Launch HN: Atrato (YC W21) – Credit Card Alternative for Latin America
When it comes to paying for a large purchase (let's say US$500) in LATAM, we have 2 options: paying upfront with cash or debit, or finance it using a credit card. The problem is that 80% of people here don't have a credit card, getting one is hard and even those like me that have one, credit cards are frustrating, expensive and complex to understand. They can make you overspend, the terms and fees are opaque and keeping track of your purchases and payments it's confusing.
This problem is pushing a lot of people to go to department stores with their own installment credit, but with incredibly expensive interest rates (+70% APR) or delaying important purchases for months or sometimes years! And merchants (like retailers or ecommerce) are losing potential sales and customers because they can't offer financing themselves or other payment alternatives.
We stumbled into this problem while in college because we ourselves had a lot of problems with our banks and we are so passionate about financial services that when we had so many negative experiences with our own credit cards, we were inspired to build a more fair, fast and transparent solution for the people in LATAM. We saw that in many developed countries these solutions were gaining popularity and technology was available, so it didn't make sense for us that there wasn't something like that available.
Our payment method lets merchants offer their customers up to 18 monthly installments to pay for purchases of up to US$5k. When they're in-store, consumers scan a QR code, apply in minutes with their phones, receive an instant offer and can enjoy their purchase! We then settle with the merchant upfront and collect the installments from consumers directly. For ecommerce, it works like any other payment method and we developed integrations with the major ecommerce platforms such as Shopify, WooCommerce, Magento and custom platforms. We make money by charging a discount fee to the merchant for each purchase and interest to the consumer (average ~40% APR, significantly lower than most credit cards in Mexico (~60% APR) and now launching 0% APR programs). Right now we're live with global brands like Specialized Bicycles and Echelon Fitness and ~110 merchants in Mexico.
It's been a crazy so far, we are first time founders and started the company while in college (Juan dropt out), learned from scratch how to underwrite credit, fraud, credit scoring and manage risk, built a complete platform (from the loan application, to the servicing software and all infrastructure), raise debt, sales, product design and a lot of other things!
68 comments
[ 3.4 ms ] story [ 112 ms ] threadNot a criticism at all, because no doubt you are offering choices to people that currently don’t exist, but isn’t 40% APR still insane?
Sounds like you do some kind of quick, automated credit scoring. How does that work in Mexico and countries south? Do the big three scourges of the US reach into CA and SA?
I'm not saying there isn't a reason for such a high rate, and obviously it's better than a 60-70% rate, if that really is the only other alternative.
But for anyone with any credit rating at all, I would imagine they would probably be better off getting a credit card and dealing with the issues alluded to. Yes, it may be easy to overspend if you're not careful, but if you are careful, the rates are likely to be much better (capped by law), and you get additional benefits to paying by CC.
That said, I haven't seen the business plan, so maybe there's some other reason beyond "I might overspend" as to why someone who could potentially qualify for a CC would get this.
Follow up question: how can you afford to offer more reasonable rates if the credit card companies can't?
The cost structure of banks is mainly about credit risk (defaults), fixed costs, origination and servicing costs, and funding costs. For startups the funding costs is the biggest problem because banks fund themselves at close to 0% out of deposits. We have to raise expensive debt. As we drive this cost down, we will have much better conditions for users and merchants
As we drive our costs lower, we will be able to offer dramatically more low interest rates and now we are testing 0% APR programs with some of our merchants
Surprising. At least in Brazil interest-free installment payments are extremely common, so much that prices in stores are often advertised with the installment amount.
One question: With all the problems with credit cards you mention, why didn't you build a better credit card?
How does Atrato prevent someone who would be prone to falling into debt if they used a credit card from not falling into debt using Atrato and its 40% APR rate?
Our loans are time-defined, full amortizable, which means that every payment you do your debt will lower and are tied to specific purchases. So instead of easily finance anything you can't afford, people use us for specific things they need. It's just simpler, easier and will become even more affordable as we improve our terms
Many people in Latam aren't part of a payroll and make their living from the informal economy. Even if those people have the acquisitive power, Banks will never extend them a credit line because they don't have anything to demonstate a steady income besides their word.
Who is the supply side of the capital that's being lent out?
This is really hard since there's chicken and egg problem, you have to demonstrate you know what you do before getting capital, but you need capital to prove it.
This sounds awfully familiar to how credit cards work in Brazil, where merchants can let you divide payments in an arbitrary number of monthly installments. For example Amazon let's you divide up to 10 times, some brick and mortar stores let you parcel up even longer.
Love the name by the way. Como vas a pagar? A trato :)
The name comesfrom the Atrato River, which is a river that connects central america with south america and provides a safe way for travelers while passing through the rough and dangerous terrain of the Darien Gap. And yeah, also means that you pay "on deal" :)
We do work with online and offline merchants. Fortunately in Mexico regulation on credit is not restrictive on credit, the most important regulations are around AML and KYC.
The countries are just too different, it doesn't make sense to treat them as a block.
I'm curious, but would someone who has a small shop at the mercado be able to use your service? Would this let them compete against Coppel if a consumer want to buy cheaper electronics from the guy across the street? Are these the people you're targeting at all? Your aleados look very established.
I'd guess that the strategy is to start with specific vendors or purchases where it's easier to model origination + creditworthiness. I think the open question from my end is whether as a VC-backed business there's an incentive to go downmarket anytime soon or whether it makes more sense to expand across higher-end businesses for the next few years.
hum. this is a telltale that you know very, very little about latin america.
There is actually 4 options. And you left the TOP TWO out.
1st is boleto. where you get a payment slip with the total bill split in monthly payments, with instructions to pay at the bank with special cases for late payment, etc.
The 2nd most used is to write pre-dated, pre-signed monthly checks. That work like an informal version of the boleto and gives more leverage to the seller.
* and also so many great people
a. they are not in the financial system, meaning they get paid in cash, etc
b. they get paid too little or they have debt so their score is low and therefore they don't get access to a card
Your solution seems to be more suitable for people that can actually access a credit card but they find them "hard" so they can opt for something like your solution.
Curious to hear your take on this.
Our solution it's focused on these customers, who already have some sort of credit but find paying their purchases on installments easier, more affordable and transparent than getting with a credit card.
We are enabling other merchant that aren't as big or don't having the ability to offer financing to offer this option to the customers.
Now, why is it that they do not pay? not because they're bad people with bad intentions. It's because they gradualy accumulate debt until they cannot repay anymore.
Let's say you meet the requirements for a credit card, but you have a low salary. Then, you go to the supermarket, and pay your groceries in monthly installments because you cannot afford them. You know this will work only temporarily but the choice is to not have anything to eat. So many people just go ahead and do it. They trade a present problem with a future problem.
Eventually, they fail to pay for food they bought 6 months ago and their credit score goes to nothing, they get blacklisted, and their credit card gets killed.
In Latin America it is not rare at all to hear about people making $400 a month that are $40,000 in debt.