Uruguayan cross-border payments giant dLocal is grappling with a new front in its African operations, as rising processing costs in South Africa deepen profitability concerns already sparked by a sharp downturn in Nigeria. While the company’s Q1 2025 earnings show a robust global performance — with Total Payment Volume (TPV) hitting a record $8.1 billion, up 18% year-over-year — the gains mask an increasingly uneven picture across Africa, where operational costs and regulatory headwinds are eating into margins.

The latest report, while sparse on region-specific financials, singles out South Africa and Nigeria for their elevated processing expenses, which weighed down gross profit in the company’s “Other Africa and Asia” segment. The development marks a notable shift in dLocal’s Africa narrative, expanding the company’s woes beyond Nigeria — until recently a cornerstone of its growth on the continent.

South Africa: New Costs in a Strategic Market

South Africa has long been considered one of dLocal’s more stable African markets, benefiting from relatively mature infrastructure and strong merchant adoption. However, the Q1 filing highlights an uptick in local processing costs, suggesting structural challenges are beginning to mirror those in Nigeria. Industry analysts attribute these rising expenses to a confluence of factors:

• Volatility of the South African rand, increasing foreign exchange (FX) costs for international settlements as a result of recent geopolitical instability that occurred during the quarter. 
• Regulatory compliance burdens imposed by the Financial Sector Conduct Authority (FSCA), including stricter anti-money laundering and KYC protocols.
• Higher bank settlement and interchange fees, driven by the country’s reliance on traditional banking rails and card networks.

While volume growth persists, these escalating costs have chipped away at the company’s gross margins in the region — an issue dLocal has yet to fully unpack for investors.

Nigeria: From Flagship to Fallout

dLocal’s struggles in Nigeria are better documented and more acute. In Q3 2024, the company reported a staggering over 80% year-over-year revenue decline in the country, with earnings dropping to just $2.1 million, or 1% of global revenue — a collapse from the $55 million recorded over the first nine months of 2023.

The root cause: a sharp devaluation of the naira, which slashed the value of transactions processed through dLocal’s platform. While payment volumes remained relatively stable, the currency’s weakened purchasing power meant that revenues, when converted to U.S. dollars, took a substantial hit.

Additional burdens such as foreign exchange restrictions by the Central Bank of Nigeria, compliance levies, and high interbank settlement costs have made Nigeria a less attractive market for foreign processors. dLocal’s experience is now a cautionary tale for fintechs betting on Africa’s largest economy without hedging against its macroeconomic instability.

Egypt Ascends as Africa’s Bright Spot

As Nigeria falters, Egypt has emerged as dLocal’s unexpected growth engine on the continent. During first quarter, the dLocal’s operations in Egypt grew 2% quarter-over-quarter (QoQ) to $16 million in revenue, reflecting a modest $0.3 million increase from the previous quarter, while year-over-year (YoY) growth remained strong at 58%. The slower QoQ expansion was attributed to seasonal declines in the advertising vertical, suggesting temporary softness rather than structural weakness, as Egypt continues to be a high-growth market for the company compared to struggling regions like Nigeria.

In Q3 2024, revenue from Egypt surged 318% year-over-year to $18.6 million, making up 10% of the company’s global earnings for that period. The country’s booming e-commerce sector, coupled with seamless integration of dLocal’s payment APIs, has propelled it to the top of the company’s African portfolio.

For the first nine months of 2024, Egypt contributed $72.6 million, or 13% of global revenue, up from $18.3 million a year earlier. This rapid rise not only offsets Nigeria’s decline but also offers a template for success in other emerging markets: invest in local partnerships, prioritize fast-growing verticals, and align product offerings with consumer behavior.

Africa’s Dual Reality: Growth and Friction

Africa remains central to dLocal’s global strategy. The company operates in over 40 countries, with a footprint in key African markets including Kenya, Morocco, Egypt, Nigeria, and South Africa. In Q3 2024, Africa and Asia together accounted for 29% of gross profit, with Africa alone generating $22.6 million, a 49% increase year-over-year.

However, beneath the surface of strong volume growth lies an uncomfortable truth: cost pressures are rising faster than revenues in several African markets. The company’s take rate — the share of TPV it converts to revenue — is being squeezed by:

• Currency conversion and liquidity risks;
• Higher fees from local banks, switches, and card networks;
• Compliance demands across jurisdictions; 
• Operational inefficiencies in fragmented payment systems.

These costs are not trivial. dLocal’s Q3 2024 gross profit margin fell to 42%, from 45% a year earlier, while adjusted EBITDA shrank 6% despite record TPV. In Q1 2025, the company reported a partial rebound with EBITDA margins rising to 27%, but Africa remains a drag on overall profitability.

The company continues to tout its “One dLocal” platform, which offers a single API for pay-ins and payouts, as a competitive advantage in underpenetrated markets. Recent partnerships — such as its continued collaboration with Temu, enabling seamless payments across more than 15 emerging markets — underscore dLocal’s commitment to a long-term presence in Africa.

The Bottom Line

As dLocal recalibrates its Africa strategy, the continent remains both a lucrative opportunity and a complex puzzle. Egypt’s performance shows what is possible with the right market conditions, while Nigeria and South Africa highlight the risks of underestimating local volatility.

For investors, the key question is whether dLocal can stabilize its cost base in high-expense markets while scaling profitably across the rest of the continent. The lack of granular geographic data in its Q1 2025 filing makes it harder to assess the full impact, but future earnings reports are likely to face growing scrutiny on this front.

In the meantime, dLocal’s African ambitions are far from over. But they now require more than just market access — they demand resilience, regulatory finesse, and operational precision.