MercadoPago CEO Osvaldo Giménez sees significant opportunities for electronic payments growth in Latin America, where about half of the population is underbanked.
Giménez doesn’t believe that Mexico’s CoDi system is the best way of driving adoption.
Latin American e-commerce giant MercadoLibre Inc. has been called the “Amazon.com Inc. of Latin America.” It is the region’s largest online commerce platform based on unique visitors and page views. However, an increasing proportion of its business is coming from payments business, MercadoPago. In its first-quarter results, total payment volume hit a record $5.6 billion, up 82.5% when adjusted for currency swings. A big part of that growth has come from expansion into so-called off-platform payments — such as merchant services, mobile point-of-sale devices and a mobile wallet business — which together saw total payment volumes nearly triple in the first quarter. The company, which recently gained a $750 million investment from PayPal Holdings Inc., is now looking to aggressively invest into a QR payments network with plans to officially launch in shops throughout Brazil and Mexico this month.
The rapid growth of the MercadoLibre payments division has raised speculation that it could be spun off into a separately traded entity with an estimated valuation of about $8 billion. However, in an interview with S&P Global Market Intelligence, MercadoPago CEO Osvaldo Giménez dismissed the idea, arguing that such a move would harm the MercadoLibre “ecosystem.”
Giménez also spoke about growing competition in Latin America’s payments market, new regulation, and the company’s own strategic plans. Below is an transcript of that conversation, which has been edited for length and clarity.
S&P Global Market Intelligence: What led you to explore the payments markets off the e-commerce site?
 Mercado Pago CEO Osvaldo Giménez |
Osvaldo Giménez: When we began 15 years ago, we were just trying to solve problems the users encountered on our (e-commerce) platform. Then Steve Jobs came along and internet was suddenly mobile. This really widened the addressable market. Barely half of LatAm’s 600 million population have a bank account. There are many more smartphones today than bank accounts, which allows us to reach the unbanked or underbanked and have them begin to operate digitally. Everybody is walking with a computer in their pocket or purse and we keep on paying each other with pieces of colored-paper.
Are off-site payments making up for a potential deceleration in growth from MercadoLibre’s own marketplace?
I believe both businesses are going to grow a lot and that is why both bear investment opportunities. Today, e-commerce is 5% of retail in LatAm. The e-commerce share of retail is 12% in the U.S. and 25% in China. I would not be surprised if at some point LatAm grew to those figures.
Mobile point of sale has been one of your fastest growing business units, with first-quarter payment volume more-than tripling year over year. Why is it growing so rapidly?
M-POS are growing in LatAm because they allow us to reach the long tail of micro SMEs with low payment volume, which prefer it to renting a traditional POS [terminal] at $20 to $30 per month, which can be 5% of their overall sales volume.
In Brazil, Itau’s Redecard SA recently eliminated some interest rate charges for merchants and began paying them more quickly, in two days. This seems to have jolted the acquiring sector. How is MercadoPago positioned to withstand a more competitive business environment in Brazil?
We have been giving our merchants the option of cashing out the same day for a long time now, so this basically does not affect us. Also, our target in Brazil is the base of the pyramid — mostly individuals — a segment where other players are not participating or where they are not focusing. But it is an extremely dynamic market and we will adjust whatever needs to be adjusted to remain highly competitive.
It seems more and more Latin American countries and companies have been looking at the potential use of quick response, or QR codes, in supporting the payments market. What’s your view on that technology?
We have had tremendous growth in Argentina and we believe there is a huge opportunity in Mexico and Brazil. We are developing the market, currently subsidizing QR because we want to massively grow the number of merchants who use the network. QR technology is not new, it’s decades old, but it is a simple technology and extremely fast to transmit information. It serves its purpose well, which is to reach the underbanked population and get them to operate digitally.
In Mexico, Banco de México, plans to launch the CoDi payment system that uses QR codes. MercadoPago showed an interest early on, but you’ve since said that you’re unimpressed with it. Why is that?
We did not find the mandatory requirement of having a bank account behind every CoDi to be attractive. Mexico is a country with 40% of the (adult) population with a bank account; there are 50 million who don’t, and that number will not change overnight. Technology could drive faster adoption if fintechs and virtual wallets could participate without using a bank account.
Mexico also signed off on a new fintech law a year ago. What is your overall view on fintech regulation?
It depends on how you do it … I believe (Mexico’s) stance has been very restrictive. One of the challenges (companies like MercadoPago face) is to have easy digital onboarding processes, without too many complex requirements. Some central banks still do things in an outdated mode. They ask for local processing when everyone is cloud-processing.
Why do you think more and more tech companies are ultimately deciding to build financial arms?
Technology allows us to provide services in a cheap way, and financial services are mostly based on information. Sometimes, the most heavily regulated industries are the ones most guarded from innovation. But fintech companies ultimately have found a way around that within regulation, in creative ways. It happened in the U.S., then in China and it is happening in LatAm. At the end of the day, software is very, very important in the financial industry.
What do you think the financial services space will look like in 10 years’ time?
First of all, 300 million people that today do not access financial services will have the opportunity of doing so. Secondly, the most profound change we are seeing is in artificial intelligence. So there will increasingly be more intelligence on services to make them customizable to the desires of users. The key feature will be that they are going to be all interconnected and more user-friendly. There are basic things today that still take a lot of work. Many things can be rethought and improved, provided you include more of intelligence and technology. It is going to be an exciting time for consumers.
