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Expert opinion

Expanding into emerging markets - rethinking opportunities

Tuesday 23 May 2017 | 10:26 AM CET

Sebastián Kanovich, dLocal: Expanding into emerging markets comes with numerous regulatory and operational challenges and commonly misunderstood one is payouts

There is no denying that ecommerce is going through a significant transformation. People on every continent and in every country have access to smartphones, and with it, access to reliable internet. Companies like Uber, Etsy and Airbnb rely on business models that seemed experimental at best only a decade ago. Now, they are not only redefining whole industries; they are creating income opportunities for millions all over the world.

While expanding into emerging markets has become less of a risky endeavor than it was a decade or two ago, there are numerous regulatory and operational challenges that companies must overcome in every single market. One that is commonly misunderstood is payouts.

For new economy giants and any ecommerce company that employs a marketplace model, figuring out how to handle cross-border payouts is an especially pertinent topic. Why? Because they have to be able to send daily payments to hundreds of thousands of geographically dispersed contractors, sellers, and hosts in a secure, transparent and timely manner. These payments have to be sent in local currency, to the contractor’s local bank account, e-wallets, or another locally relevant financial instrument. And, they have to do so in a manner that is operationally and commercially scalable (FX, currency fluctuations, cross-border remittance, and fraud are all factors here), as well as compliant -- both in the company’s country of origin, as well as in the country of their local contractor. The legislative and operational burdens of sending funds into emerging markets add another layer of complexity.

This raises the question of what can go wrong and the answer would be - a lot.

Payment companies are kind of like matchmakers

When it comes to cross-border payouts, the typical ‘build vs. buy’ dilemma isn’t really a dilemma for most ecommerce companies. They simply don’t have the desire to learn about every single country-specific use case, nor do they want to be in the business of building a complex technology stack for mass multi-country payment delivery system.

It is not surprising that finding the right partner who can handle mass payouts on a regional or global scale is an urgent roadmap item for many growth-minded companies.

When evaluating a payouts partner to fuel emerging market expansion, prospective partners should conduct detailed due diligence. The following guiding questions will help you pinpoint whether you’ve found the right partner or should continue looking.

Local expertise

  • Does the company have credible, local expertise in the countries of interest, including knowledge of the legislative environment?

  • Do they have a local entity, legal representation, and a business relationship with the central banks in these markets?

  • Do they understand the local payment habits?

Local payment mix

  • Can they provide coverage of all the relevant payment methods, such as pre-paid cards, debit cards and e-wallets, or only bank transfers?

  • Are they directly connected to all the local acquirers or indirectly connected through another payments provider?

Countries of coverage

  • Does the payment provider operate regionally?

  • Has their footprint expanded in the last few months? What is the rationale for adding new countries and how often does that happen?

  • Can they provide support in all the local languages?

Technical prowess of the system

  • Is it robust enough to handle millions of transactions?

  • Is it flexible enough to handle distribution of payments across a variety of geographies to hundreds of different accounts and local payment schemes? Can this be done on your schedule, on your terms?

  • Is it modern enough to accept payment data via an API, or will you need to send it via a batch file or XLS?

  • Will you need to go through another integration when you want to add another payout method or another country?

  • Will your system receive payment status notifications?

  • Can they unify your pay-in and payout operations by offering a 360-payments service that handles both?

These are just some of the questions that you should include in your checklist when searching for a payments provider that operates in emerging markets. Choose wisely. Your payouts partner will be one of the bedrocks of your business when selling physical or digital goods in other countries, and a stable, reliable and capable business partner is critical to building a long-term, sustainable marketplace.

About Sebastián Kanovich:

Sebastián Kanovich is the Chief Executive Officer at dLocal. He spun off dLocal from AstroPay in 2016, creating a payments technology company which eliminates operational hurdles that hinder e-commerce expansion into emerging markets. As the CEO of AstroPay, he grew the company into a premier payment-card provider that processed millions of cross-border transactions daily. He studied Economics, Entrepreneurship & Innovation at Tel Aviv University and completed a prestigious Endeavor Innovation and Growth Program at Stanford Graduate College of Business.

About dLocal:

dLocal is a 360 payments technology platform designed to handle mass online payments in LatAm and other emerging markets. With dLocal, there is no need to manage separate pay-in and payout processors, set-up numerous local entities or integrate dozens of isolated payment methods. Over 450 e-commerce companies rely on dLocal to accept more than 200 locally-relevant payment methods, as well as issue millions of payments to their contractors, agents, and sellers in 18 markets around the world.

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