Building a FinTech Company in Brazil: Sergio Furio, CEO of BankFacil (Part 5)

Sramana Mitra: Let’s come to where you are now. Help me understand your business better. What’s happening on the platform? Who’s doing what? How are you getting paid? What do you need in terms of infrastructure to make your model work?

Sergio Furio: Today, BankFacil is a secure lending platform. We are a digital lender. From that perspective, we find customers who are looking for a variety of things. From providing loans for home improvement materials from oscillatingguide.com to purchasing cars, we provide financial help for everything. They could look for refinancing their debt. They could look for getting a loan for doing some home improvement. We find them and present them with our product – a loan with a collateral with much cheaper rates than the market. The market is working at interest rates of 200%. We work at a 25% interest rate.

We present the product. The customer fills out an application with us and we either qualify that customer or reject that customer. If a customer is prequalified according to our credit algorithm, then they complete their full application and provide us with three basic documents. They take a picture from their cellphone and upload it to the platform. If the documents prove what the customer said in the application, then basically the customer is approved.

Then we move into the formalization phase. The formalization for secured loans is tricky because at the end, you need to put the lien on the collateral. In car financing, the process of setting up the lien is pretty straightforward. We make the appraisal and we deliver the funding in just 48 hours. For home equity loans, it takes longer. When you use the apartment as a collateral, it takes up to a month. The reason is you need to go through all the bureaucracy of setting the lien for the real estate. It will be like the equivalent of the notary and registration of the real estate collateral.

Once the loan is formalized, then we wire it to the customer. Before wiring, we need to find the money. What we have set up is a marketplace model. We work with four different funding structures. The first one is we still work with traditional financing institutions. Typically, they are small to midsize banks. We send that customer to that bank and we get funded by that bank. That’s the first model. In that case, we have no credit exposure. We just act as an originator.

We work with investors in the second model. Let’s say pension funds and insurance companies want to invest in long-terms credit receivable. Then we sell the notes that represent those loans. In that case, we operate as an intermediator.

The third model is the same as the second one. We sell the notes to an investor. In that case, we also participate in the risk. We take 10% of the fund, so we have skin in the game. We align our interests with the interests of the investors.

We like that model particularly because it has great economics for us. At the same time, it creates a sustainable path for growth because we are consistently aligning with what the investor wants, what the customers wants, and what we want. The fourth model is a model that we recently opened in which we, as a company, are directly buying loans. We don’t necessarily want to grow this type of model. In reality, we are doing it because we want to prove a specific type of segment that the investors are not feeling comfortable yet, but we trust it could be a potential business in the future. We are creating track record with our own money.

After the loan is provided, we also retain the servicing of the loan. The customer, at that point, has this app. They can check the installment and even restructure the loan. Our revenue model has three components. Component number one is an origination fee. We get paid for originating loans. Another fee is paid by both the investor and the customer. The customer pays a setup fee and the investor pays an origination fee. The second component of our model is the servicing fee.

Since we do the collection of that loan, we also have a constant revenue stream for the loans that we have originated. The third component is related to the investment in the loans. Because of the fact that we are taking risk on the loan, we also get compensated for that. The most important one is the origination. The second would be the servicing. The investment business isn’t necessarily strategic for us, but we do it because we want to align the incentives with the investors.

This segment is part 5 in the series : Building a FinTech Company in Brazil: Sergio Furio, CEO of BankFacil
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