Miami — Venture capital (VC) investment across Latin America is unlikely to recover broad momentum in 2024, although funds are starting to snap up deals with startups considered to be undervalued, Ebanx cofounder and board member Wagner Ruiz tells Bloomberg Línea.
“If we’re talking about a 50% decrease in prices from two years ago for funds, there is an opportunity,” he told Bloomberg Línea in Miami during AS/COA’s annual BRAVO event.
Regarding Ebanx’s growth strategies for 2024, he said M&A is always part of the playbook when expanding geographically. The cross-border payments company is currently targeting India and Africa-, but no transactions are currently on the table.
Despite global economic uncertainties and pricing pressure from clients, Ruiz expressed optimism about the company’s prospects in cross-border consumption, which should allow Ebanx to sustain profitability levels, as well as its growth rate at 30%.
He also emphasized the need for continuous improvement in performance, maintaining a merchant-centric approach, and staying ahead in terms of payment methods and regulations.
The following conversation was edited for the sake of length and clarity.
Bloomberg Línea: What’s your take on how Ebanx and other fintech companies in Latin America have adjusted to a higher rate environment since the pandemic?
Wagner Ruiz: think we have two major things. You’re talking about the interest rates, the whole economy and all the countries and regions, so you’re talking about consumption. Also, we had a change in the markets from the past two years, we saw an adjustment from all the fintech companies, not only in their views on growth, but also in their operations. It was very interesting to see that, specifically in Brazil, in Latam, this started two years ago, and now we can see the adjustments and a very consolidated landscape for these companies, including Ebanx.
How do you see growth strategies involving these companies in 2024?
On the growth side, it’s funny because we are talking about debt, about a possible recession in other big countries like the US and China, but at the end of the day, we still can see growth in
our specific business, which is cross-border consumption. So we still see a good CAGR [Compound Annual Growth Rate] for the next at least four to five years. So in the region we are talking about still about 30% a year, which is not bad. Of course, we are looking into other regions as well. As you probably know we are operating now in Africa, Asia, India, starting out in India at least, where you can also see huge growth for the next few years. Of course, there is some concern about the global picture, including China and the US. But we still see growth for the region and for these new two regions, Africa and India, a huge opportunity. If you see the digital buyers, we are talking about still growing rates of 3% to 4% a year. This is what is keeping the growth of cross-border e-commerce in the region.
Have you faced any pressure from clients over the last year in terms of pricing?
I think this is natural, yes, everybody is facing that. With all the innovation that we see in the region, in payment methods, in how easy and transparent it is to do, the pressure for prices is natural. PIX in Brazil is just a local transaction, for now at least, yeah, but it’s due to the interoperability, it’s related to cards, it’s related to cross-border, it’s related to everything. So now there is much more understanding from the merchant side, even the consumer side, and it’s natural to have more competition and more pressure on prices.
Beyond pricing, what were the main challenges for Ebanx in specifically adapting to this high-rate environment?
I think it’s a challenge of being better every day, but it’s not exactly a bad challenge. So talking about Ebanx, we were always merchant-centric. It’s funny because if you look into our background, the three founders, myself, Alfonso, and João, we used to fly to come to the United States about 25 times a year, just to talk with the merchants to show them how hard it was to do business in Brazil. So we always had this merchant-centric position, and this is something that we need to improve every day.
So, nowadays we are talking about performance like twice a week, and a basis point change can affect everything between competitors, and can change everything for the merchants. The challenge is to keep being merchant-centric for each merchant and at different needs, but also to look into performance and options in payments, because this is another thing. Payments are always incorporating new options. We started PIX on the first day of PIX in Brazil. We were operating with Uber in Brazil, because they said they wanted to start on the first day.
So you can imagine how it was to build the structure along with the central bank and the sandbox and everything to be able to start on the first day. I think these are the metrics. So you need to be amazing in performance, you need to have all the services, additional services to the merchants, and you need to be ahead of the game, including in payment methods.
When we started Ebanx we were pretty focused on Latin America, not because we don’t like the other countries, but because we needed to become the best in this region.
Wagner Ruiz, Ebanx cofounder and board member
What sets Ebanx apart from competitors like dLocal, who just signed Pedro Arnt as co-CEO, in terms of your value proposition?
They are doing their job on the value proposition as a whole. Of course, we are talking about cross-border payments. They do, we do. We believe that we have a deeper knowledge about the structure, about the regulations, about tax, about performance, how to do better, and this is the package that I’m calling merchant-centric. It’s not just Ebanx or dLocal. We have other players, small players, but we have them, and this is the pitch: How we can improve their sales using our knowledge? When we started Ebanx we were pretty focused on Latin America, not because we don’t like the other countries, but because we needed to become the best in this region.
So, owning the rails, the knowledge, even the regulation. And you know the regulation is changing. Now a little bit less, but since 2012 there has been a major change, specifically in Brazil. So we focus on being very compliant, show that to our merchants, and serve them the best way looking into price, performance, and all the other services and information from the region. I think this is our differential, especially because of everything we’ve talked about about the macro environment.
Do you foresee a downturn in profits next year due to factors such as pricing needs from clients, cost cutting, and a slowdown in the region’s economies?
No, I don’t think so. Look, we are managing, and when I say we, not just Ebanx, but the companies related to these types of payments. We are still looking into growth on TPV (Total Payment Value). There is more competition, but then I think we have a threshold for that as well. So I don’t see a major downturn, it’s just tighter, but this is something that I think we learned with the last turn on the market. First we had the pandemic, right? We survived as a world, as a country, then we have a change in the market, a more bear market. Now we face these risks in the macroeconomics, but I think everybody’s in the same boat, so I don’t see a major turn in profitability, even because when the market changed, everybody moved from looking to growth to looking to profitability, right? So, this is the new law of the market. We still see growth in consumption, talking specifically about cross-border. We still see 30% CAGR overall.
Is there any prospect of resuming your IPO?. How do you see the environment for tech IPOs going forward in the next few years?
This is not in our pipeline anymore. I think it’s still soon. Everybody is waiting for the next momentum. But we have so many other big problems in the world right now, so I’m not expecting a window for the next year, talking about the market, nor about Ebanx. I don’t see this changing very soon.
Do you see any relevance in there having been a peak in VC investment this year during the third quarter? Could that be some sort of turning point?
The market was more or less closed six months ago, with small companies, specifically in Brazil, and in the region, you can see investments coming in again, because there is an opportunity. So if we’re talking about a 50% decrease in prices from two years ago for funds, there is an opportunity. I can see this because we are investors as well in other small companies on a personal level. So you can see funds, VC specifically, coming, and you can see private equities looking into big companies and saying this is undervalued, so we can do something with that. So I believe this will come first. These movements will come before a movement in the broader market. So I see opportunities for the next 12 months.
How important is the AI revolution and investment in automation at Ebanx currently, and how is that affecting your staffing requirements?
When you talk about AI, usually the regular people, they think about the chatbots, the questions and how to answer the customer. We were doing something like that since the beginning, because of our fraud assessment. So, the intelligence started with machine learning, right? At Ebanx, at least, we use this intelligence, specifically on fraud, and now we are developing something to increase performance, to do routing, to understand which one is the better, which provider and pricing. But of course, not as the AI that everybody’s talking about, this framework of a relationship between the user and the machine.
And in terms of the impact on staffing?
No, for us it’s a little bit different. As I said, we are not talking about AI for the consumer. So we have more people working on developing the intelligence behind our systems.