Can running a small business be as simple as running a Facebook profile? Accion Venture Lab’s newest portfolio company, SmartMEI, 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.
Brazil’s Microentrepreneurs Don’t Have the Financial Tools They Need
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 & pop shops, small manufacturing businesses, or are sole proprietors like electricians, delivery drivers, or street vendors.
Unfortunately, these microentrepreneurs are largely unserved by established financial institutions, even though they account for a fifth of the country’s GDP and over half of all private employment. 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:
- Informality of the businesses: 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.
- Lack of consistent and quality information: 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.
- Cost to serve: 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.
SmartMEI Offers Small Business Owners a Solution
SmartMEI 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 Carlos Dejavite and Marcello Picchi decided to develop new technology to make running a small business as accessible as using a mobile app.
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.
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:
Impact potential, a gateway to banking services: 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.
Innovative approach to a neobank: 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 investment in NOW Money, 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.
Scalable operating model: 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.
Venture Lab is proud to support SmartMEI 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.