TL;DR: We’re pumped to announce our investment in Marvin, a B2B payments platform that is reimagining credit card receivables in Brazil. 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.
Although it is still early, we believe that this Central Bank initiative will prove as momentous as the Central Bank regulations that birthed Stone, Elo, and Getnet, all now multi-billion dollar local fintechs. Indeed, the receivables regulation means that financial services can be entirely rewritten digitally, centering merchants and their needs, from banking to lending to payments and beyond.
How Marvin works
It was this final puzzle piece – that the new regulation created an entirely new type of financial asset – that seeded the Marvin product. What the Marvin team realized is, that if a credit card receivable can now be thought of as an asset, merchants should theoretically be able to pay their suppliers with receivables.
This scheme made a lot of sense. For the merchant, paying with receivables themselves meant that there was no need to incur the prohibitive costs of anticipation. For suppliers, the risk of default shifted from small retailers to the bank or card network. Suddenly, receivables were not just financial assets, they were AAA credit. Suppliers could extend better payment terms to their merchants, and in doing so, drive greater sales. No matter the acquirer. Without credit risk.
Today, merchants can streamline their credit card receivables directly to suppliers as payment by pagar com Marvin. From the Marvin web app, merchants can make payments, see analytics around their cashflows, and execute accounting functions. Likewise, suppliers can see all their merchants’ payments, the status of their cashflows, and adjust controls for their merchant treasury operations. Interestingly, the team is already seeing merchant users spend hours every day in the Marvin platform, thinking of the software as their go-to finops control center — not just a payments option.
And not surprisingly, suppliers love working with Marvin. The team works with some of Brazil’s top suppliers including Grupo Boticário, Hubster, Alpargatas, and the manufacturer behind everybody’s flip-flops, Havaianas. Conversations with these suppliers revealed just how excited they are to leverage Marvin. For them, Marvin represents a new era in digital B2B commerce, one they have been anticipating for a long time.
Why we’re so excited
There is so much about Marvin that got us excited about Marvin, from that very first meeting on their 13th-floor office:
- Founded in June 2021, Marvin had a clear why now. Were it not for the passage of the new credit card receivables regulation, the payments scheme Marvin enables would not be possible.
- Already, some SMBs are using Marvin to fulfill their AR across multiple suppliers, demonstrating the product’s potential for network effects. In the words of one retailers, “I want to pay all my bills in Marvin, from rent to supplies to inventory.”
- As mentioned earlier, there’s undeniable founder-market fit here. Bernardo, Henrique, Leo, Ricardo, and the rest of the team don’t just understand the new regulation in concept, they helped implement it.
Finally, we’d be remiss not to mention a critical point about how Marvin fits into our fintech framework. If you’ve met us, you’ve definitely heard us talk about how we see the fintech world through a lens of products, platforms, and, infrastructure rather than separate verticals like lending or payments, or banking. Marvin is a prime example of what gets us most excited about fintech infrastructure: its market expansive potential. By creating new digital rails for the flow of money, Marvin makes it easier for merchants and suppliers alike to sell more stuff, reach more customers, and even start new franchises. Just like Stripe expanded the market of digital B2C payments globally, we believe Marvin will do much the same for B2B payments. For now, hold that thought, as we’ll be releasing a blog post about products, platforms, and infrastructure overseas in the next few months. As for today, #LetsMarvin.