KEO Increases Financial Inclusion Through SMB Credit

Q: How is the Buy Now, Pay Later financing scheme penetrating the B2B landscape?

A: Buy Now, Pay Later (BNPL) for the B2B industry is a transformative approach to supply-chain financing. The B2B Industry, particularly for small and medium businesses (SMBs), has been underserved by the financial sector. In Mexico, only 17 percent of businesses’ B2B supply-chain transactions are covered by credit. Furthermore, over half of these transactions do not use digital payment systems.

Most fintech innovations have focused on consumers, so the SMB sector is underserved. We have adapted the fundamental success of BNPL for the B2B industry. BNPL services, as opposed to a credit card, offer a solution for a current need that can later be paid in however many installments are offered. Our solution finances key inventory purchasing transactions at an incredible rate, so companies can focus on generating income to pay. We pioneered this service two years ago and expect great penetration, as 83 percent of the Mexican market’s US$280 billion in B2B transactions is available to us.

Q: How did KEO make this model an empowering driver for SMBs?

A: We allied with American Express (Amex) and leveraged its payment rates in our solution. Now, any merchant that accepts Amex can accept our BNPL offer for their SMB customers. We became the first nonfinancial issuer of Amex in Mexico and are probably the only BNPL solution for B2B, which extends this service to hundreds of thousands of merchants in Mexico. This breaks a huge barrier in product availability.

Our product can digitally finance key inventory purchases through a virtual KEO-Amex card locked for purchases from a specific merchant. We also focus on financial education as few SMBs are familiar with managing credit and are tempted to use it for other expenses. We only give them inventory credit. In Mexico, we offer an interest rate between 6 and 12 percent per year. The average bank interest rate for SMBs is over 18 percent, while many fintechs offer rates as high as 120-200 percent per year. We do not compete with traditional banks; we offer the best solution for financing key inventory.

Q: Why does KEO offer two different options, Keopay and Workeo, for SMBs?

A: Medium businesses in Mexico sell up to US$500 million a year, while small businesses can sell as little as US$10,000. The average transaction in Keopay by small businesses is US$1,000. With Workeo, which is used by medium businesses, a transaction can reach up to US$2.5 million.

All of our underwriting processes are tailored to the industry because we are a partner for their growth and success. We have seen great success in Mexico by supporting clients as they grow their business. They can now use our service to obtain better prices and inventories and negotiate better discounts because they are paying in cash as far as the merchant is concerned. Users also have access to a card they can use to buy without constraints. With a credit card, the payment cycle is monthly. Our product, although it works through a card, is a true BNPL service: it provides 30 days from the date of purchase to begin payments.

Q: How is the company able to offer fast credit approvals and how are you expanding?

A: Our fast approval comes from using digital tools such as machine learning to help us analyze information. We have a strong knowledge base and a great team of underwriters supervising our machine learning models, making us the best-performing product on the market. Beyond geographical locations, our growth strategies are based on partnerships, such as that with American Express.

Mexico was the first strong market we expanded into and it is now our largest in terms of volume of business. We also operate in Colombia, Peru, the Dominican Republic and Ecuador. We should receive our license to operate in Brazil soon and will launch in the US in the next quarter. We also plan to expand into two other markets in Latin America this year or next year.

Q: What are KEO’s goals for Mexico and what are the main differences between the North and Latin American markets?

A: We have great ambitions for Mexico because SMBs represent almost 50 percent of its GDP but only 12 percent of traditional credit. SMBs also employ almost 70 percent of the population, driving financial inclusion. By complementing traditional credit with ours, SMBs access capital to grow their sales and employ more people, so we are stimulating local employment. This focus was part of KEO from its inception; all of our people are passionate about helping SMBs.

Our product is the same across Latin America, the only differences are the legal agreements, product fees and the underwriting. But the core of the product is the same. With Amex, we are preparing to expand across Mexico: any Amex customer can approach KEO for inventory financing.

Q: What are KEO’s plans for 2022 and what strategies are planned to attract further investment and add value?

A: Our main focus for 2022 is Mexico. We will roll out the BNPL solution for SMBs in the region and we have raised US$500 million for that purpose. We have an aggressive growth plan for the coming years. We are finishing an institutional equity round through which a number of important institutions will invest in the company, allowing us to secure access to further debt capital when we need it. As we keep growing, we expect to attract more capital in Mexico to increase financial inclusion and growth opportunities.