Payments in Emerging Markets Made Easy with Federico Mazzoli of dLocal

Are you looking to expand your business into emerging markets but struggling to manage payments in those countries? In this episode of PayPod, host Jacob Hollabaugh sits down with Federico Mazzoli of dLocal to discuss how they help companies collect payments from their end-users by enabling local payment methods, giving them access to the entire market share.

dLocal powers local payments in emerging markets connecting global enterprise merchants with billions of emerging market consumers across APAC, Latin America, and Africa. Watch this episode for a fun and interesting dive into this latest development in payments and fintech. 

Payments & Fintech Insights In This Episode

Today’s Guest

Federico Mazzoli : dLocal

dLocal powers local payments in emerging markets connecting global enterprise merchants with billions of emerging market consumers across APAC, Latin America, and Africa. Global companies can receive payments, send pay-outs and settle funds globally 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.

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About PayPod

PayPod is the leading voice in the payments and fintech industry, covering payments, risk management and new technology. Host Jacob Hollabaugh interviews leaders who are shaping the payments and fintech world, as they discuss the latest developments in the payments and fintech industry.

Episode Transcript

Jacob: Welcome to PayPod. The Payments Industry Podcast. Each week, we’ll bring you in-depth conversations with leaders who are shaping the payments and fintech world from payment processing to risk management and from new technology to entirely new payment types. If you want to know what’s happening in the world of fintech and payments, you’re in the right place. Hello, everyone. Welcome to PayPod. I’m your host, Jacob Hollabaugh. And today on the show, we are talking about payments. Because, of course we are. That’s what we do around here. However, unlike most episodes where we typically spend our time discussing the US or European payments and fintech landscape, today, we are instead turning our focus to emerging markets. With the continued globalization of the commercial world, more people in more places have a need to connect with, work with buy from sell to more people in more places around the world, which means being able to connect people and facilitate the transfer of money across markets becomes paramount. Joining me to discuss this need and how his company is leading the way in solving it is Federico Mazzoli, VP of product at dLocal, the company powering local payments in emerging markets, connecting global enterprise merchants with billions of emerging market consumers across APAC, Latin America and Africa. Federico, welcome to the show. Thank you so much for being here.

Federico: Hi, Jacob. Thanks for having me.

Jacob: Absolutely. My pleasure. Before we get to dLocal itself, let’s get a bit of an overview on payments in the emerging markets if we can. First off, when we say emerging markets, what areas of the map are we mostly talking about with that phrase? And then second, how have emerging markets handled payments in the past or have they simply just kind of been left out of many global transactions or businesses because of the inability to facilitate the financial side of things?

Federico: Sure. So by emerging markets, we mean, as you mentioned before, Latin America, Africa and Asia, for the most part, those are the countries where usually the biggest players in the industry, the big Googles, the Netflix, the big guys, they started usually in the US or Europe. So it’s usually after they conquered those markets that they try to expand to those other regions and those are the markets that have been left out of the latest. Also innovations in regarding payments. So we are there to fix that.

Jacob: So has it simply been that they’ve been left out or has there been anything over the last decade or two where there’s been other attempts at being able to facilitate the connection between those places? That just hasn’t worked out?

Federico: A combination of many things. The first one, the big enterprise merchants, the big companies online. In some cases, they have local operations in these markets and in many other cases they don’t. And they need a way to expand fast in this region. So it’s a problem in itself. How does a company manage to process payments in countries where they don’t have a local entity? Right now we operate in 40 different markets Latin America, Africa and Asia. So basically we help them expand in all these countries without the need of a local operation, without the need of having people on the ground, having relationships with the local players in each of these countries, having the licenses that might be required. We are there to solve that problem under one single API.

Jacob: You kind of mentioned a few big players that like Netflix especially made a lot of sense to me of being a company that would be on the forefront of needing to wanting to connect these places. Have there been any specific industry types or business types that have led the need for that change or pushed for that change? The hardest.

Federico: To be honest, if we look at our merchant mix right now, we basically tackle every single industry. That has been pretty consistent from our start. Even though we started some of our early big customers were on the likes of GoDaddy in the hosting world, Uber on the ride sharing, which are completely different business models. It has been like that since the early days. It’s a problem that applies to a lot of different industries. It applies to everyone.

Jacob: Yeah, and especially as everything becomes more global and intertwined and every e-commerce business it would make if you have the ability to and the solution to be able to. Why not? If someone in a different market wants to purchase the thing I’m selling and can otherwise do every other part of it online and the shipping is already kind of mostly been figured out. The last step was kind of that payment and financial hurdle. So we’ve talked around dLocal a little bit. Can you just give a quick overview of the company and the services that you offer?

Federico: Sure.

Federico: So in a nutshell, we help this kind of enterprise companies process payments in emerging markets. That means collecting payments from their end users. By that, we allow them to use any of the most relevant payment methods in the market. Before, dLocal consumers only had the option to pay with international credit cards and less than 10% of the market has access on average to international credit cards. So by using the local payment methods that we enable, the merchant can access the whole market share, They can get access to not only international credit cards, but local credit cards with the local acquirers, debit cards, cash, bank transfer, e-wallets, whatever payment method is relevant in the country. That’s one thing. So payees is the other service is what we call pay outs. So it’s paying out to these users. In any market that can be be a bank transfers, which was probably the usual but now we make it locally so local bank transfer from. Our local bank to the customer, local bank, which is faster, cheaper than international wire transfers, but also pay out to E-wallets, for example, something that in Asia it’s massive and it’s growing in other markets as well. We also have a solution for issuing cards in many markets. So fully white label solution that with one API you can invoice cards in many markets and some other solutions of the sort.

Jacob: Yeah. And on that last one, so it’s fully white labeled and just the API, you are not actually acting as an acquirer or bank yourself. You’re white labeling those solutions to the local banks and whatnot to be able to give them those services.

Federico: Exactly. That’s part of the core of what we do. We want to be as invisible as possible. That’s our goal. If the user can make a purchase and never realize who’s the local, the regular consumer doesn’t need that. There’s the local in the middle. They just want to buy their shoes on Amazon. That’s it.

Jacob: Yeah, certainly. And that number you had said a minute ago that only 10% of them, you know, have access to the international cards. That would be the way to make this connection. Previously that I assumed it was obviously low and that’s why this hurdle exists. But that was kind of staggering to hear just how low our. What makes your solution stand out? Is it is there anything different from competitors or is it that there isn’t really other competitors? Or are you simply the only ones doing this at this scale?

Federico: For the most part, if we don’t process a transaction, no one else will be able to do it. There’s no alternative. There are different players tackling different regions. There are obviously the country specific or local players. These are the local acquirers. You have the regional players. Maybe they do something similar to what we do, but maybe only in Latin America or only in a portion of Southeast Asia, for example. There’s no one targeting all emerging markets and you have this other global players like the likes of Stripe or Adyen who were born in the US in Europe. So that’s where their focus is, which is a completely different game as emerging markets, which are far more complex.

Jacob: Yeah, certainly. And a couple of those last ones are names that come up a lot with us. But on this show. But again, usually when looking at that US and European market more often, if I was a business owner looking to integrate your services, I think my first question when hearing this, I mean, I would be thrilled and be like, oh my gosh, I can reach so many more people and so many places. And it’s amazing that those people can now reach me and all these other services. That’s amazing. But my first question would be, how are you up to date on everything? How is it possible in so many different markets, so many different regulations, so many different payment types, different places, others being more popular, Everything always changing. How? I would just ask how basically. So how does dLocal keep themselves up to date on all the different infrastructures, all the different regulations? Give that client peace of mind that you’re able to stay on the forefront of that.

Federico: It is a complex problem and it’s one that we’ve had since the beginning. Since the beginning, we knew that we were going to tackle a lot of different, very complex markets at the same time as opposed to one big market. So basically we designed our tech stack and our people stack to solve that issue. We have products and IT teams in the countries that are most complex. For example, Brazil, to give you an example, but we have basically people from operations from legal. For the most part, all of the countries that we have operations and not only that, we also have very deep partnerships with the best legal and compliance teams in all of these countries. So it’s a matter of knowing that things are going to change all the time and have that vision, that roadmap in the medium and long term of what’s going on and just be organized. But so far it’s been good.

Jacob: It’s certainly a lot to be organized. But really in the end, that is the the problem you’re solving more than anything else. The payment type of technology has been there. It’s solving this logistical problem of getting that to these places. Just from a history standpoint, did the company start in one specific spot or one of the, you know, those kind of three big target audiences and grow out and have you hit all of the emerging markets at this point? If you get hit in like max size of all the places you’re trying to reach.

Federico: Yeah, like most start ups, they started in one place For us. The founding team is based out of Uruguay. Brazil was our first market in Latin America. Brazil is the big brother. We are very close to them, but we understand them very well. But and we know that the market is there for a lot of businesses. So we started there. But very quickly, by mainly listening to our customers, we expanded to other countries in Latin America. Then a few years ago, we decided to expand in Asia and then in Africa. So right now we are doing a very big investments in Africa especially. But yeah, it’s something that we’ve been discovering every day. But once we made the decision to expand in other countries in Latin America, we knew that the huge opportunity that it was to go to all the other emerging markets. So right now we are in 40 markets, but we still have 150 to go.

Jacob: Wow, That’s pretty amazing. Let’s talk about a couple newer offerings for you. First, dLocal for platforms, which I saw was one of the newer offerings or new main focuses for the company. What was the thought process behind targeting that vertical trying to go specifically for platforms?

Federico: As I mentioned before, every product that we launch, we do it by just listening to our customers. We don’t try to invent the metaverse or trying to guess what our customers will want in the future. We just listen to our customers and build what we hear more often. And that was the case of platforms, basically, just to give some context. Our solution for platforms helps marketplaces and other types of platforms like social media or ride sharing apps. Basically any company that has other small companies or individuals underneath them. And it was just that. Basically, just listen to our customer. We’ve heard from a lot of big merchants, like the likes of Amazon or Shine. They were looking for a solution like that was already solved in the US and Europe by some of the other players. But extrapolating that to emerging markets was a huge challenge. It’s very complex from the onboarding of new merchants running an automated KYC. That is according to the regulations of each of the markets, processing payments and then splitting the funds or moving funds around between accounts. Then how do you settle at scale to thousands and thousands of small businesses? So basically we combined a lot of the solutions that we have built in the past by and also adding new ones. And we launched the platforms late last year and so far it has been great.

Jacob: Yeah. And it seems like an obvious kind of culmination of, like you said, adding kind of the pay ins and the pay outs, especially with some of the examples you were given. I’m thinking like with ridesharing companies, would a great example of where there’s a lot of pay ins, but there’s also that pay out side of things. So it seems logical that you put it all into one and then be able to work with some of the biggest companies in the world at this point are platform and marketplace based companies. Another one of the verticals you’ve entered recently is invoice collecting. So can you give me the same kind of breakdown on what the thought process was behind that choice and how that’s going for you so far?

Federico: Sure. So invoice collection allows our customers and again, these are enterprise big enterprise customers to collect payments from their enterprise customers. So, so far, historically at dLocal, we’ve been helping them reach their small customers. So the person that pays a couple thousand dollars tops on a given transaction. But there’s this whole other segment which are the enterprise payments, like hundreds of thousands of dollars per transaction. So these kinds of problem are usually tackled by the accounts receivable teams of these companies. So we built no code tools to allow them to manage payments in these 40 markets and handle the complexity of tax collection, the effects. How do you expatriate that money? How do you collect all the information that is required to do that sort of operation in every country? We basically wrapped that all that up in a no code set of tools so that this account resulting didn’t have to move a finger, didn’t have to integrate to an API like their peers in the payments team maybe did. So yeah, that has been what’s going on lately.

Jacob: So is this more than sounds like more B2B operations than the B2C, the past, the small stuff and the B2C world, but now being able to take what they’re doing and be like, Well, you’re also an Amazon, for instance, has huge sellers on their platform to be able to do the B2B side of what they’ve got going on too. Am I reading that correct?

Federico: Exactly.

Jacob: Speaking of the big, big companies like an Amazon and all the others you mentioned that you work with, I kind of want to pivot to talking about working with and integrating with a massive corporations of those size. Working with partners of that size is kind of like the dream for most people in the payments and fintech world. What can you tell me about building an initial partnership with a company of that size and then kind of successfully maintaining that relationship? Because I imagine it’s a little bit different building and maintaining a relationship with a company the size of an Amazon or an Uber or some of the ones you’ve mentioned than most people working with clients that are. At that kind of scale.

Federico: Yeah, it’s a completely different game than working with small and medium businesses. Working with these kind of customers, it’s like a marriage. For it to be good. It takes a while to to get to know each other because these sort of relationships usually stick for a very, very long time. So they have to pick us, we have to pick them. And it’s basically a partnership. We see it more as a partnership than just selling a service. They help us improve. We help them improve. So it’s a matter of like what I was saying before, it’s just listening to them and learn from them. These companies have some of the best payment teams in the world and having all of these names, which we have, a lot helps you grow. It helps you learn from the best and apply those learnings to the other customers as well.

Jacob: Yeah, it certainly builds that credibility. If someone sees you’re working with those people, they kind of automatically trust you. They just have that credibility of if someone like an Amazon is willing to entrust all of this business to you, then why? You know, I don’t need to run through my typical security questions. I’m pretty confident their legal team and everyone asked all the stuff I need to and probably feel pretty good just jumping right in. So that last part you mentioned, they have some of the best payment teams in the world within companies like that Leads me to my next kind of question, looking at trends in the future and in the kind of recent past we’ve seen over the last decade, especially the kind of explosion of as a service companies and more specialization, especially in the financial and payments world. dLocal is a part of that. Of course, payments as a service, integrating into these other companies, offering this expertise specific solution that you do. I wonder when you work with companies the size of I’ll just keep using Amazon as the example because they’re about as big as it gets. When you work with a company of that size, do you ever think about or fear that maybe one day they wake up and decide, we’ll just figure out how to do this on our own? We have the resources. We could build this internally. Do you ever think about that? Do you ever does it make you question like making it more broad than just you and Amazon specifically, like thinking about the trend of specialization and integrating continuing versus there ever being a shift back to consolidation where either the biggest companies build internal or maybe acquire companies to then be internal. What do you think about all that? Just ramble that. Yeah.

Federico: No, no, it’s a great question and it’s part of the motivation in a way to keep adding value to our offering. But truth be told, a lot of these companies already try that and they are coming to us still. They realize how complex, even if they have the best payment teams in the world, it’s not their core business. It is for us. It’s our passion. Like we dream about payments every day. So we’ve seen it many, many times. Some of these players, they did it before, they tried it before. And now they say, let this let these guys handle it. They know a lot and they put their heart in it. So it’s a very complex problem.

Jacob: Yeah, I’m with you. I like to ask that of a lot of folks in the new kind of as a service world. But I’m a pretty big believer. Like you said, they tried it before and there’s a reason others who could specialize in things and come in and say we’re the best in the world at this part. That is a part of the 100 things you need to have an Amazon type company that don’t really see it changing much anytime in the near future. A few other trend related questions for you then. When you look at the entire scope of the countries you’re operating in, I think you’re in an interesting position of having a little bit of a first hand view of market research that others would be interested in. Is there any specific type of payment methods that stand out as the fastest growing or the most popular news services across some of these emerging markets? You know, like here where I am in the states, buy now, pay later is kind of the new hot thing, the new payment thing that’s taking over the fastest growing right now. Are there any types of payments or services across these emerging markets you see standing out as the fastest growing across the globe?

Federico: Well, we see many, many examples. Just to put you an example of buy now, pay later. We call it installments. In Latin America, we’ve been using that for 30 years. Maybe it’s something.

Jacob: You’re in front of us.

Federico: Sort of. Differences are huge between the US and emerging markets. I would say Pix in Brazil. It’s an amazing success story. Basically in Brazil there were, for the most part, three types of payment methods, cards, maybe credit or debit cash with Boleto Bancario, which is by far the most popular cash solution and bank transfers. Then came Pix about two and a half years ago, which is basically an instant payment solution 24/7. You get a QR code or a text that you can copy and paste on your home banking app and the other party gets the money instantly. It had been a huge, huge success. We’ve seen that it’s around 20% of payments in Brazil in only two and a half years are being done with Pix. It has been getting a lot of market share from both Boleto and debit. Id cards, I would say. And the adoption has been amazing. And this 20% is with our set of mergers in the future, we will definitely see that number go up. It is, I think, very similar with what happened with UPI in India back in 2016, a huge success story in those two countries, those two payment methods. You have other examples like maybe CoDi in Mexico, which is a very similar technology but hasn’t catch up as much as Pix did, Not even close. Many reasons. It would be hard for me to pick 1 or 2, but that’s what makes this great. Every country is different. Every country finds a solution that works specifically for that market or for what people are used to there. And that’s why giving the user options is the best alternative, not just cards. Give them all the payment methods, let the user pick.

Jacob: Certainly it does seem if there was a theme to those different examples you gave, it was that speed seems to be winning the day right now that there is a trend across all kinds of markets of if there’s a new, more instant solution. I mean, even here in the US, that is one of the big trends right now with Fednow rolling out and all kinds of things of just speed is slowly but surely becoming something that consumers across the world are like, Hey, this stuff all kind of moves a little slower in the digital world than anything else does. And so I think all those examples you gave were, you know, keen on their the new fast option within that market. And so speed is winning and that’s pretty wild in two and a half years in Brazil for 20% that’s an incredible market share to obtain in a really short amount of time. So quite the success story. Final question then for you. Looking forward over kind of the next decade or so, half decade to decade, do you think the payments world will continue to be all about connecting what already exists, such as kind of what you’re doing building those bridges to the structures that already exist? Or do you think that the continued globalization of payments mean that some portion of the payments chain will ultimately need to be changed or removed and totally new players will be coming in?

Federico: It’s already changing all the time. We see countries adapt or catch up with others. We see new payment methods like Pix or UPI, which are instance appear every year in a new country. So more than a sudden revolution, I think it’s just a gradual evolution. Governments understand, obviously with the rise at least in popularity of crypto, governments understand that that might be a challenge in the future. So they are developing their own solutions which are as fast and cheap that crypto might be, but they have full control over it and full transparency. So I think it’s simply an evolution of the infrastructure of payments.

Jacob: Wonderful. Well, Federico, this has been really great to get to learn from you and about you. For those listening who might want to follow you or keep up with what you’ve got going on, where would be the best place for them to go to do so?

Federico: Our website, dLocal.com, we publish there all the time, new payment methods, new countries that we open. We also have a LinkedIn and Twitter users. We also send press releases every now and then and we publish them on those platforms.

Jacob: Wonderful. We will of course, link to those in more in the show notes. Federico, thank you for giving us your time and knowledge. It’s been a real pleasure. Hope to speak to you again sometime soon.

Federico: Likewise.

Jacob: If you enjoyed this episode and want to hear more, head on over to SoarPay.com/podcast to subscribe on your podcast listening platform of choice. That’s s.o.a.r.p.a.y Dot com slash podcast.