Two Argentine entrepreneurs are turning to social networking as a means of helping to solve the often sticky public problem of securing financing for a business proposal or personal effort. Constancio Larguía and Carlos Maslatón, who previously helmed the financial website Patagon, have now launched Weemba, which allows both individuals and small businesses to create profiles and offer customized proposals for loans or other financing to public and private institutions.
Larguía, Weemba’s CEO, and Maslatón, its international director, launched Patagon — a financial services aggregator that allowed users to access information including customized stock quotes, financial news and advice — as an agent for Bolsa Online Argentina, a website for trading stocks online. Just before the dot-com bubble burst in 2000, Patagon was acquired for US$700 million by Santander Group. Although the acquisition was much talked about in the Internet world at the time, the Patagon brand has since disappeared and Santander’s Internet banking division is now called Openbank. Weemba has been operating in Argentina since August, and the site went online in Spain a month ago. The creators expect to launch in the United States within a few months.
In an interview with Universia Knowledge at Wharton, Larguía and Maslatón talk about how they came up with the idea for Weemba and what they are hoping to achieve over the next five years.
Universia Knowledge at Wharton: How does Weemba work? Why did you give it that name?
Constancio Larguía:We did things the reverse way from [how] the financial system manages them: Instead of having web pages where the banks offer their services, on Weemba whoever wants to buy a financial product — whether it’s a small business or an individual — creates a social profile. You can attach [information about your] cash flow, a portfolio of the products that you provide, tax declarations [and] recommendation letters. You can upload digital [content] in various formats for enriching the profile, which you can continue to update [over time]. In this business model, the active person in the process is the one who makes the offer, the person who gets the loan. He is the one who clearly expresses his intention to contract for a financial service, and waits until he is contacted.
Carlos Maslatón:We began to set up the project a year and a half ago. Last August, we began to operate in Argentina. A month ago, it was introduced in Spain, and we hope to be on the air in the United States at the end of March 2011. We thought of "Weemba" because it is a name that can be produced in the largest number of languages. It is also colorful and it was available.
UKnowledge at Wharton: Describe Weemba's business model. What is its target market?
Maslatón:The important thing is that the person who loads his or her public profile does not reveal who he or she is, but appears under a pseudonym or nickname. Only those people who are authorized by the user can access the real data, and only financial institutions that are regulated by the Central Bank of Argentina can get involved. The same situation is repeated in Spain and the United States.
In addition, when someone applies for credit, he goes through an online process to validate his identity. The first step in that process takes place through e-mail. Then [the user] enters their personal data, and we verify it in the database of Veraz [the commercial and credit reform, created by Equifax, that contains information about the payment behavior of individuals and companies] to see whether their economic situation is good. Then, we either accept or reject that user. Continuing on, there is a questionnaire that collects personal and financial data. In the final stretch, we request the bank account of the user in order to make a minimum deposit, which can be as little as 60 centavos, to prove that it is a real one. That way, we check to see if the identity and the account information are correct, and we can give the go-ahead to the user.
Larguía:As for the market, we wondered if there is segmentation for the product that we offer. For me, the world has changed forever. Unfortunately, the concept of segmentation, in the sense of “I treat everyone I speak to as special” is a really old one. Today, a service that anyone can use, no matter what age or where they live in the world is in the computer or in a cyber café and it is all the same.
UKnowledge at Wharton: How has the business progressed so far in Argentina and Spain? What are you hoping for in the United States?
Maslatón:In Argentina, we already have 1,100 registered users, of which almost 20% are companies. So far, we calculate that there are around 45 million pesos (a bit more than US$6 million) of demand within the users that have registered. Of the 46 institutions registered with the Central Bank, 10 are already registered with us, both public and private institutions.
A bit more than a month [after] our launch in Spain, we are registering users there at a pace that is more than double that of Argentina. In [Spain], there is a lot of frustration among the public about not getting financing, and we want our mechanism to be a facilitator and driver of the interests of both parties….. One advantage of Spain is that it has made a lot of progress in using digital signatures, both for individuals and companies. Within just 45 seconds, we can verify the identity of the user.
Larguía:We think that this task is going to be easier in the United States because it is a market where the Internet has permeated everything, and the culture for consuming financial products is more complex and sophisticated than in Argentina. In the United States, a farmer in North Dakota has a lease on his tractor, six credit cards and knows all of the financial tools perfectly well. Here, in contrast, we haven’t reached that level of sophistication.
Nevertheless, in the local market we believe that Weemba is going to work and grow just as effectively by contributing another option within the Argentine financial system. It is a way to give more options to the consumer. Through Weemba, he will have more opportunities to get what he wants. On the other side of equation, Argentine financial institutions have a fabulous tool for targeting new clients that they can acquire within a social network.
UKnowledge at Wharton: What are the biggest barriers to the international expansion of your business? Despite the fact that the Internet has no borders, is it that different countries have different laws governing banking and finance?
Larguía:That’s right. We are not a financial institution because we aren’t involved in activities that bring in the public’s savings. Nor does our existence have an impact on the multiplier effect of the monetary base, nor is any business value transacted on our platforms. Nevertheless, in every way, we are perfectly aware that we provide a service to financial institutions that, as such, are held back by one or more regulatory frameworks. In this sense, our platform is constructed and designed to observe how those regulatory frameworks affect the way our service has a positive impact on the financial industry. We are so careful about observing those regulatory requirements that logically vary from country to country, that we now feel quite satisfied for having created a platform that simultaneously meets the regulations of Argentina, Spain and the U.S. This is especially important, considering that U.S. law has its basis in Common Law, unlike [the laws of] Argentina and Spain, which have their bases in Continental Law, as well as a different level of regulation in areas such as consumer defense, protection of personal data, and the ability of professionals to loan money.
UKnowledge at Wharton: Do you believe that a site like Weemba can help resolve some of the financing problems that companies around the world are facing?
Larguía:It is a new concept that doesn’t have any competitors in the world, at least for the moment. It means leaving the real world of banking branches and customers, and entering a social network online. Instead of walking into and visiting each credit institution, you reach them all from a computer. The person who gets the loan decides who can come to “visit” his profile and offer him options.
In addition, those who are on the financial side [of the deal] find that all of the people who participate in the social network are already interested in signing up for a financial service. Google, which is the best mechanism for commercial targeting, shows relevant advertisements in each listing of search results. But these ads don’t always fit in with the goal of the search; there is a margin of error. With Weemba, those who participate have only one intention, which is to sign up for a financial service.
Maslatón: It is important to clarify that we don’t charge the user anything when he or she registers, but the financial institutions pay us US$150 to access each complete profile of the users who interest them; that is to say, possible clients. In addition, we do not sell databases. Instead, we let people visit the profiles after the users accept the request from the financial institution that is interested in them.
UKnowledge at Wharton:What’s your view of the banking sector in Latin America nowadays? Are there growing problems for financing? Are there notable differences in the penetration rates of banks in various countries? How will all these factors affect the expansion of the business in the region?
Maslatón:I believe that, in harmony with the Latin American economy, the banking sector is clearly undergoing a strong expansion. Things have been moving ahead ever since the days of low rates of bank penetration, 10 or 15 years ago, and everything is in place to grow further. Clearly, what is needed for that to happen is not just the natural, positive trends in the economy, but for these trends to be accompanied by economic policies that favor them. In this sense, there are instructive signals coming out of Brazil, Mexico, Colombia, Peru and Chile. Other countries, such as Venezuela, Ecuador and Bolivia [which have Populist leaders] do not provide examples worth following. Argentina is in the middle. Without doubt, with all of this growing, the missing requirement is for a clear commitment by the political sector to achieve the necessary real expansion, rather than the sort of catastrophic deflationary recession … that took place between 1998 and 2002.
UKnowledge at Wharton: You were the creators of another financial website, Patagon. What did you learn from that experience?
Larguía:The industry in which we work is only 12 years-old, and we were born along with it. So we believe we have the experience of the first groups that began on the Internet. We have been there for the cultural changes of these years, and we have seen how consumers were adapting themselves to a certain type of product and services. Technically speaking, it was possible to put together a social profile in 1999, but we might not have had the success that we had starting from 2006…. Having lived through the entire history of the Internet gives us more perspective about what the consumer needs.
Maslatón:We say this proposal didn’t emerge earlier on because, even if was technologically possible in 2000, people had not measured the importance of social profiles on the Internet. What was lacking was cultural assimilation on the part of users in general about certain dynamics of interrelationships and consumption.
UKnowledge at Wharton: Do you see any parallels between the dot-com boom of 12 years ago and the current boom in social networks?
Larguía:We believe that the excesses of the dot-com era of 12 years ago have left some strong and durable lessons. We don’t feel that we are experiencing stock market excesses in the sense that they were observed during March 2000.
Maslatón:Clearly, things are different from 1999. The mania that drove stock market prices higher and higher twelve years ago was also a natural fact for a market that had always been revealed in financial history whenever a new industry’s psychological impact began to expand across the broader public. [Economist and former U.S. Federal Reserve chairman Alan] Greenspan called it “irrational exuberance.” These processes were so bullish from the viewpoint of market capitalization that the shares of companies that investors signed up for were beaten down when the stock market crashed. But after that, a whole lot of revolutionary innovations surfaced…. In the following bullish wave, there was a much greater expansion and it had real strength. This is the wave that we are now in, and where we have … yet to create the typical euphoria … that precedes a crash.
UKnowledge at Wharton: Given your experience as entrepreneurs in the technology sector, what are your recommendations for other technology entrepreneurs and managers in Latin America?
Larguía:I would recommend that they try to focus on designing a business model [with] a clear monetization strategy. The promise of selling advertising once the website reaches a sufficient critical mass can wind up being difficult to achieve or maintain over time. We subscribe to the view that plans should be focused on achieving real and concrete invoicing on a base of transactional activity.
UKnowledge at Wharton: What do you expect for Weemba within the next five years?
Maslatón:We think that over the next five years [Weemba is] going to become a platform for a significant percentage of the negotiations for loans and financial services in each country where we have a presence. Imagine that with just 1% [of such institutions], we would be talking about an extremely significant number of financial institutions. This beginning can be replicated in the future in other services such as insurance, leasing, tourism and so forth. The list of things to do is endless.