Amee Parbhoo

Matthieu Albrieux

Brazil

Latin America and The Caribbean

Financial Health

Fintechs

Impact Investing

Insurtech

MSME/SME Finance

Neobanks

Smallholder Farmers

Trends

Article

SmartMEI

<p class="graf graf--p graf-after--h4">We’re in the middle of a fintech boom that <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/fintech-trends-may-change-world/" target="_blank" rel="noopener noreferrer">could change the world</a>. As a seed-stage investor in fintech for the underserved, Accion Venture Lab continues to see innovative startups increasing access to, reducing the cost of, or improving the quality of financial services for underserved individuals and small businesses around the world.</p>
<p id="c50b" class="graf graf--p graf-after--p">As we kick off a new year, we’re particularly excited about seven areas of startup-led innovation.</p>

<h3 class="graf graf--p">Digital neobanks</h3>
[caption id="attachment_8117" align="alignnone" width="800"]<img class="size-full wp-image-8117" src="http://blogs.accion.org/wp-content/uploads/2018/01/APPSM_Mockup2.jpg" alt="SmartMEI is a digital neobank serving small businesses in Brazil" width="800" height="534" /> SmartMEI is a digital neobank serving small businesses in Brazil[/caption]
<p class="graf graf--p">In the last few years, we’ve seen the emergence of a number of digital neobanks. Neobanks offer a user-friendly digital interface and a platform for financial services without maintaining their own banking licenses. With a focus on user experience and digital applications, neobanks stand to offer faster and better service to the underserved. Moving forward, neobanks will need to provide both a compelling product for a targeted customer segment and a suite of offerings that go beyond basic accounts or credit cards to retain customers and improve unit economics. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/invested-in-now-money/" target="_blank" rel="nofollow noopener noreferrer">NOW Money</a>, which offers migrant workers in the UAE a platform to more efficiently transfer remittances and access to other products and services over time, and <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/why-we-invested-in-smartmei-in-brazil/" target="_blank" rel="nofollow noopener noreferrer">SmartMEI</a>, which offers small businesses in Brazil a free tax tool and access to a broader set of financial services.</p>

<h3 class="graf graf--p">Next gen small business finance solutions</h3>
<p class="graf graf--p">Around the world, micro, small, and medium enterprises (MSMEs) struggle to access capital. Estimates suggest that <a class="markup--anchor markup--p-anchor" href="https://www.ifc.org/wps/wcm/connect/4d6e6400416896c09494b79e78015671/Closing+the+Credit+Gap+Report-FinalLatest.pdf?MOD=AJPERES" target="_blank" rel="nofollow noopener noreferrer">200 to 245 million formal and informal small businesses</a> either don’t have a loan or have one but are still constrained by their access to financing. Startups have been developing creative ways to acquire, underwrite, and fund these businesses. Some of the most innovative models today are embedding themselves into supply chains and working with a partner in that supply chain to identify MSMEs in need of financing and to obtain existing data that can support credit decision-making. These companies include <a class="markup--anchor markup--p-anchor" href="http://www.tiendapago.com" target="_blank" rel="nofollow noopener noreferrer">Tienda Pago</a>, which partners with major consumer good distributors in Peru and Mexico to extend short-term working capital to small stores for inventory purchases, and <a class="markup--anchor markup--p-anchor" href="https://www.lidya.co/" target="_blank" rel="nofollow noopener noreferrer">Lidya</a>, which works through partners in Nigeria to provide invoice discounting and supply chain financing to small businesses.</p>

<h3 class="graf graf--p">Insurtech for the underserved</h3>
<p class="graf graf--p">Low-income consumers in emerging markets need insurance products to manage and mitigate financial risks, but serving those customers poses significant challenges — from cost-effectively reaching and educating consumers, to accurately assessing and pricing risks, to efficiently managing claims. Startups can play a critical role in solving those challenges with products intended to address specific risks for underserved communities, new distribution channels to reach these populations, and new streams of data to more effectively assess and price risk. Insurtech innovators include <a class="markup--anchor markup--p-anchor" href="https://lumkani.com/" target="_blank" rel="nofollow noopener noreferrer">Lumkani</a>, which sells a low-cost heat detector bundled with insurance to households in South African informal settlements that protect against loss of life, shelter, and assets, and <a class="markup--anchor markup--p-anchor" href="https://www.togarantido.com.br/" target="_blank" rel="nofollow noopener noreferrer">Togarantido</a>, which serves as an online-based insurance broker focused on the underserved in Brazil.</p>

<h3 class="graf graf--p">Financial services for smallholder farmers</h3>
<p class="graf graf--p">Smallholder farmers remain notoriously difficult to reach and are often considered high-risk clients since their incomes are tied to unpredictable harvests. An estimated <a class="markup--anchor markup--p-anchor" href="https://www.raflearning.org/post/inflection-point-unlocking-growth-era-farmer-finance" target="_blank" rel="nofollow noopener noreferrer">270 million smallholder farmers around the world face a financing gap of $170 billion</a>. Innovators addressing this need can provide real value — by helping farmers finance irrigation pumps, combat pests, or address climate risks. Startups in this space include <a class="markup--anchor markup--p-anchor" href="https://apolloagriculture.com/" target="_blank" rel="nofollow noopener noreferrer">Apollo Agriculture</a>, which leverages satellite imagery, data science, and mobile money to finance fertilizer and seeds needed to increase crop yields, and <a class="markup--anchor markup--p-anchor" href="https://www.pula-advisors.com/" target="_blank" rel="nofollow noopener noreferrer">Pula</a>, which works with large seed and fertilizer suppliers across Africa to bundle crop insurance in with product purchases.</p>

<h3 class="graf graf--p">Asset finance</h3>
[caption id="attachment_8118" align="alignnone" width="800"]<img class="size-full wp-image-8118" src="http://blogs.accion.org/wp-content/uploads/2018/01/KN_PG_2016_25.jpg" alt="The Paygo team at work on their smart meter for cooking gas" width="800" height="533" /> The Paygo team at work on their smart meter for cooking gas[/caption]
<p class="graf graf--p">Individuals and small businesses require financing for assets like medical equipment, smartphones, and solar home systems to increase efficiency and improve lives. One promising innovation in this space is pay-as-you-go financing, which allows consumers and business owners to make small upfront payments and regular “top-ups,” usually sent via mobile money. The model has already led to a rapid expansion in solar home systems across emerging markets. Other scalable models for asset financing leverage new distribution and payment approaches like layaway solutions, leasing models, and peer-to-peer transfers. <a class="markup--anchor markup--p-anchor" href="https://www.paygoenergy.co/" target="_blank" rel="nofollow noopener noreferrer">Paygo Energy</a> is a promising company in this space; its pay-as-you-go financing model enables low-income customers in Kenya to pre-pay for cleaner and more affordable cooking gas.</p>

<h3 class="graf graf--p">All-digital consumer lending</h3>
<p class="graf graf--p">Recent years have seen digital consumer lenders emerge and scale by using simple apps to collect and analyze customer data to provide access to credit for underserved populations. The speed and accessibility of digital platforms enable credit access for consumers who are underserved by traditional lenders and who might otherwise be too costly to serve. Innovators could add value to the sector with new approaches to credit underwriting and consumer engagement that lower defaults and improve retention — two of the critical challenges to the app-based lending model. <a class="markup--anchor markup--p-anchor" href="http://smartcoin.co.in/" target="_blank" rel="nofollow noopener noreferrer">SmartCoin</a> offers new engagement tools alongside its mobile lending platform to better understand and serve its customers in India, and <a class="markup--anchor markup--p-anchor" href="https://www.tezfinancialservices.pk/" target="_blank" rel="nofollow noopener noreferrer">Tez</a> provides an all-digital banking platform with a full suite of products to low-income consumers in Pakistan.</p>

<h3 class="graf graf--p">Consumer financial health</h3>
<p id="ce83" class="graf graf--p graf-after--p">In 2016, the Federal Reserve revealed a concerning statistic about financial health in the U.S.: 46 percent of Americans said they could not pull together <a class="markup--anchor markup--p-anchor" href="https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense/?utm_term=.b9b4359e9508&amp;noredirect=on" target="_blank" rel="nofollow noopener noreferrer">$400 to cover an emergency</a>. Startups are providing solutions that help consumers manage their day-to-day financial lives and rebound from shocks. There is significant potential for innovators to leverage behavioral science to design new solutions such as clever nudges, useful automation, gamification, or bundling across different financial products. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="https://www.lendstreet.com/" target="_blank" rel="nofollow noopener noreferrer">Lendstreet</a>, which focuses on financial health by providing U.S. consumers a platform to restructure and refinance their distressed debt and rebuild their credit, and <a class="markup--anchor markup--p-anchor" href="https://www.destacame.cl/" target="_blank" rel="nofollow noopener noreferrer">Destacame</a>, which empowers users in Mexico and Chile with control of their data to build their financial capabilities and access better financial products.</p>
<p id="2358" class="graf graf--p graf-after--p">Each of these areas of start-up led innovation offers significant potential for both social impact for underserved consumers and financial profit in 2018. We’re excited to see what’s next.</p>

7 fintech trends to watch in 2018

Apollo Agriculture

Destacame

lendstreet

Lidya

Lumkani

NOW Money

Pula

SmartCoin

Tienda Pago

Accion Venture Lab

<p class="graf graf--p">Can running a small business be as simple as running a Facebook profile? <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/venturelab" target="_blank" rel="noopener noreferrer">Accion Venture Lab</a>’s newest portfolio company, <a class="markup--anchor markup--p-anchor" href="https://www.smartmei.com.br/" target="_blank" rel="noopener noreferrer">SmartMEI</a>, says yes. SmartMEI launched in January in Sao Paulo, the heart of the Brazilian economy and home to 40% of the country’s registered individual microentrepreneurs. The platform provides Brazil’s small business owners with an intuitive, simple, and easy-to-use mobile app that hosts a large range of banking, management, and financial services.</p>
<p class="graf graf--p"><strong class="markup--strong markup--p-strong">Brazil’s Microentrepreneurs Don’t Have the Financial Tools They Need</strong></p>
<p class="graf graf--p">Brazil is now home to more than 7.5 million micro and small businesses, which employ over 16 million people. Within the growing micro-business sector, three out of five businesses are individual microentrepreneurs, such as owners of mom &amp; pop shops, small manufacturing businesses, or are sole proprietors like electricians, delivery drivers, or street vendors.</p>
<p class="graf graf--p">Unfortunately, these microentrepreneurs are largely unserved by established financial institutions, even though they account for a fifth of the country’s GDP and <a class="markup--anchor markup--p-anchor" href="http://www.as-coa.org/blogs/s%C3%A3o-paulo-2014-blog-six-facts-about-smes-brazil" target="_blank" rel="noopener noreferrer">over half of all private employment</a>. This isn’t a problem that’s unique to Brazil — we keep seeing these problems pop up across markets. Three common barriers to financial services for small businesses are:</p>

<ul class="postList">
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">Informality of the businesses</strong>: Owners often don’t declare their entrepreneurial activity separately from their personal activity. Despite recently adopted laws that promote formalization through favorable tax and benefit schemes for entrepreneurs, the formalization process is tedious and time-consuming. Many people feel it’s not worth the effort to take that plunge.</li>
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">Lack of consistent and quality information</strong>: Microentrepreneurs usually lack access to traditional resource planning and accounting solutions, which are expensive and not suited to their simplified needs. This makes it very hard to accurately and reliably report on their business, which is required to work with traditional banks.</li>
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">Cost to serve:</strong> Traditional banks don’t have the ability or the interest to service such small accounts. They’re time-consuming and not profitable for the big established players.</li>
</ul>
<p class="graf graf--p"><strong class="markup--strong markup--p-strong">SmartMEI Offers Small Business Owners a Solution</strong></p>
<p class="graf graf--p"><img class="graf-image alignnone" src="https://cdn-images-1.medium.com/max/1440/1*Xxfnn7hYhUTejD1uB0k7tg.gif" alt="SmartMEI mobile platform" width="500" height="356" /></p>
<p class="graf graf--p"><a class="markup--anchor markup--p-anchor" href="https://www.smartmei.com.br/" target="_blank" rel="noopener noreferrer">SmartMEI</a> sees this gap in services designed for the microentrepreneur segment as an opportunity. Even though Brazil’s microentrepreneurs typically lack formal management training, most are comfortable using mobile platforms. With their experience in the digital world, co-founders <a class="markup--anchor markup--p-anchor" href="https://www.linkedin.com/in/carlosdejavite/" target="_blank" rel="noopener noreferrer">Carlos Dejavite</a> and <a class="markup--anchor markup--p-anchor" href="https://www.linkedin.com/in/marcellopicchi/" target="_blank" rel="noopener noreferrer">Marcello Picchi</a> decided to develop new technology to make running a small business as accessible as using a mobile app.</p>
<p class="graf graf--p">Carlos and Marcello started working on the platform while studying at the Stanford Graduate School of Business. They eventually developed a neobank mobile platform that provides banking services specifically designed for microentrepreneurs and their business needs. SmartMEI provides accounting and tax management tools, a formalization channel, a mobile payment system, a bank account, and a debit card. The platform is accessible for free, with a paid version that gives access to the more extensive range of products.</p>
<p class="graf graf--p">Venture Lab is very excited to be partnering with this great team. We invested in the company — our second in Brazil — for a number of reasons:</p>
<p class="graf graf--p"><strong class="markup--strong markup--p-strong">Impact potential, a gateway to banking services: </strong>Through the app, small business owners can easily initiate and maintain processes to formalize their business. Executing the formalization process allows them to get the tax benefits from declaring revenues as a business rather than as personal income. SmartMEI also provides entrepreneurs with various management tools that allow them to digitally gather and organize their business and financial data. This provides access — often for the first time — to a complete view of their business activities. Using this data, SmartMEI provides a whole suite of financial products that would have otherwise been unavailable.</p>
<p class="graf graf--p"><strong class="markup--strong markup--p-strong">Innovative approach to a neobank: </strong>Digital banking models that offer a credit card and an enhanced mobile interface for consumers have been operating for some time in developed markets. More recently these neobanks have sprung up in developing markets, including NuBank in Brazil. However, just like traditional financial institutions, neobanks have often struggled to make economics work when targeting underserved segments who spend less and have lower account balances. We have been exploring alternative fintech models, including our recent <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/invested-in-now-money/" target="_blank" rel="noopener noreferrer">investment in NOW Money</a>, and we believe that by targeting small entrepreneurs and developing a platform to attend their specific business-related problems, SmartMEI can offer a strong initial value proposition, and allow for diversified use cases and revenue streams that will drive profitable unit economics.</p>
<p class="graf graf--p"><strong class="markup--strong markup--p-strong">Scalable operating model</strong>: SmartMEI’s focus is on the user experience and interface. It operates by integrating with a set of large partners that provide the backend infrastructure required for the platform to run smoothly. This strategy, common for neobanks, allows SmartMEI to avoid the large initial investment required to build similar infrastructure and navigate complex regulations and allows them instead to focus on building value for the user.</p>
<p class="graf graf--p"><a class="markup--anchor markup--p-anchor" href="http://www.accion.org/smartmei-secures-funding-from-accion-venture-lab-to-reach-underserved-micro-entrepreneurs-in-brazil/" target="_blank" rel="noopener noreferrer">Venture Lab is proud to support SmartMEI</a> on their journey to expand access to relevant, high quality, and affordable financial products for the microentrepreneurs that are the lifeblood of Brazil’s economy.</p>

Why we invested in SmartMEI in Brazil

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7 fintech trends to watch in 2018

Why we invested in SmartMEI in Brazil