Credit industry in Latin America: 4 opportunities for driving the industry

The credit industry is definitely not the same: new players joining, new products and clients seeking fairer and more transparent conditions are a part of the new paradigm for the industry.

Companies in need of money to expand their operations, retail brands looking to work with new products in order to drive sales and people interested in financing their own house: those three examples are extremely common in a Latin American reality. In all of them, there’s usually the need to capture an amount of money so that the end goal (expansion, sales increase, and house) is achieved.

The credit market and its solutions are essential to move the economy and allow companies and people to carry out their projects. In Latin America, particularly, the scenario for the sector is promising: millions of citizens recently banked and the potential to offer services at fair rates to evolve businesses and drive true Financial inclusion. Understand better in this article what are the main opportunities!

Defining the credit industry: Beyond traditional institutions

The credit industry is a solid part of the payment and banking industry in the entire Latin American region. That’s where ‘financial intermediations’ take place—that is, the exchange between creditors and debtors.

Generally speaking, the credit industry stands as a party responsible for granting and enabling different financing types for natural and legal persons. Also, it works with different credit solutions, which we’ll discuss later.

However, it’s important to know that the industry is in expansion: while in the past loan and finance offers were basically provided by banks and retail credit offers were provided by solutions like installment plans, today we have a wider variety of players operating in the industry.

De fintech specialized services to companies from different segments, supporting their audiences with very personalized services thanks to the embedded finance, access to credit has evolved!

How does the credit industry work?

The credit market needs two agents to exist: the creditor (that is, a financial institution -  fintech or traditional banking) and the resource borrower, who can be the individual or the legal entity that is requesting the amount of money.

In practical terms, credit can be granted in three formats: short, mid and long term. Financing of projects or resources, for instance, is usually negotiated in long-term credit, but other credit products can be offered for short or mid-term credit—such as the resources required to buy appliances, pay emergency costs, and more.

In addition, the calculation for the final amount of the credit needs to take into account elements such as the form of liquidity, the guarantees offered by the borrower, the interest and, of course, the bank spread.

Project enablers: What are the products offered in the credit industry?

Credit can be considered the foundation for many movements in our society. It enables projects for people and companies and also allows for a variety of products or services to be acquired.

This is mainly due to the most traditional products offerings in the credit industry:

• Natural persons: consignment, overdraft, financing and credit card
• Legal persons: loans for working capital and financing

However, the credit industry needs to get started on a new stage—or better than that, take part in a new paradigm. That’s exactly the topic Antonio Soares, cofounder and CEO at Dock, discussed in his talk at FEBRABAN TECH 2022:

Beyond the obvious: 4 opportunities for the credit industry

Following the same thought of the previous video, it’s worth mentioning four great opportunities for players looking to join the credit industry:

1. New players in the industry

As we already mentioned, long existing institutions are not the only ones finding opportunities in the credit industry.

More and more we see new players consolidating, such as fintechs and retail brands. This is also a reflection of the development of new types of products (which we will talk about later), the specialization of these companies' service to their audiences and the democratization of technology through models of white label credit card.

In other words, the barriers for businesses that wish to increase their offer to customers through credit are lower and, after the boom in digital accounts, there is a movement to expand this service to include credit.

Read also | Niche fintechs: The future of finances is built through inclusion and innovation

2. Open Banking implementation

Throughout Latin America, projects for Open Banking; in some countries already in the final implementation phase, as in Brazil with the Open Finance.

Such transformation is highly conducive not only for new players to join the industry, but also for a number of incentives and improvements to be implemented in the credit industry:

• More competition, which entails offering products that are increasingly tailored and accessible;
• New lines of credit and more flexibility when granting credit. That is excellent for unbanked individuals and populations that are not usually targeted in plans made by traditional banks;
• More collaboration among traditional financial institutions, fintechs and other players, such as digital banking platforms.

In general, if you’re a new player in the industry, Open Banking also brings more security for you to offer credit at more affordable costs. After all, by relying on their client history provided by another institution, you can accurately understand risks.

3. Credit democratization and financial inclusion

We can’t talk about the credit industry in the region without mentioning credit democratization and financial inclusion.

Those are even more relevant when it comes to the banking movement in Latin America, which still needs to tackle serious issues related to the economic development for several population groups—although it is continuously growing.

Like Antonio Soares, CEO of Dock, highlighted in the video we shared above, create fintechs, enable Banking as a Service and allowing the opening of digital accounts was just the first step in the battle for financial inclusion.

The next step is democratizing credit and thus bringing into the financial industry people and companies that wouldn’t otherwise be targeted by those services (such as unbanked or partially banked individuals). And that is also an opportunity for businesses for the number of people and companies that are not totally serviced by the industry nowadays.

4. New credit products and models

As mentioned, the expanded credit industry in Latin America thanks to new players is also related to the advent of new credit products or improved existing ones.

Those include:

• type of credit cards White labelcredit cards, which enable more customization and offer more attractive fees;
• The Buy Now, Pay Later, also known as BNPL , has consolidated in retail in the United Stated and Europe and has great potential in Latin America.

Want to learn more about those opportunities for the credit industry? Listen to this episode on The AfterPay Podcast (in portuguese):

How can your company join the credit industry?

Dock is fully committed to financial inclusion. And since a fair and transparent credit offering is a new stage for its consolidation, we’ve invested in enabling credit solutions through our white-label platform for the payment and banking industry.

We offer a robust solution for Credit Card as a Service, with which your company can offer a line of credit in a short time, while we take care of the entire regulatory process. In addition, we also offer full card personalization, as we work with a 100% white label initiative ― and our Financial APIs are open, ensuring a faster time to market and agile implementation.

Want to learn more about what moves us in growing the financial universe? Watch our video manifest:  

Credit industry: Takeaways from this article

• The credit industry is responsible for ‘financial intermediation’, that is: the exchange of amounts between creditors and debtors.
• This is a moment of opportunity for the credit industry in Latin America, since several trends and interesting opportunities are coming up, along with a variety of players in the industry thanks to fintechs and retailers.
• The new challenge for the credit industry will involve democratizing credit and, thus, bring into the financial industry people and companies that wouldn’t otherwise be targeted by lines of credit.
• New products in the Latin American credit industry include white-label credit cards and the Buy Now, Pay Later model.

Related articles