With credit restriction, consortium attracts young public – 06/11/2023 – Market

Sales executive in the advertising market, Pedro Aragão, 26, made a consortium at the end of 2020 to acquire a property in São Paulo to which he should move in the coming months with his fiancée.

“I started researching interest rates and, seeing how much I could save per month, I saw that it would not be feasible to buy the property through the traditional bank financing format and I started to evaluate the consortium”, says Aragão.

The consortium, in which a group of people with a common goal comes together to purchase a particular good or service, has the advantage of not charging interest.

In the consortium, instead of interest, an administration fee is charged, which, in the case of the contract signed by Aragão at fintech Mycon, is 9.99% in relation to the value of the letter of credit of R$ 300 thousand for the term of operation.

The consortium contract in question, whose value is periodically readjusted by inflation, has a term of 180 months, and the sales executive was awarded via lottery in April 2020.

“I was selected by lottery on the 16th month, but I knew it could take a few years and, if it took longer, I had plans to rent a more affordable property to reconcile the consortium’s share with the rent”, says Aragão.

In a scenario of high interest rates and an increase in indebtedness and default, with a contraction in the granting of credit by banks, the demand for consortiums has been on the rise over the last few months.

According to data from Abac (Brazilian Association of Consortium Administrators), from January to April 2023, the volume of credit traded in the sector totaled R$ 89.8 billion, which corresponds to a growth of 20.5% in comparison with the same period last year.

With more expensive financing due to high interest rates, the consortium alternative for the acquisition of goods such as real estate, cars and appliances is beginning to attract a younger audience.

“The younger public has a smaller history of payments at banks and ends up being the one who feels the most the adverse economic moment. In this scenario, the consortium becomes an alternative for offering more flexible conditions”, says Paulo Calderon, executive director of the area of consortia of Porto Bank.

Executive President of Abac, Paulo Roberto Rossi says that, over the last few months, the association has promoted campaigns, with insertions in broadcasts of football games on the radio, posts on social networks and disclosures with digital influencers, in order to draw attention of the younger public about the consortia system.

According to Rossi, bringing financial education to this part of the population, so that they have a first contact with the consortium, is one of the main objectives of the sector association when promoting these campaigns.

“Through financial education, young people, middle-aged or elderly consumers are able to get to know the financial product and choose the one that best suits their needs and profile”, says the president of Abac.

At Consórcio Magalu, efforts to communicate with a younger audience through social networks have resulted in a significant increase in this customer base in recent years.

At the end of 2021, the company’s customers between 18 and 25 years old represented around 3.9% of the total, a percentage that increased to 10% in April 2023, which represents around 10 thousand customers in the age group, in relation to the a total of approximately 100,000 participants served by the company.

Commercial Director of Consórcio Magalu, Edvaldo Ferraro says that communication with this public needs to be more explanatory, with more information about how the product works, since, in many cases, it is the first contracted consortium.

According to Ferraro, the consumer electronics line, in particular videogames, are one of the alternatives most sought after by younger audiences when they use the consortium. Motorcycles come next among preferences. The administration fees in the modalities vary between 18% and 24%.

“There is a great effort by the consortium system to rejuvenate the base of participants”, says the director of the Magalu Consortium. “We sell to those who are 20 years old, but also to those who are 70, 80. There is no age limit for dreams”, adds the executive.

At fintech Mycon, dedicated to the consortium market, around 30% of the company’s customers are between 25 and 35 years old.

According to Bruno Borges, marketing director at Mycon, the fact that it is a fully digital company, with the dissemination of financial education content through social networks and via videos on YouTube, ends up contributing to a younger customer base.

“The consortium has been in the market for more than 60 years and it is common for us to attribute to it the appearance of an older product, but, when we take it to digital, we begin to attract a younger audience”, says Borges.

In addition to having made the property consortium through fintech, Pedro Aragão also says he has purchased shares through the same company to acquire a motorcycle, whose letter of credit he acquired in February this year after making a bid offering 20% ​​of the value, which was later resold.

In addition to the periodic draws in which the participant can be selected, there is also the bid option, in which an offer is made to advance a certain contract value to take the card sooner.

“I see the consortium as a way to obtain profitability, either through the sale of the contemplated charter or through the formation of equity”, says Aragão.

He adds that he considers the consortium a more affordable way to acquire high-value goods compared to financing, but points out that this is an attractive option for those people who do not necessarily need the good urgently, since the participant may take a few months or years until contemplation.