Yesterday, Accion Venture Lab, Accion’s early-stage investment initiative, invested in Destácame’s innovative approach to credit scoring.
In Chile and throughout many countries in Latin America, there are no formal credit bureaus that record an individual’s payment behavior or track record in utilizing credit products, such as those in markets like the U.S. or the U.K (e.g., TransUnion, Experian). In many cases, the available databases only record negative credit information or behaviors, such as delays and payment defaults. This becomes a problem as financial service providers have insufficient information when assessing a potential borrower’s application. The situation is more challenging for middle and lower socioeconomic customer segments as they generally have less interaction with formal financial services providers.
Destácame solves this problem by aggregating and analyzing data from multiple existing sources of data, principally utilities payment transactions that can serve as a proxy for their payment and credit behavior. It synthesizes the information and generates a score that an individual can use at their disposal. With users’ consent, Destácame can share these scores with financial institutions, who are looking for better, faster, and cheaper ways to extend credit and other financial products to the largely credit-invisible population. Destácame also acts as a marketplace and offers its users financial products that match their credit capacity and behavior, helping users demonstrate financial institutions that they are good payers. Destácame aims to eventually become the leading credit bureau in Latin America that leverages alternative source of information.
Destácame directly serves thin-file and no-file customers looking to prove their financial behavior and build a credit history. Destácame currently operates in Chile, where 35 percent of individuals do not have a bank account and 80% do not have access to a loan at a bank.
The opportunity for expansion elsewhere in Latin America is quite large. There are over 200 million unbanked individuals in Latin America, and Destácame plans to expand to Mexico in 2017 (where 90 percent of the population of approximately 120 million people lack access to formal credit) and Colombia (where 85 percent of the population of approximately 48 million people lack access to formal credit), and eventually Peru (where 85 percent of the population of approximately 31.4 million people lack access to formal credit).
Destácame’s Innovative approach
Destácame addresses a financial services industry pain point: Underwriting for thin-file clients is historically costly, time-consuming, and often subjective. Destácame’s solution reduces the cost and time burden of a detailed risk analysis and KYC on a new applicant by providing insight into 12 months of utilities payment history and basic customer ID verification (e.g. name, address, e-mail, phone number). Financial institutions currently serving low-income segments can use Destácame to make better credit decisions and decrease customer acquisition costs. Therefore those looking to expand to serve thin-file customers can reliably incorporate the Destácame´s products, into their credit analysis process. Destácame also is testing the application of machine-learning to improve their credit scoring algorithm such that the scoring would more precisely predict which customers would default based on individuals’ historical financial behavior.
Destácame and alternative data
With Destácame, there’s a potential for alternative data analysis to drive better access and quality: credit bureaus in Chile and other countries such as Mexico, Colombia, and Peru are largely based on negative reporting, which, by nature, is limiting.
The Destácame score is an inclusive opportunity for the credit-invisible to better understand the importance of their financial information and to have control over managing and sharing this information. This innovation builds into Venture Lab’s overarching theme of promoting the idea that individuals should be empowered and have ownership of any and all information about their own financial history in order to access financial services and products.
The founders, Sebastián Ugarte, Augusto Ruiz-Tagle and Jorge Camus, started building Destácame while they were finishing their MBA at MIT. The three of them have strong entrepreneurial backgrounds and networks in Chile and across Latin America. Jorge previously co-founded two companies: NanduAir, a Chilean airline, and ZeroHotel. He also worked at Red Facil, a Chilean mobile technology company.
Sebastián is an engineer and previously worked at Arauco, a sustainable forest product company and co-founded Los Vasquitos, an investment office in Santiago. Augusto worked as a management consultant for Virtus Partners, a leading management consulting firm in Latin America, after several years at Arauco. Jorge, Augusto, and Sebastian have excellent reputations within the industry, and the Venture Lab team has been impressed with their responsiveness, willingness to collaborate, and openness to input, all vital qualities for successful entrepreneurs.
Destácame and the Catalyst Fund
Even as an early-stage investor, Venture Lab still finds some companies to be very promising, but too early for commercial investment to come in. To support companies at such an early stage, Venture Lab worked closely with a group of innovators in the space to form the blueprint of the Catalyst Fund.
Destácame was first introduced to Venture Lab in its very early days. We liked their innovation, their business model, and the team, but we needed to see them achieve certain tractions prior to investing Venture Lab investment. Around this time, Catalyst Fund had launched and we considered Destácame a perfect fit for the initiative. Destácame went on to become Catalyst Fund’s very first grantee, supported by Venture Lab. In addition to grant funding, Destácame received strategic support from BFA and Venture Lab.
Venture Lab’s support of Destácame through Catalyst Fund took the form of portfolio engagement, in which we helped the Destácame team assess and refine their business-to-business (B2B) sales strategy. Destácame’s path to scale heavily relies on its capacity to partner with data providers (telecommunications companies, utilities) to feed its model and with financial institutions as clients that utilize Destácame’s data.
Venture Lab’s investment in Destácame truly demonstrates the value of Catalyst Fund, since the Fund’s holistic support made Destácame a stronger investment for Venture Lab. We’re glad to see that Destácame can be a successful demonstration case of the value of an initiative like Catalyst Fund targeting pre-seed startups. The Catalyst Fund’s resources helped boost Destácame’s growth and traction and took it to a stage of certain maturity.