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Mercedes Bidart’s research showed that women and families in Latin America needed support to build wealth. She shares how Quipu now provides essential financial services to women-owned small businesses.
Fintech has the power to build a more inclusive world. Fintech for the People is about the innovators who are developing fintech solutions that reach the people who’ve been left behind. In each episode, we’ll hear from innovators who are creating financial solutions that bring every person the financial tools they need to grow their business, support their family, and build their community. Together, we’ll learn how fintech looks different in spaces and places where basic financial services are a luxury — and how solutions to address these challenges require a different level of creativity, empathy, and execution.
Fintech for the People is an Accion podcast hosted by Amee Parbhoo, Managing Partner of Accion Venture Lab – an early-stage investor in inclusive fintech startups. Learn more about Accion Venture Lab here. Episodes will be released in seasons, on a weekly schedule.
Matt Schaar (00:12):
Hi everyone and welcome back to FinTech for the People, the Accion Venture Lab podcast. I'm Matt Schaar, operating partner here at Venture Lab, and we're continuing our series on the topics of Web3, blockchain and crypto and their potential impacts on financial inclusion. Now, before I introduce our guests this week, I wanted to quickly mention that we recently published our initial thesis on Web3 and financial inclusion. It's a comprehensive look at the Web3 world and the set of criteria we are using to evaluate the space as investors. A lot of what we've discussed this season helped inform our perspective, and we're very grateful to have so many thoughtful people in this space building their own perspectives on the topic. We'll include a link to the article in the show notes. Now back to today's guest. I'm excited to be joined by Mercedes Bidart cofounder and CEO of Quipu.Quipu as Mercedes mentions on the show is a Web3 enabled financial institution based in Columbia focused on providing essential financial services to women owned MSMEs. In this episode, we'll discuss Quipu's origins based on Mercedes' experience and researching in women owned businesses and economic development. We also explore Quipu's journey to adopting liquidity pools as a source of capital for lending to MSMEs and the opportunities and challenges that provides. Mercedes, welcome to the podcast. It's great to have you. I think it would be great to get kicked off and hear more about your background and your own journey in becoming a founder.
Mercedes Bidart (01:46):
I'm born and raised in Argentina. I'm actually a political scientist and city planner, so I have a weird background in the FinTech world. When I was at the university, I really wanted to build something that could support communities living in the outskirts of cities, mostly living in informal settlements. So I was working for an organization on one side, on microfinance, really being on the ground and supporting women that were having their business and supporting them to grow that business. So that was one of the things I was doing mostly every Saturday. But then during the week, I was working at a think tank on public policy based basically on cities' policies. And I've seen that gap between what policy makers were thinking and doing regarding in the informal economy and informality in cities, and on the other side actually what was going on on the ground, and what these families were facing, and what these women were facing, right?
(02:53):
And I said, "Okay, there might be another thing we could do that is not necessarily public policy or not necessarily like an NGO, but what we could do that can support and build wealth in the informal segments of our cities." And that's what actually drove me to study city planning, and to start thinking on technology, right? So I got the chance to do my masters at MIT that it's a really technology driven university, an entrepreneur driven university. And back in Argentina, I didn't know what was a startup. That was not my world. It was not as known at that time. It was pre [inaudible 00:03:35]. And so when I got into this university into MIT, I first, I connected with my co-founders. I connected with other people that have seen the same problems in their home countries that were Colombia, one of my co-founders.
(03:51):
And we said, "Okay, there might be something we could create to support women and families living in informality to build wealth that is not just creating income, but actually it's like how that income keeps in the local communities, and creates new jobs, and drives the local economies." So there's, when we started with idea of Quipu. And it was a really fun and long journey building, building, changing the idea a lot, but always focus on the same problem, which is the informal economy right, and the same segment if you want.
Matt Schaar (04:30):
Great. And as a former aerospace engineer turned FinTech investor, I certainly appreciate having different backgrounds that enter into the financial services space. So kudos to you on that. And I stand in solidarity. When you think about the phases of Quipu, you mentioned you've gone through some pivots, but what you've landed on now, maybe share where you've refined the model to get to this point and maybe even speaking a bit more around Columbia in particular and what's been happening in that market.
Mercedes Bidart (05:01):
For sure. Yeah. So now we landed at creating a bank. So actually now we are building a we call it a digital decentralized bank for the informal economy in Latin America that supports mostly women that work from their homes and that are these economic engine of LATAM cities. So basically our main insight is that there are a lot of people that are being assessed by banks in a wrong way because they're being assessed as people like, yeah, but not as a business, right? But these people have a business. They are selling something. They are creating something. And as this business is informal and actually eight out of 10 of MSME in the region are informal. So because of that, there's no way in which they can understand not just the person that comes to us alone, but actually what happens with the production and the business this person is running.
(06:04):
So basically that's our insight. These people are completely left behind of the formal financial system. They are accessing loans, they are, but in the informal market. They are called payday lenders, shark loans right? And this is violent, and it's really the cost of accessing those loans is really high, right? So what we are doing is understanding how these businesses work, even if they are informal in a digital way. So you can access working capital with Quipu to buy supplies or machinery for your business. And we assess your credit worthiness based on the data we ask you to fill out on our platform. And that data has to do with you as a person, but mostly you as an entrepreneur, right, as a small entrepreneur. So that's where we landed. And actually we landed here because we've been doing a pilot in a public housing neighborhood in Barranquilla on the Caribbean coast of Columbia.
(07:00):
I've been there for a year, and I was doing this pilot with the IDV Lab really to understand how we could move the status quo of these families from being offline or these businesses from being offline to be online, right? In the middle COVID hit us. So you can imagine we launched the product in the middle of COVID. So basically what we were trying to do made more sense at that point, right? And in this year of piloting, what we learned is actually that a market, we started being a marketplace. So a marketplace business was not exactly what could be monetized in the segment because most of the transactions are in cash. People take care of their own delivery. So that was not the business model for the segment. So that was like, "Okay, this is not the way, right?" Then we built a token with which people could transact with one another without using money.
(07:56):
So it was kind of a barter system. It's called a mutual great system. And well, we started Quipu thinking on how we can serve all Latin America, not just one neighborhood. But even for one neighborhood when there's such a scarcity of money, people need fiat currency, right? They cannot just rely on alternative ways of transaction. So that was not solving their main pain point. And then we said, "Okay, if we don't solve their main pain point, which is at this point access to working capital and mostly after COVID where they had to go out of business because of getting sick, and not being able to work, and et cetera cetera, we said 'Okay, we need to start from there.'" And that's why our main solution and our driver for digitization is the access to working capital. And that's where we are now, and this is the product we are scaling.
Matt Schaar (08:50):
I want to come back to this point around tokenization and utilization of crypto specific technologies. You sort of answered the question there too around there's existing systems. You have these microfinance banks like BancoSol in Bolivia, and several ones in LATAM. And it sounds like what you're also seeing in your research is that there are some fundamental challenges when it comes to access to this end customer that those microfinance institutions simply are not answering. So it need to be solutions like Quipu to come onto the market.
Mercedes Bidart (09:24):
For sure. And what we've seen is that being poor is very expensive. It's extremely expensive because of being poor and not having a transaction, a credit history, or being blacklisted because 90% of our users are blacklisted. So that's why also not even microfinance institutions are able to attend them, to support them. And in the end, the product that microfinance institutions are providing, they're at really high costs. It's not that it's not the same cost that as banks, right? So our thesis is saying we think that if we are able to get more and more and more data of the businesses and understanding how they are working online, we don't need to be on the ground and visiting that business, and taking a month to deliver a loan, but actually being really fast, we will be able to attend a segment that is paying a lot because of being poor, right? And I think we can only do that with technology.
Matt Schaar (10:25):
Share a bit more around this working capital element. So you're using a token that basically is the transaction currency that's used between small business owners, that's sort of the currency on which this is all operating. Is the working capital also self generated, or is that coming in from an outside source? So I mean the first part of the question and the second one is just creating stability in this crypto in your specific token market, how are you really ensuring stability so that it is a good hedge against the instability fluctuations of fiat currency and also as a good counter to high interest that they would be looking at on the informal, informal lending sector?
Mercedes Bidart (11:09):
I will explain a bit how all this evolved and what we learned from that first idea, which was this token being a mutual great system, and what it landed to be right now. So basically we discovered that just a token for people to transact that was not as interesting for our type of user because they need to buy things outside their neighborhood. So they need fiat currency to do that, so they cannot accept all their sales into a local currency. That's all right. It could be currency, it could be token, it could be points, whatever, right? We really changed how that was called. Now it's called Quipu Points. So that ended up being kind of like a loyalty program system where we give out those points to people depending on how they behave on the platform. They can use those points to buy to other merchants on the platform.
(11:59):
But actually it's not the main attraction of the platform at this point. How we connected this with Web3, how this landed, we said, "Okay, the main pain point of our user is the access to capital. We need to solve that problem if we want people to change their status quo, if we want people to go from being offline to be online. Okay, secondly, how we can access capital at better rates?" Because one of the main challenges we have as a lending platform is the cost of capital. Capital is very expensive, right, and as we are attending high risk profiles, then we need to say "Okay, how we don't translate all the cost of capital into the end user," and then we, because we don't want to end up being a digital payday lender, right? So we said "Okay, we are creating a collateralized loan protocol that is imagine the [inaudible 00:12:54] or [inaudible 00:12:54] protocol where we are basing the decision of where the money from the liquidity pool goes depending on the scoring that we are creating of our users.
(13:05):
So we are creating, using AI, we are creating a scoring per user that this is off chain. This is something that we already build on Web2 if you want, but we need to tap on the liquidity that Web3 can offer. And we want to connect this segment that is really far from that liquidity. So basically what we are doing is this and collateralized room protocol where we create liquidity pools. We get any lender that could be individual lenders or institutional lenders to lend into these liquidity pools. Each liquidity pool has a different risk actually. So let's say it in plain English or Spanglish. Imagine like you come here, would you have some USDC with that stable coin? You buy some of our tokens, right? This token you are buying is called interest bearing token. It will increase the value as our users repay the loans.
(14:01):
So basically you're putting money on a pool. From that pool, we are allocating that funds into our users. When they repay a piece of the ... So the principle plus a piece of the interest they are paying back comes to the liquidity pool to give yields to the lenders and actually to move the value of that token that you bought. What we are doing is really connecting lenders from all over the world to fund these type of micro businesses. We are the ones that are saying, "Okay, this micro business has this level of scoring so it will pay back. So we are the ones like deciding how the liquidity pool distributes into our users." And then how we are connecting that tokenization we thought in the beginning, and I was explaining to you in the beginning how we are connecting it now with the user is saying another piece of the interest rate that the user pays back goes to back a token or these Quipu Points that is this loyalty program we have on the platform.
(15:00):
But now instead of just using it to buy to other merchants inside the ecosystem that we build, people, this token is having value outside of the platform. So people can save with that token. They can pay back their loan. They can even invest. And we are giving out this token as rewards depending on the same that we were doing before, depending if you bring people to a place, if you bring referrals, if you pay on time, if you have your store updated on the platform. And this is how we are building this ecosystem where not just like ... Everybody wins. And this is the nice thing about Web3 is everybody's winning. The lender is winning. The end user is winning and is being part of the ecosystem.
Matt Schaar (15:44):
I find it interesting because we actually talked with Sam from Goldfinch on a previous episode and so the nature of liquidity pools and bringing it into the market, I think Goldfinch is thinking more from the perspective of lending larger amounts of capital instead of going directly I think to the end customer. And we'll be right back. And welcome back to the show. You've mentioned the goal here at the end of the day is lower cost lending to an underbanked and underserved customer. Given the fact that many of these customers are according to the traditional financial system are "high risk", how is it you're assessing them, number one in terms of their risk and how you assign them to different liquidity pools or what kind of liquidity pool will be used to deliver capital to them? And then also what are you seeing in terms of the overall cost of capital of when you also incorporate repayments, delinquency, par? What are you seeing so far in terms of how that all is being managed?
Mercedes Bidart (16:52):
What we've seen so far is that there's appetite in the crypto world to fund this type of, to have a return of 10% annual return or imagine a 12, 15%, and that's even cheaper than what a institutional debt can cost to a lending platform like ours. So that's what I've seen on the side of the lenders. On the side of the borrowers, we are getting a lot of data and of their behavior as a business that is allowing us to really determine which is a risk of these users. And it's really insane the correlations we are finding between not even so they give us information of who are they clients, how are they relating with these clients, how is their business looking like? Well a lot of business of data we are getting, and based on that data is that them as borrowers can start with a $25 loan, or they start with a higher amount.
(17:54):
So basically this [inaudible 00:17:56] loan is allowing us to filter if you want mostly high risk profiles or the ones that actually won't pay because that's a reality obviously that happens. So basically this allows us to say, "Okay, who is willing to pay? Who is actually improving how their business is selling and is able to be accessing higher amounts of loans?" So I think those two strategies of all the data we are capturing plus the [inaudible 00:18:26] loan and the way we are dispersing the loan is allowing us to do that and assess the risk, which is our main value added in order to provide yields to the lenders too.
Matt Schaar (18:40):
And from the borrower side, what are some of the general anecdotes or the feedback you've been getting from customers that are leveraging these loans and some of the other access points they have to lending?
Mercedes Bidart (18:51):
70% of our users are women, and this is something that is global and you know it as Accion Venture Lab, right? This is something that happens all around the global south this type of user profile. And basically what they find on us is a community. And that's the biggest thing we emphasize is this is not just a platform that will give you some money, and we'll come here and ask you to pay back and that's it. But it's actually a platform where you will connect with a community where actually if you pay back then the token you're getting increases the value. And actually if your economy grows, then the other economy of the other community members is growing. And what I've seen is that they feel very inspired by being connected with other people that are facing the same challenges. Because I'm sure, and I've seen this, that the same women living in Buenos Aires, in the outskirts of Buenos Aires Argentina is having the same challenges that women living in the outskirts of Bogota right, or one living in Africa.
(20:00):
But I will just keep the scope to Latin America. So in a way what we are trying to do is really make that feeling of connection, and that's one of the main things that they value of being on the platform. It's like they feel an identity, and it's aspirational. The other thing we've been developing, and this was because of really listening to the users is that they buy their supplies to build their products. It's very high the price they're paying to buy their supplies because they can't buy in bulk, right? So they buy in small amounts, and that's like 300X more expensive than if they could buy in bulk. So basically what we are doing is kind of like a buy now pay later model where they don't get the money on hunt, but actually we open that lines of trade with certain suppliers where they access the supplies at a 20% discount and finance, right?
(20:58):
We finance that purchase, and this is actually improving how we will be able to disperse loans in crypto because this is a segment that their digital literacy is obviously lower than other segments, right? So the way in which we are doing it is okay, they don't need to change crypto to fiat currency at all. They just get a line of credit open in different suppliers and the crypto goes directly into a suppliers in fiat. So these are ways in which we need to think on how actually these benefits of the crypto world get and connects with this type of user.
Matt Schaar (21:40):
This leads into the next question is the current crypto environment in many ways has, I think there's been a lot of structural questions around it just as we've seen. One thing I'm curious about is you're operating in Columbia, there's always these open questions around how regulators are going to look at crypto and digital currencies. What are some things you're keeping an eye out on to ensure that you can continue to smartly leverage some of the technologies that crypto enables while also not the decision that comes down from the central bank in Columbia that could shut things down overnight?
Mercedes Bidart (22:18):
We are preparing with lawyers. So that's one of the ways in which we are preparing. We have really good investors that are from the crypto world. So that's also another thing. We are really surrounded by people that are in the front lines of these types of protocols and what we are trying to do. The way in which it frames in the legal framework here is that you cannot capture money. You cannot capture massively money, right? That's something that you cannot do here in Colombia. And the way in which we are not doing that is that in our liquidity pool, when you're investing on the liquidity pool, you're actually buying an asset. So as you're buying an asset, which is a token, we are not capturing your money, but actually we sold you something, right, and we allocate that money directly to the users. So it's like it gets to the pool, it goes to a user, right? And then when it comes back to a pool, it's actually increasing the value of your token.
(23:26):
So that's a way in which we are framing it now. It's not just the Colombian laws, but actually it's also the States laws because we are also registering, we are registering Delaware and in Colombia as most of FinTechs in Latin America. So basically we are creating a lot of legal concepts. There's a really big gray area. But at the same time I think that this sandbox, sandbox is being created in our countries where they are allowing some experimentation on the field, and we are getting into that, right, really getting into that sector of experimentation. And the other thing is what I was telling you of. Okay, we are the ones creating the pools, providing the returns, and the user is like we are allocating the lines of credit, but the user is not. They don't need to change that USDC into fiat, right? We are giving out the loans in fiat. So that's a way in which we are doing it up to this point. I think governments are also listening a lot to entrepreneurs and are open now to this new decentralized world in a way.
Matt Schaar (24:39):
And maybe just a follow up on that. So when it comes to and why I think the pillars of financial inclusion is around consumer slash customer security and protection of assets, so when they actually receive a loan from the liquidity pool, where is the securitization on that? So you mentioned this is ultimately you're treating it as an asset. Are there assets and whatever sort of protections around repayments, essentially the basic things that come along with receiving a loan from a formal sector? There is some baseline of that.
Mercedes Bidart (25:14):
So for now, it's really in the traditional way if you want. So we have an insurance of the loans, and we have a provision of the loans. They signed a contract when they get the money. It's like for now it's really not hurting the point of the user accessing the money because if we make it more complicated, or if we ask the user right now to download a wallet and blah, blah, blah, blah, that will be, it will put another level of difficulty. And they are really low literacy, digital literacy user. So most of our communication is through WhatsApp. So you can imagine the way in which we are doing it now is signing a contract and being sure that we are provisioning for these loans right? And that's it mostly in a Web2 way if you want. And I think really what I've learned so far, trying to be a decentralized, trying to build really decentralized finance for the informal economy, but at the same time understanding the informal economy is that we need to be a hybrid.
(26:25):
We need to first try out things on Web2 on. We just first understand if this is serving people actually, and not just trying to build crypto because of being crypto, but building crypto. But I think that hybrid is really important.
Matt Schaar (26:41):
I'm coming to a very similar conclusion on this, that there are Web2 principles around compliance, security and access to a low digital literacy customer with Web3 capabilities that can enhance the overall pool of accessible capital to those customers. And so I think there's much more we have to learn on that. But I absolutely agree with you that trying to highly digitize, highly digitize these customers has also resulted in them being left behind because of the ramp up it takes for them to become digitally savvy. When you thought about using a nascent technology like Web3 to help solve this, I think there's oftentimes, especially in Silicon Valley, it's go chase after the shiny thing, the new type of technology, but may not necessarily in principle solve the issue. So we'd be curious to hear your thoughts around where you began to come to this conclusion that there was a balance between not old tech but somewhat these existing protocols and systems with new tech.
Mercedes Bidart (27:49):
So as I told you we started being a crypto startup. So this was like we said ... Actually I got a prize of innovation there at the university. The first prize I got was because of being a blockchain and FinTech platform. So our first idea was how we create this trading system on a blockchain. People don't need to use money to transact. They can transact with an alternative currency. So that was the first idea, right, and we put that out in the world. We've done that. But when we were building that solution, that MVP, we said, "No wait, we don't need to have a token to this. We can have just that traditional Excel, actually a traditional database, and we will say people that this is an alternative currency." So that was the first thing we've done. And then when we put that out in the world, people, well then we noticed that people were very scared of thinking of another currency.
(28:52):
So we call it points. So that's why it's like people points. It's like a loyalty program literally, but it's a loyalty program that you can use with your neighbors. So that's how we frame it. And because we launched this in the middle of COVID where there was a really, really big economic crisis, the entrepreneurs were saying us, "Yes, this is great, but I need money. I need fiat currency. This is not ..." And the other thing is that things in the neighborhoods are more expensive than outside the neighborhoods. So if your platform is just for buying inside the neighborhood, then people will say, "No, wait, things are cheaper outside. Why I will accept this currency that I can just use inside if things are more expensive?" So because of all that feedback we got, we said, "Okay, there might be a utopian, an amazing world where actually people will have their own way mean of transaction."
(29:52):
And we've seen this. This is community currencies starting in the Great Depression in Switzerland. So we know that this exists, this works, but in context of great scarcity as informal settlements, this was not the main tool for them. So there's where we said, "Okay, first we can try out things without being on crypto. We can do it in another way, and then see if it makes sense to build it or not." So that's what we've been doing. And basically then we said, "Okay, we can create a way in which people can transact with one another, but this way needs to have a cash out, needs to have value outside also the ecosystem of users." And there's where we connected the loans with a mean of transaction for the users of the community.
(30:46):
So that's why we got into this point where, okay, this is a way in which we can get liquidity, but at the same time give more value to this token that people can use to transact, but also they can use to pay back their loans, which is their main pain point. So it is been a lot of aha moments and things that we thought were going to work and then they didn't. So yeah, you have to be open to frustration.
Matt Schaar (31:14):
The journey of a founder, right?
Mercedes Bidart (31:17):
Yeah, for sure. For sure. I think the most important thing is listening is the most important skill at this point.
Matt Schaar (31:27):
When you think about the next building blocks to helping this, helping keep you become what you aspire for to become, what is it you need?
Mercedes Bidart (31:35):
We are raising our seed round. We are in the middle of the seed round, so we already got half of it, and really we have already the team that is ... So we build all inside. My co-founder is the CTO. She's the one building the algorithm. She's the one coding the whole Web3 side. And we have our own tech team. We have our own financial team. The team is really where it has to be. So now I'm very, very happy because of that. This is something of the last three months that I've done these hires, and now we are the point of scaling. We are growing to 25% week over week. We are lowering our default rates, really making our algorithm being more and more accurate, doing the onboardings like nine times faster than any microfinance institution. But at this point, obviously we need fuel to be alive for between 18 and 24 months.
(32:33):
That's what we aim to because of also the moments we are living. And at the same time, we already got some lines of debt, which is really good. So we have fuel to give out the loans, but we are doing an alpha version of the liquidity pools. They are open, and we are accepting investors that want to get into this alpha version before launching the beta version at the beginning of next year. And it's really giving returns of 10% annualized based on this investment on the debt side for the loans. So we divide our operations from the loans, but we think that we will be able to really scale through the liquidity pools more than any institutional debt we could get.
Matt Schaar (33:19):
We're excited to see where it goes. And thanks for taking some time to chat today, Mercedes. Really appreciate it.
Mercedes Bidart (33:25):
Thank you Matt.
Matt Schaar (33:26):
Of course.
Mercedes Bidart (33:26):
It was really good being here, and I really admire your work, so it's really nice being here.
Matt Schaar (33:35):
That's it for this week's episode, and thanks for listening. You can learn more about Quipu at quipubank.com. That's Q-U-I-P-U-bank.com or on Twitter @quipubank. And as another quick reminder, don't forget to follow Accion Venture Lab on Twitter @accionvlab or on our LinkedIn page. And finally, this is the last call to join us in the Hague next week for the FinTech for Inclusion Summit. You can register now at fintechforinclusionsummit.com. We're really excited to bring over 200 attendees to the Hague for a day of insights and learning across a variety of hot topics in the inclusive FinTech space, including a panel on Web3. As for the podcast, join us in two weeks for our final episode this season where I'm joined by a familiar voice Amee Parbhoo, managing director of Venture Lab and fellow FinTech for the People host as we provide a bit of a recap on what we've learned this season and our approach to evaluating opportunities in Web3 moving forward. We'll see you then.
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