Fintech Companies Saw a 15% Increase in Lending in Q1, in Colombia

In a challenging year for the Colombia’s economy, where inflation, although it decreased, stands at 6.86% for July, and interest rates have not yet stabilized, standing at 10.75%, access to credit remains a fundamental factor for the reactivation of the economy in the country.

While the financial and solidarity sectors show a decrease in access to credit, fintech companies appeared as an effective solution to this problem, especially in low-value and short-term loans.

Fintech has emerged as a solution for access to credit

In light of this, a study conducted by TransUnion and presented together with uFlow during Colombia Tech Week in Bogotá, with the support of Colombia Fintech, indicates that in the first quarter of this year, fintech companies experienced a growth in the granting of loans of more than 15%, while the financial sector and the solidarity sector decreased by 20%.

This growth has been particularly noticeable in segments with lower access, such as people with lower incomes and higher risk. For this reason, their share of the total number of new short-term consumer loans in the fintech sector increased in the last year, reaching 25% and 39%, respectively, surpassing what was observed in the financial and solidarity sector, where figures of 16% and 15% were found, respectively.

Virginia Olivella, senior director of research and consulting at TransUnion, commented that the participation of larger amounts also increased in free investment loans in fintech companies, unlike what was observed in the financial and solidarity sector. “This is something very positive for the industry, however, the challenge for entities is to identify consumers who are able to take on larger debts and manage them responsibly,” she said.

In terms of credit demand, traditional financial institutions remain leaders with 75% of the total market, but fintech companies remain consistent with 16% of the market share. At least the remaining 9% belongs to the solidarity sector, which includes cooperatives.

The success of fintech companies also lies in the implementation of advanced technologies to optimize their processes. For this reason, Mariano Sokal, co-founder and director of uFlow, pointed out that within the financial sector, decision engines have been key for large companies to stop supporting legacy systems, but instead seek to transform and improve their credit evaluation processes. “Today, fintech companies are focused on improving their business models, user experience, products, and even what their next investment in technology will be,” he said.

The challenges of implementing technology in Latin America

Despite the proven growth of fintech companies, they also face several important challenges. The default rates in this segment have shown a greater deterioration than in the financial and solidarity sector, especially in short-term loans.

That is why there is an emphasis on technological advancement in all of the country’s markets. At least 94% of Colombian companies consider that digital transformation is essential for the growth and advancement of their business.

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(Featured image by Random Institute via Unsplash)

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