Em Conversa looks to uncover the secrets in Latin America (LatAm) that have caused the fintech market to boom, from being worth less than $50million in 2016, to $2.1billion in 2022. This week we spoke to Michel Golffed, senior vice president of growth at dLocal to discuss how global merchants can best expand into the LatAm region.
dLocal powers local payments in emerging markets connecting global enterprise merchants with billions of emerging market consumers across Africa, Asia, Latin America, and the Middle East. Through the “One dLocal” concept (one API, one platform, one contract), global companies can accept payments, send pay-outs, settle funds globally, and issue white label prepaid virtual and physical debit cards in local currencies, without the need to manage separate pay-in and payout processors, set up numerous local entities, and integrate multiple acquirers and payment methods in each market.
In his role at the company, Golffed is focused on leading strategic partnerships with fintech ecosystem players, as well as fostering relationships with key merchants while guiding them to implement holistic cross-border payment strategies that maximise conversions. Prior to this, Golffed was CTO of dLocal, leading the company’s engineering and innovation efforts and scaling its payment technology. Before joining dLocal, he served as COO at Moove-it, a software consultancy firm specialising in application development for startups and Fortune 1000 companies worldwide.
In March, dLocal announced a new partnership with BigCommerce to power the latter’s cross-border as well local-to-local payins to fuel BigCommerce’s Latin American expansion. We spoke to Golffed to understand why global organisations, like BigCommerce, were now choosing to expand into LatAm, and how local payment knowledge and payment solutions could help them achieve this.
Can you tell me a bit about the company?
When we started dLocal we were not thinking about becoming a unicorn, let alone a public company. We were just trying to solve payment complexities for global companies in emerging markets. We started to work small in Brazil, with a particular use case of companies in the US trying to collect funds from consumers in Brazil, using Boleto, which is a payment method that has been around for many years in the country. We quickly realised that the same needs and patterns were true across LatAm; looking at the broader emerging markets landscape, we also saw lot of fragmentation in the payments ecosystem.
We started with more payment methods in Brazil, then quickly expanded to more countries in LatAm: Argentina, Mexico, Chile, Colombia, Peru, and a few others. We then expanded to our first market outside of LatAm, India as we saw a huge opportunity there.
Fast forward to today. We do payments across 35 emerging countries, supporting over 700 ML methods working across five different products. We do collections, payouts/disbursements, card issuing, provide fraud solutions, and our marketplace solution. This is essentially a combination of everything: we onboard sellers, we collect payment from buyers, we do KYC for the seller, disperse to the sellers, and everything in between. So for us, it was really a natural journey of evolving from one country to multiple countries within the same region and then multiple regions and always within the emerging markets realm. We don’t do any payments processing in the US or Europe or any developed markets. We just focus on emerging markets. That’s where we are strong and we can differentiate as well.
How important is it for merchants to partner with a company like dLocal to expand into the region?
I think it’s easier to look at it from the perspective of what would happen if merchants don’t partner with a company like dLocal. They must essentially do cross-border acquiring from the US or Europe, which typically will reach 20-30 per cent of the customer base. This per cent in emerging markets are typically people with access to an international credit card.
What a merchant does when they connect with dLocal is tap the remaining 70 per cent of the market. They can get to pretty much every single customer out there, with the payment methods that the customers typically use on a daily basis. So for a person sitting in Brazil, Nigeria, India, Egypt or South Africa, the payment method used to pay for their utility bills, should be the same method used to buy something on Amazon, pay for their Netflix subscription or buy clothes online.
So really, what we do is we connect these global companies, that are very good at what they do (selling their products and services), with customers residing in emerging markets that want to buy from these global companies but want to use the same methods so they know.
What has caused the shift in LatAm to make it such an appealing market?
Being originally from Uruguay, I grew up with some complexities to buy things online for instance. Payment features that I’m used to paying with when I buy locally, like splitting my payment in multiple instalments were not always usable when buying something on Amazon or even using my local debit card to pay for Netflix.
There are some nuances and some differences in payment methods but generally speaking, you will see three to four main families that are relevant: cards, both debit and credit are either issued for domestic usage only or for international usage, not both. The second one is cash, which is obviously huge in the region. The third one is bank transfers. The fourth and final one is digital wallets, which are now popping up and becoming more relevant. When I speak about fragmentation, this is what I’m referring to – it’s impossible really to address the whole region.
Speaking about Latin America as a region… it’s complex because it’s nuanced and every single country will have its own different payment methods and different habits. There are not many methods that will be present in more than one country.
Where we see the opportunity is in encapsulating all 700 plus local payment methods, into one single connection, one single API, and one single platform. When when you have such a strong legacy of financial infrastructure, it’s it’s only natural to build a layer of technology on top of it and try to offer both the global merchants and the local consumers a buying experience that is more in line with what you will see typically in the US or Europe.
What will ensure the LatAm market’s continued success?
It’s definitely going to keep growing. The pandemic served as a catalyst – it accelerated some new trends and caused some more people to shift to digital payments. Buyging online for the first time or opening up a digital wallet are just a couple of examples. So it’s just the tip of the iceberg.
We are seeing more and more, on the one hand, consumers becoming tech savvy, and getting access to buying online. On the other hand, more global brands and more global merchants that historically lead and operate in their own regions are now seeing LatAm boom, so they want to also start offering their services locally in the region.
It’s going to continue to grow, but not just Latin America – we are seeing the same trends across Africa too. We are growing super fast in Africa: Nigeria, South Africa, Kenya, Ghana; and in Asia, specifically in Southeast Asia, countries like Thailand, Philippines, Vietnam, Malaysia, and obviously India, where we’ve seen incredible growth.
How has starting a company in Uruguay helped the company’s growth and development?
The one factor that I have seen help a lot is the country’s size. Uruguay is a small country: we’re talking about 3.5 million people. When you start a company out of a country this small, you cannot really think of it as your main market because it’s too small for market. So you have to be born with a global mentality and, in our case, really think beyond the Uruguyan borders.
If you look at our story, we even started offering our product in a different country, not in Uruguay at first. So that global mindset was really a big factor in our success from the very beginning, by creating a global team and not just thinking about Uruguay even though the company started in Uruguay.
By thinking about issues that you may find in your life, like the ones I described, but that are also replicable across multiple countries is also very important. So again. that global mindset I think is key and continues to be key to the DNA of creating a culture.
What does the future of fintech look like in LatAm?
We are seeing a lot of activity in the space from companies doing payments as we do, financial infrastructure companies in the BNPL space and companies in the open banking space too. It’s super exciting.
If you had asked me this question, five years ago, I would have said, there’s really nothing going on. Now you see hundreds of companies popping up and getting a lot of traction from users, and getting a lot of funding from investors. So it’s really exciting for me as a Uruguayan and Latin American, to see this exponential growth in the region.
How has the SMB space developed and impacted fintechs?
So we recently announced our partnership with Big Commerce, but I think generally speaking, we are seeing a huge opportunity in the SMB space. Partnering up with companies like Bigcommerce and Shopify, and a few others that are really enabling development of SMBs. We are seeing a huge opportunity in the SMB space with mom-and-pop shops: being able to sell online utilising these platforms is massive.
It’s really exciting for us to be helping these smaller companies expand and grow, not only locally where they start, but also help them expand across the region.
Are we going to see more partnerships, like dLocal‘s and BigCommerce’s, between global companies trying to enter the market and local payment providers?
Absolutely. Many marketplaces and platforms like BigCommerce are investing heavily into emerging markets.
Some notable examples include Shopify, VTEX, TiendaNube/NuvemShop, Wix, and so many others. They want to deliver local experiences to both buyers and sellers, and enabling local payments is a big part of that.