We are excited to be backing delt.ai, a company that develops an AI-powered platform that manages finances from transactions to records.
Why SMEs Shouldn't Have Access to Digital Banking?
Throughout the developing world, small and medium-sized businesses typically comprise a disproportionate size of the economy, yet lack the same access to financial products and other services that have sprung up to serve SMEs in more developed countries. Perhaps nowhere is this more prevalent than in Latin America, which has traditionally lagged in this area despite the region’s middle-income status.
For example, SMEs are poorly served in Mexico as they are highly distributed, highly risky, and often too small for large banks to make profits. Moody’s reports show that SMEs account for ~90% of businesses in Mexico, but only represent ~9% of total bank loans. These SMEs lack access to not only loans but also normal banking tools/services. To open a business account at a bank, it usually takes 20 days and 1 to 2 in-person visits to the bank branch, according to delt.ai's. The digital banking platforms offered by the banks are also poorly designed with limited functions. SMEs also find it difficult to apply for corporate credit cards from the traditional banks, not to mention adding extra cards under the same company.
Despite the blooming of fintech startups in Mexico, most of the wallet/digital banking-related innovations are focusing on the consumer space but not on the SME space. While there are many enterprise financial management startups targeting SMEs, most of these new fintech companies are focusing on internal operations, such as business intelligence, invoice management, and payment collection.
Therefore, a “Brex”-like digital banking solution for SMEs is needed to help small businesses to connect the external piece (bank account opening and corporate card issuance) and the internal piece (expense management, invoice management, etc.).
The opportunity is huge and untapped. With about 4.2 million SMEs generating 52 percent of the country's GDP ($624 billion from SMEs) and providing 78 percent of the employment, there is a $163.92 billion loan gap for SMEs in Mexico according to an IFC research. These SMEs are just being left underserved by the banks, and the opportunity can be huge. While the competition level is still very low with only three companies working on the B2B neobank idea.
delt.ai: A Digital Banking Solution for SMEs
To bridge the gap and capture the opportunity, delt.ai is set to offer a user-friendly digital banking solution to SMEs (business neobank) - from card issuance, account management, to working capital loans. delt.ai will not only become a go-to bank with debit/credit services for the SMEs but also offer a marketplace for all the other third-party solution providers who want to address the same customer base. This digital banking solution will be a one-stop shop for SMEs to manage their day-to-day financial operations such as account opening, inter-bank transactions, expense management, and working capital loans. delt.ai is like Brex for Mexico, but with more features.
Based on our conversation with Jose, we deeply believe that delt.ai has the right team to capture this opportunity. At delt.ai, the team facilitated the infrastructure work a lot because of their previous experience in the finance/fintech space where they experienced the pains - they got bad services from banks, and they could not provide good services for business (due to systems not being prepared to onboard companies). That is why they put a lot of attention on how the systems should be created before offering the service as they will not get many shots when someone finally decides to explore an alternative to their bank. With a small amount of funding, the team has built the entire infrastructure including bank partnerships in less than one year, demonstrating a super high capital efficiency!
With investing in SME tech being one of our investment thesis, we do believe that this deal has presented us a great opportunity at the right time with the right team. We look forward to supporting delt.ai in its effort to help the SMEs in LatAm to grow and succeed. The time for this revolution is now.