Payroll-secured loans are a $40 billion a year business in Brazil, but that business largely happens offline. A startup in Y Combinator called bxblue wants to change that, by creating a marketplace for borrowers to evaluate multiple loan options all in one place.
In Brazil, one of the more popular personal loan products is available to government employees and pensioners. Lenders offer attractive personal loans to this group because their income is regular and guaranteed, and the banks can automatically deduct payments directly from a borrower’s paycheck.
From the borrower’s perspective, these loans are attractive because there’s not only the ease of repayment and minimal risk of default, but also the rates are much better than what they’d be able to get by financing purchases with a credit card.
According to bxblue co-founder and CEO Gustavo Gorenstein, about 20 percent of Brazilians fall into this category of borrowers, and they take out more than $40 billion in personal loans each year. So it’s a big market, but currently most of these payroll-secured loans are issued by bank agencies or freelance street brokers acting on behalf of the financial institutions.
But those street brokers aren’t always acting in the best interests of borrowers, as their main motivation is getting the best commission they can and steering customers in that direction. And for the financial institution actually issuing the loan, the offline nature of the transaction means they don’t really have any relationship with the borrower.
bxblue is seeking to change this industry by taking it online and creating a marketplace where borrowers can choose which bank they wish to work with. Meanwhile, lenders are able to build an ongoing relationship with customers over time, as many seek out additional lines of credit once one loan is paid off.
Currently in Y Combinator’s Summer 2017 class, bxblue wants to be the go-to place for facilitating the process, since many borrowers can take out as many as 20 or 30 of these personal loans over their lifetimes. Moreover, it provides a way for borrowers to refinance loans if another bank is offering a better rate.
While just about a year old, bxblue has signed up 11 different financial institutions. Now that it’s got the lenders signed up, it’s working to get more borrowers on board.