Contxto – The latest fintech news coming from Brazil is that Creditas will start offering private payroll-deductible loans following its acquisition of Creditoo.
With interest rates starting at 1.75 percent, it makes sense why Creditas acquired this fellow Brazilian company yesterday for an undisclosed amount.
This news is part of Credita’s expansion plan following SoftBank’s US$231 million investment last month. Moving forward, Creditas intends to start offering low-cost private payroll loans with Creditoo’s expertise.
Founded in 2016, Creditoo is an online platform for payroll loans aligning perfectly with Creditas’ services.
“Private payroll fits perfectly with what we already do here at Creditas,” said Sergio Furio, CEO of Creditas, who invested in Creditoo in 2016. “It is a good product for the customer and good for us. We are very happy with this union. Together, we will be able to help more Brazilians to realize their life projects with cheaper credit and more affordable installments.”
Benefits of private payroll loans
Compared to others, private payroll loans are a fast and easy method to obtain funds. First off, they are more reliable and have lower default rates since payment installments are deducted from employees’ paychecks. This lowers risks as well as interest rates.
For Creditoo, the company embraced this model to reduce the levels of debt among Brazilians. Loans such as these allow borrowers to pay off other debts. Common applications include overdrafts, personal loans, in addition to credit card interest.
All in all, Creditoo’s CEO sees big potential with this partnership.
“This is a very special Creditoo moment,” said Ramires Paiva, founder of Creditoo. “This union with Creditas strengthens our growth by offering employees of private companies a completely online credit, simple and with the lowest interest rate in the market.
The salary is a guarantee for repayment of the loan, which reduces the default of operations and enables a reduction in interest rates.
Ramires Paiva, co-founder and CEO of Creditoo
Customers can receive up to US$50,000 in payroll loans that don’t exceed 30 percent of their salary. Funds reportedly appear in borrowers’ bank accounts within 24 hours. All they have to do is complete the application with a chatbot.
Prior to the acquisition, there were 60 employees at Creditoo and over 1,000 partnering companies. Team size will double based on the new arrangements with Creditas.
Loan borrowers must have work contracts with one of Creditoo’s partners to be eligible for loan disbursement.
Predatory credit lenders
Historically speaking, accessing credit has been challenging for Latin American consumers, especially in Brazil. Not long ago, credit card Annual Percentage Rates were skyrocketing around 450 percent.
While rates have gone down, the industry continues to remain abusive to many borrowers. Little competition allows private predatory lenders to charge high-interest rates across the region, usually between 2 and 10 percent per month.
Considering that Brazilian consumers pay an average of 190 percent interest per year on credit cards and loans, fintechs such as Creditas, Creditoo, as well as Nubank, will certainly continue to rise in popularity.
Since less than 50 percent of Latin Americans even have credit scores, more consumers are choosing these alternative banks for financial inclusion. In all honesty, I can’t blame them.
-JA
