How cross-border fintechs help the Amazon 'roll up' market bear fruit

The people who build small businesses in their own homes often rely on an Amazon fulfillment operation — a space that's grown so massive that it's created its own market of third-party aggregators who provide automation and other services to streamline sales.

San Mateo, Calif.-based fintech PingPong has teamed with Boston startup Perch to reach the "roll up" market, which refers to companies that bundle much smaller brands to build scale. PingPong automates cross-border payments, while Perch acquires and aggregates third parties that use Fulfilment by Amazon to operate direct-to-consumer businesses.

In the case of Amazon's fulfillment operation, the small companies are sellers who develop products out of their own homes. They sell their micro businesses to other firms that "roll up" a bunch of sellers, which benefit from their new parent company's broader expertise.

Perch's analytics inform pricing, inventory and ad strategy, with projects underway to reach other retail channels beyond Amazon and social selling.

"We can invest in the growth of a particular brand in ways that individual sellers would have trouble matching. We take them to new and untapped markets, we invest in product listings, we can aggressively go after [pay-per-click advertising], and we are targeting off-Amazon channel expansion," said Chris Bell, CEO of Perch, adding that while e-commerce has grown considerably over the past year, that expansion hasn't come without problems that require improved ties between payment flows and logistics.

Perch currently owns more than 30 e-commerce brands, and has set a goal of reaching 50 by the end of the year.

"The world is a lot more complex today: a pandemic, Brexit, and unprecedented consumer demand," Bell said. "Payments across borders are difficult. Supply chains are strained. Look at LA’s congested port from earlier in March, where ships were waiting an average of over 7 days before being unloaded."

PingPong's role in the partnership is to reduce cross-border payment friction for a sales network that's becoming more complicated as new sellers are added. PingPong's platform allows sellers to pay suppliers directly, rather than relying on different processors in each market. That reduces the time needed to release inventory, and removes that complication from Perch.

PingPong also manages value-added tax, or VAT, which is charged in most European countries. VAT is incremental and levied based on calculations of a product's value at different stages of production and distribution. The U.S. does not charge a VAT, but relies on more static sales taxes. The differences create complications and potential fines for U.S. firms selling into Europe.

"E-commerce has always been a fast-moving industry and with recent events, things have certainly accelerated. We have had to adapt by constantly innovating and launching new features to keep up with the changing requirements from sellers," said Kenny Tsang, a managing director at PingPong Payments.

Perch, which raised $123 million in the fall of 2020, competes in the Amazon roll-up market with Boosted Commerce, which raised $86 million in September; and Thrasio, which has raised more than $300 million in two separate rounds in 2020. These firms don't have a corporate relationship with Amazon, but provide Amazon with more firepower to compete with Walmart, which is building its own e-commerce network for third-party sellers.

"Whether they are new entrepreneurs just getting started or larger companies with families of brands, we welcome the opportunity to work with all sellers who share our commitment to delighting customers with great product selection, prices, and convenience," said Joel Sider, an Amazon spokesperson, in an email.

Perch does not disclose its valuation, but refers to itself as a unicorn, suggesting a valuation of over $1 billion.

PingPong's Perch deal comes at a heady time for companies that simplify cross-border payments. dLocal this week received a $150 million investment that pushed its valuation above $5 billion. That's one of several investments cross-border payment companies have received over the past four months, and cross-border payments are often one of the first use cases addressed when new payment innovation such as blockchain emerges.

Writing for PaymentsSource Vidya Mani, vice president of engineering for RippleNet, said fintechs and payment providers need to think globally before acting globally, given the myriad challenges in creating efficient rails to send funds between nations.

"The fundamental problems with cross border payments remain unchanged. It is expensive, opaque and time consuming to manage," Tsang said. "Our platform continues to solve these pain points through constant innovation. We’ve come across more and more domestic sellers that have an interest in expanding internationally. I believe this is likely to continue as it is considered greenfield opportunities.”