Podcast Summary
Bridging the infrastructure gap for global payments in emerging markets: Dlocal enables seamless payments for global merchants in emerging markets by understanding local markets, building relationships, and creating a network of payment methods
Payments in emerging markets can be complex and broken, but Dlocal is addressing this issue by bridging the infrastructure gap and enabling global merchants to serve billions of users in these markets. Sebastian Kanovich, CEO of Dlocal, shared his perspective on the global payments system and the role Dlocal plays in it. He explained that while payments are becoming increasingly demanded for international use cases, they are often broken in emerging markets due to the need for localized infrastructure and a vast array of payment methods. This challenge is exciting for Dlocal as they strive to make payments work seamlessly in these countries. Sebastian provided an example of approaching a new country, where the process can be complex and full of frictions. Dlocal's playbook involves understanding the local market, building relationships with local partners, and creating a network of payment methods to facilitate lower friction payments for merchants. Overall, Dlocal's mission is to make international payments work as smoothly as they do in developed markets.
Building local infrastructure for payments in emerging markets: To provide seamless payments in emerging markets, companies need to invest in local infrastructure and navigate complexities such as tax reporting, expatriation of funds, and currency controls, allowing merchants to accept and disburse payments independently of user locations.
To provide a seamless payments experience for users in emerging markets, companies need to build local infrastructure and navigate complexities such as tax reporting, expatriation of funds, and currency controls. This requires active effort and investment, unlike a protocol where adoption happens organically. Merchants should be able to accept and disburse payments independently of the user's location for a great payments experience. Companies like Amazon are focusing on emerging markets where these challenges are most relevant and complex, such as India, Africa, and Southeast Asia. Companies that have succeeded in more developed markets, like Aetion or Stripe, could also expand into emerging markets, but they may face differentiators such as cultural differences and the need to become local in unfamiliar markets.
Simplifying complex payments infrastructure in emerging markets: Reducer streamlines payments infrastructure in emerging markets, enabling companies to expand globally with minimal integration work, by handling local payment methods, preventing fraud, and simplifying tax reporting.
Building technology for payments in emerging markets is a complex and time-consuming process. Regulatory frameworks and outdated payment methods require significant investment and commitment. But for companies like Reducer, the challenge is not an obstacle, but an opportunity to "go fix it." For instance, Google's entry into the Brazilian market faced complexities in accepting local credit cards and offering installment plans, central bank sponsored payment methods, and cash payments. Reducer provided Google with a single API access point, dynamically routing transactions to acquirers, preventing fraud, and handling tax reporting. This infrastructure simplified the process for Google, allowing them to expand into new markets with minimal additional integration work. Reducer's technology also handles disbursements, enabling companies to send funds through the banking system. The user experience remains consistent regardless of the market or payment method. Reducer does not interact with the end user, instead focusing on streamlining the process for businesses and governments. Ultimately, the success of Reducer lies in its commitment to addressing the complexities of payments infrastructure in emerging markets, making it an essential component for companies looking to expand globally.
Uber's Global Expansion: Balancing Local Expertise and Standardization: To succeed globally, a payments company needs strong technical teams with expertise in tech and finance regulations, local market navigation, and a consolidated approach to maintain consistency in the merchant experience.
Uber's success in expanding globally relies on a combination of local expertise and a standardized approach. Uber settles funds from clients and automatically handles complexities like FX through a trading function and reporting to local authorities. However, they avoid creating separate product teams for each country and instead maintain a consolidated team to ensure consistency in the merchant experience. For a payments company to succeed, Uber's CEO emphasizes the importance of strong technical teams with a deep understanding of both technology and financial regulations, as well as the ability to navigate the unique challenges of each market.
Balancing Regulation, Finance, and Technology in Fintech: To succeed in fintech, companies must understand regulatory frameworks, financial systems, and technology innovation. Approach regulators respectfully, educate them, and offer tech solutions to pain points within those frameworks.
Successful companies in the financial technology sector need to strike a balance between understanding regulatory frameworks, financial systems, and technology innovation. While having a strong foundation in regulatory and financial knowledge is crucial, having a technology solution that addresses a pain point within that framework is what truly sets companies apart. It's essential to approach regulators with respect and understanding, recognizing their unique incentives and the importance of education in navigating the regulatory landscape. By enabling digital globalization, payments companies can help facilitate the growth of great companies with customers everywhere, despite trends towards physical deglobalization. Ultimately, the role of a payments company is to provide the infrastructure that allows these opportunities to flourish, not to compete with merchants or creators.
Lowering payment friction in emerging markets: Dlocal's payment solutions enable businesses to reach new customers and pay them in local currencies efficiently, expanding their operations in emerging markets and generating unexpected opportunities. Dlocal earns revenue through transaction fees and FX spreads, ensuring profitability in every dollar processed.
Lowering payment friction in emerging markets through infrastructure solutions leads to significant growth and new opportunities for businesses. Companies like Xinyin and Shopee are thriving in these markets, and Dlocal's payment solutions have enabled merchants to reach new customers and pay them in local currencies more efficiently. For instance, Uber's expansion into Latin America required a reliable payment infrastructure to pay thousands of drivers weekly, which Dlocal provided. Additionally, Dlocal's issuing product has seen unexpected adoption in the remote workspace economy, allowing global companies to offer financial products to their employees in emerging markets. The payment process involves costs for processing the transaction and fees for the payment method, such as banks or credit card networks. Dlocal earns revenue through these fees and FX spreads in cross-border transactions. By focusing on profitability in every dollar processed, Dlocal ensures its incentives are aligned with its customers, leading to a powerful business model. The success stories of companies like CAMBA in India demonstrate the potential for unexpected opportunities when infrastructure is in place.
Avoiding losses in every business unit and focusing on liquidity and currency exchange: To sustainably grow a payments company, each business unit must operate independently without incurring losses. Focus on liquidity and automatic currency exchange for transactions to ensure success.
For a payments company, it's essential to ensure every business unit operates independently and sustainably, without incurring losses to access higher-margin segments. The speaker emphasized the importance of every business standing on its own legs and avoiding the risk of merchants doing well while the company suffers. Regarding the cost of processing payments, it's essential to understand that networks need incentives to operate, and costs will vary depending on the payment methods and geographies. The speaker also mentioned that their business focuses on ensuring liquidity and the automatic exchange of currencies for transactions. In terms of product distribution and adoption, the company prioritizes bottom-up adoption by building strong developer communities and providing excellent documentation. They do not aim to sell to chief information officers directly. Instead, they rely on the network effect and word-of-mouth recommendations from satisfied developers and merchants.
Specialized sales and marketing approach for finance and payments teams: Invest in understanding unique needs of each industry and market to provide specialized solutions, valued by key decision-makers, and avoid competing with customers or handling too many use cases to maintain standardization and differentiation.
The sales and marketing approach for this company, which serves big enterprises, is highly specialized and focused on finance and payments teams. They have a small team and invest heavily in understanding the unique needs of each industry and market. The team's expertise is valued by their counterparts, and deals are made between a few key decision-makers. The company's API business follows a similar approach, focusing on standardization and saying no to unnecessary features to differentiate and provide value. The temptation for API businesses to compete with their customers or try to handle too many use cases can hinder their ability to standardize and provide a powerful, widely-adopted solution.
Empowering Merchants, Staying Neutral: Dlocal's success comes from prioritizing merchants, maintaining neutrality, focusing on emerging markets, and staying profitable.
Dlocal, as an infrastructure provider, has prioritized powering merchants over competing with them, and has avoided going after end-users to maintain neutrality. This focus on enabling merchants and staying behind the scenes has contributed to their success. Another key factor in their rapid growth is their relentless focus on what matters most, such as serving emerging markets and maintaining profitability, rather than getting distracted by ancillary activities or external validation like PR and funding rounds. To continue improving, Dlocal should strive to balance being extremely local with standardization, ensuring they provide tailored solutions while maintaining efficiency and consistency.
Effective leadership in global expansion: Understand local frictions, standardize processes, maintain humility, and focus on clear KPIs for successful global expansion.
Execution is key for success in business, especially when expanding into new markets. The ability to understand local frictions and standardize processes is crucial for growth. However, maintaining humility and a learning mindset are essential for effective leadership. Merchants should receive the best customer experience possible, and clear, aligned KPIs help achieve this goal. Leaders should challenge themselves and encourage growth within their teams, allowing for freedom and trust in one another's abilities. This mentality of constant improvement and humility comes from a deep understanding that everyone has a role to play and that titles are not the most important factor.
Embracing unique backgrounds and expressing gratitude for opportunities: Continuous learning, staying humble, acknowledging background and fortunate circumstances, and embracing uniqueness are essential for growth and success.
Continuous learning and recognizing one's limitations are essential for growth, both personally and professionally. Sebastian, the founder of D Locals, emphasized the importance of staying humble and being open to new experiences. He shared a mistake his company made in the past, where they tried to imitate Silicon Valley companies instead of embracing their unique background and perspective. This experience taught them to dream big and believe in their ability to make an impact, no matter where they started from. Another valuable insight from the conversation was the importance of acknowledging the role of background and fortunate circumstances in achieving success. Both Sebastian and Robert Leonard expressed gratitude for their upbringings and the opportunities they have been given. Additionally, Sebastian recommended visiting Uruguay, emphasizing its beauty and welcoming people. He acknowledged that the country's remoteness may be a challenge, but encouraged everyone to come and experience it for themselves. Overall, the discussion highlighted the importance of learning, embracing one's unique background, and expressing gratitude for the opportunities and experiences that have contributed to success.
