The original version of this article appears in Spanish on Entrepreneur.com.
His startup failed which left him up to his neck in debt. Now he’s helping others to pay off their credit card debt so the same thing doesn’t happen to them.
It happens. Sometimes things don’t work out and you are left picking up the pieces of your venture. With a mountain of debt and only the change in your pocket to keep your company afloat – no cash flow, no savings. You are over-extended on a credit card and you struggle to make the monthly minimum payment. Money is tight and, due to the high interest rate your card charges, the future looks bleak.
Sound familiar? It’s the story of David García, the founder of Digitt, a platform born from his need to dig himself out of high-interest credit card debt.
“When I finally got a job, after just four months without income, I tried to negotiate with the bank. At a 70% APR, it was going to be nearly impossible to get out of debt.” recalls García.
During this time, it occurred to García that he can’t be the only person in this situation. After a little research, he discovered that over 10 million Mexicans currently hold high-interest credit card debt. Great news for the banks – not so good for the consumer.
“The market we want to serve are the consumers that make regular monthly minimum payments but don’t have the means to pay off their full balance. These people are on track to paying off their debt but can’t make progress fast enough due to the exorbitant interest rates the banks regularly charge. These are, on average, in the 60-70% APR range – some are even over 100%.”
Digitt addresses the problem in a very simple way: by paying off customer’s credit card debt. Then, they replace the bank’s toxic debt with something more reasonable and fair.
In Mexico, the prevalence of credit cards is a new but booming phenomenon. Many people in their first few years as a credit consumer don’t understand how compounded debt works. They are surprised to find that making the minimum payments on a high-interest card does little to nothing to pay down the principle. In many cases, debt holders are going in reverse – they pay monthly but the balance continues to grow leading to higher and higher monthly payments.
According to a survey conducted by the Financial Studies Foundation, 70% of cardholders use their current credit card because it was sold to them. Only 29% proactively sought credit out. The same study confirms that 83% of people who have a credit card do not review and compare their credit card to other options.
How It Works
The process is very simple. Debt consumers visit the Digitt website and enter their current debt amount and monthly payment as well as the card they use. Then, the site calculates the current breakdown between principal and interest. It then shows the potential savings available via Digitt. The visitor can then request, from the same page, to pay off their current debt and become a Digitt customer.
“In less than two minutes we tell them if the credit is pre-approved and at what rate. Our interest rates vary from 20 to 35 percent per year with no additional commissions or charges. We offer loans of 6 to 60 thousand pesos with payment terms of 9, 12, or 15 months”.
The interest rates that Digitt offers are much lower than almost any other option. The average interest saving that Digitt delivers is 65%. With these savings, the card holders are better positioned to get ahead of their debt. Often, Digitt customers pays off their debt in advance of the term.
“Our mission is to help people recover their financial well-being,” Garcia adds. He maintains that his target demographic is at very low risk of default. If a consumer has been able to consistent make monthly payments on their high-interest card, they will certainly be able to make a much lower monthly payment.
“Our target customers are those who have the will to pay but, due to unfair and exorbitant interest rates, are struggling to do so,” he says.
Digitt has created a proprietary algorithm that combines multiple sociodemographic, behavioral, and historical payment factors to assess risk.
At 28 years old, David García found in Digitt an opportunity to combine his love of FinTech with his background in industrial engineering.
“We launched the beta in 2018 in our home town of Guadalajara. We wanted to make sure we completely understood the problem,” he recalls. Since December of 2018, Digitt is available throughout Mexico.
The company was created with the support of Agave Lab, one of the most successful early-stage venture capital firms. Today, Digitt has a seven-person team and has recently closed another round of funding that will enable them to continue to scale their business.
“Our current focus is on credit card debt. Then, we’ll expand to other types of debt and FinTech products,” concludes García.
For Garcia, gaining the respect and trust of his customers is his biggest goal. This is critical in an environment where banks are severely distrusted due to a long history of mistreating their customer base.