bxblue

Payroll-deductible loans, offline to online
Batch: 2017 Summer
Status: Successful

bxblue

Payroll-deductible loans, offline to online
Batch: 2017 Summer
Status: Successful

Company

Payroll-deductible loans, offline to online

We are making a platform where users in Brazil can compare, choose, and get an online payroll-deductible loans in under 20 minutes, rather than the typical 3–4 business days offline. Today, it’s a USD 80+ billion dollar market only in Brazil, representing 60% of all personal loans — and no online platforms are approaching it.

Payroll-deductible loans works like that: the employee presents a salary deduction form from a bank authorizing the employer to deduct a monthly sum from the employee’s salary and pay it over to the lender. So, the employer starts making the authorized deduction, the loan is repaid and everyone goes their merry way. It is very popular because it is the cheapest personal loan available in the country, up to 10 times cheaper than credit card and other personal loans.

Other characteristics of this loan are:
- 92% of the market is focused on people who have stable incomes, such as retired people and public servants, who acquire job stability after 3 years of employment;
- Users can get multiple loans, which can sum up to 35% of their monthly salary and pay it back in 96 months;
- There is no need for credit scoring. If the sum of one’s monthly instalments is less than 35% of his monthly salary, he is good to go.

It represents a HUGE market that grew 20% last year, while Brazil’s economy shrunk 1%. We are bringing speed, convenience and transparency to this market. It is impossible to overstress the importance of payroll-deductible loans in sustaining the level of consumption in Brazil. It need to be fixed. We are doing it.

We are now based in Brasilia, Brazil’s capital, which has a high density of public servants. After YC we might open an office in São Paulo, to get closer to the banks’ HQs.

Progress

Using the good old ‘don’t scale to scale’ methodology, we have a fully functional MVP: lots of Zapier + Pipedrive + Heroku in the last 6 months. We’ve created (and are refining) an algorithm that analyses paycheck information and estimates how much a user can borrow today. Then, the user can choose between the best available loan offers and get the loan online. Fast, transparent and convenient.

After that, we will also notify users of when they will have room for for new loans and how much they will be able to get in future.

We’ve been growing 20% MoM in number of deals since we launched our MVP last October/2016, with a GMV of around USD 300K so far. We have been operating indirectly with 6 major banks and we are currently signing up directly with them, as finally incorporated.

We are working with the biggest and best banks in Brazil, like Banco do Brasil (30% market share), BRB, PAN, Daycoval, Promotiva, Santander, Bradesco.

1 month ago - 2900.00 2 months ago - 2.1000 3 months ago - 1.500 4 months ago - 0 5 months ago - 0 6 months ago - 0

We were using pocket money to test the marketplace. Next month we begin to invest our pre-seed money and will start a stress test in the audience \o/

We are working with Visa in Brazil in a partnership program called “Ahead Visa”. Our goal by joining this program was to use their reputation to open doors with the banks.

Idea

Even though we are in 2017 and we are talking about a USD 80+ billion market, it is still impossible to get a payroll-deductible loan on an online, fast and convenient manner.

The credit industry in Brazil is old, offline and resistant to change. However, the customer base is not. In 2016, close to 55% of banking operations were done through digital channels. Consumers are desperate looking for convenience and that also reflects the way they look for credit. For instance, most Brazilians resort to calling their bank managers when they need credit advice, although knowing that he will give a biased recommendation, just to avoid the hassle of visiting different banks in person.

Regarding our expertise in the area, the fact that we are based in Brasilia makes us interact on a daily basis with several public servants (including two wives and two parents ;), so the team have witnessed many people going through the trouble of getting a payroll-deductible loan. Also, Fabricio and Roberto have worked on projects with banks before, allowing them to get a glimpse of the banking industry.

We’ve created (and are improving) an algorithm that analyses one’s paycheck stub and simulates all loans’ opportunities in a matter of seconds, allowing users to easily compare rates among different banks and get it online.

Such algorithm is able to estimate information about each loan, using the paycheck stub data and combining to data found online and define a score value for that client to make an automatic proposal for users in a matter of seconds.This way, the algorithm plays a huge role in giving convenience and also transparency to our users, and also optimizing deals in our pipeline for action.

For clients, without this solution, the only alternative available today is to personally visit different bank branches, bank correspondents or resort to street brokers’ advices, to get some of the information and wait days until the final approval of their loans.

Plus, as users usually get up to 30 payroll-deductible-loans in their lifetime (because they have the opportunity to get money at such a low interest rate), the algorithm will also be able to help them i.) manage their loans; ii.) pay them back faster, if they want to; iii.) reduce their installments whenever the government reference interest rate goes down; and iv.) borrow more money for the best rates available, whenever they need it again.

Our biggest competitors are bank correspondents: regular stores that can sell financial products on behalf of the banks. They count on freelancer street brokers that go to government offices to find deals and bring them in.

And, although we sell loans on behalf of the banks, they could also go online (and they eventually will) and start offering themselves their own payroll deductible loan, but that would only represent an online version of their biased bank manager.

Users’ lifetime value is HUGE, as they usually get up to 30 payroll deductible loan in their life.

However, banks, correspondent banks and brokers treat users in a transactional manner, always looking for gaps to profit more, regardless of their users needs. Their operation is focused on their monthly sales target and they lack the culture of recurrence.

Our business, on the other hand, is based on recurrence. We believe in using transparency and convenience to help users empower themselves to make the best decisions regarding their loans, winning their trust in the long run. Even more, we understand that by giving them advice on how to wisely manage their loans (refinancing, lowering their interest rates, paying it back in advance) they will stay with us through their lifetime, rising their LTV while lowering their customer acquisition cost.

We get a 6 to 10% commission on every loan generated by our platform. There are 11 million public servants and 30+ million retired in Brazil, which represents 90% of the payroll-deductible loan market.

Let’s say we focus only in the Federal Government servants. There are around 1.1 million of them. If we get around 2k users helping them get their 5 next payroll-deductible loans (from the ˜30 they take in their life) we could be making around USD 1 million. If we help them re-take more loans we can go up to USD 5 million.

We can always expand to other markets like Mexico, Colombia and Caribe, and also to the closest market which is to go to other Government branches like the regional Government, local Government, Army to reach the total of 11 million people. And, we could also go the other 30% of the market: retired people (+30 million people in Brazil).

- SAM (Brazil): 11 million public servants, 30+ million retired = 41 million people.
- Federal Governmt SAM (beach head): 1.1 million public servants
- Initial goal: 10,000 Federal Government servants, 1 loan each = US$ 1 million revenue
With recurring loans (already an offline trend), we project US$ 15 million.

Getting the banks on board hasn’t been an issue. We were immediately perceived by them as an opportunity to finally offer this type of loan online. We have already met with the 10 most important banks and we are currently integrating with the banks.

Regarding the users, aside from word of mouth, we are experimenting online channels,such as Facebook, Google Adwords, Google Display Network and Google Sponsored Promotions, and a bit of geo targeting. Hits on the page have 80% of people inside our target.

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