Interview with Alejandro Cosentino, CEO of Afluenta

What is Afluenta about?

Afluenta is a leading marketplace lending company in Latin America (LatAm) who connects creditworthy borrowers with investors, to create more convenient loans and better investment opportunities. Our advanced technology provides an innovative investment alternative for individuals and institutions lenders interested in getting better yields through investing in consumer loans without the traditional middleman.

What are the three main advantages for investors?

There are not many alternatives for investors across LatAm emerging markets. We believe that Afluenta is a truly new alternative with a potential high net yield and low volatility but being specific Afluenta provides:

  1. Better yields compared with traditional banking products since Afluenta removes banks, as intermediary, and allows to distribute the traditional banking spread between borrowers and lenders.
  2. It’s simple, secure and easy to understand and operate.
  3. There are many features on the platform to facilitate the use and trading fractional loans such as the Secondary Market which allow lenders to have liquidity.

What are the three main advantages for borrowers?

Although, compared with investment alternatives, there are plenty of choices to get a loan in our region, those alternatives are not cheaper, convenient or hassle free for borrowers so we designed a better loan processes and conditions to provide:

  1. Access to cheaper loans than those they can get in the traditional financial institutions
  2. Get loans faster. Applicants get a response about the loan admission in 20 seconds and the loan is funded in approximately 3 days so they get the money much faster.
  3. The entire process is hassle free. Potential borrowers just complete a short application and not are requested to provide physical information. 100% of the process is online.

Alejandro Cosentino, AfluentaWhat ROI can investors expect?

The net yield that investors can expect is, swapped in US dollars, an average of 21.5%. The loans are provided in local currency and always will be in local currencies no matter the country we will be operating in.

How did you start Afluenta? Is the company funded with venture capital?

Afluenta was born in 2010 but for many years I had it in mind since I had a great experience in financial services obtained running American Express in LatAm as well as in Santander in Argentina and worked in Tech industry also in LatAm. In 2011 we fund raised from an angel investor to develop our technological development and then we got the approval from the Argentinean National Securities Commission to launch our operation initially in Argentina in September 2012. Since then we have grown to a large number of loans people to people

Afluenta was initially funded with my savings, then we got two fund raising rounds, Angel one and Series A (both of them Argentinean investors). We are about to close our Series B with US VCs and international institutional investors to support the regional expansion process.

What were the main milestones since your launch in 2012?

We set the rules for this industry in Latin American region. We operate as Lending Club or Prosper do their business in US. Afluenta is the first authorized P2P marketplace in the region. We solved the regulatory and tax issues initially in Argentina and then in Peru using current legislation allowing us to run a marketplace lender without asking for new laws or changing current regulations. On the other side, our technology is world class and Afluenta developed innovative features for lenders to operate simple, faster and profitable such as secondary market, automate investing, CRM of collections among other and add 100% transparency of all the data in the investment platform.

Can you please describe the economic and regulatory environment in Argentina?

There is no specific P2P or Marketplace regulation in any country in Latin America. Afluenta is an investment system that works through a trust governed by specific local law, where investors act as trustors and Afluenta acts as trustee. Loans are granted through a trust with contributions made by investors in accordance with their instructions. Afluenta is registered with the National Securities Commission to provide public fiduciary services, while being monitored by the National Securities Commission, an entity which neither authorizes nor monitors any fiduciary agreement executed by the trustee.

Afluenta does not do financial intermediation, because it is not receiving deposits from people and undertaking the risk of giving them back while undertaking the risk of default of loans using those funds. Afluenta neither intermediates nor faces such risks as banks do because it is neither the depository nor the sole owner of the funds: trustors are investors (neither depositories nor creditors) who invest their money by stating the amount, destination and opportunity of the funds and understand the risk they undertake when they expect to receive profit as a result of the activity.

And how about the markets in Peru and Mexico, which you are expanding into? Are they different?

Although every market is different, the fundamentals of regulations and business are quite similar. Afluenta sets out to not only to be innovative and provide better service to borrowers and lenders, but also do so within the framework of the law. We explored for months legal alternatives structure in each of the countries. Afluenta already has legal recommendations to enter Mexico, Colombia, Chile and Uruguay and we are working hard to have the recommendation in Brazil. That puts us in mind not to give up until we find the right solution for every country.

During the last year, I walked through the buildings of the major financial authorities across the region. I exchanged ideas with them along with the most experienced lawyers across Latin America about this nascent industry and I can conclude they like the idea of embracing this kind of financial innovation. I also bet they need it. They know banks are too big for our economies and that they act as oligopolies. Santander in Chile is bigger than the whole Argentinean financial market as Itau in Brazil is bigger than the entire Colombian financial system.

Which other South or Central American markets are interesting? And what are the specifics in these countries?

Our main focus, in addition of the Argentinean and Peruvian markets we are in now, are to launch in other selected emerging markets such as Mexico, Colombia, Brazil, Chile and Uruguay.

What role does inflation play and how do you and your users deal with it?

Working with inflation is always a challenge in any business, especially in financial business, since leads inevitably to the decline in the purchasing power of people´s money and that may affect the way the borrowers repay loans granted and lenders invest and save their money. Fortunately, we have been quite flexible and react quickly to adjust prices of loans (interest rates and net yield accordingly) and admission rates (aka approval rate) to be the best alternative every single month compared with other competitors (banks and other private lenders).

Marketplace lending has been an interesting way for people to reduce cost of loans and increase the return for their funds. Afluenta offers the best conditions for borrowers and lenders, removing middleman and adding transparency which has been well evaluated for the entire community.

In total, how would you compare p2p lending in your markets with p2p lending in the US or UK?

Although it’s quite similar, I see two key differences: 1. Not big institutional investors yet operating under P2P platforms (which it’s set to grow soon), and 2. Purpose of loans are more focus in home improvements and car replacements instead of refinancing credit cards as in the US and UK markets where credit card acceptance is much higher and everywhere.

On the other side, P2P loans have even a greater potential in Latin America, where countries such as Mexico and Brazil have extremely high rates of interest to borrowers and net yields to investors that remain very low. The financial system in Latin America is highly concentrated, although it has higher costs than other markets, tends to be the most profitable sectors of the economy. These unattended potential markets are huge with very low financial depth. Santander and BBVA have two thirds of their profits coming from Latin American markets.

How do foreign institutional investors perceive the attractiveness and risks of the markets you operate in?

When I mention the potential net yield institutional investors will get in Latin America, I always get their attention. While the average net yield from Marketplace Lenders in US and UK is about to be decreasing in the near future, in Latin American market will grow significantly in the upcoming years. Latin American countries have signed numerous Trade Agreements, which helped to create new markets for Latin America that involved new technologies and reduce costs.

In some countries there has been the development or modification of PPP (Public Private Partnership) laws regarding the formalization of procedures and clarification of rights of investors and sovereigns in connection with investments. Clear legal guidelines in public-private ventures in vital areas are vital to attract funding and keep capital costs reasonable for project sponsors.

Latin America capital markets developments are another step forward, which is adding to the region’s investment attractiveness. The risks are generally related to the exchange rate volatility and the operative facility to move the funds across countries.

How do local banks see alternative finance?

Although some may see it as threat, many of them are watching the new FinTech companies as an opportunity to partner with. P2P or marketplace lenders have been under their radar because we have leveraged low operating costs, minimal regulations and efficient technology to mediate terms between borrowers who want quick access to cash and lenders starved for better yields. Our mantra is the Gandhi quote “First they ignore you, then they laugh at you, then they fight you, then you win.” I think we are living in a Collaboration Era and working with banks is inevitable for us and for them. This fast-growing financial model may transform the traditional banking industry. Right now, it is attracting institutional investors, as well as big banks eager to learn how to become more agile.

Where do you see Afluenta in 3 years?

As the leading P2P regional company in Latin America operating in 7 key markets, offering the most convenient way to apply for a loan and a smart way to invest your funds across different assets (consumers and SMEs) and with several partnership with banks and large institutional lenders. thanks Alejandro Cosentino for the interview.

Technological Revolutions and Financial Capital
International P2P Lending Volumes November 2015