Why MercadoLibre is ‘excited’ about payments in Mexico, Argentina

Latin American e-commerce powerhouse MercadoLibre, which is also increasingly an across-the-board tech financial services company, is “excited” about its payments and credit business in Argentina and Mexico.

The countries are the company's third and second markets, respectively, in revenues after Brazil. Yet, tax and regulatory issues in both countries have been making the electronic payments and digital financial services segment less developed than in Brazil, or even in Colombia.

That, however, is changing, boosting the expectations of MercadoLibre’s financial arm, MercadoPago, as the group celebrates its 25th anniversary.

“Electronic payments in Argentina had a drawback versus cash payments because of taxes we need to hold on behalf of the local IRS, from every seller. That was a detractor for further adoption of electronic payments in general and the past congress recently removed that at a federal level, not at a state level, but at a federal level,” MercadoPago’s head Osvaldo Giménez told investors during MercadoLibre’s Q2 earnings call. 

While noting that the change has not yet been implemented by the local IRS, Giménez said the measure will be positive for all kinds of electronic payments in Argentina. “We are very excited about that,” he added.

MercadoLibre’s fintech services revenues in its home market Argentina were US$556mn in Q2, nearly flat from US$553mn in the same quarter last year. There were positives, though.

The company’s remunerated account product, which pays interest as soon as funds are deposited with immediate liquidity, saw the number of users tripling in the period.

Meanwhile assets under management in US dollars more than doubled in the last 18 months for the Argentine accounts, according to the company.

MEXICO

In Mexico, MercadoLibre is readying its application for a banking license. 

The permit is expected to scale the company’s local fintech business and help MercadoPago achieve its “ambition of being the number one digital bank in the country,” the company said in its financial statements.

MercadoPago’s Giménez is upbeat about Mexico - a country that is beginning to further open up its financial and payments markets to fintechs, providers and digital banks. 

Among other things, the license will allow people to collect salaries in MercadoPago’s digital account, according to the executive.

“We believe there's a huge opportunity in Mexico to compete and further deploy financial services and that by having a banking license, we will be able to add a stack of products,” he said.

MercadoPago's early progress in Mexico led to a credit portfolio exceeding US$1.5bn in Q2. 

The company reported US$402mn in fintech revenues in the country, up 38% year-on-year.

Brazil remains far ahead of both Mexico and Argentina in financial services. Fintech revenues in the country surpassed US$1bn in Q2 and grew 26.9% year-over-year.

E-COMMERCE AND LOGISTICS

MercadoLibre posted total net revenues of nearly US$5.1bn in Q2, soaring 42% year-over-year.

Gross merchandising volume, which is seen as the main metric for e-commerce dynamics, grew 20% to US$12.6bn, a notable rise considering the heightened competition brought by new Asian marketplaces in countries such as Brazil and Mexico.

Unique active buyers totaled 57mn in Q2 and 73mn in the first half, increasing from 48mn and 62mn in the year-before periods.

Even in Argentina MercadoLibre is seeing a ramp up in commerce.

"In Argentina, we saw positive growth in terms of items sold, reverting the negative growth that we saw during Q1,” said CFO Martín de los Santos.

“We are sustaining very solid growth rates in Mexico, gaining market share in both markets [Brazil and Mexico], and also seeing a very strong recovery in Argentina both on the commerce as well as the fintech side,” he added.

Capex was US$308mn in the first half, up from US$254mn in the same period last year, and mainly directed towards warehouses, shipping and logistics. 

The company is also investing in AI-generated answers to questions on product pages, among other software initiatives.

In Q2, MercadoLibre opened a fulfillment center in Texas to offer inventory from US sellers to buyers in Mexico. It is the company's first fulfillment center outside Latin America.

In Brazil, MercadoLibre launched in June robotics in its distribution center in Cajamar, in the São Paulo region.

At present, 100 robots are working at the plant and a further 200 are expected to arrive by the end of the year. 

They operate autonomously, handling up to 20,000 items and 2,500 shelves per day, returning to charge stations when batteries are low.

MercadoLibre said the robots optimize processing time by 20%, while increasing total storage capacity by up to 15% per square meter.