Payments startup dLocal just expanded its Amazon partnership. We talked to its CEO about how to build infrastructure that lets Uber and Netflix accept local payments around the world.

Shannen Balogh

Jan 21, 2020, 17:49 IST

dLocal

dLocal CEO Sebastian Kanovich.

dLocal, an emerging-markets payments startup, just expanded its Amazon partnership to include Chile.
Using dLocal, companies like Amazon, Netflix, and Uber can send and receive payments in emerging markets where several different methods including local credit cards and digital payments are used.
We talked to dLocal CEO Sebastian Kanovich about why Latin America is hot for payments, and what it takes to set up in fragmented markets.
"They can go and build the highway and then ride their cars on top of it, or they can rent the highway from us," Kanovich said.
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It's not uncommon for tech giants to partner with startups. Silicon Valley is filled with "APIs" and "platform solutions" and "software-as-a-service."

In the payments space, business-to-business players like Marqeta, Plaid, and Stripe all provide platforms for different things other businesses need. Marqeta is a card issuing platform; Plaid, who recently announced a $5.3 billion acquisition by Visa, helps companies to link into their customers' bank accounts; Stripe, while it now does more than payments, got its start in ecommerce points-of-sale.

dLocal is one such B2B payments player, and it enables tech giants like Amazon, Netflix, and Uber to accept and send payments in emerging markets across Latin America (LATAM), Asia Pacific (APAC), and the Middle East and Africa (MENA.)

By linking into dLocal's tech, Amazon can accept local credit cards, digital payments, and even Boleto Bancario (an alternative payment method in Brazil.)

"Amazon needs to be genuinely local in many markets at the same time," dLocal CEO Sebastian Kanovich told Business Insider. "So what we bring here is the technology piece and the infrastructure for them to be able to access that."

dLocal on Wednesday said it inked an expansion of its Amazon relationship to now include Chile. But the partnership already includes markets in LATAM, APAC, and MENA, Kanovich said, and is live on both Amazon.com for shopping and Prime Video.

Not so easy to DIY

The payments landscapes in emerging markets are fragmented and complex.

Between divergent payments methods and country-specific regulations, building individual payments networks across emerging economies isn't the most attractive option for the Amazons and Ubers of the world.

If a company was only interested in setting up one emerging market, dLocal becomes less relevant, said Kanovich.

"But when you start adding more geographies and more complexity, that's where the infrastructure we built becomes even more attractive," Kanovich said.

In addition to setting up the rails to receive and pay out with local credit cards and other methods, dLocal manages the foreign exchange aspect.

Quoting both the buyer and seller in their own domestic currencies, dLocal owns the FX exposure, so the end users don't have to convert any currencies. A part of its revenue comes from the interest rate spreads off these FX transactions.

LATAM growth

dLocal was founded in Uruguay, and now has offices in San Francisco, São Paulo, London, Tel Aviv, and Shenzhen (a city on the border of mainland China and Hong Kong.)

And Latin America is growing fast with booming domestic startup scenes and foreign players like Amazon and Uber.

"Latin America has become sexy," said Kanovich. "Our view is that it's clear at this point that a lot of the growth for international companies will need to come from emerging markets."

Particularly for US companies, Kanovich said, LATAM should be a focus especially because of its proximity.

"Particularly for US companies, Latin America is in its backyard. It makes a lot of sense for them to invest heavily in those markets," Kanovich said.

To be sure, there are startups within LATAM that are attracting investor attention, like Brazil's Nubank and Argentina's Uala. And banks like Goldman Sachs are eyeing the region, looking for the next wave of unicorns.

Build vs buy

dLocal is an infrastructure player banking on the fact that companies like Amazon and Netflix don't want to build payments rails in every emerging market they enter.

"When you start adding more geographies and more complexity, that's where the infrastructure we built becomes even more attractive," Kanovich said.

dLocal navigates all the regulatory and tech frameworks in each of its markets so companies like Amazon don't have to do it themselves.

"They can go and build the highway and then ride their cars on top of it, or they can rent the highway from us," he said.

Demand-driven

dLocal is now operating in 18 emerging markets across LATAM, APAC, and MENA, Kanovich said. In addition to Amazon, dLocal counts Netflix, Uber, and Brazilian rideshare startup DiDi as customers.

And there are two factors that drive dLocal's decisions around which market to enter next.

"Number one is we like to ask our customers and our merchants," said Kanovich. By following the merchant demand, dLocal is profitable, Kanovich said.

"We were always extremely focused on making sure that there was a paying customer behind everything that we were building," he said.

"The second thing we do is try to find the markets where there's a big population who would like to pay in a particular way, whatever way that is, and somewhere where we see a lot of friction," Kanovich said.

India, for example, was one such market with a huge population and plenty of demand from merchants.

Other payments players like Adyen also offer emerging markets access, but dLocal only focuses on emerging markets, whereas Adyen offers payments capabilities both established and emerging markets.

dLocal is a bootstrapped business, meaning no external investors, Kanovich said.