Financing SMBs Is Critical for Latin America’s Economic Growth
STORY INLINE POST
Q: What value does R2 offer its customers when compared to traditional capital infrastructure services?
A: R2 enables platforms, such as delivery applications, point-of-sale (POS) systems, payment processors and marketplaces, to offer capital to their customers. We focus on Latin America’s SMBs but instead of going directly to those businesses, we focus on enabling technology platforms in the region to provide capital to their customers through our Application Programming Interfaces (APIs). Our embedded lending solution is comprehensive and white-labeled: we provide credit scoring, underwriting, compliance, collections and capital through an API call, so that the platform can lend to its SMB users without taking any balance sheet risk.
Q: What infrastructure is necessary for companies in sectors like POS systems, marketplaces and e-commerce platforms to offer financing to their customers?
A: We have developed AI-based credit models that allow our partners to leverage R2’s risk management capabilities to provide capital to their customers. Our platform also includes know-your-customer (KYC) and compliance modules in order to launch a lending program compliantly.
Our API allows platforms to leverage our technology and capital so that their customers have access to attractive loan offers in order to invest in their businesses and grow their sales. Additionally, we provide an application that allows our partners to keep track of every loan and payment that has been made to their customers through R2.
Q: How is R2 changing risk assessments of small businesses?
A: Each platform, country and region is different. For example, while a delivery app may only have restaurants as SMB customers, a POS system might service gyms, beauty salons, grocery stores and many more retail outlets, which is why it is necessary to adapt the risk model to each of our partners.
We leverage the data that our partners have and run that through our underwriting model, which analyzes over 60 variables. These include features such as the time the small business has been active in the platform and the number of transactions they have made using the platform. At the end of the day, we execute a data science and machine learning workflow to help R2 minimize risk.
Q: How does your solution impact areas like job creation and economic stability?
A: SMBs account for over 90% of the companies in Latin America and generate 67% of jobs in the region. However, they generate only 25% of the region’s GDP and 87% of their demand for credit is unmet. SMBs are often left out of the financial system because the banks do not have the necessary data or processes to underwrite these companies correctly.
We provide these companies with capital, which later produces a multiplier effect on the economy because SMBs are the backbone of Latin America. The COVID-19 pandemic forced the majority of companies to buy and sell electronically, allowing us to obtain more and better data that has helped us to expand access to credit by partnering with the region’s leading delivery apps, marketplaces, and payment processors.
Q: How has your solution contributed to increasing your clients’ sales?
A: On average, SMBs that have borrowed from us increase their sales by 30% versus those that do not have a loan. This is an excellent indicator, especially considering the economic slowdown in Mexico and Latin America. This suggests that businesses are using the capital for CAPEX and investing it in their own company, which allows them to grow faster. When sales increase so do loan repayments, and these SMBs can access more capital from us, leading to a multiplier effect that can bring more economic activity to the region.
Q: R2 received US$15 million in its latest investment round. How will this capital be used to help R2 reach its planned goals?
A: Our main focus is to improve our technology, data science and risk management capabilities. By building the best team possible, we can provide better integration capabilities with the different platforms that we work with. We want to ensure that platforms can integrate with us as quickly and seamlessly as possible. A small part of that proceeds will go directly to fund the growth in our loan portfolio, given that most of it is financed with debt capital.
Q: What are the company’s objectives in the short term?
A: Before, companies used to copy and paste business models in Latin America. However, the talent available in the region have completely changed the landscape, leading us to believe that many companies will start here before going global. R2 has similar plans. We started in Latin America, and expanded to four countries within a year and a half, because the problem of access to capital is most acute here. We believe that R2 and the region’s talent have the potential to create global businesses, which is what we are shooting for in the coming years.
R2 enables tech platforms such as delivery applications, point-of-sale systems, payment processors and marketplaces to offer credit to their customers. It provides the technology, infrastructure and capital that allows any business that serves small and medium businesses (SMB) to provide them with capital.