BNPL’s Calling is in LatAm - Why We Invested in Nelo

By Frances Schwiep and Kyra Durko on October 12, 2021

We are excited to announce that Two Sigma Ventures (TSV) is leading Nelo’s $20M Series A. This is a milestone not just for the company, but also for TSV as our first investment in LatAm. We believe Nelo will emerge as the leading financing option for consumers in LatAm, starting with Nelo’s elegant buy-now-pay-later (BNPL) app and merchant checkout experience.

A favorable convergence of trends and market idiosyncrasies 

BNPL is the fastest growing e-commerce payment method globally, leading to some breakout companies in the US and Europe — e.g. Klarna recently raised a round at $46B, Square recently acquired Afterpay for $29B, and Affirm is currently trading at a $19.2B market cap. 

But the need for such a payment option is even more pronounced in LatAm. 

LatAm’s need and demand for BNPL is fueled by 1) a stark lack of access to credit, 2) an existing cultural norm that favors paying in installments, and 3) favorable demographic and regulatory characteristics.

Nelo is starting in Mexico, where less than 15% of the adult population has access to a credit card. For those that do have a credit card, credit limits are coveted and individuals generally want to avoid pulling down if possible. BNPL brings credit to the 85% of the population that doesn’t have any access, and an attractive alternative payment method to those that do.

The other dynamic that few people outside the region appreciate is that installments payments, known locally in Mexico as “meses sin intereses” (months without interest), have been available for decades, but through archaic and largely offline distribution methods. For example, a large, publicly traded household appliances business in Mexico, Grupo Elektra (~$5.8B USD in annual revenue last year), reports that 65% of its sales are still made via installment plans. Overall, studies show 45% of ecommerce payments in LatAm are made in installments, but they are only offered through difficult-to-access credit cards or cash vouchers, which require offline trips to make payments. This is a massive number, especially compared to North America, where installment payments are expected to capture 3% of e-commerce volume by 2023. 

Lastly, Mexico has favorable demographics for rapid adoption of BNPL. The median age of its population is 27 – 11 years younger than the US. This is also the age group that has seen the strongest adoption of BNPL in the U.S. – 47% and 40% of Gen Z and millenials, respectively, have used it to pay. This is much higher than Gen X, at 30%, and baby boomers, at 15%. This younger consumer base in Mexico is also predisposed to using their smartphones on the daily for transacting, making the shift to mobile payments and banking a no-brainer. Finally, thanks to the “Ley Fintech,” or Fintech Law, that passed in 2018, Mexico is home to favorable, open fintech regulation that encourages financial inclusion and a move away from cash as a form of payment. 

We believe this intersection of trends and market accelerants has created the perfect conditions for a breakout BNPL company in LatAm.

Nelo’s bet on consumers first

Nelo’s go-to-market (GTM) product approach is distinct from other BNPL companies. The largest players in the BNPL space today launched and grew their businesses by inserting a BNPL option in the merchant checkout experience — i.e. a business-to-business-to-consumer GTM approach. In contrast, Nelo is starting by acquiring consumers directly via their app and targeting repeat purchases. 

Nelo’s app, which launched earlier this year, gives consumers the financial flexibility to finance important everyday necessities (i.e. phone and utility bills) and common subscriptions (e.g. Netflix and Spotify), while at the same time serving as a way for customers to build credit such that they can unlock increased credit limits to finance higher cost items. The Nelo app allows consumers to buy now and pay later at >75 merchants (and very soon, any merchant) and is already one of the highest rated apps in Mexico, with over 30,000 reviews and 4.9 stars. Nelo has also integrated with the POS and checkout systems of over a dozen select, high-volume merchants. In total, the company has already issued over 400K loans to many thousands of consumers.

This dual go-to-market strategy positions Nelo to own a direct and deep, recurring relationship with the consumer. Nelo is the only BNPL company in the region building the trust and brand loyalty with the consumer in this way. Moreover, Nelo’s multiple touch points per month with each consumer translate into a tremendously valuable longitudinal data asset for Nelo, which even local credit bureaus do not have access to. We believe this core data asset around consumer repayment behaviors and credit worthiness combined with sophisticated machine learning models will give Nelo an advantage over incumbents in the US and Europe interested in entering the region.

Nelo was founded by Kyle Miller and Stephen Hebson, who met during their 4+ years at Uber, and overlapped in Mexico. Kyle and Stephen launched core parts of Uber’s payment stack in China, India, and Mexico. After spending time in Mexico, it became clear to Kyle and Stephen that there was a massive opportunity to elevate consumer financial experiences in the region. The duo moved to Mexico City full time and built up a team of 20 people in CDMX. Kyle and Stephen bring a deeply informed perspective around payments and risk, strong talent network, and technical expertise to this problem that sets them apart from others. 

We are thrilled to partner with Kyle, Stephen, and the entire Nelo team in seeking to redesign the future of digital payments and enable digital commerce across LatAm.

The views expressed herein are solely the views of the author(s), are as of the date they were originally posted, and are not necessarily the views of Two Sigma Ventures, LP or any of its affiliates. They are not intended to provide, and should not be relied upon for, investment advice. Your linking to or use of any third-party websites is at your own risk. Two Sigma Ventures disclaims any responsibility for the products or services offered or the information contained on any third-party websites.