Tag: albo

Fixing Latin America’s Broken Lending Industry

Credit in Latin America is notoriously hard to access. Just a few years ago, credit card rates in Brazil hit 450%, which has gone down to a still astounding 250% per year. In Chile, I’ve seen credit cards that charge 60-100% yearly interest. And that’s if you can even get a card in the first place. Yet people still use these predatory systems. Why? There are rarely any other options.

In the US, access to loans depends mainly on a single number: your FICO score. Your credit score is an aggregate of your spending and borrowing history, so it gives lenders a way to find out if you are a trustworthy customer. In general, the higher your score, the bigger (or more lenient) your line of credit. You can boost your score by managing credit wisely for long periods, such as always paying off a credit card on time, or lower your score by taking on more credit, not paying it off on time or carrying a high balance. While many people criticize the FICO score model, it is a relatively simple way for lenders to verify the creditworthiness of potential customers.

Consumers in the US have access to deep pools of capital at their fingertips. Home loans, credit cards, consumer credit and other forms of debt are readily available. Perhaps they are even too available, as we saw in the 2008 financial crisis or as we might be seeing now with bubbles in student loan debt.

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An Overview of Payment Solutions in Latin America

In the US, most people gloss over payment processing because almost everyone has a credit card, Paypal account, or another simple way to pay. Developers use Stripe and can process in seconds. For consumers, Amazon even created one-click purchasing for some customers and physical buttons that automatically reorder your favorite products.

In China, paying is even easier; almost everyone uses Wechat or Alipay to scan QR codes and pay for everything automatically without ever taking out their wallet.

Startups have filled almost every niche in the payments industry, providing solutions for any vendor. Need to pay someone for something you bought in an online shop? PayPal can help. Setting up online payments for your business? Try Stripe. Want to compensate your roommate for your half of the gas bill? Venmo can help you do that.

We tend to take these solutions, as well as more traditional payment systems such as credit cards, for granted in the US. Only 6.5% of households in the US don’t have a bank account, although 18.7% of households are considered underbanked. If someone in the US wants to sign up for a Netflix account or buy a t-shirt online, they enter their credit or debit card information, and that’s it.

In Latin America, completing an online transaction is not so simple.

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