Canaan Leads $15 Million Round in Brazilian Fintech Marven

Banking
27.05.2022 10:45 am

Last June, the Brazilian Central Bank implemented a new framework for receivables, turning the world of Brazilian fintech on its head. Marvin was the first startup to take advantage of this new market with a “registration-as-a-service” platform that allows SMBs to pay their suppliers using their own credit card receivables. We’ve led a $15M Series A, alongside existing investors Canary and Maúa Capital, making this our largest investment in Latin America to date.

Around the world, regulatory change always catalyzes the largest opportunities for new fintechs. In the United States, the Durbin Amendment to the Dodd-Frank Act set the stage for a generation of consumer fintechs to win market share away from incumbent banks. In Europe, PSD2 helped birth open banking behemoths like Tink and Truelayer. In Brazil, the end of the exclusivity between card networks and merchant acquirers prompted André Street to found Stone, now one of the most valuable payments technology companies globally.

Today, on the heels of another enormous regulatory change in Brazil, we are thrilled to disclose our Series A investment in Marvin, where Canaan will be joining the board. Marvin is a B2B payments platform that enables merchants to use credit card receivables as a financial asset with which to pay their suppliers, thus unlocking credit for merchants and increasing sales for suppliers. It’s hard to concoct a team with stronger founder-market fit than Marvin. Marvin’s leadership helped architect and implement Circular 3.952/19, the new regulatory framework for credit card receivables at Cerc, Adyen, and Itaú, and Bernardo Vale, Marvin CEO, led Brazil’s largest independent supply chain finance platform. From the very first meeting, we had with the team in their office in Sao Paulo, we were determined to work with this team. It is no surprise then that Marvin is Canaan’s largest investment in Latin America to date.

In this post, we’re going to dive deep into the new regulatory framework for credit card receivables that Marvin leverages, the extant landscape of B2B payments in Brazil, and finally, the way that Marvin reinvents these B2B payments. As investors, we’re lucky to have learned quite a bit about the massive and complex change that’s taking place across Brazil. We hope this blog post can not only explain why we’re so excited about Marvin, but also help others navigate the new world of registradores.

What is the issue with credit card receivables in Brazil?

Paying in installments is ingrained in Brazilian culture. Adyen estimates that as much as 80% of e-commerce payments in Brazil are completed in installments. Even if a customer pays in full upfront, 95% of domestically issued Brazilian Credit Card transactions are funded in D+30. As a result, it is extremely common for merchants to sell their credit card receivables to acquirers as a means of managing their working capital cycles. This is a service known as anticipation of receivables (“antecipação”). Despite the fact that operation is practically risk-free, since the acquirer is only fulfilling its own earlier obligation to pay the merchant, anticipation comes with punitive lending costs. Acquirers typically quote the cost of anticipation as a fixed monthly interest (typically 2.5-3%). With 2.5% anticipation interest, the total cost of receiving funding in D+1 for the full schedule of 12 Installments for a purchase of R$1,200 is R$195. This represents an overall rate of 16.3% and excludes the hefty payment acceptance fees also charged by the acquirer.

Think about that: Unlike anywhere else in the world, Brazilian SMBs face a de facto tax simply for doing business. Before last year, there was no competition to incentivize lower interest rates for the receivables. Acquirers were the only players with access to receivables, and retailers didn’t have any alternatives.

The situation is only made worse by the prevalence of Boleto payments in Brazil. Boletos are a highly popular payment method for the 55M Brazilian shoppers who still lack a bank account. Essentially, boletos are ticket invoices offered by merchants which customers then use to pay via offline methods. There are thousands of locations throughout Brazil where a Boleto can be paid: ATMs, branch facilities and internet banking of any Bank, Post Office, Lottery Agent, and some supermarkets. Yet boleto payments are typically confirmed with a delay of 2-3 business days, and many merchants do not like offering them, given the high rate of default and fraud, and because banks charge merchants for collecting Boletos (regardless of whether it was paid or not).

So whether you anticipate credit card receivables or not, whether you accept Boletos or not, every SMB in Brazil faces an extraordinarily cumbersome working capital cycle. Suppliers have always resisted extending credit to merchants, given the high default risk associated with that kind of lending. Yet nevertheless, merchants must discount the receivables they have in hand at abusive prices to get cash and pay the supplier.

What is the new regulatory framework and what is the opportunity?

Everything changed in June 2021. Last year, the market switched to a new regulatory framework under Resolution 4734, whereby the Brazilian Central Bank’s created four authorized “registration entities” — CIP, Cerc, TAG, and B3. Receivables acquirers were then required to register each of a merchant’s receivables into one of these four registration entities, which enabled any interested receivables buyer/acquirer to make an offer for those receivables. Now, buyers are forced to become more competitive in their discount offers, and anyone who does not adapt to the regulation is forbidden to operate with credit cards.

Not only should this regulation bring greater transparency to the receivables market but also substantially level the playing field for merchants. That means a baker doesn’t have to lose margin on her flour, just because she accepts credit cards. Or a shopkeeper for her garments. Or a restaurant owner for her Brazilian steaks!

The regulation also created an additional financial asset called a "Receivables Unit" which is defined by the amount due to a merchant, on a given day, for transactions related to a specific card network processed by a given acquirer. What the recognition of this asset type — as well as the existence of these new registration entities — means is the creation of a host of new financial services for Brazilian merchants. Now, merchants are allowed to use their current and future cash flows more flexibly across several credit operations backed by such flows. In fact, the new receivables regulation is expected to unlock an additional R$ 1.8T in receivables on top of the approximately R$ 1T in receivables volume that already transacts annually.