The flirtation of Latin American retail giants with financial services has intensified in recent years, to the point that they have launched their fintechs to expand the scope and relevance of their services.
Mercado Libre, the Argentine retailer behemoth, for example, invested in Mercado Pago, which was born as an e-wallet and today offers dozens of financial solutions for sellers and buyers. More recently, in 2018, retail group B2W Digital, the parent company of brands such as Americanas, Submarino and Shoptime, launched its financial arm Ame Digital.
Likewise, Magazine Luiza, a strong competitor for the leadership of retail and e-commerce in Brazil, has invested heavily in acquisitions. In 2020 there were eleven of them. The most recent was the purchase of fintech Hub Prepaid and its subsidiaries (Hub Payments, Hub Benefits, Paypaxx, and Hub Argentine) for BRL 290 million – an acquisition that was the subject of an antitrust dispute between Magazine Luiza and Mercado Libre.
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The three cases illustrate well the retailers’ race to expand the portfolio, the reach and the use recurrence of their platforms.
In an attempt to become a super-app or an ecosystem, retail giants are already taking advantage of the start: a large and solid customer base, built over years of operation.
Also, the easy integration between buying and selling operations and financial transactions within the same platform is attractive to customers.
Consumer confidence is key to retailers’ success in financial services
Pedro Serra, research manager at Ativa Investimentos, says that the relationship cultivated by retailers with customers over the years is a valuable asset.
With this consumer base already formed, the company takes the lead in offering extra services to expand its ecosystem and transform these fintechs into something profitable and relevant to the company’s revenue.
PEDRO SERRA, RESEARCH MANAGER AT ATIVA INVESTIMENTOS
Ame Digital, for example, handled BRL 5.9 billion within the platform in the 2020 last quarter, an increase of 202% over the same period in 2019, and reached 17 million downloads at its app. Ame’s services are also integrated into more than 1,700 Americanas physical stores and in 3 million partner establishments, ranging from gas stations and pharmacies to kiosks.
Ame Digital came onto the market with a competitive advantage compared to other fintechs: the credibility of the Americanas and B2W brands, which have more than 46 million active customers and 4.4 billion visits per year in its stores and websites, the company said in a note.
Different strategies for the digital universe and for the physical
According to Eric Huang, retail, e-commerce and technology analyst at Eleven Financial, this advantage applies mainly to transactions in the digital environment. But Ame Digital‘s growth challenges are more complex, such as increasing transactions outside the e-commerce platform.
How to do this? With acquisitions. In December 2020, Ame Digital acquired Bit Capital, an open banking platform, and Parati Crédito, Financiamento e Investimento, which has direct access to the Brazilian Payment System and the Central Bank‘s Instant Payment System (PIX). “These are acquisitions that help compose a complete digital banking platform,” Huang says.
Serra analyzes that the two purchases are clearly intended to accelerate Ame’s digital business. “Bit owns a digital account solution, with a card, in which you can make transfers, issue payment slips and make transfers via PIX. However, it did not have a license from the Central Bank to operate these services. Then comes the acquisition of Parati, which already made these operations feasible for Bit. With both, Ame expands its portfolio,” he explains.
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Search for Central Bank licenses
Mercado Libre took another route to accelerate: expanding its licenses with the Central Bank. In 2018, it obtained the authorization to act as a payment institution and last year it received the license for the Mercado Crédito Sociedade de Crédito, Financiamento e Investimento operation. Thus, Mercado Libre can offer credit and other services without the need for an intermediary.
Mercado Pago already has 10 million active sellers and more than 20 million active users in Brazil, Argentina and Mexico. In addition, it is attached to Mercado Libre, which is the e-commerce leader in Latin America, with more than 76 million active users.
In Brazil, 7 million people had contact with Mercado Pago for the first time in 2020. The company’s plan now is to retain these users on the platform and offer other products, notably credit products.
Licenses can leverage the financial services offered by Mercado Pago. As a result, there may be a greater retention of its customer base, since with more services offered, the customer can choose, for convenience, to have all its operations within the same ecosystem,” projects Serra.
PEDRO SERRA, RESEARCH MANAGER AT ATIVA INVESTIMENTOS
A super-app under construction
Magazine Luiza (or Magalu) has been making progress adding activities to its app, now presented as a “super-app”. The app first started as an online shopping platform and gradually began to offer food, fashion, hygiene, and mix products. In 2020, Magalu created its own payment method that allows not only to buy through the app but also to carry out financial transactions.
Also, it just launched a digital credit card with cashback deposited in MagaluPay and no annual fee. The card, launched through Luizacred, a joint venture with Itaú Unibanco, is integrated with the Magalu super app, where users will be able to check their balance, available limit, and pay their credit card bill.
MagaluPay is managed by a subsidiary dedicated to the company’s digital payments business. It’s another step on the way to becoming a super app, originally trod by Chinese giants like WeChat, which was born as a messaging app and started offering banking and shopping services. Magalu ended the third quarter of 2020 with more than 2 million users on MagaluPay, and an average of 30 million monthly active users on all its platforms.
Today the retailer uses MagaluPay not only to ease and speed payment but is also focused on cashback. Of course, the strategy of having a wallet, an integrated portfolio, has to do with recurrence. That is the goal of any cashback-centered business.
The company’s efforts on acquisitions to the super app are understandable, as its operation now accounts for ⅔ of its business, with an annual growth of 121%.
