Creditas plowing fresh funds into Mexican growth, M&A – CEO

➤ A fresh round of funding will fuel the company's Mexican expansion and growth.

➤ Collateralized loans, the group's specialty, are largely underserved in Brazil.

➤ An IPO would "fit very well" with Creditas' philosophy.

Brazilian company Creditas Soluções Financeiras Ltda. isn't a bank. But it offers credit. It also buys and sells used cars, provides home renovation services, and offers human resource-type benefits to employees. A jack of all trades, so to speak.

Recently, Creditas announced a $260 million series F funding round, making it among Brazil's largest fintechs with a valuation of $4.8 billion. Creditas, which specializes in secure loans, is backed by big names including Fidelity, SoftBank Group, Kaszek Ventures and QED Investors. It also struck a partnership agreement last year with digital bank Nubank or Nu Pagamentos SA, in an attempt to access that institutions' nearly 50 million clients.

S&P Global Market Intelligence had an online conversation with Sergio Furio, CEO and founder of the company.

The following is an edited transcript of the conversation.

S&P Global Market Intelligence: How will Creditas make use of the fresh capital?

Sergio Furio: We want to apply more resources to our tech team, which grew 50% in the past four months to over 700 employees. Outside of that, we have to invest in Mexico because it is a new market for us and we need to fund that growth. Finally, there will be inorganic opportunities. We did four M&A deals in 2021 [including insurance firm Minuto Corretora de Seguros SA, used cars marketplace Volanty and real estate lender Bcredi Serviços de Crédito e Cobrança SA] and we might have new prospects. There are many sound companies that are just focusing on a single vertical or a small product. They might be encountering troubles to scale [and] inside Creditas it is much easier for them to do so.

Will you be launching new products?

We want to consolidate our portfolio and grow the loan book.

We don't identify as a bank. We identify as a tech company that operates with assets. Banks offer financing for cars and homes like we do. But they also have digital accounts, credit cards, investment funds, pension programs. They have 400 products! We don't want to do that many. I only want 15 products where I can focus on the client experience. We don't consider ourselves a financial company. We consider ourselves a client solutions company. When the client has a problem with a car, we will resolve that problem. With credit, with insurance or with car maintenance.

What is the rationale behind the partnership with Nubank?

We decided not to be a digital bank. Digital banks fight very hard to attract clients, but those clients have low monetization rates which they need to increase. We went in the opposite direction. Starting from the monetization product, we increase our client base. We started implementing the partnership in the fourth quarter [of 2021] and we're moving very slowly to gain user experience. I can invite my client to open a Nubank account and they can do the reverse with me. Our vision is that the more open, the better.

How big of an opportunity is there in Brazil's collateralized loan market?

It's a product with huge demand and little supply. Demand for products with collateral is at 600 billion reais. But it is mainly served by state-controlled banks because private banks had little access or interest. Take vehicle financing. It's a heated market of some 270 billion reais. There's infinite demand for this product. Now maybe three years into car ownership, the person has paid off his financing but needs liquidity. He can use his car as collateral for [new] credit.

How are rising interest rates likely to affect Brazil's loan market?

Inflation over 10% and rates above that can bring instability. The political scenario also might see business owners not investing and not creating jobs. Traditionally, unsecured lending encounters very high volatility in a hiking cycle, chiefly in the second part of the process when interest rates are already high so that unemployment begins to rise and with that, delinquencies. But historically, that volatility is milder for secured loans. We believe we are in the right spot, but we are still going to face some [volatility]. It is likely that the next 10 months will be complicated and we will have to readjust our policies. But in our case, we have been through many crises and we have tested that the model can uphold very well given the collateral.

What drove your decision to offer non-financial products on top of lending?

The credit products work really well. We decided to create an ecosystem of products surrounding three verticals: your home, your car or motorbike and your salary. When customers want to buy new cars, they sell their old ones as a down payment to dealerships, which also provides financing. We lose the clients. Now we buy cars, refurbish them and resell them with lifetime guarantees, assuming the client does maintenance with us. This ecosystem of credit, insurance and marketplace is much more robust and makes our business more resilient.

There is a growing concern from investors about digital banks' ability to exact profits. What is Creditas' path to profitability?

Creditas does long-term lending and that is our main monetization product. The average lifetime [of a loan product] is seven and a half years. Along that period, our client pays an interest rate that generates spread and a future margin. We need to spend money today to sign up clients. And in the secured loan segment, that expenditure is high. But we decided to accelerate our growth. Every real that we spend today we get multiplied [in the future]. It makes sense for us to grow that as fast as we can.

There have been reported intentions for Creditas to go public in 2022. Is there an IPO in the cards?

At some point, Creditas will do an IPO because we think it fits very well with the ethos of transparency that we have, but we are not commenting on specific timeframes.

As of Feb. 7, US$1 was equivalent to 5.28 Brazilian reais.