Take a short trip back in time, back to the dawn of the Internet era in the late ’90s. Argentina was not a country known for payments innovation. Cash was king. Competition for its throne was minimal. Banks dominated the segment and there was no room for any FinTechs to bring digital wallets, peer-to-peer payments or any other kind of innovation to come forward.
But something was brewing underneath the cash-heavy status quo. A Stanford Business School graduate, Marcos Galperin had a vision to build an eCommerce company focused on serving the nascent but fast-growing Spanish and Portuguese-speaking markets in Latin America. He started in a garage in Buenos Aires and by 2006, MercadoLibre hosted the largest online trading platform in Latin America, according to Standford University. And by 2007, it went public, raised $289 million, and as it has expanded past its “Amazon of South America” status and into the payments business, it hasn’t looked back.
Filling A Need
But to revisit key moments in its history is a window into where the company is now. In 2003, it launched Mercado Pago as a mix of financial services, including payment processing, gateway services, mobile payments and cards. Since then, Mercado Pago’s mission has been to ignite the ecosystem that the company has built. The latest example of that ignition is the Mercado Pago Wallet, which according to reports, is favored by millennials and bridge millennials have adopted it en masse, using it at small merchants all over the nation in place of the cash once favored by everyone.
Mercado Pago Senior Vice President and Chief Operating Officer Maria Paula Arregui told Karen Webster that it’s evidence of the company’s unconventional ignition strategy. Instead of attacking the “top of the pyramid” — the 15 percent of larger businesses that made up some 80 percent of the nation’s payment volume, they went after the problem from the other way around.
“We went after the bottom of that pyramid, arriving at what we call the long tail and then doing our move up market, but only with small businesses,” she said. “It was a profound change in the dynamics of the way in which our business had to grow. We reconfigured how to reach these small sellers and individuals that never worked with credit or debit cards in the past.”
MercadoLibre’s Q4 numbers show the extent of that reach. Total Payment Volume for the quarter ending Dec. 31, 2020, hit $15.9 billion, a year-over-year increase of 83.9 percent. Total payment transactions increased 131 percent year-over-year, totaling 659.3 million transactions for that same quarter.
Making Payments Mobile
To reach those small businesses, Mercado Pago developed solutions of a low-cost mobile point of sale (mPOS) system with no monthly fees or a QR code solution ready to roll out for any merchant with a smartphone. Moreover, while the company has been investing in creating the seller’s network, it has also focused on rewiring consumers’ payments habits, investing “millions in discounts” to give consumers a reason to adopt new ways to pay.
“The idea is to create an ecosystem in the future where sellers and brands can subsidize and have these types of discounts,” she said. “They can use them as marketing tools to create their own campaigns and drive traffic to their stores or whatever they want. But at the beginning, the effort was done a hundred percent on our side.”
But it’s been an investment well worth making, she said, because Mercado Pago’s ambitions have grown much larger since it first stepped onto the digital payment playing field in 1999. Mercado Pago’s aim has been to develop a true SuperApp experience for Latin America — making it possible for businesses and consumers to transact — wherever, whenever and for any kind of transactions they want to undertake. And building that app out, particularly in the pandemic period, has been an ongoing project of bringing new features and functionality to the market — creating convenient connections in places where they haven’t previously existed.
Take the QR code, for example. Arregui said she was surprised with the popularity of its payment link tool, which allows sellers to create links sharable on WhatsApp and other social networks from which they could sell products directly to their homebound customer base. The merchants also were inspired to adapt the QR code to the needs of the moment, creating a proximity marketplace for consumers that allowed them to pay upon the delivery of their goods.
“The customer has the chance to get in contact with the store through WhatsApp, but everything is connected through our app,” she said. “And by the time that the store sends the product, they go to your phone to pay,” Arregui said, noting it was cash on delivery, but with the cash replaced by a digital QR payment.
As Mercado Pago is looking to scale its efforts and efficacy, she said. It isn’t just about what it can build, which is quite considerable. It’s equally about the experiences it can power through its partnerships with other players in the ecosystem, like banks. A recently added asset management products set, she said, is not delivered by Mercado Pago because it doesn’t have the necessary licenses to offer that. However, the products are a channel for its traditional partners to offer their asset management products to Mercado Pago’s large and rapidly growing customer base.
Mercado Pago’s work in utility payments, she said, is a similar case. It didn’t create that but partnered with another firm that had already introduced barcodes into the space. Mercado Pago offered to be their digital branch — which to date has become the largest channel for utility payments.
The goal, she said, is to get the right tool in place, with the right price and value prop, in the correct channels. A big part of the firm’s adaptation over time has been building value propositions for these very different sellers that they are trying to serve within their growing digital ecosystem.
“What we are really creating is this concept of a digital account, where we take payments, we take credit lines, we take investments and now insurance,” Arregui said. “We’ve started building this concept that now serves millions and millions of individuals in Latin America that today do not have full access to traditional banking services.”
Selected by EFXA