For all the hype around Bitcoin, Salvadorans just want digital banking

Nearly one year ago, President Nayib Bukele shocked international observers and delighted cryptocurrency enthusiasts when he made El Salvador the first country to adopt bitcoin as legal tender. It was a bold financial experiment for a country where an estimated 70% of the population remains unbanked. 

By all accounts, the initiative has failed to achieve its desired results so far, with adoption of the government’s digital wallet steeply dropping and businesses failing to complete transactions with the cryptocurrency. 

As the bitcoin gamble proceeds, fintech startup n1co (pronounced: nee-koh) is striving to succeed where the government’s experiment has so far come short. The company was founded by the same team that made the super app famous for beating out Uber in El Salvador, Hugo. While n1co is entering a market that has been shaped by crypto, the company is taking a different approach: tried-and-true fintech offerings like QR codes, debit cards, and point-of-sale systems, all based on the U.S. dollar, El Salvador’s primary currency. The company is vying to be the first bona fide neobank in Central America by prioritizing traditional fiat currencies over crypto.

The company’s rise illustrates a brave new world in El Salvador, a country governed by a bitcoin-obsessed administration but still in need of basic financial inclusion. Rest of World spoke with investors, n1co team members, and Salvadoran business owners, who explained why n1co’s more staid strategy offers a more stable alternative than crypto.  

“In El Salvador right now, there’s much more basic things that need to be solved,” said Alejandro McCormack, the COO and executive director of n1co. “We have the ability to resolve those problems without necessarily having to reinvent the wheel,” he told Rest of World. 

Armed with its own funding round and partnerships with some of the region’s biggest chains, n1co is a spin-off from Hugo, which Delivery Hero acquired in October 2021 for $150 million and almost entirely passed into the German company’s control. The Salvadoran team retained two of Hugo’s financial products not included in the sale — namely, digital payment services that merchants could offer customers — and officially launched as a standalone company in early 2022. 

In early July, n1co announced that it had raised a $12 million pre-seed round at a $64.8 million valuation. Outside of Central America, the amount could seem paltry, with n1co’s round representing just a drop in a funding ocean in which fintech startups in Latin America raised $1.2 billion in the first quarter of 2022 alone. 

N1co’s location, however, sets it apart from the rest of the pack, with Central America — and El Salvador in particular — still underserved by financial products, despite the Bukele administration’s bitcoin push. Guillermo Chapman, a partner at the Latin America-focused venture capital firm Amador, described the market as “extremely big, extremely open, and extremely unattended.”

N1co takes a markedly different approach than the governmental administration. It emphasizes simpler offerings, such as payment links that can be sent through the ubiquitous WhatsApp messaging app without having to download a new app or crypto-powered digital wallet. 

“The traditional path has been to start with easier digital solutions,” said Chapman. “That might be easier for the consumer to understand than just making this giant leap [to crypto].”

While McCormack, n1co’s COO, doesn’t view bitcoin as the solution for financial inclusion, his approach is notably diplomatic when discussing the Bukele administration’s controversial initiative. He praised the project’s ambition, arguing that n1co has benefitted from the Bukele administration’s embrace of fintech, despite the diverging strategies. He cited recent legislation to further enable digital signatures and simplify savings accounts, as well as positive press for the country that has made for a more hospitable fundraising and hiring environment. 

And the company isn’t entirely against crypto: n1co plans to eventually incorporate bitcoin into its offerings, and is in talks with major crypto companies such as Qredo to enable bitcoin payments on its platform. 

Even if McCormack is supportive of bitcoin, many of his customers are more skeptical. While the government estimates that over four million people downloaded the national bitcoin wallet Chivo, motivated by a $30 sign-up bonus, usage remains low. An April study by economists at the National Bureau of Economic Research found that 61% of people abandoned the digital wallet after receiving the initial incentive. 

Ingrid Weil, the owner of a bakery in San Salvador, told Rest of World that while she accepts bitcoin — which is legally mandated — she has only received six payments in the cryptocurrency, and none over the past six months. In contrast, she estimates that she receives around four or five payments through n1co payment links every day. “El Salvador is not ready for a change to cryptocurrency that was [as] drastic as what happened,” she said. 

While Chivo suffered from reliability issues, including transactions not going through and people having their wallets hacked, n1co offered a more stable solution. “People trust [n1co] more,” said Francisco Yepez, the owner of a sports facility in San Salvador that accepts n1co as a form of payment, but not bitcoin. 

Elad Beni, a partner at the Salvadoran sports-betting site Dale.sv, said that n1co had the added benefit of being associated with a trusted brand, Hugo, with many of n1co’s merchant partners coming on when it was still branded as HugoPay. 

Despite the early progress, n1co is still early in its lifecycle. According to McCormack, it has onboarded over 1,000 merchants across Central America, processing around $1 million monthly. He added that it plans on onboarding one of the region’s biggest supermarkets later this year, which would increase processing volume thirtyfold. 

n1co’s goal is to become a digital bank, not just a payment tool for businesses. While it has the recipe for success — a fintech-friendly government, an underserved population, and a well-funded and experienced team — Fernando Moran Eserski, the managing partner of the Salvadoran venture capital firm Innogen Capital, said that it’s too early to assess whether n1co will find success. “To be a neobank, it’s not as easy as just saying you’re the Nubank of Central America,” he said.