Deep Dives are a long form analysis of the story and business model of emerging Startups in Mexico.

This time, we analyzed Mexico's ninth unicorn and first one to have a Mexican woman among its founding team. Stori is a FinTech company focused on providing loans to the unbanked and on a mission to become a fully digital bank.

Competing with the likes of Nubank, Ualá, and traditional financial institutions, Stori decided to focus on the social impact side of the business by targeting the country’s unbanked.

With over 1.5 million customers in a three year period, the play has turned out to be right. Let us tell you their story.

Founding Year: 2019
Founding Team: Bin Chen, Marlene Garayzar, Nick Chen
Total Funds Raised: US$225 million in Equity + US$175 million in Debt
Notable Investors: Lightspeed Venture Partners, Vision Plus Capital, BAI Capital, GGV Capital, Goodwater Capital
Competitors: Bankaya, Nubank, Ualá, Traditional Banks

Part 1: How to bank the unbanked in Latin America

The economics of banking do not incentivize the delivery of financial services to those who may need them most. Since profits at retail banks are driven heavily by the size of the balances their customers deposit or borrow, product offerings are disproportionately focused on clients with higher levels of income and wealth.

All countries face challenges in achieving full financial inclusion, but Mexico lags behind its peers with 60% of its population without access to basic financial products and only 12% having access to credit cards.

Changing the status quo is no small feat. Fortunately, when the right team meets, at the right time, and with the right mission; miracles can happen. Stori is on a mission to offer credit card access to 100 million underserved Latin Americans while having the biggest social impact possible.

Of the many challenges facing the FinTech, a notable one is the customer onboarding process that continues to be completed manual, relying heavily on traditional data from credit bureaus when performing identity verification checks. Utilizing traditional data to verify identity doesn’t just alienate the modern digital consumer, it also leads to a considerable portion of demographics being unable to access the services that they require.

Another challenge is raising trust and awareness. Serving the unbanked and underbanked populations in Mexico requires a tailored approach based on each group’s needs: For the unbanked, it’s better information on services available to them, coupled with efforts to build trust in financial services. For underbanked adults, who tend to be more trusting of financial services providers, it’s innovation in payments. On the other side of the equation, it also means giving them an opportunity to build a credit history, which will open doors to other financial institutions later on.

Mexicans with informal jobs or bad credit history tend to knock on many doors before they can get approved for a loan. That’s exactly where Stori decided to start: with personal loans starting at MXN1.000 (US$50), they give everyone a chance to build that trust.

Part 2: From being rejected by banks to building its own bank

In the U.S. access to credit is better spread into the population than in Mexico, but a category was still undeserved a few years ago: foreign students. Stori CEO, Bin Chen, experienced it first hand when he landed in the U.S. as an immigrant from a middle-class family in China. For American students it is common to take on debt to fund their degree and everyday life, but Bin did not have the same opportunity for a lack of a credit score in the country. This situation put him in a difficult place for a long time until he finally found a bank willing to trust him with a small loan - a life changing experience as he recalls.

Since then the problem has been tackled in the U.S. with FinTech TomoCredit targeting international students and traditional banks opening more doors to this segment of the population. But this traumatizing experience has stayed in Bin’s head to this day.

On the other side of the border were Marlene Garayzar, Stori’s Chief Governance Officer, who was quickly working her way up in the traditional banking sector in Mexico, before switching to FinTech, when realizing the transformational power of technology in her industry. Still, something was missing. As a young graduate, Marlene’s dream was to serve her country and have a positive impact on people’s lives. After a quick stint with a government body she soon realized that the private sector could drive as much of an impact as the public one. But after many years climbing ladders in finance, she was still feeling a lack of purpose in her job.

Everything changed when one of her friends made an introduction to Bin. The former US student was well decided on following his dream, and was exploring different markets to launch a company and have a chance to give back the same opportunity that was given to him when he was struggling in the U.S.

Bin’s vision immediately resonated with Marlene and she put all her efforts to demonstrate to him why Mexico - and later Latin America - would be the best place to go. After a short trip to Mexico City, and a few Mezcals, Bin was convinced by Marlene's analysis of the market, and Marlene found in Bin’s project the chance to have the social impact and meaning in her work that she was craving for.

Using his network in the U.S., Bin quickly armed a team of co-founders with complementary skills and experiences in Capital One, Mastercard, HSBC, Morgan Stanley and the likes. The founding team was then split as follows: Bin would be in charge of the strategy and fundraising, Marlene would use her operating experience to launch the FinTech in Mexico, helped by a CTO to build the product and a Risk Specialist for the credit modeling.

Part 3: Come for the vision, stay for the product

Once the vision was laid down and the team together, it was time to build. In the traditional tenets of good startup practices, the founding team first launched an MVP (Minimum Viable Product) to test out the market.

Called Credifranco, their first product was a simple App offering emergency loans for individuals. This MVP gave them insights into users usually reluctant to talk about financial related subjects and additional data on an opaque market.

After a few months of operations and having tested their hypothesis, Bin Chen went on a road show in the U.S. to raise the money needed to build what would later be Stori’s product. Even with a team of complementary and strong experiences, a hot market, and a working MVP, investors were hesitant to bet on them as they were all first-time founders. Eventually, Bin succeeded in convincing some investors to come see what Marlene was already building on the ground in Mexico City, which landed them a US$1.5 million Seed round.

From their early 2018 inception to early 2020, the team spent its first two years building out the startup’s infrastructure, the platform, arming an operational team, and getting all the licenses needed to operate under Mexican laws. January 2020 marked the official launch of Stori’s first credit card working as a revolving credit line.

This first product aimed to give any applicant a chance to get access to a personal loan, for as low as US$50, in order to build the aforementioned trust relationship and, in some cases, regain their dignity. Stori’s product might not be different from what Nubank is offering, but their target customer base is. While Nubank focuses on the high-end range of people already using credit and differentiate itself from legacy banks through a better user experience, Stori is focusing on the overlooked part of the population. That strategy is paying off.

Since launch day in early 2020, the company has successfully raised new equity rounds amounting to a total of US$225 million and made them the ninth unicorn of Mexico in 2022, after closing a Series C extension at a US$1.2 billion valuation.

Still guided by the same North Star of bringing financial inclusion to 100 million underserved Latin Americans, Stori is now looking to the future of the region.

Part 4: If one big challenge was not enough…

One of the first startups tackling the unbanked challenge, and an inspiring source for Stori, was TomoCredit in the US. Founded by Kristy Kim, TomoCredit's first mission was to help international students more easily obtain credit.

TomoCredit eventually evolved to help young adults who are in good financial health but have no credit score. But Stori doesn’t plan to go compete in North America as they know they have plenty to do in Latin America alone. Furthermore, they still have a lot of room to grow in their native market and aim to capture 20% of the Mexican unbanked population before expanding in the region.

Acquiring new customers is not the only challenge in front of the team. To fight identity theft, a common practice in the country, they need to double down on technology and fraud prevention. Then, to fulfil their big vision, the next step will be to become a full digital bank - which is easier said than done. And lastly, competitors are starting to notice the opportunity. Argentinian Ualá recently announced the use of their Mexican banking entity, ABC Capital, to offer loans to middle-class clients and people who are unbanked.

Even closer to home, Ramón Chedraui, one of the family members that own Grupo Chedraui, launched Bankaya in 2019 with the goal of expanding financial and digital inclusion of the unbanked and underserved populations through its unique offline customer acquisition strategy. Backed by one of Mexico's most powerful and wealthiest families, it makes Bankaya a serious contender for Stori.

As if those were not enough challenges for a young startup, this year the global economy decided to end the party. This economic slowdown has affected Stori by creating a worse credit situation due to inflation and high interest rates. Not only will it cut through their margin and increase the risk of default from their customers, but it will make it harder to raise a new round of financing to sustain their operations and growth.

Hopefully, the team behind Stori will keep performing miracles to survive the years ahead and work toward their mission to make Mexico and the Latin American region a more financially inclusive place for the greater good of its population.