Kushki, a Paytech connecting LatAm to digital payments and helping Latin American businesses reduce the costs and complexity of digital transactions, has shared key insights with Crowdfund Insider.
Kushki focuses on improving acceptance rates and reducing fraud. The company points out that it has been operational for less than a decade. The company added that it has been classified within the Unicorn category by achieving a valuation of USD $1.5 billion. Kushki operates in 5 countries and leverages local teams to offer customized solutions to clients in each country.
Kushki recently expanded operations into the Mexican market as an acquirer.
We recently connected with Erick Mackinney, the VP of Market Development at Kushki.
Our conversation with Erick Mackinney is shared below.
Crowdfund Insider: What does it mean for a payment service provider (PSP) to be a card acquirer, and how does this change its role in the Mexican payments ecosystem?
Erick Mackinney: A modern acquirer takes control of in-store and online payments and manages the transaction flow end-to-end in a single technology stack. The acquiring process starts when a shopper pays at a merchant, in-store or online, with a debit or credit card.
Usually, the merchant securely captures the payment card and shopper data and sends it to the acquirer responsible for managing the transaction through its lifecycle: fraud risk analysis, monitoring, authorization, capture, and finally, settling the funds to the merchant bank account. The acquirer will communicate with the payment network to reach the issuing bank for approval, complete the compensation process, and reconcile the settlement with the merchant.
When a payment service provider becomes an acquirer, it becomes a principal member of the payment ecosystem without requiring intermediation or an associate-affiliate dependence on a sponsor acquirer (traditionally a bank). An acquirer operating in Mexico can offer Mexican merchants better control of the card payment process and support sales in both physical stores and online. The acquirer can also collect all the data generated from transactions and consolidate it so businesses can analyze and understand their consumers’ behavior and grow their sales.
Crowdfund Insider: What is the advantage of a modern PSP entering the Mexican market as a card acquirer without using a sponsoring bank?
Erick Mackinney: When a modern PSP becomes a local acquirer without bank sponsorship, it can help change how merchants manage payments. Its approach is driven entirely by optimizing its payment products with technology rather than leveraging its strategy on commercially combining payment services with other banking products, like loans, payroll, and maintaining deposits. Merchants working with a modern PSP acquirer can also avoid the expensive transaction fees a PSP with third-party dependencies might charge since direct acquirers won’t have the overhead costs as aggregators or sub-acquirers have.
Also, from the technical and operational perspective, merchants working with PSP acquirers can optimize the slow processing times and operational delays that usually occur when working with a fragmented acquiring setup with third-party dependencies and silos. Optimizing performance and reducing dependencies is essential for merchants scaling their eCommerce operation and must process many payments as quickly and transparently as possible.
Finally, modern PSP acquirers can offer more payment options than banks, including peer-to-peer payments, local payment alternatives, or instant cross-border transactions. That will help merchants provide a better payment experience since they can adjust to whatever payment method their customers are most comfortable and familiar with.
Crowdfund Insider: What challenges and opportunities may modern PSP acquirers face in the Mexican market?
Erick Mackinney: There are some challenges. The first one by relevance is the complex regulatory environment. It can be challenging for a PSP to navigate the different agencies handling and developing regulatory frameworks in Mexico, and those regulations are constantly changing to adapt to the innovations and new models introduced to the ecosystem brought by the new digital economy. So it can take much work to keep up with the latest requirements and stay compliant while managing payments for various merchants in different verticals. This complexity is mainly an issue when managing cross-border transactions and settlements for a regional merchant.
In addition to that, the Mexican market is highly competitive. Several other PSP acquirers are already operating in the market, competing to dominate the market share. It will be challenging for new PSP acquirers to differentiate their value proposition and set it apart from competitors.
And lastly, a big challenge in Mexico is the need for more standardization in the payment ecosystem. Payment technologies and networks in Mexico are incompatible or can not offer interoperability, creating issues with industry-standard use cases of transferring funds and optimizing payments.
However, there are also many opportunities in the Mexican market, especially for payment technology companies. The market is proliferating, and there is much demand for payment processing services. Particularly since the pandemic, Latin America and Mexico have started to embrace digital payments and grow in e-commerce penetration creating a greater need for more efficient and secure payment service provider choices.
In addition, the digital economy in Mexico is growing and has been resilient even in the face of all the challenges mentioned before. And a relatively open market makes it easier for new card-acquiring alternatives to begin to operate in the country.
Crowdfund Insider: How will modern acquirers lead the industry in Mexico and impact the Latin American Paytech market?
Erick Mackinney: The expansion in the number of card-acquiring alternatives in Mexico indicates the growing maturity of the Latin American Paytech market. It shows demand for innovative PSP options in the region and an opportunity for new actors to enter and succeed. The more new card acquirers, the better the market will develop. They’ll increase competitiveness, leading to better commercial conditions for the merchants and better services for final consumers.
One of the exciting areas is how new players can help to improve financial inclusion. While access to digital payments and better financial services improved in Mexico over the last few years, plenty of work is still ahead. Bringing new players into the industry and new technologies can help increase that access for people who otherwise haven’t had access to financial services.
There’s also much room for improvement in standardization—the payments infrastructure in Mexico and Latin America as a whole needs to be more cohesive. The regulations vary between countries regarding maturity and complexity, complicating moving money digitally in the region.
The Latam markets adopted different technologies and design standards in the past when their economies were fragmented, and no digital global economy existed. So the new era of Payment Service Providers that bring all the payment alternatives and technologies together in a single platform will get a considerable advantage in standardizing that infrastructure.
Crowdfund Insider: What advice would you give to other financial technology companies looking to expand into new markets in Latin America?
Erick Mackinney: If you are a financial technology company looking to expand into new markets in Latin America, do your research and partner with local experts. Each country in Latin America has its regulatory frameworks, players, and intrinsic complexity in the financial space. So you’ll increase your chances of success by partnering with the experts who know the region best and can tell you where the pain points and opportunities are.