Latin America’s formal financial sector reaches too few of the region’s millions of gig workers and independent workers – a growing and economically vulnerable population. Only one-third of Latin Americans have bank accounts and just 20 percent have access to credit.
Without traditional employer benefits, like insurance or sick pay, gig workers fared even worse in the no-touch economy. Our recent report, The Digital Hustle: Gig Worker Financial Lives Under Pressure, found that nearly 90 percent of Brazilian gig workers have lost income during the pandemic.
On an Aug. 27 FINNOVISTA Hour, Flourish talked with three LATAM founders building financial services for this traditionally hard-to-reach segment:
- Mateo Jaramillo, co-Founder and CEO of Heru
- Pablo Armida, co-Founder and COO of R5
- Pablo Viguera, co-Founder and co-CEO of Belvo
Highlights of the discussion are below. You can watch the session online.
New Data, Better Products to Serve an Underbanked Market
Many of the financial challenges gig workers face – volatile incomes, indebtedness, limited credit history – also make them hard to underwrite. Many report a deep distrust of the financial system. But fintech offers new possibilities for product design and service provision.
As Mateo Jaramillo the CEO of Heru said, gig workers “are not necessarily financially illiterate. It’s more likely that we haven’t built the correct tools or the correct products to serve them the information they need to make decisions.”
As a third-party technology provider, Heru offers services to gig workers B2C and by partnering with gig platforms to deliver “offline” services like safe spaces where gig workers can charge their phones, use the toilet, and get drinking water. Heru also offers insurance and credit, ensuring the kinds of benefits gig platforms might not deliver due to labor regulations.
Similarly, R5 offers gig workers car or motorcycle insurance, as well as personal asset-backed loans using advanced analytics. Belvo is on the B2B infrastructure side, providing the APIs for fintechs to underwrite gig workers using alternative data streams.
“In LATAM fintech, there’s a lot of excitement around open banking,” said Pablo Viguera the CEO of Belvo, “connecting the different stakeholders to banking data to build better products, create more empowerment, and provide more democratic access to finance.”
More Than Digital Banking, It’s Open Finance
However, with 55 percent of all employment in LATAM informal, “we need to go beyond that, to open finance,” Viguera added.
“In some LATAM countries, more than half of the population don’t have access to a bank, and thus there isn’t banking data,” Viguera said. “Does that mean they don’t create financially worthy data to be offered financial products? Not at all. It’s just means that data has not been conceptualized yet – has not been turned into information to underwrite a loan, issue a debit card, provide insurance, and so on.”
For gig workers, digital platforms generate very similar data compared to banks. For example, rider payouts can be a proxy for income. Ride data, customer ratings, and car repair data can be a proxy for risk. Length of relationship with the platform can be a proxy for reputation or credit scores. This data can be plugged into fintech underwriting models.
Mining this data, fintechs can not only underwrite gig workers, but can also gain deep insights into what kind of products to offer them.
For example, recognizing that so many gig workers rely on vehicles that are often rented, R5 plans to offer auto and motorcycle loans. “In LATAM, third-party companies charge gig workers daily rent on the vehicle, greatly reducing workers’ net income,” said COO of R5 Pablo Armida. “So, we ran the numbers, and we’re pretty sure we can finance the acquisition of the vehicle.”
Compared with markets in Europe and North America, LATAM fintech innovators don’t need to take market share from incumbents. There’s plenty of opportunity bringing new financial products to unbanked segments. As Viguera said, “If fintechs are advancing inclusion, they’re not fighting for a slice of the pie; they’re actually making the pie bigger.”