The COVID-19 pandemic has accelerated the adoption of digital payments worldwide, and Latin America is no exception. Pomelo, a startup building a fintech-as-a-service platform for Latin America, has raised $9 million in a seed round of funding. The Buenos Aires-based startup’s new infrastructure allows fintechs and embedded finance players to launch virtual accounts and issue prepaid and credit cards via “compliant” onboarding processes. While most transactions are still done in cash, the region has over a billion cards.
Cards have an estimated payment volume of $900 billion annually, yet local incumbents are processing 95% of these transactions, asserts Pomelo. This is a problem the company’s founders experienced firsthand in previous roles and are eager to solve by creating a new payment infrastructure. “We know from previous experiences…that building a fintech, particularly issuing cards, in Latin America, is a real nightmare,” said Pomelo co-founder and CEO Gaston Irigoyen. “It takes anywhere from 12 to 18 months to launch a simple prepaid card, and unfortunately, companies have to go through the painful experience of repeating the process in every market where they operate.”
Pomelo aims to solve the problem by creating a new generation of financial services infrastructure that allows companies to build a fintech business and launch cards “much faster” throughout Latin America. For now, the three-month-old company is in its infancy — the pre-product phase, making it even more notable that it managed to raise such a large seed round. This round caught our eye for a few other reasons. For one, the three co-founders of the Buenos Aires-based startup were former executives at Mastercard, Google LatAm, Mercado Pago, and Naranja X. CEO Irigoyen was an early employee at Google LatAm. He is also a third-time founder with two exits (TripAdvisor) and former CEO of Naranja X, Argentina’s largest neobank, with millions of customers.
Next, the caliber of Pomelo’s investors. Juan Fantoni was the former director of fintech at Mastercard, where he signed issuing deals with several large companies. And Hernan Corral was the CPO of Naranja X and was previously head of digital accounts & cards at Mercado Pago—nU.S.-based Index Ventures and Brazil’s monarchies co-led the funding round, which also included participation from QED’s Fontes, Max Levchin’s SciFi, Latitud, Biz Stone’s Future Positive, 20VC, Addition, FJ Labs, and a16z’s Angela Strange, as well as the founders of Marqeta, Rappi, Auth0, Kavak, Loft and RecargaPay.
If you’re looking for comparisons to U.S.-based fintechs, Irigoyen said it’s got a bit of Galileo, Marqeta, and Stripe in what it’s building out. Caio Bolognesi, the partner at Monasteries, said his firm has been very bullish on the financial infrastructure space. They were drawn to Pomelo partly because its founders had been senior tech executives at leading fintech companies in the region and because many of its portfolio companies had already manifested the need for a better solution.
Index Ventures’ Mark Fiorentino agrees that the company’s founder-market fit was crucial in his firm’s decision to invest. “They have the DNA of the most well-known payments companies within the LATAM fintech ecosystem… and have lived through the pain points and keyed in on this opportunity through firsthand experience,” he said. Fiorentino believes that while the need for embedded financial products is becoming increasingly ubiquitous in the Latin American market, it’s important to note that the region “is far from a carbon copy” of the U.S. market with different dynamics.
He said existing solutions in the Latin American market are either “outdated” offerings from legacy financial institutions or “subpar” iterations from U.S. incumbents. “It takes over 12 months for a business to spin up a plastic or digital card for itself. And because most legacy processors are owned by banks or large financial institutions that have been around for decades, pricing is inflexible and expensive,” Fiorentino told TechCrunch. “And if that wasn’t enough of a headache, stable reliability has been a huge pain point with these issuer processors. Pomelo is building the dev-first, self-serve API solution to address this clear market need.” Looking ahead, Pomelo plans to use its new capital to open offices in São Paulo, Brazil, and Mexico City and hire dozens of people in those cities and its home base of Argentina. The company currently has about 15 employees, 11 of which are engineers. It, of course, plans to continue building out its offering.
