Zonos banks $69M to develop APIs for democratizing cross-border commerce

Cross-border commerce company Zonos raised $69 million in a Series A, led by Silversmith Capital Partners, to continue building its APIs that auto classify goods and calculate an accurate total landed cost on international transactions.

St. George, Utah-based Zonos is classifying the round as a minority investment that also included individual investors Eric Rea, CEO of Podium, and Aaron Skonnard, co-founder and CEO of Pluralsight. The Series A is the first outside capital Zonos has raised since it was founded in 2009, Clint Reid, founder and CEO, told TechCrunch.

As Reid explained it, “total landed cost” refers to the duties, taxes, import and shipping fees someone from another country might pay when purchasing items from the U.S. However, it is often difficult for businesses to figure out the exact cost of those fees.

Global cross-border e-commerce was estimated to be over $400 billion in 2018, but is growing at twice the rate of domestic e-commerce. This is where Zonos comes in: The company’s APIs, apps and plugins simplify cross-border sales by providing an accurate final price a consumer pays for an item on an international purchase. Businesses can choose which one or multiple shipping carriers they want to work with and even enable customers to choose at the time of purchase.

“Businesses can’t know all of a country’s laws,” Reid added. “Our mission is to create trust in global trade. If you are transparent, you bring trust. This was traditionally thought to be a shipping problem, but it is really a technology problem.”

As part of the investment Todd MacLean, managing partner at Silversmith Capital Partners, joined the Zonos board of directors. One of the things that attracted MacLean to the company was that Reid was building a company outside of Silicon Valley and disrupting global trade far from any port.

He says while looking into international commerce, he found people wound up being charged additional fees after they have already purchased the item, leading to bad customer experiences, especially when a merchant is trying to build brand loyalty.

Even if someone chooses not to purchase the item due to the fees being too high, MacLean believes the purchasing experience will be different because the pricing and shipping information was provided up front.

“Our diligence said Zonos is the only player to take the data that exists out there and make sense of it,” MacLean said. “Customers love it — we got the most impressive customer references because this demand is already out there, and they are seeing more revenue and their customers have more loyalty because it just works.”

In fact, it is common for companies to see 25% to 30% year over year increase in sales, Reid added. He went on to say that due to fees associated with shipping, it doesn’t always mean an increase in revenue for companies. There may be a small decrease, but a longer lifetime value with customers.

Going after venture capital at this time was important to Reid, who saw global trade becoming more complex as countries added new tax laws and stopped using other trade regulations. However, it was not just about getting the funding, but finding the right partner that recognizes that this problem won’t be solved in the next five years, but will need to be in it for the long haul, which Reid said he saw in Silversmith.

The new investment provides fuel for Zonos to grow in product development and go-to-market while also expanding its worldwide team into Europe and Asia Pacific. Eighteen months ago, the company had 30 employees, and now there are over 100. It also has more than 1,500 customers around the world and provides them with millions of landed cost quotes every day.

“Right now, we are the leader for APIs in cross-border e-commerce, but we need to also be the technology leader regardless of the industry,” Reid added. “We can’t just accept that we are good enough, we need to be better at doing this. We are looking at expanding into additional markets because it is more than just servicing U.S. companies, but need to be where our customers are.”

 

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Facebook co-founder Saverin’s B Capital doubles down on SaaS in China

B Capital Group, the six-year-old venture capital fund formed by Facebook co-founder Eduardo Saverin and Bain Capital veteran Raj Ganguly, is doubling down on China as it looks to allocate $500 million to $1 billion of its fund into Chinese tech companies over the next few years.

With $1.9 billion assets under management, B Capital is going after enterprise software providers in China, an area that has seen “explosive growth” but is still only a “fraction the size of the U.S. SaaS market,” Ganguly said in an interview with TechCrunch.

The idea that Chinese companies are reluctant to shell out for software is “very backward-looking thinking”, he added.

One force fueling the boom of B2B companies in China is surging labor costs. As such, B Capital is hunting down software that could make labor and business operations more productive, and subsequently, give companies a competitive edge. Covid-19 accelerated the shift, as well-digitized companies had proven much more resilient to disruptions caused by the pandemic.

B Capital is able to discern what enterprises need thanks to its close partnership with Boston Consulting Group, which has a raft of customers ranging from healthcare, finance to transportation looking to digitize.

These large corporations “understand that their internal technology can’t be the only solution and they have to look to the outside and be willing to partner with early-stage, high-growth, or late-stage tech companies,” Ganguly suggested. They are also more willing to pay for software compared to scrappy, cash-strapped startups.

B Capital began deploying capital in China early this year and has already closed three deals. It’s stage-agnostic — though growth-stage startups are the focus — and plans to back 15-20 projects in China over the next few years. About 15 of its investment and operating employees are based out of Hong Kong and Beijing. It has around 110 staff worldwide.

Ganguly declined to disclose the names of its Chinese investees at this stage but said they include a biotech company, an automotive parts business, and an e-commerce enabler. Leveraging BCG’s expertise, the biotech company is learning how it can bring actual drugs to market faster. And the automotive business is similarly working with BCG to figure out its pricing and go-to-market strategy.

Going global

Overall, B Capital looks for opportunities in healthcare, fintech, industrial digitalization, and other horizontal enterprise services. Chinese startups that interest B Capital most are also those with the intention and ability to cross borders.

“Biotech is the area that we’ve been the most impressed by what’s happening in China and how that technology can be exported to other countries,” Ganguly said. B Capital has backed one biotech startup with offices in both Shanghai and Cambridge, Massachusettes, and is on track to close a deal with another that also straddles China and the U.S.

The other target is e-commerce, which Ganguly described as “cross-border by its nature” because a product is often sourced in one country, made in another, and then sold in a third market.

The investor is certainly right about the potential of cross-border e-commerce in China, where consumers have a big appetite for imported goods and manufacturers look for new ways to sell globally.

China is also in a good position to export its enterprise software, similar to how Indian counterparts have succeeded overseas, said Ganguly. The difference is that few Indian corporations are willing to pay big bucks for software, which forces B2B entrepreneurs to seek market abroad, whereas China’s domestic companies have an increasing demand for SaaS.

Despite ongoing geopolitical complications, Ganguly is optimistic that the world “is still moving towards globalization” over the long term.

“Certain innovation cycles have started in Silicon Valley and spread to places like China and Southeast Asia. But frankly, other innovation cycles have started in China and gone to South and Southeast Asia and the U.S. We think that China’s enterprise [software], artificial intelligence and biotech are some of the best technology that we’ve seen.”

But these globalizing companies must be able to adapt, hire talent outside their core market, get regulatory approvals, and build the right distribution networks, the investor suggested.

“I think that there are aspects of globalization that have become very politicized, and I think that’s unfortunate but understandable. Our belief is that businesses that we invest in have the ability to cross borders. Sometimes that means going from China to South and Southeast Asia, and sometimes that means extending to the U.S. Sometimes it just means the ability to import or export their products or software, and even staying in China where they can sell their technologies overseas.”

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PayPal’s ambition and uphill battle in China

Over the last few months, PayPal has been quietly gearing up for its expansion in China.

At the recent Boao Forum for Asia, China’s answer to Davos, the American payments giant said its strategy for China is not to challenge the duopoly of Alipay and WeChat Pay. Instead, it wants to focus on cross-border business and provide gateways both for Chinese merchants to collect funds and for Chinese consumers to pay for overseas goods.

It’s certainly a lucrative area. The market size of cross-border e-commerce in China surged from about 3 trillion yuan ($460 million) to nearly 6 trillion yuan between 2016 and 2021, according to market research firm iResearch.

But this space has also become crowded in recent years and PayPal may be late to the fray, said a China-based manager for an American tech giant, who asked for anonymity because he’s not authorized to speak to the media.

On Amazon, one of the largest marketplaces for Chinese exporters to sell online, there are already established options for merchants to collect funds. Setting up a bank account in a foreign country can be difficult for a small-time Chinese exporter, not to mention the high fees for remittance, so such merchants often seek third-party payments transfer solutions such as U.S.-based Payoneer and Chinese equivalents Pingpong and Lianlian, which charge a relatively small fee to deposit merchants’ sales into their bank accounts at home.

China has stringent policies for foreign exchange and electronic payments, but PayPal has already cleared the regulatory hurdles. In January, the American fintech titan became the first foreign firm to hold a license for online payment processor in China after it bought out shares in a local payments firm.

Obtaining the government greenlight is just the first step. The appeal of PayPal hinges largely on what it can offer to Chinese e-commerce exporters, who are now flooding the likes of Amazon and eBay.

“At the end of the day, customers only care which service is the cheapest and easiest to use,” said the China-based manager from the American firm.

“The Chinese cross-border payment solutions have achieved impressive results in terms of products, scale, and fees,” the person said. “I don’t think PayPal stands a chance.”

Exporters who build their own online stores instead of selling on mainstream marketplaces may still find PayPal necessary as a tool to accept payments from customers, given the app’s wide reach.

As for cross-border payments, PayPal is competing with Tencent’s WeChat Pay and Ant Group’s Alipay, which have long been ubiquitous in China. Both e-wallets have been aggressively growing their global partnerships to let China’s outbound travelers pay at overseas retailers like they would at home. Those shopping for overseas products domestically often use Chinese-owned e-commerce apps, which tend to have Alipay or WeChat Pay as their payment processor. Credit cards never became prevalent in China.

Cross-border payments have also become one of Ant’s main growth goals, according to the prospectus of its now-halted initial public offering. While overseas businesses accounted for just about 5% of the firm’s revenue in the second half of 2020, most of that segment came from cross-border payments. At the time, Ant also had plans to spend HK$52.8 billion, or 40%, of the net proceeds from its IPO on expanding its cross-border payment and merchant services as well as other overseas functionalities.

“It depends on whether PayPal is able to offer even lower fees than Ant,” said a person who previously worked on cross-border wallets for a Chinese company. “But PayPal itself is not famous for low fees.”

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Flutterwave and PayPal collaborate to allow African merchants to accept and make payments

It is nearly impossible for businesses in some African countries to receive money from PayPal. While the payments giant has not given reasons why this is so, speculation hints at factors like insufficient regulation and poor banking security in said countries. 

That might be a thing of the past for some businesses as African payments company Flutterwave today is announcing a collaboration with PayPal to allow PayPal customers globally to pay African merchants through its platform.

Via this partnership, businesses can connect with the more than 377 million PayPal accounts globally and overcome the challenges presented by the highly fragmented and complex payment and banking infrastructure on the continent.

According to CEO Olugbenga ‘GB’ Agboola, this will happen via a Flutterwave integration with PayPal so merchants can add PayPal as a payment option when receiving money outside the continent. The service, which is already available for merchants with registered business accounts on Flutterwave, will be operational across 50 African countries and worldwide, the company claims. Flutterwave hopes to roll out this service to individual merchants on the platform as well.  

“In a nutshell, we’re bringing more than 300 million PayPal users to African businesses so they can accept payments across the continent,” he said to TechCrunch. “Our mission at the company has always been to simplify payments for endless possibilities, and from when we started, it has always been about global payments. So despite having the largest payment infrastructure in Africa, we want to have arguably all the important payments systems in the world on our platform.”

A PayPal spokesperson confirmed the Flutterwave collaboration with TechCrunch.

Since the company’s expansion to Africa, it has maintained a one-sided relationship with most countries on the continent, allowing them only to send money. And according to its website, only 12 African countries can send and receive money on the platform, but to varying degrees. They include Algeria, Botswana, Egypt, Kenya, Lesotho, Malawi, Mauritius, Morocco, Mozambique, Senegal, Seychelles and South Africa.

Users in countries who are not afforded the luxury to do so have to rely on using the PayPal account of a friend or family, based in countries where payments can be received. Next, they request the funds via bank transfer, leading to more incurred costs or use other cross-border money platforms like WorldRemit.

This is a pain point for these businesses, particularly in Nigeria. PayPal finally arrived Africa’s most populous country in 2014 and a year later, it became the company’s second-biggest market on the continent.

But despite its fast adoption rate and large fintech appetite, merchants cannot still receive payments from other countries on the platform with various sources alluding PayPal’s decision to the country’s history with internet fraud.

Fraud or not, Nigeria’s e-commerce and that of the continent at large continues to grow at a breathtaking pace. In 2017, Africa generated $16.5 billion in revenue, and by 2022, it is expected to reach $29 billion. With numbers like this, it isn’t hard to see why PayPal wants to get in on the action, albeit not completely. Hence, the partnership with Flutterwave.

The company, via its APIs, offer payment services to individuals and businesses across the continent. Since launching in 2019, the African payments company has partnered with Visa to launch Barter; Alipay to offer digital payments between Africa and China; and Worldpay FIS for payments in Africa.

But this one with PayPal is arguably its biggest partnership yet. Now, African businesses have more access to sell to global customers using PayPal to receive and send payments online. 

In a way, Flutterwave absorbs most of the risk PayPal thinks it will incur if it makes its platform more open to merchants in these countries. But at the same time, it solidifies Flutterwave’s position in the eyes of multinationals looking to enter the African market.

Like when its partnership with Worldpay FIS coincided with its Series B funding, this announcement is also coming on the back of a raise. Last week, the payments company closed a $170 million Series C led by Avenir Growth Capital and Tiger Global, becoming a billion-dollar company in the process.

In hindsight, the mammoth raise suggests that there are a couple of projects in the company’s pipeline. Going by this partnership, we can expect the majority of them to be global plays.

Yet, these questions remain top of mind — What happens when PayPal automatically allows businesses from these neglected African countries to start receiving payments? Will both services continue to coexist if that happens? We’ve reached out to PayPal for comment.

However that plays out, this is a step forward in the right direction for Flutterwave, which has shown time and time again the length it is willing to go for its 290,000 merchants and the ongoing quest to become a global payments company.

“By working with PayPal, we can further strengthen our commitment to our customers and service users as we will be enabling them to transact and expand their business operations to reach new markets. PayPal’s global reach is unrivalled, and collaborating with them allows our customers to explore new markets where PayPal is embedded,” the CEO said.

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