Where identity meets opportunity: The state of compliance infra in LatAm

As Latin America’s fintech ecosystem continues to scale, the spotlight is shifting from growth to trust. And at the center of that shift lies one of the region’s most persistent—and still unresolved—challenges: identity.

From Know Your Customer (KYC) and Know Your Business (KYB) to fraud prevention and compliance, identity infrastructure underpins nearly every fintech use case. Yet despite years of progress, most startups still wrestle with fragmented data, manual onboarding flows and regulatory ambiguity. The market is evolving, but not fast enough.

We believe identity and compliance infra is one of the most underbuilt layers of LatAm fintech. And while there are exciting early signs of innovation, the space still lacks a clear category leader.

The problem isn’t new but it’s getting more urgent

Latin America has long struggled with fraud, informality and fragmented data systems. As digital adoption accelerates, these challenges are only becoming more visible and costly.

• Online fraud in LatAm is expected to cost more than $20 billion by 2028 (Juniper Research)
• 1 in 5 online transactions are falsely flagged as fraud—more than any other region
• Roughly 50–60 percent of the workforce remains informal, making identity and KYB verification incomplete

Startups are tasked with building trust at scale, often without the benefit of robust national databases, consistent KYC rules or access to reliable third-party data. AI is making fraud more complex, and yet many teams still rely on internal rules engines or manual reviews.

The current stack: Fragmented, costly and hard to scale

Most fintechs in LatAm rely on a mix of point solutions to cobble together their compliance stack. A recent survey of our global portfolio found that companies aren’t loyal to providers—41 percent of respondents plan to re-evaluate their identity or fraud vendors in the next 6-12 months, and very few utilize dedicated fraud providers.

A typical setup might involve:

• One provider for ID document verification
• Another for facial recognition and liveness detection
• A separate tool for sanctions/PEP screening
• Internal systems for KYB and fraud rules

This patchwork approach creates friction not just at the product level, but also at the policy level. Compliance teams are forced to juggle vendors, customize flows by market, and build internal logic around inconsistent data, all while navigating evolving local regulations (more on this below).

That said, we are starting to see progress in both the technology and regulatory landscape, which could point to an inflection point. In particular, AI-powered tools are improving document parsing, fraud detection and real-time decisioning. As models improve and regional data sets mature, AI has the potential to compress onboarding times, reduce false positives and deliver localized risk insights that traditional systems can’t match. More on AI and compliance here.

A regulatory snapshot by country

Brazil

Brazil remains the most advanced market in terms of digital infrastructure. The government has launched a biometric national ID initiative and is expanding Open Finance standards through the Central Bank. The result is a relatively mature ecosystem, but one that still requires stitching together multiple systems. More on Brazil here.

Mexico

Mexico’s regulatory foundation is strong on paper but fragmented in practice. The Fintech Law mandates digital onboarding and clear KYC/AML standards, requiring document authentication and address validation as part of the KYC process. Additionally, the government is working to enhance the CURP and INE databases with biometric data. That said, implementation remains complex: Mexico’s ID ecosystem spans over 390 different document types, complicating automated verification. Key databases—SAT (tax), INE (voter ID) and CURP (population registry)—are fragmented and inconsistently maintained, limiting real-time integration. As a result, fintechs often rely on a patchwork of internal rules, third-party vendors and manual review, especially when dealing with synthetic ID risk.

Colombia

Colombia permits fully digital onboarding, and biometric verification is widely used across fintechs. However, UBO data remains largely manual, and the national KYB framework is still evolving. The UIAF and Superintendencia are aligned with FATF standards, but enforcement varies. The informality of the economy, particularly among SMEs, makes Colombia a prime candidate for lightweight, alternative-data-driven KYB solutions.

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The KYB opportunity

KYC remains important, but much of the white space lies in KYB.

As more fintechs build B2B payments, embedded finance and merchant services, the need to verify and monitor businesses—not just individuals—is growing fast.

Verifying businesses in LatAm is harder than it sounds:

• Public registries are often out of sync, incomplete or non-digital
• UBO disclosure is inconsistent or entirely missing
• Many SMEs operate informally, with few if any verifiable documents

Several startups are focusing on this wedge, helping clients parse incorporation documents, assess risk and automate onboarding flows. But no player has fully solved KYB at scale yet—especially for the long tail of SMBs and gig economy operators.

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Challenges for builders

Even with more tools and regulatory support, identity infra startups face uphill battles:

• Data quality limits what AI and automation can realistically solve
• Sales cycles are long and complex, especially when selling to regulated financial institutions
• Regulatory requirements vary by license type and country, requiring granular product customization
• Trust is hard to earn, especially when your product directly impacts fraud rates, conversion, and compliance risk—key areas for a business

Given these challenges, the question becomes: Can a big enough business be built in this space? Are we at an inflection point?
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What does it take to win?

The reality is, we haven’t yet seen a company break out as the clear category leader. To build a truly scalable business in this space, we think founders will need to:

1. Solve for LatAm’s data asymmetry

Winning teams treat data gaps not as blockers, but as design constraints. In markets where registries are incomplete or documents unreliable, they’re building proxy identities using behavioral, device, and network signals. They're integrating nontraditional data sources (telco, commerce and payroll APIs), and layering verification across time, not just onboarding.

Opportunity: Lightweight identity graphs for the underbanked or informal economy.
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2. Treat onboarding as a conversion funnel, not a checklist

The best products don’t just say “yes” or “no,”  they dynamically assess risk and apply gradual friction. Low-risk users sail through, while high-risk ones are routed to deeper verification. This approach drives a material lift in conversion while keeping fraud in check.

Opportunity: Embedded risk scoring that powers real-time UX decisions (skip selfie, request extra docs etc.)
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3. Build infra that integrates, not replaces

Customers don’t want to rip out their stack, they want tools that plug in. That means flexible APIs, orchestration layers and smart defaults, not “all-in-one” platforms that require months-long integrations.

Opportunity: "Composable compliance”—identity tools that can sit next to global platforms or even in-house decision engines.
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4. Move to an insights-driven model

Many KYC/KYB tools monetize per verification. The more ambitious companies are moving up the stack –  delivering insights (risk scores, fraud clustering and alert prioritization) that reduce ops costs or power credit decisions, not just onboarding.

Opportunity: Identity + underwriting combination, helping lenders or platforms underwrite users they can’t otherwise evaluate.
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5. Earn trust with outcomes, not features

Our survey reinforced this: teams are willing to switch vendors if they can get lower false positives, fewer manual reviews and better local accuracy. Customers are not just looking for a better UX, but material, measurable performance gains.

Opportunity: Prove impact. Vendors that can demo real improvements in fraud rates, conversion or ops workload will win in this category.
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For fintechs in LatAm:

What tools are you using for KYC, KYB and fraud detection? Where are you seeing friction, or opportunity?

For builders:

If you’re working on the future of compliance infra in LatAm, we want to hear from you. Whether you're early or scaling, we’re always eager to back bold founders solving hard problems.

Please reach out – we’d love to compare notes.

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