Neobank Vexi raises millions to offer young Mexicans lower interest rate credit cards

Getting a credit card is something most Americans take for granted.

In countries such as Mexico, it’s a much more difficult and less common endeavor. In fact, less than 20% of the population has access to a form of credit, with just an estimated 10% having credit cards.

In recent years, a number of startups have emerged to offer underserved Mexicans more options in an effort to boost inclusion in the country. One such startup is Vexi. former Citi exec Rojo Blasquez started the company in 2018 and was later joined by Gabriela Estrada (who also spent more than 9 years at Citi), Cinthia Merlos, Salvador Michel and Carlos Franco as co-founders. All founders grew up in middle class households and are personally invested in helping Latin America’s emerging middle class have access to better financial services, said Merlos, who serves as the company’s COO. 

“We all come from middle class families here in Mexico. We went to public schools and worked really hard to get scholarships for private schools or to study abroad,” Estrada told TechCrunch. “We really want to make a change, and we are seeing that change every single day with our customers.”

Mexico City-based Vexi describes itself as a neobank but doesn’t offer checking or savings accounts — yet. For now, its only offering is a credit card, which it offers through American Express without using any third-party issuers or processors. This helps the company earn more revenue through interchange fees, according to Merlos — as much as 3x as that of startups that do use third parties. Vexi’s offering also includes interest-free installments, cash back, purchase insurance and “competitive” interest rates. By competitive, it means in the range of 29% to 79%, which in the U.S. is considered extremely high. In Mexico, however, it falls significantly lower than the interest rates on microloans, for example, noted Merlos.

“In Mexico, only 1 in 10 people have access to a credit card, generally because they earn less than what traditional banks require or because they work in the informal economy due to a lack of formal sources of employment,” Merlos said. “That is why we compete against cash and high-interest microcredits, rather than against those traditional banks.”

About 75% of Vexi’s cardholders are between the ages of 18 and 35 and their average income is $600 to $800 per month. Nearly 60% of its customers are self-employed or run their own business — the majority of which have reported using the cards to purchase business supplies.

Merlos and Estrada say the company’s homegrown credit scoring system allows it to offer credit cards in tiers so that its lending is responsible. As users prove their credit worthiness, their credit limits — and scores — increase while their interest rates lower. Also, the pair claim that users are so eager to build credit that they work extra hard to make sure they make payments on time and not lose their access. The app also offers educational information so that users are learning more about how to better manage their finances and spending.

“Our vision is to use our technology, talent, passion and experience to break the vicious circle where a person in Latin America cannot access the first line of credit to start their credit history and gets stuck taking out high interest loans that they can never recover from,” said Estrada, who serves as the CEO of Vexi. 

The pair are not deterred by competitors in the space. 

“They are saying ‘I want to teach people how to drive a car, so we will give them a Nissan because they are learning how to drive a car,’ or in other words very basic products,” Merlos said. “But what we are doing differently is we are saying ‘Okay, I will teach you how to drive. But while you start driving and as you show you are getting to be a better driver, I will give you a better car.’ ” One perk the company offers is giving its users a way to pay for things with credit cards using their mobile phones.

And today, the company is announcing it has raised $8 million in an “oversubscribed” Series A round of funding led by Magma Partners. It secured $3.7 million in a seed round, and about $20 million in debt at the end of 2021. Previous investors Alpha4Ventures, Noa Capital and Pomona Impact also participated in the Series A round, along with new backers Redwood Ventures and U.S.-based Rebalance Capital. 

“We’ve been strong Vexi backers since 2020 and decided to follow on because the Vexi team is solving a real problem for Latin Americans. We’re excited to support them in building the future of Mexican society’s finances,” said Magma Managing Partner Nathan Lustig.

Vexi says it will use the new funds to grow its customer base, onboard new talent to strengthen the team and enhance its proprietary tech stack and risk algorithms. While the company declined to reveal hard revenue figures, Merlos said the company has seen its revenue grow by “4x” in the past 24 months. 

“We were able to get to 2.5 million applications with less than $4 million in equity raised before this Series A,” Estrada said. So far, the company has issued about 850,000 credit cards.

“We believe in a sustainable way of growth, a slower pace maybe compared to other startups but with solid, positive unit economics,” Merlos told TechCrunch. “This fact itself allowed us to bootstrap during the pandemic, and makes our company more solid to handle economic turndowns.”

For now, Vexi is focused only on the Mexican market, which in and of itself is huge — with a population of nearly 127 million. Eventually, it plans to expand outside of the country into other parts of LatAm.

Other Mexican startups in the space include Stori, Klar and ZenFi, among others.

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Neobank Vexi raises millions to offer young Mexicans lower interest rate credit cards by Mary Ann Azevedo originally published on TechCrunch