[Transcript] Solving Payments in Emerging Markets with Sebastian Kanovich, CEO & Founder of dLocal

In our latest episode of the Wharton Fintech podcast, Miguel Armaza is joined by Sebastian Kanovich, CEO of dLocal, a 360 payments technology company handling payins and payouts in emerging markets for some of the largest global e-commerce and marketplace companies, including Amazon, Facebook, Netflix, and Google.

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Sebastián Kanovich

Miguel Armaza 01:20

Welcome Sebastian and thank you for joining us on the Wharton FinTech podcast. It’s a pleasure to have you here. Can we start by you telling us a little bit about yourself and your personal background?

Sebastian Kanovich 01:35

Sure, Miguel. Thanks very much for having me. it’s a great pleasure. And so a little bit more on me, I’m Sebastian Kanovich, I’m Uruguayan. I’ve been living in Israel for four years now. I just turned 30 years old, literally yesterday, so I don’t I don’t feel that young anymore and I’ve been running dLocal for the last eight and a half years now. This has been, to me, the experience of a lifetime and I’m super glad to have the chance to do tell you a little bit more about our experience.

Miguel Armaza 02:12

Fantastic. So did you grow up in Uruguay prior to moving to Israel?

Sebastian Kanovich 02:18

I did. I did. I I’m completely Uruguayan. I speak Spanish at home, I read the Uruguayan newspapers, I watch Uruguayan football so, as Uruguayan as it gets, but I don’t live there anymore.

Miguel Armaza 02:32

Got it. And what industry were you working at? What sectors were you covering prior to dLocal?

Sebastian Kanovich 02:40

Look, Miguel, it’s probably too much to say that I was covering anything before dLocal. I was working at Santander bank trading stocks and bonds. But again, I was very young, I was still in university, so it was more about trying to get exposure to… I studied economics, so I wanted to understand what I was supposed to be doing. And very quickly I realized that I wasn’t born for that and I found it not challenging enough and that’s where dLocal came to exist. Completely out of pure luck. There was no strategic plan behind it where we said okay, we have this huge vision. We saw a very small problem I was okay, let’s try and solve it. And that problem has continued to expand in the last eight years.

Miguel Armaza 03:29

And were you always considering entrepreneurship as a path?

Sebastian Kanovich 03:39

Some of the things you can look backwards on, but it’s much tougher to see ahead. I never thought of myself as an entrepreneur. I still don’t and I, perhaps because I respect that idea too much. And I always felt that we were trying to build a company and that we will do our best and so no, we didn’t have this crazy ambition of saying, okay, we’re gonna create the company that we actually did create in the end. It was more about let’s find a customer. let’s make sure that customer is happy with us. Let’s move to the next one. Let’s ask them, what else can we do for them? That has been our story. dLocal has been, today we are a company which does more than 120 million dollars in revenue a year, but we didn’t start that way. And definitely, we weren’t thinking that way when we started. We had a customer and we said, okay, that’s solve for them and see how it goes.

Miguel Armaza 04:34

That’s impressive. So let’s take a step back and start from the beginning. Right? You mentioned that you identified a small problem. And you decided to do something to fix it. What was this small problem? And then how did you approach the first days and the first months of dLocal?

Sebastian Kanovich 04:53

Sure, so conceptually, one of our founders was working for a UK online company. He was a marketing manager. He realized that there were more and more users coming from Brazil who wanted to buy online from this UK company, and they didn’t have a payment method to solve for that. So what we did is we came up with one single payment method. It’s called Boleto, which is the cash-based method in Brazil. And we thought that was it. We thought that we’d solved the whole problem. We have no idea what about credit cards, bank transfers, not to mention that the issues that happened in Brazil happened across many other geographies and many other customers. So what we did is we came up initially with a prepaid card. So we were b2c. And we said, okay, let’s make sure that the user will be able to buy that prepaid card, and then they would be able to redeem it on the on the merchant cashier. Fast forward a few years, and we went to Arizona to meet with GoDaddy. And GoDaddy told us, look, we love what you do, but no one cares about your brand. And you’re not a b2c brand. Give me the payment methods behind and that’s essentially the origin of dLocal. dLocal has been for six years now, a pure b2b play. Where we are as transparent as we can. We don’t want the end user to know that they’re paying through us. That’s friction. Our customers are the companies. It’s Google. It’s Facebook, it’s Netflix. There’s nothing we like more than you buying through us and not knowing.

Miguel Armaza 06:32

Makes sense. So some of your top players are going to be e-commerce companies. Some of your main clients.

Sebastian Kanovich 06:40

Amazon, Facebook, Netflix, Google. By definition, the fact that our solution is solely focused in emerging markets, it means that the companies that end up being relevant in Mexico, in India, in Turkey, Morocco, end up being Facebook, Google, Uber, Netflix, Amazon, so it’s the really big guys. And we’ve catered to those, because those were the ones that were generally generating traction in the markets where we were.

Miguel Armaza 07:09

How were they solving this problem before working with you? Were there doing it in-house?

Sebastian Kanovich 07:15

They didn’t solve it. So historically, the way international merchants of it, they said, Okay, I’m gonna accept Visa MasterCard globally. And when you when you do that they tell you, you can now accept payments in 190 markets. And you say, okay, that’s it, no more challenges. But then when you start scratching the surface, you realize that your users in India wanna pay with UPI, which is the unified payments interface that works from bank to bank in India, and users in Argentina want to pay with RappiPago, which is a cash method and users in Mexico want to use Oxxo. So obviously, you are accepting payments, but only for those who have the ability to pay you. So when they decide we now take these markets for real, they do need a an emerging market strategy. And that’s where we come in.

Miguel Armaza 08:03

And who are your main partners?

Sebastian Kanovich 08:17

So we partner up with two sets of players. Number one is banks. Half of what we do is disbursements. So payouts. The opposite of what I was mentioning so Airbnb, paying a Host or Uber paying a driver or DiDi paying a delivery guy. And for that we rely on banks. And so that’s that’s the first set of partners. The second set is the payment methods. The actual wallets, banking methods, we are very agnostic, we sit on top of them and we play more of an aggregator role. Where we we don’t have an agenda preferring one or the other we just say okay, if you if as a user want to pay for this. Go ahead.

Miguel Armaza 08:49

Take us through the evolution of the company. Sounds like you launched in Uruguay. I presume Montevideo. Now you’re a global company. How did this evolve over time?

Sebastian Kanovich 09:00

I would love to tell you that we launched in Uruguay, but it wouldn’t be true. Yes, we are Uruguayan. Today, as of now, our biggest office we have a little more than 200 people in Uruguay. But Uruguay is a market that we started to do six months ago. Why? Because no one cared. When GoDaddy came to us, they didn’t say give me Uruguay, they said give me Brazil. So Brazil was our first market. And then the evolution has been: number one, adding more payment methods, so leaving the cash based methods and including banks and wallets and credit card acquiring in each one of the markets. And so that’s the first evolution. What we would call product Together with that evolution comes the idea of dispersing funds, not only collecting them. And then there’s the geographic footprint. We said Brazil first then we went to Mexico. Then covered the whole of Latin America. And then we asked ourselves, okay, what do we do next? And there was a question whether we should go to the US and say, Okay, let’s go compete in the US. And what we found out very fast was that the US and Europe are very mature markets that have hundreds of payment providers. But the issues we were facing in Latin America existed in India and existed in Bangladesh and existed in Africa. So we said okay, for us, it’s a pure emerging markets play. Our vision is to make sure that users in any emerging market, and that pretty much means not US, not Europe, not China. China is not an emerging market from a payments perspective. And we need to have a way for them to pay. And that has been the evolution.

Miguel Armaza 10:36

How many markets are you covering today? And how big is the team?

Sebastian Kanovich 10:41

Marketing is gonna kill me because I should have been the exact number. But 21 or 22. The last market we launched was Bangladesh, the previous one was Nigeria. We are now 260 people. Very much distributed. The fact that our organization kind of by definition needs to be distributed, in the sense that our merchants, our customers, are in the US, Europe, and in China, but our end users are sitting pretty much everywhere. So we have teams on the ground in India, we have teams on the ground in Turkey, we have teams on the ground all over Latin America, and at the same time we have a big office in China. So it’s a very distributed team and I’m calling from Tel Aviv. So by definition we are very remote.

Miguel Armaza 11:24

Makes sense. So we talk a lot on this podcast about culture, about company culture and whether that was something that you thought of at the very beginning and took deliberate steps to create a company culture, and how have you managed to maintain this culture as you grow as a company?

Sebastian Kanovich 11:46

Miguel, it’s a great question. The first thing I need to say is that I’m super proud of the culture we have. I think the fact that we took a slightly different path from the from the average VC-backed, probably US company. So we are bootstrapped 100%. Only last December we brought our first institutional investor. And so we always knew that we would build our company with our own tools and listening very closely to our customers and with our feet on the ground. We were always making sure that we were profitable. We always cared about being profitable. We always cared about having people who were looking for a challenge and who really cared about what we were doing. We were always very pro-giving opportunities to people that otherwise probably wouldn’t have had them, either because they were born in Uruguay or Nigeria, or because they were younger because they have some sort of weird studies or no studies. And so, we came to this culture more by trying, by doing multiple mistakes and seeing what we liked and we didn’t like. The fact that both me and the management team were very young meant that we did a lot of mistakes. But I think today we are very comfortable in our own skin. We know who we are as a company, we know who we are not as a company. And I think that’s something when you walk into any of our offices, you can feel very fast.

Miguel Armaza 13:19

What are some of your biggest challenges as you scale?

Sebastian Kanovich 13:21

Uff! How many hours do we have? Haha no, look it never gets easy. I always felt that okay when we get to this scale, it will be over and everything will be much easier. The thing is that you start to move faster, so there’s more challenges. At the end of the day our business depends on on on our team you cannot This is not a business where you say okay or a company where it’s okay I’m gonna have this given button that it’s gonna depend on everything or this given factory that’s gonna depend them. We depend on our people. We really depend on us finding and giving opportunities to more and more talented people. And that’s what keeps me up at night the most. Then, we deal with customers monies so we need to make sure that compliance is working the right way, that security is working the right way, and that we are expanding into new markets the right way. But at the end of the day, the backbone is our people. So that’s what drives me and what keeps me up at night. I’m interviewing and trying to meet as many people as we can and really trying to find those really talented individuals who can help us.

Miguel Armaza 14:33

You mentioned that recently you brought your first institutional investor, what drove that decision?

Sebastian Kanovich 14:40

So, we brought General Atlantic on board. There were a few things we really liked about them. Number one is that they’re a global player. So we really liked their scale. They did have a lot of experience with with a bunch of payments companies that we respect a lot. Particularly Adyen, which is a company that we really respect. We compete with, but we really respect. We did like their experience of working with them. So we were genuinely thinking about the partner that would add value. Really bring us to the next level. And we wanted to test ourselves. Sometimes when the whole market is raising funds, you say, okay, at some point we need to do it to prove to ourselves that we can also do it. And we did it. We are super happy with the partner we have. That was that was the driving force behind it.

Miguel Armaza 15:30

That make sense. And tell us a little bit of your view of the FinTech market these days. I mean, obviously, we’re going through a major crisis, right. And there are some silver linings, particularly on the FinTech space, that are coming out of this crisis. What’s your take on this situation?

Sebastian Kanovich 15:52

Where we are super bullish, we believe a lot on this space. Obviously, it’s a space where you need to move fast, you need to have the ability to execute. What I like the most about the FinTech space is that it’s generally global. You can have a new player coming up from Africa, from Asia, from China, and suddenly you’re competing with someone who you’ve never heard of, and it’s something I love. Because, you really, you don’t need to be the rest of Uruguay, you don’t need to be the best of Latam. You generally need to test yourself against anyone. I tend to believe that FinTech… I do believe we are on the right side of the economy, in terms of all the obvious trends that are happening. Digitization obviously helps most of the FinTech place. In our particular space, the fact that emerging markets are becoming more relevant. Chinese companies are not going to find growth in China, US companies are going to have it very hard to find growth in the US. Their growth is going to come from the markets where we operate. And so we like to trends. Obviously, the fact that there’s a wave doesn’t mean that you’re going to be the one surfing it. You need to you need to stay up with it. But we’re extremely optimistic. We cannot blame the market for what we won’t be able to do. That’s for sure.

Miguel Armaza 17:13

I’m assuming you’re working remotely along with the entire team. How has this experience been for the company?

Sebastian Kanovich 17:22

So personally for me, I’ve been remote from our headquarter for more than four years now. So it’s a little bit more natural. The Uruguay office, there’s this whole culture of being together and doing barbecues and being really, really close. So that’s probably the office that is suffering the most. The reality is that we don’t expect to go back to what was previously by any means. We run a survey with our team and more than 90% said that they want a hybrid. Where they would still want to go to the office, but they want the flexibility of some days staying at home. So we were prepared. The fact that we have a China office also meant that we saw it coming a little bit earlier. So there’s China, I live in Israel, then came the US, and then Latam, so we saw it probably a few weeks before. We are liking it and probably we are gonna continue this way. Before the crisis, we were thinking of opening a development hub in Buenos Aires and now we changed that definition. We made it remote. Historically it’s all been done in Uruguay. From now onwards, the second hub is gonna be anywhere. And, that’s something I really like. I feel it’s not only going to be a big differential for us, but also gives opportunities to people that otherwise wouldn’t have had.

Miguel Armaza 18:49

Very interesting. Very interesting. It seems like that’s a trend that’s gonna take off for several companies. Well, what about on the on the business side? How do you envision the future of dLocal going forward?

Sebastian Kanovich 19:04

Look. We’ve got a lot to do. I mentioned Amazon, Facebook, Netflix, Google, but I didn’t mention others. And those others are the ones that bother us. And we really want to make sure that if you are a big company internationally, we want to be partnering up with you. We are always developing new products. So the way I said with do pay-in and pay-outs, we are going to be announcing chargeback protection very soon. So, one of the challenges when dealing with the markets where we operate, it’s the fraud risk and the chargeback risk. And the reality is that we have a lot of experience with that, because we’ve been seeing data for multiple years now. Before we did it as an added value, but we feel we now have a product that’s strong enough to say, Okay, this is a new vertical. We’ve done a lot through marketplaces and we are very excited with that. So the shopifys of this world, we think there’s a huge space in that ecosystem. And the last is geographies. I mentioned 21 geographies. Now I double checked it during the call. And there’s 20–30 other markets where we want to be in the next two to three years. So there’s a lot to go.

Miguel Armaza 20:15

Exciting times! I know that you don’t consider yourself an entrepreneur, but you still have been on the front lines of entrepreneurship. We have a lot of listeners interested in this topic and maybe some aspiring founders. Would you mind sharing some of your reflections of building a company from scratch?

Sebastian Kanovich 20:37

Uff, Miguel! Reflections, I think you need to enjoy it. If you don’t like. If you don’t like it. It’s not every day, there are some days you’re going to feel terrible and you think that you’re the worst in the world and nothing can go your way. But you really need to enjoy it, you need to fall in love with the process. And, otherwise there’s nothing that’s going to give you that back. Because we put a lot of hours into this and you really need to like it. I personally get a lot of energy from working with the team and I love the idea of waking up and working with our team. I feel proud of whom I wake up and have calls with and who I get challenged by. And that’s the only the only thing I would say. I don’t think there are recipes. It’s not baking a cake where you say you need to put this amount of flavor and it’s going to come out. I think every one has its own path. But the only thing I can think of. If I ever do it again, I want to make sure I really like what I’m doing because there’s no alternative for it.

Miguel Armaza 21:54

So before we go, and this has been fantastic, perhaps you could tell us a little bit about your hobbies outside of work? How do you spend some of your time outside of dLocal?

Sebastian Kanovich 22:06

I don’t know if you see it. People are not going to see it. But you can see the picture of Jordan on his last shot.

Miguel Armaza 21:12

Yeah, I can see that!

Sebastian Kanovich 21:14

I used to play basketball. I’m an NBA junkie. I can consume crazy amounts of NBA. Too many hours! And I read a lot. And I mentioned that I just turned 30 and I just got a big bookshelf from my wife. Big bookshelf from my wife. And then I love to spend time with friends. I’m still very much a Latin American, South American, Uruguayan. And we care about our friendships, we care about our family, and when we spend a lot of time with them. So those are things I do. Sorry to dissappoint if it’s boring.

Miguel Armaza 23:01

No, no, no. By the way, we do have quite a few founders who are readers, avid readers. So that seems to be a common topic that I’m seeing.

Sebastian Kanovich 23:12

Yes, I don’t read business. That’s almost a personal rule. When I read I really want to disconnect and read other sort of stuff. I read a lot of biographies and history, but not necessarily business books. I think that goes back to that idea that I’m not a big believer on written formulas. Obviously, there’s a lot to be learned there, but I personally have a bias towards the other type of literature.

Miguel Armaza 23:44

Got it. Well, Seba, thank you again for joining us. It’s been a treat and I’m sure our listeners will very, very much enjoy this conversation.

Sebastian Kanovich 23:55

Miguel, thank you very much. Congrats on the podcast. It’s definitely very impressive and thanks for having me.

Miguel Armaza

Thank you, Seba!

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