6 Degrees Capital invested in Paggo, the leading non-bank POS provider in Central America.
The payment landscape in Central America
Payment card penetration in Latin America remains significantly lower than in most other regions, but this gap is closing fast. Debit and credit card usage is surging across the continent. Mastercard’s gross dollar volume in the region grew by 18% in 2023, compared with just 3% growth across Asia-Pacific, the Middle East, and Africa.
Several factors are driving the steep adoption curve:
The success of neobanks have resulted in an increasingly banked population, more financial inclusion, and broader access to payment cards.
The growth of e-commerce and the online economy, which inherently requires digital payment methods.
A behavioural shift post-COVID. The pandemic marked a structural turning point in the use of cash, accelerating the adoption of digital payments.
With growing card usage comes a need for infrastructure that allows merchants to accept card payments. We see a particularly compelling opportunity in Central America, where the POS landscape remains underdeveloped.
In Brazil, there are over 60 terminals per 1,000 inhabitants, while in Guatemala, the largest economy in Central America, there are only about 15 per 1,000.
For context, Central America and neighbouring countries (Ecuador and Dominican Republic) have a population of nearly 100 million people, with a GDP per capita comparable to that of Brazil.
Paggo, the right product at the right time
Paggo offers a suite of solutions for merchants to accept payments, both online and offline. In line with the market backdrop described above, 80% of merchants who use Paggo have never accepted card payments before. Their interest in adopting a POS solution reflects a genuine and accelerating shift in consumer preferences towards card payments.
Merchants purchase a POS device from Paggo, which ranges in price from $13 for the basic model to $80 for the most advanced version and Paggo then processes all payments. The hardware is sold at cost, with Paggo’s real monetisation coming from transaction fees.
Commercial momentum
Paggo has been growing aggressively over the past years, especially impressive since prior to our investment the company has raised <$1m.
The company acquires customers through:
Inbound
Digital marketing
Door-to-door sales
Retention is extremely strong with churn being made up for by volume expansion in other customers.
Product expansion
Paggo plans to launch additional services to its merchant base over time, such as banking.
The company’s goal is to provide services for hundreds of thousands of merchants in Central America and neighbouring countries. Today, they operate in Guatemala and Honduras.
Paggo’s ambition is consistent with that of successful peers in similar markets. Bold reached 150,000 users in Colombia and recently raised a $50m Series C from General Catalyst. Clip, in Mexico, scaled to $100m in net revenues and achieved a $2bn valuation in a round led by Morgan Stanley.
We are early in the journey, however, with a strong team, proven technology, and greenfield markets with limited competition, we believe Paggo has an opportunity to build a sizable business.
The fact that Paggo fills a geographical gap makes it an attractive acquisition candidate over time, with payment companies exiting at attractive premiums.
Team
CEO Luis Portillo worked at E&Y and Moody’s prior to starting Konta, an accounting and financial system for SMEs. Paggo is his second start-up.
CFO Farid Massis spent 6 years at E&Y, where he managed the Strategy and Transactions Team.
CTO Hilario Menendez previously worked as an engineer in Florida for a large American corporation and for a small business lender. Paggo is his second start-up.
Luis and Farid met while working together at Ernst & Young, where they developed an interest in the emerging opportunity of payment processing in Central America. Hilario joined Paggo as CTO.
We love the sense of urgency and pace at which the team is executing. We came across Paggo during a search for payment providers in underpenetrated markets and tracked the company closely for nine months before investing. During that time, the team demonstrated strong traction, disciplined execution, and pragmatic decision-making.
Round
Paggo raised $3.3m in its Seed round, led by us in collaboration with Caricaco, a regional venture fund focused on Central America.