IN a country where distrust of banks makes people more likely to stuff cash under a mattress than in a checking account, a mobile banking app backed by billionaire George Soros aims to disrupt the way Argentines handle money.

The venture Ualá, which launched its app Tuesday, offers tech-savvy Argentines a low-cost banking alternative via their smartphones. The company’s backers include Steve Cohen’s Point72 Ventures and Silicon Valley’s Bessemer Venture Partners.

Under President Mauricio Macri the economy is beginning to recover from years of isolation from global markets, capital controls, protectionist policies and soaring inflation. Ualá — a play on wallet and voilá — sees an opportunity in the nation’s meagre banking penetration: less than half of the population has a bank account, according to the World Bank. More than 50 per cent of Argentines are paid in cash, and almost a third of those whose wages are deposited withdraw their money right away.

“We want to solve the lack of banking penetration in Argentina and reach people who don’t have a bank account,” Ualá founder Pierpaolo Barbieri, 30, said in an interview. “By leveraging technology, we want to go from the 20th century to the 21st, where banks no longer have to be physical places.”

In Argentina, 40pc of the population already has smartphones — and that’s set to grow to 70pc by 2020, according to the trade group GSM Association. Users sign up for a Ualá account through the app and receive a prepaid Mastercard. There are no opening, closing, maintenance or renewal fees.

The card can be loaded with cash at Pago Fácil, a money transfer and bill paying service owned by Western Union and with several thousand locations in Argentina, or through direct deposit from a bank account. Customers can withdraw funds from ATMs for free twice a month and thereafter pay only charges levied by the machine’s network. Through the app, they can transfer money between accounts, pay bills, get live notices on their card use and spending analysis — all without fees.

Ualá’s low costs should appeal to people who are deterred from setting up accounts by the high charges imposed by traditional banks on everything from monthly maintenance and ordering a chequebook to withdrawing money too frequently, said Barbieri, who was born in Buenos Aires and also serves as executive director of macroeconomic advisory firm Greenmantle from New York. For now, the company’s revenue comes from fees paid by retailers.

“Whatever bank you’re using is charging you to pay for all the branches they have, and you don’t necessarily need that,” said Ualá angel investor and serial entrepreneur Kevin Ryan, founder of Business Insider. “You need ATM services, to transfer money between friends, to pay bills. This is a lower-cost form of banking and it’s going to happen all over the world.”

In addition to Soros Fund Management, Ualá counts David Fialkow, co-founder of venture capital firm General Catalyst Partners, among its investors. Jefferies Group is also backing the company, according to people with knowledge of the matter. A spokesman for the lender declined to comment. The investors declined to comment on the size of their contribution.

Ualá expects 10,000 users by year-end. No one with the mobile app and mailing address will be denied the initial prepaid card, said Barbieri.

The company also plans to offer personal loans, averaging 25,000 pesos ($1,420) for 18 months at competitive rates, and credit cards. Loans can go to borrowers with limited credit histories. Gradually, the company will use customer data gathered through the app and social networks to bring down rates. Argentines pay on average almost 40pc nominal interest on personal loans, according to central bank data.

“We welcome fintech companies that use their own capital to lend to people that otherwise don’t have access to credit, and promote new ways to save,” said Lucas Llach, vice president of Argentina’s central bank. “The informal economy is a reality in Argentina, and we want it to be fully formalised. In the meantime, we see these initiatives as a step forward.”

Ualá will have to overcome the resistance to bank-saving from Argentines who’ve suffered through years of double-digit inflation. Bank accounts were frozen during the nation’s 2001 debt crisis — just before the government abandoned a currency peg in a move that slashed those savings to a fourth of their value.

Consumers in other developing nations like India and China with low card penetration and high mobile adoption have been gravitating toward digital wallets that simplify purchases, according to a report by Business Insider Intelligence.

“We’ve looked at financial innovation throughout the world and it tends to be most powerful when competing against banks with extremely fat margins and a terrible consumer experience,” Brian Feinstein, a partner at BVP, said in an email. “This is exactly the environment in Argentina today, which puts Ualá in a good position to make waves and take market share.”

— Bloomberg/The Washington Post Service

Published in Dawn, The Business and Finance Weekly, October 9th, 2017