dLocal (NASDAQ: DLO) | Payments Platform For Emerging Markets

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Key Points

  • dLocal is a one-stop payments platform connecting global merchants with billions of emerging markets consumers through a single API

  • Founder-led company with 6 years of track record, with executive officers and directors holding a stake of nearly 50% in the company

  • Prominent merchants on their platform include Amazon, Microsoft, Nike and Uber

  • E-commerce growth remains intact and expected to continue in the future

  • Robust revenue and TPV growth, with both figures expanding 186% and 319% (YoY) in 2Q21 respectively

  • High net revenue retention rates of 196% in 2Q21 and 186% in 1Q21, indicating dLocal’s strong retention ability of its merchants

  • Sticky business model built through its border-agonistic platform which offers 600+ localized payment methods for merchants to utilize

  • Expanding TAM in emerging markets sustains strong growth prospects

Company Overview

dLocal Ltd is a Uruguayan fintech based company focusing on enabling global merchants to connect with emerging market users through its cross border and local payment solutions. DLocal was founded in 2016 and began as a division of another payment platform, Astropay. It eventually separated from Astropay in 2018, bringing its existing management team along with it.

The company filed for its IPO in Jun 2020 and operates in 30 countries including Mexico, Argentina, Colombia, and Chile in Latin America; India and Indonesia in Asia; and Egypt, Nigeria, and South Africa in Africa. dLocal, through its proprietary one direct cloud based API platform, known as the One dLocal platform, aims to act as the “middle - man”, connecting large global enterprises to their emerging market customers, potentially reaching over 2 billion consumers and offering roughly 600+ different payment methods. The company plans to close the payment innovation gap between developed countries and emerging economies.

Company Services

Its one dLocal platform enables global enterprise merchants to get paid (pay-in) and to make payments (pay-out) online in a safe and efficient manner. It also allows merchants to manage and access all the markets that dLocal currently serves. Essentially, it wants to simplify large companies' approaches to entering emerging markets.

Let's take a look at a typical payment transaction ecosystem to better understand how dLocal fits into all of this.

The payment transaction ecosystem is a complex one but we will be focusing on the two key components: Payment gateway and Payment processor.

Payment Gateway: A payment gateway creates a secure connection between a merchant’s ecommerce site and the processor. It encrypts the data that’s passed with every card transaction, verifies its authenticity, and ensures it’s sent securely.

Payment Processor: A payment processor is the actual company that handles transactions for a merchant, acting as the go-between for them, the banks, and the card networks. They assist with capturing the payment information and forwarding it to the card networks and banks.

The difference between a payment processor and a payment gateway lies in the fact that one—the processor—is the service provider facilitating the transaction, while the other—the gateway—is the communication channel responsible for securely transmitting the payment data to the payment processor and credit card networks.

dLocal offers an all-in-one solution where it takes care of the functions of the payment gateway and processor either through its own technology or partnerships with payment service providers. Their goal is to streamline the entire process for its merchants, making it a seamless experience.

dLocal generates revenue by charging negotiated fees to enterprise merchants on a per-approved transaction basis as either a fixed fee or fixed % per transaction. This includes the Merchant Discount Rate (MDR) for payment processing services and FX service fees.

Its current suite of services include 3 solutions: Pay-ins, Pay-outs and Direct issuing.

Pay-ins: Allows global enterprise merchants to receive payments from end-consumers through their preferred local payment of choice (local debit cards, domestic credit cards, international credit cards, bank transfers, e-wallets, cash payments etc.).

Pay-outs: Permit merchants to pay local sellers and partners (vendors, employees, customers, contractors etc.) by depositing local currencies directly to their local bank accounts.

Direct issuing: Also known as issuance as service solutions, enables merchants to create new lines of revenue and easily issue prepaid cards in local currencies to their customers or business partners, potentially reaching millions of consumers in emerging markets.

In addition to the services provided above, dLocal platform offers value enhancing features such as foregin exchange management, fraud prevention, fund collection, settlement and disbursement that ensure smooth processing facilities.

DLocal’s Customers

Above are some of dLocal’s customers as it is working with some of the most innovative companies. dLocal has a diversified customer base, with global merchants operating in key verticals such as retail, streaming, ride hailing, financial institutions, advertising, SaaS, travel, e-learning and gaming in different geographics. As of date, dLocal has partnered with over 330 merchants, including leading global enterprises such as Amazon, Didi, Microsoft, Spotify, Mailchimp, Wix, Wikimedia and Kuaishou. From its prospectus, the number of merchants engaged with dLocal services increased by roughly 22% from Q1 2020 and 62% of its revenue was generated by its top 10 biggest merchants. On average, global merchants used dLocal platform in 7 different countries and utilized 62 payment methods according to their Q2 2021 financial results. Below, I will outline some of the services that global merchants use on dLocal platform.

Microsoft: dLocal offers a reliable, country-specific solution that facilitates payments, enabling merchants to sell their suite of products and services in Nigeria.

Amazon: Recently expanded its partnership with dLocal to enable international merchants to sell in Brazil, Latin America's largest e-commerce country. Prior to the deal, Amazon was already using dLocal to sell directly to Latam, APAC, and MENA markets.

Didi: dLocal facilitates a pay-out solution that enables bank transfers, split payments, and tax withholding functionalities for Didi drivers in Argentina to collect fares.

Netflix: dLocal enables acceptance of local payment methods from viewers eager to access their content in Peru.


Co-founded by Andres Bzurovski, Sergio Fogel and Sebastian Kanovich (CEO) , dLocal’s executive officers and directors have nearly 49.8% ownership of the company. Furthermore, much of the management is from AstroPay, as mentioned earlier. With relevant and valuable experience, and a significant stake held by the management, value could be created for shareholders.

Industry Overview

Global Payments

Global payments revenue has been growing steadily across the last few years and is set to continue this growth at a CAGR of 9% to 2022. According to McKinsey & Company, the growth will be fueled by increased electronic transactions, digital-commerce and higher cross border activities. Asia-Pacific payments revenue is poised to dominate the global scene due to increasing smartphone penetration rates and usage of e-wallets. In recent quarters, dLocal had aggressively been expanding into Asia, adding Vietnam and Malaysia to their list of operations to tap into Asia’s growing payments ecosystem.

E-commerce sales

As dLocal customers are global merchants instead of end consumers, we will take a look at the trends affecting these merchants' ability to sustain revenue growth going forward.

With the covid-19 pandemic outbreak, people were restricted to stay in-doors and this hampered their ability to purchase goods and services physically. Consequently, businesses and consumers went “digital”, providing and purchasing more goods and services online. This propelled the e-commerce industry which saw its % of total retail sales rising steeply from 13.6% in 2019 to 18% in 2020.

According to a report by UNCTAD, the greatest shift from physical goods to e-commerce was seen in emerging markets when the pandemic hit. Looking ahead, e-commerce is expected to grow to US$ 6.4trn by 2024 and capture more market share as a % of sales. Global merchants such as Amazon, Nike, Microsoft and Uber, who are dLocal customers, will be able to ride on this tailwind and potentially generate higher payment volumes.

Competitor Analysis

dLocal faces competition from a number of global fintech companies that are making international e-commerce payments viable. Below, I will analyze dLocal competitive standing amongst the 3 main competitors that I believe will pose an external threat.

dLocal competitive advantage stems from its ability to offer a plethora of different payment methods for their merchants to accept. Comparatively, their closest competitors' offered payment methods are on a much lower scale. dLocal faces stiff competition in LATAM from other payments players such as Ebanx (their main targeted market), Adyen (most of their operations are in Europe and United States but they have operations in Brazil and Africa), and Stripe (predominately in developed economies).

Ebanx is a brazilian fintech company and offers identical payment solutions as dLocal such as pay-in and pay-out transactions. Ebanx operates in LATAM countries and is one of the biggest competitors to dLocal as its targeted users are global merchants seeking to enter emerging markets. They specialise in cross border payment facilities which is exactly what dLocal is doing.

Adyen is a global payments platform that provides merchants with a single platform to accept e-commerce, mobile, and point-of-sale payments. Adyen’s revenue is roughly 5 times the size of dLocal’s revenue and this is because Adyen targets a variety of merchants including small businesses and its operations are in developed economies where digital commerce is more prevalent. They could pose a threat to dLocal if they seek to expand their operations in emerging markets.

Stripe is another global fintech company offering payment solutions to businesses ranging from startups to large enterprises. It offers similar services as dLocal but it targets different regions such as North America and Europe. From my own research, I opine that Stripe provides cross border pay-out payments only for US based customers. If they intend to extend their geographical operations to emerging markets, they could pose a threat to dLocal.

dLocal’s take rate outshines its competitors and it is one of the highest in the payments industry at roughly 5%, based on its 2020 figures. I opine that this is due to its local expertise in different emerging market countries and its wide range of payment methods offered to global merchants.

Financial Highlights

1) Cohort TPV growth

dLocal’s enterprise cohort depicts its ability to retain and cross sell to its customers. The annual enterprise cohort for 2018 and 2019 significantly increased the overall TPV that flows through dLocal’s platform in the subsequent years, indicating that customers were willing to use more of dLocal’s services, allowing dLocal to gain a larger share of wallet of their merchants. Meanwhile, the annual enterprise cohort for the year 2020 had an initial TPV that was more than three times that of the 2018 cohort, signalling that the company is better at onboarding customers.

2) Number of countries by enterprise cohort

Since 2015, dLocal has expanded its geographical presence to expand and gain scale. This has allowed its merchants to also use dLocal’s services in more countries over time which was illustrated by the enterprise cohort graph below. Global merchants with at least US$6 million of annual TPV on dLocal’s platform used dLocal’s services in nearly 5 countries and with 35 payment methods in 2019 on average. However, these numbers grew to almost 6 different countries and 44 payment methods in 2020. These merchants represented more than 90% of their TPV for the respective years. Hence, this indicates how dLocal is able to cross sell to its existing customer base and increase retention using its value proposition.

3) Revenue growth

dLocal’s revenue growth has been positive for the last 8 quarters, as the company saw double digit growth rates for every quarter, except for that in March 2020. This was due to the onset of the pandemic, which made merchants cautious and unwilling to spend. However, as ecommerce remained resilient in the face of the pandemic, and dLocal’s customers were more willing and able to spend on dLocal’s services, revenue growth rates followed suit and have increased by almost 46% in the most recent quarter.

4) Profitability

Upon closer inspection of dLocal’s gross margins, it can be seen that the gross margins have been relatively stable at around 60% for the past year. The fluctuations are largely due to the Processing costs which corresponds mainly to fees that financial institutions charge the Group. These fees are typically a percentage of the transaction value, but may also be a fixed fee depending on the institution’s policies. As dLocal continues to expand geographically and connect with more financial institutions, these fees may grow in tandem.

Aside from Dec 2019 and Mar 2020, the net income margin has also remained relatively stable, between 30 and 40%. In the above-mentioned 2 quarters, the reduced net income margins were largely due to fluctuations in the General and Administrative expenses that saw an artificial increase due to the stock-based compensation from dLocal’s IPO.


Thesis 1: Sticky business to sustain future growth

To understand if dLocal is able to sustain its future growth prospects, we will take a look at its value proposition which we will identify if it presents a moat. Let's start off with an example.

Say a global ecommerce retailer wants to expand to a Latin American market like Peru. However, since most Peruvians don’t own international credit cards, the company would have to be able to accept locally preferred payment methods such as local debit/credit cards and the popular cash-based PagoEfectivo. Now, the retailer has two payment facilitators options to choose from:

  • Integrate several legacy local payment providers, with different capabilities

  • Or use the dLocal API that supports all the local payment methods and eliminates the complexities and high cost of integrating and maintaining multiple legacy providers.

Let’s say the retailer chose dLocal as their payment partner in Peru and is thriving in that market. If they want to expand to another LATAM country, they would do so without ever worrying about a local payment provider because dLocal would be taking care of it without signing another contract. Simply put, through the One dLocal model, with a single API and one contract, dLocal’s clients can differentiate its go-to-market approach, expanding and accepting localized payments in any of the 30 countries that it operates seamlessly. On top of that, dLocal offers over 600+ different payment methods for merchants to connect with their customers, which is almost double of what their closest competitor offers as discussed in the industry analysis above.

This highlights how the value proposition to merchants is indeed valuable, ensuring customer loyalty and stickiness. The net retention revenue rate has consistently been outstanding, ranging from 150% levels and settling at 196% for the most recent quarter. This means that every $100 of revenue brought in by the same set of merchants in Q2 2020 translated to $196 in Q2 2021. With the illustrative NRR breakdown, it demonstrates that dLocal has an incredible ability to not only retain, but also upsell and cross-sell new solutions. Furthermore, management expects the net revenue retention rate to maintain around 150%-160% in the coming quarters, indicating incremental growth from its current merchants.

Furthermore, dLocal take rate for Q2 2021 was roughly 4.1% which is considerably high and approximately 4 times the average rate of payment companies. To put things into perspective, Paypal’s take rate was around 2% based on its Q2 2021 results. The fact that dLocal is able to charge more than its peers, really speaks volumes on how much global merchants value their solutions/product.

dLocal benefits from an attractive business model with high switching costs. dLocal are often subjected to rigorous vetting processes with global enterprise merchants that invest significant time and resources in the selection, diligence, and on-boarding of technology and payments providers. This on-boarding process can often take several months as merchants assess technological capabilities, ability to comply with their data security protocols, and adherence to regulatory, tax and compliance requirements. However, once a direct connection is established (meaning there are no third party intermediaries between them and the merchant in the payment flow and technical integration), global merchants have the ability to access the full breadth of dLocal solutions and the countries where they have a presence instantly through its direct API and one contract. Merchants can also choose to route all or a portion of their applicable pay-in and pay-out volume through dLocal. Direct connections made with merchants serve as a strong competitive advantage and barrier to entry for competing providers, and makes incremental volume that flows through the platform highly margin accretive for dLocal.

As mentioned earlier in the business overview, dLocal provides value enhancing services which adds to the quality of their solutions. According to their latest earnings transcript, one of the ways dLocal plans to support future growth is to improve its current suite of products and develop new solutions. The main upgrades and innovations are listed below: