Mexican fintech expanding into US to finance cross-border trade

Mexican fintech expanding into US to finance cross-border trade

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Mexican fintech expanding into US to finance cross-border trade

Credijusto made a splash in June when it became the first fintech to buy a regulated bank in Mexico, following in the footsteps of companies such as LendingClub and Social Finance that have bought banks in the United States.

But the lender to small and midsize businesses, which compiles troves of electronic data to help in credit underwriting, is doing more than continuing a global trend of fintech-bank acquisitions. It is catering to a niche where demand is high and a specialized lender could flourish: small and midsize businesses that conduct trade between the US and Mexico.

As of June 2021, Mexico was the top trading partner of the US, accounting for 14.7% of total US trade. It’s a trend that Credijusto co-CEO David Poritz does not foresee changing.

“We want to support the rapidly growing needs for cross-border trade finance,” he said.

Traditionally, companies that engage in US-Mexico trade rely on specialized import-export financers or perhaps universal banks, said Rutger van Faassen, head of product and market strategy at Curinos, a data and consulting firm for financial institutions.

“In general, small businesses have been underserved everywhere, around the world,” van Faassen said.

Credijusto plans to establish a presence in the US as well as Mexico so it can lend to businesses with ties to both countries.

Poritz and Allan Apoj, the company’s co-founders, first met as undergrads at Brown University – Apoj as an international student from Mexico, Poritz as an American with an interest in Latin America. They both now live in Mexico City and launched Credijusto in 2015.

“It was apparent to us that there was a unique opportunity to bring together institutional capital from the US and Europe, combine it with a data and technology strategy, and roll that out in markets where there were fewer competitive dynamics,” Poritz said.

Credijusto serves small to middle-market businesses in Mexico, extending loans between $ 5,000 and $ 1.5 million. One of its products is an embedded finance solution where it partners with companies such as Uber Eats, Microsoft and Oracle to make quick decisions on loans to its clients. In the Uber Eats case, restaurants that sell on the delivery platform can apply for financing and expect fast approvals because of the supplemental information provided by Uber.

To underwrite its loans, Credijusto ingests an array of data about businesses in Mexico, where regulation has required companies to digitize all tax information and invoices. Credijusto can pull electronic invoices tied to its customers that detail what, when and where they are buying and selling. The underwriting technology was all developed in-house.

“This is a powerful tool because we can get direct visibility into the financial health of these businesses and overlay that with bank account information and credit bureau data, and create robust underwriting models,” Poritz said. “In the United States, when people think of emerging markets, they probably would initially think that the data is poor, but the contrary is actually the case.”

Its acquisition of Banco Finterra, a Mexico City-based bank that specializes in financing for small businesses and agriculture, lets Credijusto offer a more comprehensive product to its customers. Credijusto, which has combined assets of $ 300 million in US dollars post-acquisition, provides checking and savings accounts, a credit card, and financial management tools, such as insights about how customers are spending money and whether any tax filings are on the horizon.

“Our acquisition reflects a trend that I think will continue to play out as fintechs realize that having a bank is a fundamental part of their strategy in order to reach the scale they want,” Poritz said.

The lender is reaching scale in other ways as well. Its investors include Goldman Sachs, Credit Suisse, Point72 Ventures, New Residential Investment Corp., Kaszek Ventures, QED Investors and John Mack, the former chairman and CEO of Morgan Stanley.

“Small and medium-sized businesses have historically been one of the most underserved market segments in Mexico, and we always felt Credijusto was building one of the most compelling technology-enabled strategies to address this need,” Hernan Kazah, co-founder of Kaszek Ventures, wrote in an email. Kaszek invests in technology companies in Latin America.

Credijusto has raised more than $ 400 million in equity and debt, with 95% of the capital coming from the US It was the first fintech investment that Goldman Sachs and Point72 made in Mexico.

“From the very beginning we had close linkages to the US,” Poritz said.

Those linkages will grow as the company rolls out financing for US-based businesses that trade south of the border.

Credijusto plans to open an office in the US, likely in Miami, and is gradually taking on US clients. Although it can’t tap into the same generous cache of online data for US businesses as it does to underwrite Mexican firms, “the fundamentals are the same,” said Poritz. “The systems, platform and technology we built is highly replicable regardless of jurisdiction.”

The cross-border element raises the challenges of navigating separate banking systems.

“That creates a whole other level of complexity,” said van Faassen. “That said, when fintechs focus on one particular problem and put a lot of resources on that, they seem to be able to change how things go.”

There are also reports of Credijusto going public later this year by merging with former Credit Suisse CEO Tidjane Thiam’s special purpose acquisition company Freedom Acquisition I Corp. Poritz declined to comment.

Either way, Poritz foresees a bright future for businesses that trade between the two countries.

“These are trends that go beyond a pandemic,” said Poritz. “The relationship between the US and Latin America is growing.”