Biography
Sebastian Kreis is the co-founder of Xepelin, a Chilean startup offering AI-first financial services and tools to LATAM’s SMEs. Since launching in 2019, Xepelin has raised over $300M, mixing equity and debt.
The company serves 70,000+ clients and has extended $7B+ in financing over the past four years. It is active in Chile and Mexico.
Prior to Xepelin, Sebastian worked in finance and co-founded another startup. He earned an MBA from the University of California, Berkeley.
Your thesis is that LATAM’s SMEs lack access to quality financial services. Why is that the case?
Because incumbents don’t know them, nor want to expand beyond their profitable, wealthier customer base. Incumbents don’t see the point of venturing into a smaller customer segment, where underwriting data is scarce. As a result, many LATAM SMEs remain locked out from access to loans or other types of financing.
I mentioned the data problem. Let me elaborate. SMEs in LATAM haven’t adopted the SaaS wave. They run their businesses largely on pen-and-paper, or with rudimentary tech. Even a forward-thinking bank would struggle to confidently underwrite such companies.
Tech adoption generally starts with B2C, before arriving into B2B. LATAM consumers use Netflix, Uber… But SMEs haven’t hopped on the digital bandwagon yet. Once they do however, those B2B tech products enjoy staying power as they become engrained in SMEs’ workflow. This isn’t the case for B2C tech, where consumers easily switch between products.
In terms of digital adoption, I would say Mexican SMEs are where US SMEs were in the early 2000s.
RO insights: SME credit gap in MENA
The problem Xepelin addresses is quasi-homogenous around the world, especially in emerging markets.
Here’s how Idriss Al Rifai, co-founder of Flow48 (which does SME lending in MENA) explains the reasons for for that funding gap:
“SMEs in emerging markets face a severe funding gap, especially on the credit front. The IFC estimated the size of the gap to be around $4 trillion.
This is damaging because SMEs contribute massively to countries’ GDP, yet they aren’t sufficiently served by banks. In South Africa, one of Flow48’s markets, SMEs represent around 40% of national GDP. If they were better funded, the economy would grow with them.
[...]
There are multiple reasons [for that funding gap].
First, there is a lack of quality data about SMEs in these markets, making it hard for banks to gauge creditworthiness.
Second, banks are regulated and report to central banks. They have strict KYC and AML processes. These processes come at a cost. The lack of data combined with lower deal size for SMEs means that the time-to-reward ratio doesn’t always make sense.
Third, if we take the UAE as an example, local banks were expected to support the emergence of local, national winners (DP World, Emirates Global Aluminum…). SME lending wasn’t a priority and the two aforementioned challenges didn’t help their case.”
Excerpt from Flow48: SME lending in MENA, originally published in The Realistic Optimist
Xepelin’s core is financing, but you started with a free SaaS tool. Can you explain?