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October, 2010

Call Now, Pay Later

By Aaron Nelsen
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The Chilean wireless services provider Tiaxa is hoping to attract venture capital from California to export its innovative micro-financing idea for mobile transactions to new markets in developing countries

Ever been in a bind and desperately needed to place a call or send a text, but your prepaid phone had insufficient funds? If you aren’t familiar with this situation, what usually happens next is a feverish dash to the nearest corner store to top up.

But for Latin American clients of mobile phone operator Movistar, the next call is as easy as dialing.

“We’ll spot the next phone call or the next ringtone and, the next time the user tops up, we’ll recover that money,” said Felipe Valdés, founder of Tiaxa, a Chile-based company which provides billing and charging systems for wireless operators.

Tiaxa has patented a new system that lets prepaid users with zero balance do a few more things before running out.

One of the services Tiaxa provides mobile operators is to stop clients with no credit from making calls, but now it lends money to these subscribers so they can keep talking.

Valdés and Olav Carlsen, chief financial officer of Tiaxa, believe the ability to extend credit to millions of prepaid users is the future of mobile phone technology. The company already has a contract with Spanish firm Telefónica, which owns Movistar, covering its 135 million prepaid users in Latin America, but Tiaxa has its sights set a little higher. 

Including Chile, Tiaxa currently operates in five countries in the region through its agreement with Telefónica and hopes to be up and running in eight more by April 2011.

“We want to take this idea to the world,” Valdés said. “We’ve already been very successful in Latin America, but we want to take it to other emerging markets and for that we need capital.”

To meet its ambitious expansion goals, Tiaxa is looking to investors in the United States to raise between US$15 million and US$20 million in venture capital.

Valdés recently traveled to California’s Silicon Valley with President Sebastián Piñera, Economy Minister, Juan Andrés Fontaine, and a dozen other up and coming businesses as part of a trade mission designed to showcase Chilean innovation and entrepreneurship.

“Silicon Valley is unique in that it combines venture money, academics and so much knowledge about how to grow a company outside its regional market,” Valdés said. “It’s extremely valuable to be connected in Silicon Valley – in the tech business it’s almost a must.”

The Fontaine commission’s tour of Berkeley and Stanford was eye-opening, Valdés said. In addition to Tiaxa, Chilean professionals from the IT, biotech, cleantech and conservation sectors put on their best faces to lure investment to Chile. 

The group met with renowned professors, researchers and fellow entrepreneurs, and each team had 20 minutes to make an impression on around a dozen venture capitalists.

“[The trip] was a great surprise and exceeded my expectations,” said Valdés. “The government is doing a great job through their Start-Up Chile program to help us think globally, access seasoned tech talent and address the world market.”

Tiaxa was founded in 2000 with US$6 million in venture capital, and went through several business model permutations before finally settling on its current model.

Tiaxa processes about a billion transactions per month for its clients. Putting that into perspective, around 30 million credit card transactions are processed in Chile every month – Tiaxa processes that number in a single day.

But where credit card transactions are, on average, between US$30 and US$40, Tiaxa’s transactions average no more than 10 cents. While this might seem like pocket change, keeping track of each transaction is just as complex.

Navigating the sheer volume of data is a daunting task, but Valdés, a Princeton-educated aerospace engineer, has a penchant for number crunching. So, it was about two years ago amid the flow of numbers that he glimpsed the future of the company.

“We were processing billions of transactions and we saw that many of them failed because of insufficient funds,” Valdés said. “Then we came up with the idea of financing transactions for the user, and we underwrite the loans with third parties, possibly banks or other institutions.”

To make this possible Tiaxa uses made-in-Chile technology connected to the operator’s system that notices when a user runs out of money and credits their account in seconds.

The technology also decides how much or how little to lend based on the customer’s profile. However, there is a catch.

“When [customers] don’t recharge we don’t recover,” Carlsen said. “So we have to be very careful who we lend money to because we are losing a high percentage of customers every month.”

Tiaxa isn’t the only company to offer this type of service, Movistar’s competitor Entel offers a similar service called PrestaLuka, but Tiaxa’s micro-finance software is the most innovative, according to Carlsen.

“You’re talking on the phone and you run out of money,” Carlsen explained. “In the real world you would be cut off, but with our service nothing happens.”

Tiaxa also gives operators the flexibility to offer new and innovative plans including services like texting, email and photos. These plans represent the greatest revenue growth for mobile phone operators today, but it’s hard for them to charge for different services, so Tiaxa’s software does it for them.

“We allow the operator to offer complex billing schemes for new data services,” said Valdés. “But where we really add value is with the prepaid user.”

With 3.5 billion prepaid users worldwide who download ringtones, surf the Internet or upload photos to Facebook using their mobile phones, Tiaxa sees itself on the cusp of something potentially very big.

But as the company grows its presence in Latin America, the question is whether it can pool enough resources to take its business to emerging markets in Asia and Africa.

“Mobile phone technology has become enormously important in the developing world,” Carlsen said. “We are at the convergence of this technology and micro-finance.”

Aaron Nelsen is a freelance journalist based in Santiago.