Fintechs are gaining ground in lending: What is the profile of the people who turn to these new lenders?

In a country where only 35.5 percent of people have at least one active credit product, according to the most recent Financial Inclusion Report, prepared by the state program Banca de las Oportunidades and the Financial Superintendency, the arrival of new players to revitalize this market, allowing thousands of people to access—mostly for the first time—a formal loan is good news.

These are relatively new platforms and offer digital solutions for both individuals and businesses with or without a credit history, even for those who need a second chance, i.e., with credit bureau reports . Most loans are initially low-value, with rates well above the market average, but with simple processing, quick disbursements, and flexible payment options, among other features.

Fintech companies such as Monet, RapiCredit, Lineru, Kredicity, Solventa, Juancho Te Presta, Wasticredit, Presta en Línea, Yadinero, Mesfix, Sempli, and the list continues to grow, are part of this segment. According to Colombia Fintech, 97 platforms dedicated to credit irrigation were active as of November of last year.

It's unclear how much their current portfolio balance is, but according to a recent report from the financial information center TransUnion, they already have 10 percent of new credit consumers in the country.

The same study notes that these platforms focus primarily on short-term consumer loans. Furthermore, "their loans have a greater share of higher-risk consumers," although in recent years their strategies have become more conservative, potentially due to the pressure of high costs and lower profitability.

The most recent analysis on the behavior of digital credit in the country, prepared by Colombia Fintech, indicates that the amounts granted by these platforms range between 100,000 and 7 million pesos for individuals and between 50,000 and 500 million pesos for terms ranging from one month to 15 years for SMEs, while interest rates are segmented according to the product demanded: less than 10 percent for payroll loans and educational loans, and between 20 and 30 percent for consumer and micro-businesses, on average.

Analysts agree that new digital credit platforms are gaining significant traction in this financial segment, providing a gateway to credit for thousands of people without a banking history, as well as for those who, for some reason, have had negative reports, preventing both from falling into the hands of the so-called "drop by drop" scheme.

But who are the most likely to turn to this type of credit? According to TransUnion analysts, they tend to be younger people, but at higher risk, which implies different credit needs and preferences, depending on their needs and life prospects.

He warns that these individuals are very active in credit and may not only have several products from these assets but also from different entities, not only fintechs but also from the traditional financial system, which seems to indicate good access to formal loans.

The study shows, for example, that in short-term free investment, 14 percent have five or more products in their portfolio, the same as consumers with short-term free investment in the traditional financial and solidarity sector.

Furthermore, they are not only active in credit and have a significant number of these, but they also have a diversified portfolio, participating in various products such as credit cards, microcredit, and home loans.

The study also found that fintech consumers do not operate in a single sector, but rather a large proportion have relationships with entities other than the new digital credit platforms.

According to TransUnion analysts, those who turn to fintechs for credit tend to be young, with no credit history, some with negative credit reports, just starting out in the workforce, and others. They can be considered at higher risk, so the cost of borrowing is generally higher.

According to the information center's analysis, these consumers have higher default rates, with payroll delinquencies being the exception. Thus, the default rate of more than 60 days for short-term, free-investment consumers is 49 percent in fintech companies compared to 17 percent in the financial and solidarity sectors.

In long-term free investment, the default rate for fintech users is 14 percent compared to 12 percent in the financial sector , and in payroll delinquency, it is 2 percent compared to 5 percent in the financial sector.

Regarding loyalty to the lending platform, the study found that there is no clear preference, and that it depends on the type of consumer and their product needs. This highlights the opportunity for banks to diversify their portfolios to retain customers and gain their loyalty.