if there's a way around that, because positive data is usually pretty good as a step for the affordability
Jaime Marin 15:50
Of course. It is a total annomoly, because at the end it doesn't provide the required level of competence in the market. And also, it doesn't support the entry of new financial entities, including fintechs. And that is something that in the future, it will happen because we are leaving people out of the market because they had a previous negative experience or good players are subsidising the performance of the bad player. So it's totally inadequate to have only negative bureau in Spain. But I think that is a question of politicians needing to agree on what's the way to do it and regulate it in the best way... and that is something that is not yet in any agenda, as far as I know.
Brendan Le Grange 16:48
Yeah, not something that changes very quickly. I think one of the other interesting things with buy now pay later is, maybe it's fair to say, it's revitalised the relationship between finance providers and merchants. So perhaps it's just too long ago that credit cards became the thing and maybe merchants have forgotten the hassles they used to have with cash and the value credit card providers brought in but for the most part, it's been that merchants have been somewhat reluctant to be paying a commission to credit card providers over the last 40-50 years. Whereas what we're seeing now is that there's some very clear statistics that show how much more turnover gets generated, how many more sales get made, when buy now pay later is a tool available to customers.
Jaime Marin 17:35
Yes, definitely, I think a credit card were a little bit of in operational improvement in the sense that you don't have to manage cash, in in the case of the MPL, the value proposition for the merchant is that they are gonna sell more and the average ticket is higher, because we can facilitate the consumer to buy what really they want to get. We've seen merchants getting higher ticket 23% and also showing an increase in their sales conversion between 5 and 35%. So the business case and the return on investment for them is clear.
Brendan Le Grange 18:24
We probably should have talked about growth in buy now pay later overall before we dived into that, but if you look at the Spanish market, have you got any numbers on how buy now pay later is growing?
Jaime Marin 18:37
The market is growing around 15% year per year, and we are expecting those numbers to consolidate at least until 2025. Another indicator that is significant is that BNPL meant around 3% to 4% of the total ecommerce sales in Spain, while in Sweden it is around 20%. And the average is around 12%. So we see ahead of us significant growth expectation for the years to come.
Brendan Le Grange 19:13
And when we see so much growth, so many different new names appearing every few months on the horizon, we can develop a system where it's quite confusing to operate. I saw when I was researching for this call the press release that Worldline had selected Fiizy among some others in payment platform as a service solution. So is my reading of that correct, that you're working with industry - and big names like Alipay and Discover - to create a little bit more of a stable, scalable solution in the payment space?
Jaime Marin 19:45
Well, at the end, we're partnering with new members in the payment value chain in order to increase the value proposition through different new services - and financing the purchase is a key component of that. Then also remember that if I'm a merchant and my aim is to maximise my sales, and suddenly I have to talk to five different lenders, or negotiate with them, I may not have the skills, neither the time, to do it. Well, we do that for you. So you just have to focus on what you best know, which is selling through your, your webpage, and we take care of the rest.
Brendan Le Grange 20:31
Earlier on, near the start, we spoke about your impending launch in Brazil, are there any other things on the horizon for Fiizy that we should be keeping an eye on?
Jaime Marin 20:42
Well, this is a very challenging moment in Latin America, the payment industry and the FinTech world is consolidating. And therefore, in the next three to five years, we will have pure online players not only in the payments, not only in the retailer side, but also in the financing, and we want to be there as enabler and an accelerator on on that trend.
Being a new business line or a new marketplace, we need to make sure that the good practices in terms of not only facilitating credit, but also educating the people, the consumers on how to do it. And that is something that we need to do as an industry to assure that that we will do a sustainable growth in the future.
And also in Europe, there are a lot of growth coming in the BNPL. We are exploring opportunities across all Europe, all LATAM. How are we going to be this? Well, market by market, with Spain is the first example. And wherever there is an opportunity to grow, we will be there.
Brendan Le Grange 22:14
Great. Thank you. And if anybody wants to learn more about Fiizy or to speak to you about doing work together in any of those markets, what's the best way for them to learn more?
Jaime Marin 22:23
They can go to www.Fiizy.com where they will have all the information and of course, they can always contact me directly for my LinkedIn page.
Brendan Le Grange 22:35
That's F I I Z Y for Fiizy and, yeah, I'll put those links in the show notes as well. Jaime, thank you so much, it was really interesting to catch up.
Jaime Marin 22:47
Thank you very much for this opportunity.
Brendan Le Grange 22:50
And thank you for listening. If you're enjoying the show, don't forget to subscribe, like and share it on your podcast player of choice. And I'll see you next Thursday.