Payment Companies Aim to Be Tour Guides for Global Merchants
The pressure to shave friction from cross-border payments will spur even the biggest merchants to seek help from third parties, if dLocal's market plan is correct.
"For a tier one merchant it's almost impossible to go into each market," said Sebastián Kanovich, CEO of dLocal, which earlier this month launched a payments platform aimed at enabling e-commerce in different emerging markets from the same gateway. "We see a market globally that's in need of a 'local subsidiary.' Our tech and operation allows us to do that."
The platform reaches an addressable market of one billion consumers in about a dozen markets and handles 130 local payment methods, such as cards, installments and other options. dLocal's goal is to enable merchants to sell into diverse markets through a single integration, rather than seek out case-by-case partnerships.
"The merchants are connecting directly to a new market but they are doing it through us," Kanovich said.
dLocal, which is a rebranding of the Latin American e-commerce specialist AstroPay, uses an application programming interface and a team of 100 developers that build connections to execute foreign exchange, risk management, settlement and other tasks along the transaction chain. The San Francisco-based company charges a transaction fee, and has lined up about 100 clients, including Disney and GoDaddy. Its current country roster includes Brazil, Mexico, Argentina, Peru, Colombia, Uruguay, Chile, China and Turkey.
Any company that operates globally has to think locally, and accept myriad local payment methods and deal with a variety of regulations, said Zil Bareisis, a senior analyst at Celent. "Most prefer to focus on their core business and get help from specialist providers that can help manage cross-border payments," Bareisis said.
E-Commerce allows companies to sell internationally without a brick and mortar presence, creating a niche for technology companies. WePay has made easing cross-border payments for e-commerce merchants a major part of its business model. Other companies are using distributed ledger technology, partnering with the likes of Ripple Labs to reduce reliance on correspondent banks and other traditional financial services companies.
As cross-border payments become smaller and more frequent to accommodate e-commerce over the larger, more traditional business-to-business transactions that dominated international payments in the past, the focus is on enabling faster processing with lower overhead.
In the modern connected economy, companies need to be able to not just accept payments from customers, but also pay employees, Bareisis said. "Again, specialist cross-border payment companies can manage the associated complexity."
In emerging markets, the additional challenge is the lack of an established retail supply chain and financial services industry. Besides dLocal, other companies are serving e-commerce payments in emerging markets, including CaribShopper, which works with eBay to take costs out of shipping and order fulfillment for U.S. merchants that wish to sell to Caribbean markets.
In Latin America, where dLocal has its roots, there is an opportunity to expand e-commerce. Brazil is the market leader, covering 60% of the Latin American e-commerce market, or about $23 billion early, suggesting there's ample room for growth in other markets, according to Americas Market Intelligence.
The lack of traditional infrastructure is an opportunity more than a hindrance, according to Kanovich, who makes an 'MPesa' argument—the a digital approach is preferable to the huge undertaking required to build a brick and mortar retail network in many emerging markets.
"The opportunity is massive, emerging markets don't have stores on every corner and often don't have access to good local services," Kanovic said, adding countries such as Brazil and India have substantial e-commerce markets. "That means there are more people willing to buy online. E-commerce is about closing those gaps."