Fairplay: Bringing Revenue-Based Financing to Latin America
Taking financial services digital
When you take a look at the history of Fintech for the past few years (particularly in the US and Europe where the technology has had more time to mature) a very interesting dynamic has played out. The first wave of Fintech, Fintech 1.0 if you will, was all about hacking distribution to make the process of buying and selling existing financial products and services more appealing, accessible and consumer-oriented.
Take your run-of-the-mill neobank for example. It’s not like N26 recreated the bank account or the wallet. It simply made the process of obtaining a bank account (or bank account functionality) 10x faster, 10x cheaper and, dare I say it…kind of cool? The traditional experience was so broken that you could attract a massive user base and create a business success story around bringing distribution into the digital age.
Leveraging the possibilities of Fintech 2.0
Over time, though, consumers and businesses (particularly newer generations of them) grew accustomed to this great experience and distribution alone wasn’t enough to guarantee a great company. Fintech saw the need to reinvent itself and go beyond being simply a “better wrapper” or a significantly more effective “last-mile delivery” system.
Fintech 2.0 takes advantage of the benefits of going digital to fundamentally change a financial product or service or to create new financial products altogether.
As such, Fintech 2.0 products did not - and actually could not - exist 20… hell, even 10 years ago! The internet changed the way consumers buy and sell on a structural level. And Fintech, ever a picks-and-shovel business, also evolved new ways to help consumers and merchants finance those purchases. One result of Fintech evolving from (re-)distribution to (re-)design has been Revenue-Based Financing (RBF).
Lending in the digital age
At Speedinvest, we saw this transformation play out in the US and Europe, created an investment thesis around it and, as a result, led Wayflyer’s seed round back in 2020. This company brought the model to new heights. Now, having tracked and backed emerging tech markets, and witnessing the dawn of that same Fintech transition, we see an opportunity that is way too big for us to sit down and let it play out.
Fairplay, fast-becoming the leader for RBF in Latin America
Fairplay uses a proprietary “Insights” platform to provide merchants with a tool to manage and measure the effectiveness of their digital marketing campaigns (think Google or Facebook ads). Not only that, but their platform has integrations with all major ecommerce storefronts (the Shopify’s and Magento’s of this world) and accounting platforms to get an overview of companies’ inventory management.
Armed with this massive pool of data, Fairplay has created a bespoke credit product to finance that very marketing or inventory spend, knowing, with a high-degree of confidence, what the return on those campaigns / products is going to be. Data… am I right?
What’s more, Fairplay is able to structure this loan in an especially merchant-friendly way (a concept rarely associated with business lenders). Rather than strain merchant’s cashflow with substantial, fixed monthly repayments, Fairplay’s deep embeddedness into the merchant’s sales and accounting infrastructure allows them to perform daily direct debit repayments on the basis of sales.
That means that if merchant sales are having an off day, the amount to pay back will be smaller and will not put the merchant’s cashflow at risk.
Pay what you can, based on what you sell. Genius.
Needless to say, the structure works out for Fairplay too. Their deep integrations into the company’s accounting allows them to have “first access” to the company’s sales inflow. Automatic, direct debit, collects the repayment daily, significantly reducing the risk of default.
Additionally, tying repayment to the merchant’s business performance accelerates the loan cycle for Fairplay. Effective use of the financing increases the company’s sales, accelerating the loan’s payback period, allowing Fairplay to redeploy that capital faster and allowing the merchant to get a new loan to further supercharge growth.
The merchant gets a win; Fairplay gets a win; we all get a win.
Did somebody say payments?
Now, the lending angle and RBF are a massive opportunity in-and-of themselves, but driven by its obsessively customer-centric approach, Fairplay set out to make the merchant buying experience even more seamless. And here is where it gets interesting.
Fairplay mainly finances three types of ecommerce business spending: marketing, inventory and logistics. All three of these categories have different stakeholders (often in different jurisdictions) and, as a result, transact over different payment rails.
However, the company has leveraged its position within the buying / selling value chain to begin to process payments, whether local (logistics) or offshore manufacturers (inventory), within its own ecosystem.
By establishing connections with merchants’ most common providers of raw material and goods, merchants will be able not only to finance the purchase of those goods using a Fairplay facility, but also pay for them directly on the platform. This opens a door for using Fairplay as a payment rail independently, whether the purchase requires financing or not. If Europe is anything to show, once that door is open, the possibilities are endless…
Bringing it home: a killer team
You might be wondering by now, who are the masterminds behind Fairplay’s secret salsa, and we could not be more happy to share. Manolo’s voltaic attitude and incredible ecommerce experience coupled with Andrew’s operational wizardry had us gripped from the start of our conversations. Their complementary skill set, alongside a rockstar team of 40 professionals, has allowed them to grow revenues by 400% in 2021 alone.
With digital and D2C commerce in Latin America poised to reach $580B in volume by 2024, we can confidently say that this is just getting started.
All of us at Speedinvest are incredibly pumped to be joining Manolo and Andrew’s journey in revolutionizing SME financing for Latin Americans.
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