“Latin America is one of the last frontiers where everything is completely ‘legacy.’ The technology is fragmented and unstandardized. It’s been a blank canvas,” Kushki CEO Aron Schwarzkopf told Karen Webster.
Local firms want to enable digital payments amid the pandemic, connecting consumers and devices in a way that enables pan-LatAm commerce — mirroring the ease at which, say, a U.S. consumer in California orders a book from a shop in New York.
Easier said than done for the payments service providers who seek to link merchants to wallets and alternative payments with which consumers want to pay. Infrastructure is fragmented, said Schwarzkopf, where payments functionality varies from country to country.
Kushki’s platform, Schwarzkopf told Karen Webster, enables service providers to bring local and cross-border payments to Latin American firms and global firms which, otherwise, would have to establish a country-by-country presence with local banks and regulatory authorities. The value (and potential) in reducing the fragmentation may be reflected in the financial backing of marquee investors.
As reported Tuesday (June 1), Kushki said it had raised $86 million in a Series B round from investors, including SoftBank Latin America Fund, along with previous investors including DILA Capital, Kaszek Ventures, Clocktower Ventures and Magma Partners. The capital raised valued Kushki at $600 million.
Neobanks, FinTechs and incumbent legacy lenders all jockeying for mind share and wallet share amidst the great digital shift. While conventional wisdom often assumes that Latin American consumers don’t have bank accounts or use credit cards very often, Schwarzkopf said that is where the opportunity lies.
In fact, he said, LatAm stands among the highest growth regions for Visa and Mastercard, although like much of the rest of the world, debit transactions are outpacing credit spending in the region — at least for now.
Timing Is Everything
The pandemic has provided a tailwind too, which Schwarzkopf described as having an “exponential effect of digitization of transactions.”
He told Webster that Kushki’s platform offers card and alternative payment processing, regulatory, compliance, onboarding, underwriting, checkout and other services through a single application programming interface (API). That API essentially rebuilds the domestic payments pipelines and infrastructure in domestic schemes and linking countries, eliminating the fragmentation that has been the enemy of innovation. Offering what might be thought of as “LatAm payments in a box,” with connectivity via API, Kushki paves the way for broader payments acceptance.
“This has allowed us to innovate quite a bit in alternative payments that are in turn being leveraged by financial technology players,” as they enable cross-border eCommerce or create neobanks and alternative lending products, localized and in real time. Schwarzkopf said Kushki has also worked with central banks and ACH systems on a country-by-country basis to bring more payments onto real-time rails.
The Northern Hemisphere has already been done and the technical heavy lifting completed.
But in Latin America, Schwarzkopf said, when it comes to enabling regional online payments, there are no constraints or gigantic players who have carved out territories or market share across trillions of dollars’ worth of third-party verification (TPV). While other firms have tried and failed to modernize payments in Latin America, Schwarzkopf noted that Kushki’s predecessors were smaller, local enterprises hamstrung by lack of resources and technology issues.
It’s only been in the last decade, he said, that collaboration between traditional incumbents and nimble tech firms have taken shape, jointly working to move payments from cash into the digital realm. Thus, utility companies and governments can broaden acceptance — not just of card payments, but of all types of payments (from bank transfers to digital wallets) — in an interoperable way that crosses borders.
Kushki, he said, has been building infrastructure, in many cases, in partnership with the single payment processor or, perhaps, the two payment processors that have existed in each market for years but don’t have the technology needed to solve infrastructure challenges as payments go increasingly online.
As for enabling incumbents to join the digital revolution: traditional banks are in self-preservation mode. Most of them are not publicly listed, are not beholden to shareholders, and historically have been loath to take risks or innovate.
They’ve typically, according to Schwarzkopf, pushed financial services to the “bottom of the pyramid” when it comes to customer services, but that is changing as a result of competitive pressures. Interestingly, in Latin America, services such as buy now, pay later (BNPL) have found firm entrenchment well before other regions such as Europe or North America.
The company said that the investment would be directed to fuel an “aggressive team expansion” throughout LatAm, including the development team; in terms of regional roadmap, the firm will focus on new markets, including Brazil and Central America.
As Schwarzkopf told Webster: “We decided to go down to Latin America and build a company — and four years later, we have north of a half a billion-dollar firm,” he said of the recent fundraising and valuation. “Our philosophy has been the standardization and killing of fragmentation in Latin America. And that comes with ubiquity of payments.”