Navigating Risks: Automated KYB Provides Nearshoring Protection

In the dynamic and evolving economic landscape of Mexico in 2024, businesses are increasingly exposed to a variety of risks, particularly those associated with inadequate knowledge of their customers and partners. Mexico's business environment, like many emerging markets, offers tremendous opportunities, but it also harbors hidden risks associated with the lack of reliable, in-depth business information.

In developed markets with a wealth of business information, Know Your Business (KYB) processes are commonplace for companies of all sizes and involve validating the identities of corporate customers and suppliers, using available information to understand their transactional behavior and identify potential red flags. In these markets, KYB plays a vital role in enabling companies to operate safely and make informed decisions. It is a strategic tool that protects businesses from potential risks, including financial fraud, reputational damage, and legal complications. By leveraging existing business information and thoroughly understanding the nature and operations of their corporate customers, suppliers and clients, companies foster trust in B2B environments.

However, even in developed markets, a critical aspect of KYB is the identification and verification  of Ultimate Beneficial Owners (UBOs). This step is particularly important where complex business structures and cross-border operations are common. By clarifying the ownership and control structure of client companies, businesses can prevent involvement in money laundering or other illicit activities, thereby protecting their interests and reputation.

The practice of KYB enables companies to build stronger, more transparent relationships with their customers. This understanding fosters a safer and more reliable business environment, which is vital for both emerging startups and established companies. Through the use of KYB, companies in these developed markets can navigate the complex web of international trade with greater confidence and strategic insight, making decisions that are not only compliant but also commercially astute and forward-thinking.

KYB has been difficult in Mexico and other emerging markets for several reasons, including lax reporting structures, complex and bureaucratic processes, and political exposure in business deals. Given the difficulty and the complexity of KYB processes in this environment, companies may forgo in-depth due diligence protocols.  And while it’s true that many companies can get away with a “light” approach for a while, the underlying risks are significant. Best practice dictates that KYB processes be taken seriously to obtain reliable information about potential business partners and to assess any potential risks.
 
Ignorance is not bliss! Misrepresentation in business transactions can have far-reaching consequences. Companies that are victims of fraud, especially foreign companies, or subsidiaries, can suffer not only financial losses and regulatory compliance issues, but also long-term reputational damage. While such incidents are not the norm, they do occur with sufficient frequency to affect Mexico’s international rankings and negatively impact the broader Mexican economy as a whole. 

The importance of due diligence cannot be minimized nor can the high cost and time taken by traditional methods. This is where technology comes in, changing the game and providing fast, agile, and accurate KYB solutions. The adoption of automated KYB solutions offers significant benefits to businesses operating in Mexico, fostering a safer, more transparent business environment.  While fraud prevention is important, a KYB solution goes beyond fraud prevention to provide deep insight into business entities, including their financial health, history and operational integrity. This can be a transformational solution for evaluating potential business partners, suppliers and customers.

In addition to risk mitigation, regulatory compliance is increasingly a top priority for many organizations. KYB processes naturally lead to improved compliance in the short term and prepare organizations to effectively anticipate future compliance challenges.

At Xepelin, we strongly believe that the increase in foreign investment and the nearshoring boom are great news for Mexico. New businesses and the expansion of customers and suppliers mean a healthy boost to the economy and new opportunities for businesses, both local and foreign. But this growth also underscores and highlights the critical need for business reliability and trust. We are confident that the launch of XData in Mexico will contribute to secure development and evolution of business ecosystems by seamlessly embedding trust into the sales and procurement processes. 

While traditional due diligence methods involving lengthy and tedious analysis have been superseded and have become obsolete, artificial intelligence offers advanced KYB tools such as Xepelin's XData, which enables deep and multidimensional analysis to assess history, reputation and compliance in an agile, efficient and affordable manner.

The implementation of due diligence measures, such as the Know Your Business process, has always been desirable, but the current environment makes it imperative. We’re proud to contribute to the growth of Mexican businesses by providing a tool for fostering trust, confidence, and compliance in the business ecosystem, and thus allowing companies to capitalize on the advantages of their open and agile economic environment.

About Sebastián Kreis
Sebastián Kreis is the co-founder and CEO of Xepelin, a startup that aims to be the leading B2B fintech in Latin America. A Chilean entrepreneur with more than 10 years of experience in the world of technology and finance, he is an active promoter of a digital financial ecosystem for all types of businesses. Born in Santiago de Chile, he graduated with honors in Civil and Industrial Engineering from the Catholic University of Chile and holds an MBA from U.C. Berkeley.

In his professional career, as VP of Corporate Finance at IM Trust, he led capital markets and M&A transactions for more than $10 billion.

Inspired by a trip to San Francisco in 2014, where he had the opportunity to visit startups that were just emerging, such as Uber, he decided to venture into the digital world and took his first steps in the fintech sector. His first startup was Safecard and later led the digital transformation of some banks in Latam with Boston Consulting Group.

Inspired by his family's entrepreneurial background, Sebastian founded Xepelin in early 2019 with a clear mission: to tirelessly expand digital financial services access to over 1 million B2B companies in Latin America.

About Xepelin
Xepelin is a fintech company with the vision to become the digital CFO for companies in Latin America. Founded in 2019, Xepelin was born with the mission to solve the financial pains faced by small and medium-sized businesses in the region, allowing them to focus on what they do best: run their businesses. In 2020, in the midst of the Covid-19 pandemic, they began operations in Mexico, establishing themselves as one of the fastest-growing B2B fintechs in Latin America.
Today, the company provides an all-in-one platform that helps entrepreneurs and operators organize and understand their financial information, manage payments, and finance their working capital needs.

Xepelin and its more than 450 crew members are backed by Kaszek, Avenir, DST Global, Picus Capital, and Paypal Ventures, among others, and closed a USD 111 million Series B round in 2022.