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June 18, 2024

Podcast: Aplazo's Angel Peña on tackling financial inclusion and expanding access to credit in Mexico with BNPL services

Show notes


Bill Cilluffo joined QED as a Special Advisor in the fall of 2014 and became a Partner in 2015. He is currently Head of Early Stage Investments after six years as Head of International, leading QED’s Investment teams in Latin America, Europe and Asia.

Prior to joining QED, Bill spent nearly 20 years at Capital One, spanning several roles and leading several businesses. He spent the first 6 years of his career leading Marketing, product development and credit policy for Capital One’s subprime credit card business; ultimately having overall P&L responsibility, and growing the business to become the most significant player in the market. He moved on to spend 2 years in various new business development roles, spanning the telecom, medical finance and small business finance industries. Bill spent 3 years as Deputy Chief Credit Officer for the bank, playing nearly every role there was to play in the central credit function, after helping build the department from scratch in 2002.

Bill then pivoted his career to general management, leading Capital One’s Canadian, and ultimately International businesses, over the course of 6 years. Profitability of the business grew significantly under Bill’s leadership, through new product and channel introductions, acquisitions, and significant cost take out. During Bill’s last 3 years at Capital One, he led its Co-Brand and Private Label credit card business, building the business nearly from scratch to one of the top few players in the US market, through a series of acquisitions, most notably including leading the acquisition and post-merger integration of HSBC’s US credit card business, which closed in May 2012.

Bill graduated with a BA in economics from the University of Michigan, and competed the SEP program at Stanford GSB.


Bill: You are listening to the Fintech Thought Leaders podcast from QED Investors, your deep dive into the world of venture capital and financial services with today's digital disruptors. QED is a global venture capital firm focused on investing in fintech companies all the way from pre-seed to IPO. Fintech Thought Leaders brings together the most talented entrepreneurs tackling today's [00:00:30] biggest problems. If you're looking to learn more about what motivates our founders and team members to succeed, you're in the right place.

Hello, and welcome to Fintech Thought Leaders Podcast. I'm Bill Cilluffo, Head of International Investments at QED Investors. Today on the podcast, I'm very excited to be joined by Angel Peña, co-founder and CEO of Aplazo. Angel, welcome to the podcast.

Angel: Hey, Bill, thanks for having me.

Bill: Yeah, look, I'm looking forward to spending the next half hour or so learning a whole lot more both about you and Aplazo and where you guys are headed, but just to orient our listeners, I wonder if you can start by sharing maybe a 60-second commercial on what Aplazo is and what you guys do.

Angel: Of course, of course. So Aplazo in 60 seconds is a modern payment network. We offer payment solutions and merchant tools to help merchants basically sell more and grow their brands. With Aplazo, merchants offer installment payment plans known as BNPL, particularly to 88% of the Mexican population who does not have credit cards and campaign installments. But we also offer other innovative [00:01:30] solutions, such as instant payments, that allow merchants basically to save a lot on processing fees. With us, merchants have access also to unique marketing insights, sales insights, and we do that through a tech stack and AI tools that we've designed to eliminate many of the drop-off points in commerce and basically help these merchants better run their businesses.

Bill: Yeah, I mean, you've got a pretty unique one in that you both have two very different types of customers. You need to serve both of them extremely well to make this work. So that's a pretty challenging and unique aspect of what you guys have [00:02:00] built so far.

Angel: Yeah, yeah, it's very challenging. Operating a two-market site network is definitely interesting.

Bill: Definitely. Good. Well look, before we dive into the business itself, maybe I'd love to hear a little bit about your background prior to founding Aplazo.

Angel: Yeah, for sure. So a little bit of background on myself. I'm not from Mexico. I was born and raised in the Dominican Republic, and I went to school in the US. After graduating to the U.S., I went and started working at Morgan Stanley in [00:02:30] New York City. And there I was mostly spending my time investing in corporate and sovereign credits across emerging markets. And that was a huge part of LATAM. And many of the issuers in these countries are financial institutions, and that was really what drove my interest in starting Aplazo. It was very from a top-down approach and a clear understanding of the macroeconomic opportunity and the opportunity to make impact at scale. [00:03:00] So that's how I started. So yeah, at the macro level, firsthand, I was seeing the huge inclusion gap that obviously you guys have been seeing from your point of view across financial services. I was really shocked on how inefficient the retail credit market in Spanish-speaking, LATAM countries, particularly Mexico, was. 10% of the population has a credit card.

Within credit card transactions, according to Banxico, which is the central bank [00:03:30] in Mexico, around 65% of transactions from credit cards in any given year are installment-based. And that just showed a huge cultural preference for paying in installments, and given the low penetration of 10% of credit cards, I just thought that was a huge roadblock for mass adoption of purchase financing installment plans. And coupled with the fact also that there are two huge retail stores that started in the 1950s [00:04:00] that later started bridging that credit gap problem in Mexico with their in-house purchase financing programs within the retail stores. And fast-forward to today, these are amongst the top consumer banks in Mexico. So I took a lot of inspiration from that and the relevance of these stores and how influential they are with consumers in Mexico, but yet a lot of opportunity to significantly improve the user experience with top-class tech and UX.

It became clear for me [00:04:30] during my time at Morgan Stanley, albeit from the macro point of view, that there wasn't a merchant and customer-centric value proposition. I got super excited about the idea of creating a product that just democratizes purchase financing installments to 90% of the population that doesn't have credit card. But equally exciting was the opportunity to roll out purchase financing programs to 95% of retail [00:05:00] that is not these two retail stores, and equip them with purchase financing programs needed to compete with these major retailers. And that was, for me, what really drove the opportunity to start Aplazo. And then it was all about operationalizing the idea. There was many challenges that we faced in the beginning. When we started out, it was around Q1 of 2020, so it was just in the beginning of COVID and me not being-

Bill: Nothing like trying to start a company [00:05:30] and then a couple of weeks later, everything gets shut down.

Angel: Right, particularly a consumer-lending company. I don't know if I would recommend anyone to do that in the face of a pandemic. So yeah, it was definitely very challenging, a lot of uncertainty. Many of my closest friends, family, mentors questioned me a lot. It's not easy to start these types of businesses in a pandemic, and obviously, I'm not from Mexico, and so I lacked the [00:06:00] local know-how that I believe is very important in starting a business, a local business in Mexico. But I was very lucky to partner with my co-founder, Alex, who is from Mexico, and he's a proven operator that has helped scale many tech businesses in LATAM, such as Uber, Uber Eats, Lime Scooters, OYO hotels and homes.

And it was not until we partnered, and it was probably around April of 2020, May of 2020 that I moved to Mexico. [00:06:30] We were already two, three months into the pandemic. And for me, it was just after landing in Mexico and experiencing offline retail, which surprisingly didn't shut down during the pandemic. But after experiencing that and seeing firsthand the pain points that I was from a macroeconomic point of view, analyzing in New York, all the way in New York, I had an idea what it was all about, but it was not until I landed in Mexico and I saw this [00:07:00] firsthand that I really started getting excited and everything just started to click, and that's when we knew we were up to something.

Bill: No, it makes a lot of sense. Pulling way back on the macro for a minute, for a little drill-down, before we dive into the details, I mean, do you have a sense of why Mexico is so underpenetrated from a credit standpoint? I mean, if you look at other countries around the world at a similar GDP size or similar development path, Mexico stands out as a particularly underdeveloped [00:07:30] consumer credit and consumer banking ecosystem. Any sense now that you've lived it for a few years of what some of the main obstacles have been?

Angel: Yeah, so just sharing some data points. As we've talked before, Mexico credit card penetration is around 10-11% of the adult population. Then you look at consumer credit, personal credit, it's probably around 30% of the adult population. And when you compare it to a country like, let's say, Brazil, [00:08:00] where credit penetration is much higher, you start asking yourself, why is this the case in Mexico? And for us, it was definitely attributed to the data environment, the data infrastructure. It's such a data-light market that just makes it really, really challenging to underwrite consumers. Just basically, around 40-50% of the population we believe are the ones that have sufficient credit history to make a credit decision using traditional [00:08:30] methods. So it just makes it really challenging for traditional lenders to extend credit in a way they could mitigate for risk. And that's mostly on the supply side, I think, and that's what I mostly listen more entrepreneurs talk about.

But something that also goes untalked about is the demand side as well. We know that in Mexico, banking penetration or debit card penetration is around 50 or [00:09:00] 55% of the population, and you would argue that these are digitalized people that could have access to credit. And when you start double-clicking, you can do this more with user research, understanding, having one-on-one sessions with consumers. We found a lot of interesting data points that a lot of consumers are very risk-averse to many traditional forms of credit, and we think that's attributed to a low trust for the traditional banking institutions.

A lot of consumers have experienced many difficult situations with lenders, particularly around collections, particularly around lack of transparency, around things like deferred interest, the fine print, and how basically you can be two or three days late on your payment and all of a sudden you have this 3X trigger on your APRs. And these are things that consumers are not aware of at the time of origination, [00:10:00] and that just causes a lot of low trust. And we've seen that a lot from our point of view, and we see that happening a lot with credit cards and micro-financing companies as well. So yeah, I would argue it's definitely a supply side, but it's also a demand side, particularly related to trust that we think that as a fintech community we all need to address.

Bill: Yeah, no, it makes sense. I mean, really interesting that there's both supply and demand reasons why Mexico might be so low. So let me turn [00:10:30] then to more specifically on Aplazo. I mean, you guys are still building, you're still a young company, a lot left to do, but you've made amazing progress on both of these sides, right? The ability to underwrite customers and offer them credit, but the ability to get customers to trust you and want to take your products, and then you throw the merchant in, which is a whole other vector. I mean, I'd love to hear some of how you guys have been able to start tackling these problems.

Angel: Yeah. So I can talk a little bit more on the inception story [00:11:00] because definitely it's been an interesting trajectory how we've evolved. But I would say given that all this financing problems in the country and ourselves starting a consumer lending business, the development process was very focused on risk and distribution. Like I mentioned before, Mexico is a very data-light market, a lot of structural issues with the data environment here and a lot of low trust with financial institutions. And we knew that we needed to tackle these problems [00:11:30] since day one. And focusing on risk and our ability to assess credit in the beginning, it's obvious that like any lending company, you want to basically shorten the learning curve as fast as possible, invest in a couple of unprofitable vintages in the beginning, and we wanted to do that, but we wanted to do that in a way that we mitigate risk as much as possible, learning as fast as possible.

So from the consumer point of view, we designed and structured [00:12:00] our product in a way that allowed us to do that by offering low duration and low average order values. And that allowed us to minimize risk on a per-user basis, starting with low credit lines focusing on recurrency, which allowed us to iterate fast, expedite data capture, and progressively graduate users to higher credit limits. And for such reasons, we needed to focus our go-to-market or the sales motion on the merchant side, targeting industries [00:12:30] that were a good fit for this product design. And these were basically categories within the retail market, such as clothing stores, footwear stores, sports and equipment stores, general merchandise stores, and so on. And that's how we set out to really overcome the risk challenge, which is basically since day one we were seeing most of our consumers having no credit files whatsoever.

We just needed to really understand [00:13:00] as fast as possible how to underwrite these consumers, and we thought this was the best way possible. And in hindsight, it's been working really, really well. And then it's distribution, which is the entire motion vector that you alluded to, and that's a different motion. And for us, we knew that in order to crack credit penetration in Mexico, we needed to rely on a proprietary and a differentiated data set that no other traditional lender was [00:13:30] capturing. And in that in itself, giving us an advantage to be able to extend credit to these consumers that have never had credit before. And for us, it was all about integrating, and making, and convincing merchants to furnish that data either online and offline. So from day one, we invested a lot in integrations, direct integrations with e-commerce stores but also with physical stores through their point of sales and capture that data [00:14:00] related to the purchase or related to the transaction that, yes, we didn't start using and leveraging until two years, three years later.

But nonetheless, it's making most of our underwriting decisions to this day. And that was a good investment that we made. But at the same time, the ability to being directly integrated with merchants also helped us overcome the trust issues that I mentioned before. Allowing merchants to extend credits to consumers [00:14:30] helps us overcome these trust issues. For instance, like a Puma store that's already a flagship brand in Mexico that already serves a particular segment of the Mexican population, convincing them of extending a credit because they see a return on investment on our product also helps us overcome these trust issues that are very relevant in the Mexican operating environment. And that's allowed us [00:15:00] to definitely build trust with consumers, but also from a business point of view, it's been an integral part of acquiring users with high purchase intent and very efficient acquisition costs.

Bill: No, it makes sense. So you're able to leverage in your example of Puma to kind of overcome that hesitancy with the consumer. Obviously, if your product wasn't easy to use and easy to understand, then you might get customers once, and then they don't come back. So you play a huge role in people coming back, but you're able to use the distribution partners maybe to overcome that initial hesitance.

Angel: Of course.

Bill: How do you juggle? I've certainly worked in my days at Capital One, not in a business exactly like yours, but in some businesses where you're distributing various lending products through retailers, there's always a tension the retail partner wants you to approve 100% of customers. Solid risk management means that you're never going to approve close to 100% of your customers. I mean, how have you sort of learned to juggle that tension over the years?

Angel: Yeah, for sure. So I think it starts with the value proposition and understanding the macro. [00:16:00] So, like I mentioned before, credit card transactions around 65% of them are installment-based, and these are usually done by credit card companies working with the merchant acquirer and having a direct relationship or a commercial relationship with the merchant. And these are programs usually that are promotional programs that merchants are offering during seasonal periods, and they've experienced the value add of adding [00:16:30] these programs to their operations. And the main problem is that credit card penetration is very low, and merchants know that there is a return on investment on offering installments to the credit card, but the addressable market of their consumer base that has a credit card is just very small. So the value proposition of Aplazo is that, but just magnified to the entire Mexican population. So that makes it really easy for them to understand [00:17:00] our product and really easy for them to know that there is a return on investment, which is basically a function of higher tickets, higher average order values, and higher conversion.

So that's something that we have working to our advantage that merchants are already aware of the value add of offering installments. What's better is that we just amplify that to the entire consumer base. The thing like you mentioned is always approval rates, and particularly in an offline store [00:17:30] where you're basically approving or rejecting a consumer at the time of purchase in a physical store is definitely a challenge, particularly when you reject consumers. And we've invested a lot of effort in trying to optimize approval rates as much as possible. That's been a key differentiator for us against any other player in the space. And for us, it's been a function of being able to underwrite each transaction, which is a very unique advantage in a data-light environment. [00:18:00] We're underwriting consumers at the time of origination, but also we're underwriting each transaction. And by underwriting each transaction, we do a real-time evaluation, and we do differentiated structuring in order to optimize approval rates.

For instance, we can have different down payment amounts, we can have different durations, we can have different pricing. We're constantly monitoring the ability to adjust limits depending on each transaction. So these are unique [00:18:30] levers that are just very different from traditional credit products that allows us to optimize approval rates and really play with how much principle at risk we're willing to take at each transaction. And that's allowed us to have over 80% approval rates. And for us, what we're mostly solving for is fraud, and just being transparent with merchants and working together in tackling fraud is where we dedicate a lot of efforts, and that's something that usually [00:19:00] the merchant is really supportive of.

Bill: No, that makes sense. I mean, that leads me to the next question. I mean, you can't really have any conversation in the VC space these days without talking about AI. And older generations of AI certainly have played a role in the industry as it relates to fraud management, and so I'm sure you're leveraging it there. But I know this is an important part of how you've been building Aplazo in a number of ways. I just wonder if you can talk a bit about how you're able to leverage some of these tools in different ways.

Angel: Yeah, so we've been using AI for a while now. It's definitely [00:19:30] being encompassed across many aspects of the business, particularly fraud prevention and risk assessments, of course, but also a lot of personalized recommendations, customer service automation, and so on. And these technologies have definitely helped us analyze the vast amount of data that we have and make the real-time decisions that we need to make at the time of purchase, detecting fraudulent activity, tailoring product recommendation to individual users, and [00:20:00] providing more responsive and personalized customer support. So particularly in fraud and in risk management, the ability to underwrite each transaction and powering that with ML and AI models for basically dynamic risk-adjusted pricing for each transaction, depending on the SKU, depending on the category, depending on the location, is really interesting. We've seen a lot of great advancements there, a lot of great performance on underwriting [00:20:30] that we attribute to this ability of employing a differentiating approach on each transaction to risk, but also at the user level, no credit line assignment, customer underwriting, customer onboarding.

These are all data points that we get at the time of purchase as well that really power these models and help us understand from a more comprehensive point of view, who is real and who is not. But also doubling down on personalized recommendations. [00:21:00] That's where we've seen a game changer for us as well in fostering customer loyalty and just delivering wow experiences. Nowadays, for instance, most of our orders are being accepted through a mobile app rather than from our partner websites. And that's a function of our value proposition, but it's also because we understand what customers want and what they need because we're capturing SKU data at the time of purchase, we know what they've been buying, so we're likely able to predict [00:21:30] what they're going to buy next.

And being able to offer personalized recommendations in terms of products, in terms of merchants is something that we've been investing a lot, and we're super excited about this potential of continuing investing in this area, help us become kind of the de facto primary account for consumers to spend and offer ongoing points of engagement on a daily and weekly basis. So yeah, we've seen definitely a lot of great efforts on AI, and [00:22:00] that's something that's really exciting for us going forward.

Bill: Thank you. Let me pick on something that you said in the middle there, which I think is a pretty stunning statistic if I heard it correctly, that over half of your consumer purchases are coming through your app as opposed to your partner's app. I think most people probably have the impression that most folks broadly speaking in the BNPL space are sitting on top of their partners, usually websites, but maybe physical stores or other things, and using their distribution. Is that a component of the business that you [00:22:30] always thought would be there from the beginning or something that you were able to discover elsewhere and really build on customer loyalty in a pretty unique way?

Angel: No, to be honest, that was a learning that we had. When we started the company, we never imagined that we would get there so quickly. We knew that as soon as we become more and more ubiquitous, eventually the growth motion starts focusing more on the user rather than on the merchant. But we were surprised to see very quickly [00:23:00] a lot of that gravitating more towards the user. I think what we did really, really well, spending a lot of time in understanding the data that we've been getting at the transaction and at the purchase, and really understanding customer’s wants, and trying to get them to go to a mobile app, spend time in the mobile app, discover new merchants, discover new products, discover new deals, discover [00:23:30] new promotions.

And as soon as we started doing that, we started seeing a huge shift towards transactions gravitating towards merchants, I mean, through our mobile app. And it's particularly the repeat users. And with repeat users, positioning yourself as a one-stop shopping destination and our ability to keep doing that because we know what consumers want and we're likely to be able to offer that personalized experience for them [00:24:00] where they basically just go to Aplazo to really find what they need next.

Bill: Yeah, that's truly amazing. I mean, certainly we've talked to a number of players in a number of countries broadly in this space, and I think very few, if any, have been able to achieve that level of purchase driving. And it is just important in the long run that you're able to deliver that value to merchants that is quite unique, not just increasing their sales because you provide credit, but increasing sales because you're actually driving customers to buy their products, which is pretty stunning. [00:24:30] So look, as we near the end of the session, you've accomplished a lot already.

You talked about some of your merchant tools, you've talked about credit, you talked about driving some of these sales, you just completed your Series B, which we were thrilled to be part of. And I know you're doing that because there's a whole lot more in the future for you guys than there is in the past. I wonder if you can just share some of the big initiatives that you're working on. And if we're having this conversation again a couple of years from now, what are some of the big changes that will have happened with Aplazo?

Angel: For sure. Yeah, so [00:25:00] when we think about the vision going forward, it's really to become the preferred payment method in Mexico. As a true-sighted payment network, we believe that we can do that by becoming top of mind on how merchants do payments and how users have this top of mind when it comes for paying goods and services. And right now we're doing it with a very modest and simple-to-understand purchase financing product that has had great success, that has resonated really well with the Mexican [00:25:30] consumer. And pretty soon, we'll be doing much more than that. And right now, our objective is really to double down on the core business on what's been working really, really well. We are barely scratching the surface.

We see a huge opportunity to continue making our purchase financing offering ubiquitous, and that's what really is exciting us, the ability to really 10X our business from where we are right now, keep doing [00:26:00] that, but then coupling it with a set of cohesive products that allow merchants to connect better with consumers. And that's what it's all about, and it's all about really supercharging network effects within the business. And yeah, we were excited that we're going to be launching a couple of product launches this year and stay tuned for that. But yeah, it's definitely about becoming the preferred payment method and doubling down on what's been working [00:26:30] really well right now.

Bill: Yeah, that's super exciting. And I think some other countries, I think that might be, I mean, it's a daunting goal no matter what, but when payments are much more electronic and much more ubiquitous, it might be a little harder to buy into. But Mexico is such a unique place where there's so much cash and there's such bad options for consumers both on payments and borrowing. I think it's a wonderful, wonderful objective to have. I mean, we've done a lot of investing in Mexico, but very little on the consumer side, [00:27:00] largely because of some of these dynamics you've described, and super excited about your ability to drive lending payments, merchant satisfaction, and sales. I think you're building something really exciting here, and glad to hopefully be a small part of that journey.

Angel: Of course. No, thanks a lot, Bill. Appreciate that. Thanks for the support.

Bill: Definitely. And thank you for joining us today. It's been great having you. And to all of our listeners, take care and thanks for listening.

This has been the Fintech Thought Leaders podcast, your window into the world of venture capital and financial services with today's digital disruptors. QED is proud to provide the best FinTech advice you can get. To learn more or to read the full show notes from today's episode, check out, and be sure to also follow QED on Twitter and LinkedIn at QED Investors. Thanks for listening.