Every time we get on a call with Gerardo Morales, CEO of DB Menos, he says “wait till you see this!” then pulls up a new product feature, an upwardly sloping graph of an operating metric, or a video of a happy customer. Gerardo lives and breathes his business, DB Menos, a digital credit repair platform based in Mexico. Most of his waking hours are spent thinking about how he can reach new customers and offer them a better and easier experience for paying down their personal debt and achieving financial independence. Gerardo’s unassuming, transparent style and customer-first mentality sets him apart in an opaque industry fraught with aggressive collections tactics. DB Menos’s mission goes hand-in-hand with our investment thesis of investing in startups that uses technological tools to make processes easier and more transparent, thereby empowering the end user. In the case of DB Menos, it empowers people that feel at the mercy of inaccessible financial institutions and burdensome paperwork and accompanies them on a path to financial freedom.
Total consumer debt is increasing at high rates throughout Latin America. In Mexico, the region’s second largest market, consumer credit reached up to $100 billion in 2018, after growing over 10% annually over the previous five years. Across Latin America, the non-performing portion of this consumer debt is between 4% and 7% of total outstanding loans, reaching over $5 billion. Financial institutions prefer not to deal with these loans, banks are open to selling defaulted credit portfolios for as low as 5% to 20% of their fair value. The debt settlement industry that collects on these non-performing loans has not changed substantially over the past decade. This discrepancy of a large, growing market on the one hand and a traditional industry that has not adequately addressed the problem on the other hand, create an opportunity for DB Menos.
Company and value proposition
DB Menos is a debt settlement company that serves over-indebted people who have defaulted on consumer loans or credit card debt. People seek out DB Menos when they are significantly behind payments and are looking to reintegrate into the financial system. When these potential customers enter DB Menos’s website they have the option to select financial entities to which they owe money and the amount of debt they want to settle from those banks. DB Menos then provides a debt paydown proposal that includes: the timing of payments, a consolidated savings plan, and a proposed discount to the total amount owed. During the saving process, users can visualize and manage the debt settlement process through DB Menos’s platform and choose from a variety of payment options, both online and in-person. DB Menos’s technoloy-first perspective, has helped it attract credit customers who prefer to interact via technology and who display a proactive willingness to pay. Technology allows DB Menos to provide financial transparency and puts information in consumers’ hands at a time when they are vulnerable and overwhelmed. Customers watch as the new bank account they set up with DB Menos grows toward the final payment goal.
Customers front and center
When we evaluated the investment in DB Menos, we spoke with clients in order to better understand the business from the consumer perspective. DB Menos’s clients are on the margins of the financial system, and often the victim of aggressive credit card marketing and incomplete information. People were scared of speaking to banks and debt collections. They recieve calls at all hours of the day. DB Menos clients highlight the capability of DB Menos to help defaulted people structuring their income, finally pay debts and get a positive credit history. On these calls, we also found out that in the early days of DB Menos, Gerardo himself was actually taking some of the calls. His mentality of looking for a customer centric solution and his transparency works its way through the entire company. Gerardo makes the payment process personal. When customers ultimately pay down their loans, he invites them to the office to celebrate their financial freedom with a graduation party. Small actions like that give a personal touch that leads to word-of-mouth marketing that helps make DB Menos successful.
Gerardo and his co-founder Andrea Gutierrez, started DB Menos in 2017 after working previously in debt settlement and consumer finance. Prior to starting DB Menos, Gerado already knew the market inside and out. He had spent time living and working in Colombia and the United States in various capacities in debt relief. He is the type of entrepreneur that has been on the inside and knows they can do it, perhaps better, by themselves. We met Gerardo and Andrea while they were going through the 500 Latin America accelerator program, one of the top startup programs in the region. During our evaluation process, Gerardo came all the way to Peru to meet us in person. We know that building a startup in Latin America takes a village so we were happy to invest alongside multiple investors we respect, including 500 Startups, 342 Capital, and Seedstars. Gerardo was deliberate in putting together a structured Advisory Board with René Lomelí of 500 Startups, Juan Pablo Mejia, a serial entrepreneur and founder of Yotepresto.com, and me.
Progress and impact
When we invested in DB Menos, its first few graduates were completing the program and paid down their loans. Since then, DB Menos has continually improved the product, including implementing an automated WhatsApp communication to begin the setup process and an online platform that gives users the status of their savings in real time. Today, over 600 customers have secured financial independence. DB is on its way to creating the largest digital credit repair platform in Latin America, and along the way accompanying millions of people achieve personal and financial empowerment.