Business

Latin American payment giant rises amid pandemic, with an eye on China's Ant

Mercado Pago's CEO sees China's Alibaba and Ant Group as a model to follow in LatAm

AM hair salon owner, Andrea Manoli, is pictured using Mercado Pago app, at her store in Buenos Aires, Argentina, October 15, 2020. REUTERS/Agustin Marcarian
  • MercadoLibre’s payments drive offers a tantalizing prospect of an e-commerce-to-digital-wallet ecosystem;
  • The firm’s market capitalization has doubled this year alone to $61.6 billion, though that is still a far cry from Ant’s targeted valuation of $250 billion.

Latin America‘s top e-commerce firm is revving up its digital payments engine as shops shift online amid the coronavirus pandemic, and is looking toward China for inspiration to bring the region’s un-banked and cash-loving savers online.

Transactions on the platform of Mercado Pago, the finance arm of MercadoLibre, more than doubled in the second quarter, and its CEO sees China’s Alibaba and its huge payment affiliate, Ant Group, as a model to follow.

READ ALSO: Mercado Pago reaches almost 20 million active users, and debuts in the insurance market

“Many of the things we did were inspired by how they have worked in China,” Osvaldo Gimenez, Mercado Pago’s chief executive, told Reuters, adding the unit also had close ties with Tencent, India’s Paytm and U.S. firm PayPal Holdings Inc, which invested $750 million in MercadoLibre last year.

“When we saw what Ant Financial had done with their investment fund, we replicated that with our investment funds in Argentina, Brazil and Mexico,” he added, referring to a money market fund for savers akin to Ant’s Yu’e Bao.

READ ALSO: Brazilian unicorn EBANX will expand its operations to new countries in Central and South Americas

MercadoLibre’s payments drive offers a tantalizing prospect of an e-commerce-to-digital-wallet ecosystem that could come to dominate in Latin America in the same way Alibaba and Ant are ubiquitous in the world’s No. 2 economy.

The firm’s market capitalization has doubled this year alone to $61.6 billion, though that is still a far cry from Ant’s targeted valuation of $250 billion. Mercado Pago’s fund, luring savers to invest small sums for higher returns than at banks, has over 11 million users, again far smaller than Yu’e Bao.

Infographic: Reuters.

But there is room for huge growth.

Half the population in Latin America lacks bank accounts, and digital payment firms are blossoming, including players like the banking app Uala, payment companies like EBANX, owner of LABS, and dLocal, and the largest neobank in the region Nubank. The region’s mobile payments market is forecast to hit $302.7 billion by 2025, according to a report from consultancy PayNXT360, up from $50 billion in 2016.

READ ALSO: Nubank launches in Colombia and will invest $150 million for the next eight years

Gimenez said downloads of the Mercado Pago app have risen to almost match those of MercadoLibre in some markets, which he said was a major shift from two or three years ago when there were closer to 20 downloads of the e-commerce app for every download of Mercado Pago.

Purchases on MercadoLibre now account for just 35% of total Mercado Pago transactions as more people use the platform, which offers QR code payments, debit cards, a digital wallet and transfers, for other tasks.

READ ALSO: Argentine fintech Ualá begins its expansion across Latin America with the launch of operations in Mexico

Infographic: Reuters.

Nathan Lustig, managing partner at Latin American tech-focused venture capital fund Magma Partners, said the shift was likely to outlive the pandemic.

“MercadoLibre’s payments business is huge, and it’s something that wasn’t their core focus at the beginning,” he said. “There’s a huge opportunity in digital payments in Latin America, and there probably won’t be just one winner.”

Gimenez said Chile and Colombia would be major focuses for the company next year. He added the payments unit was happy for now to grow “aggressively” together with the core e-commerce business, though he did not rule out a future spin-off or IPO.

READ ALSO: China’s Ant wins Hong Kong nod for $35 billion dual listing: sources

“I think once people get familiar with payments for services by tapping their phone and scanning a specific bill, there is no way back to lining up for 20 minutes to pay an electricity bill,” he added.

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