While buy now pay later (BNPL) transactions in the U.S. are expected to expand in coming years, Mexico is well ahead of the U.S. as traditional financial institutions in the country have left the population underserved.

In fact, BNPL transactions are expected to double to 4.2% of global e-commerce transactions by 2024 from their present share of about 2.1%, according to payments processing firm Wellpay, a subsidiary of Fidelity National Information Services. In Mexico specifically, Research and Markets predicts a 38.7% continuous annual growth rate for BNPL from 2021 to 2028.

Conditions in Mexico make the country ripe for BNPL expansion, said Adal Flores, co-founder and chief executive officer of BNPL and online consumer lender Kueski, which is based in Guadalajara, Mexico.

About 60% of Mexicans do not have access to banking services and some 82% do not own a credit card, said Flores. In the past nine years, Kueski Cash has granted more than 4.8 million loans to about 1 million unique customers, and the resulting loan data is now helping fuel determinations for Kueski Pay, the company’s BNPL product launched in 2018.

“This situation is further exacerbated by the fact that credit bureaus have little to no information on most residents, meaning most have little or no access to conventional bank loans,” Flores told Bank Automation News. To that end, Kueski has generated its own data to use for BNPL eligibility determinations.

In 2012, the company launched its inaugural cash loan product, Kueski Cash, which provides short-term loans that can be delivered “in a matter of minutes” through an online application process and target consumers typically ineligible for loans at traditional FIs.

“We use contextual data to evaluate our customers’ ability to repay, like many other BNPL providers,” Flores said. That includes real-time behavioral analytics, device data, sociodemographic data and data from the loan product, which is then processed by Kueski’s proprietary artificial intelligence (AI) and machine learning-driven technology.

“The more data we have, the better the underwriting we can do,” Flores said. “We see BNPL as playing an important role in expanding financial access and inclusion to previously underserved and ignored communities.”

Kueski Pay allows interest-free payments and requires no credit/debit card or bank account, and it’s now offered by nearly 1,000 merchants including Walmart, VivaAerobus, Nautica and Steve Madden. To date, Crunchbase reports that -based Kueski has raised a total of nearly $100 million across seven funding rounds.

Broader range of transactions

Similar firms are attracting investment in Latin America, including Mexico City-based Nelo, which closed a $20 million series A funding round Oct. 12, bringing its total funding to $23 million in two rounds, according to Crunchbase. The company also has a hub in New York and is looking to expand its merchant and customer bases.

On that note, Nelo similarly sees Mexico as prime for BNPL growth, in part because it’s already common in Mexico to pay for expenses like phone or other utilities in installments, the company told BAN. Customers can use the Nelo app to buy with BNPL options from more than 100 merchants like Amazon, Netflix and Spotify as well as pay for other services less typical for BNPL.

“In Mexico, installment payments are common and referred to as meses sin intereses, or months without interest,” Kyle Miller, co-founder and chief executive officer of Nelo, told BAN. “While this concept has been available over the last few decades, it is mostly through offline distribution methods.”

Providing an online option, Nelo’s app allows consumers “to finance both everyday necessities like phone and utility bills and subscriptions like Netflix and Spotify, which helps its customers build credit for higher-cost items,” he added. Nelo users can pay directly through the app.

Mexicans have been turning more to online purchasing, the company pointed out. Mexico was the fastest-growing e-commerce market globally in 2020, and more broadly, what’s now an $85 billion e-commerce market across Latin America is projected to nearly double to $160 billion within the next four years, according to Statista.

Overtaking traditional finance?

As analysts have predicted, BNPL is gaining in Mexico. Since beginning operations in April 2019, for instance, Nelo said it is now seeing considerable revenue and gross merchandise value growth of 50% month-over-month and more than 100,000 new purchases per month.

“Given that most BNPLs don’t require formal credit checks but instead leverage alternative data to assess creditworthiness, we think that BNPL will continue to gain ground and that it has the potential to ultimately replace traditional and credit card financing for most consumer goods,” said Kueski’s Flores.