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Mercado Pago sheds stealth mode, boosts communication

After expanding product offerings, digital bank will also accelerate lending

04/06/2024

André Chaves — Foto: Rogério Vieira/Valor

André Chaves — Foto: Rogério Vieira/Valor

Mercado Pago has spent the past few years expanding its product offerings to complete its transition from a payments company to a digital bank. Now, the company believes it is time to “come out of hiding,” said André Chaves, the platform’s new senior vice president.

“We’ve stayed under the radar in recent years, but now it’s time to make some noise. We started ramping up our communication from last year’s Black Friday onwards, participated in Salvador’s Carnival, and have interesting plans for the second half of the year,” Mr. Chaves said in his first interview since taking over his new role within Mercado Libre in March. Having joined the company in 2020, Mr. Chaves previously handled investor relations for the group.

The diagnosis that the bank is entering a new phase is based primarily on two points, according to Mr. Chaves: the product range is structured, and the environment for credit is becoming more favorable. Mercado Pago officially positioned itself as a digital bank in 2022, during a time when new credit concessions were more restricted. Since the second half of last year, however, the bank has been accelerating lending.

Mercado Pago does not disclose breakdown data for Brazil, but the country is the most significant within its total balance. At the end of the first quarter, the loan portfolio totaled $4.448 billion, a 46% increase over the same period in 2023. This growth was driven by credit cards, with a portfolio of $1.538 billion, up 132% year-on-year.

“The main product people demand from a financial institution is credit. It’s no use attracting customers only to disappoint them later. Now, we’re more optimistic about credit, and it makes sense to invest more in communication,” Mr. Chaves said. According to him, Mercado Pago decided to ramp up its credit offerings before its competitors because it is confident in its ability to “separate the wheat from the chaff.” “We have a unique data platform. If you buy on the online marketplace, we collect over 2,000 variables from that transaction. Based on this, we realized we could create a unique credit business.”

The idea, he added, is to continue issuing cards at a strong pace throughout 2024 and expand the overall portfolio.

Mercado Pago’s delinquency rate was 17.9% at the end of March, down from 18.7% in the previous quarter and 28.2% in the same period last year. However, the short-term delinquency indicator has been rising, reaching 9.3%, up from 8.2% in the fourth quarter and 7.8% in the first quarter of 2023.

Mr. Chaves attributed the quarterly increase in delinquencies to the seasonality of the start of the year and said the figures were within expectations. Regarding the trend for the year, he noted that as the credit market improves, the institution will naturally start lending to riskier groups. “With that comes greater monetization. Delinquency can’t be looked at in isolation.”

Without providing details, Mr. Chaves also mentioned that the institution is preparing a “broader package of benefits” for its credit card, to be used both within and outside the ecosystem. “It won’t be a typical points program,” he said.

Currently, the bank’s focus is not on the number of clients but on engagement, according to Mr. Chaves. Besides credit, another key factor for deepening customer relationships is the investment area. In March, Mercado Pago announced that it would offer a 105% CDI (Brazil’s interbank benchmark rate) return for users depositing or receiving at least R$1,000 per month in the bank. The institution, which went against market trends with this announcement, maintains that the measure is structural and sustainable.

“It’s not a promotional thing. A large part of the financial industry relies on user money to balance the books. We’re creating a business model that doesn’t depend on that. It’s an important differentiator,” Mr. Chaves said. “We are not ready to unveil our numbers yet, but the results of this measure have been above expectations.”

In the investment sector, Mercado Pago offers certificates of bank deposit (CDBs), three funds in partnership with Nikos—recently launched by the founders of Órama—and cryptocurrency trading. The plan is to soon launch LCIs (Real Estate Credit Bills) and LCAs (Agricultural Credit Bills), also through partnerships. With this, the institution believes it completes an appropriate offering for its client niche. The goal, according to Mr. Chaves, is to keep the offering simple. There is also an insurance area, provided through partners.

Currently, about 40% of Mercado Libre’s revenue comes from Mercado Pago. Specifically looking at the digital bank, Brazil represents more than half of the total revenue. In the first quarter, the bank generated $1.008 billion in revenue in Brazil, out of a total of $1.837 billion. After Brazil, the most significant markets are Argentina and Mexico.

In May, the institution applied for a banking license in Mexico. Due to the high rate of unbanked individuals and cash usage, the country is seen as an important growth avenue. Mexico has also been highlighted by Nubank as a priority market. Mr. Chaves said that the main competitor there is cash, suggesting there is ample room for growth for both institutions. “There’s so much open sea that I think both can grow at very accelerated rates without stepping on each other’s toes. That said, I obviously want to be the one that grows the most,” he added. According to him, the starting point in Mexico is solid due to the company’s e-commerce experience. “We can see the person far beyond the banking transaction.”

In terms of payments, where Mercado Pago began, the bank emphasized that it is increasingly able to diversify its base. Traditionally focused on micro-entrepreneurs, the company said it has been climbing the pyramid in the offline world, while in e-commerce it can serve large retailers.

Asked about the potential impacts of Cielo’s decision to delist its card acquirer, Mr. Chaves noted only that the option to offer an integrated payment and other services solution has proven to be a trend in the industry.

Regarding the possible effects of the situation on results in Rio Grande do Sul, devasted by floods, Mr. Chaves said the exposure to the state is similar to the region’s representation in GDP and, therefore, any impact would be small. “The priority is to support customers and employees.”

*Por Mariana Ribeiro, Fernando Torres, Talita Moreira — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Mercado Pago, Órama team up in investment platform

Mercado Pago e Órama vão criar plataforma de investimentos em parceria | Serviços Financeiros | Valor Investe

Mercado Pago — the digital wallet that was born in Mercado Libre and is now a big provider of several types of financial services — has teamed up with investment manager Órama to create an investment platform. The commercial agreement — there is no equity participation involved — has a minimum term of five years and provides for exclusivity. The offering will start for a small slice of the 34.5 million user base next week, but the idea is to scale up quickly, replicating the success that Mercado Pago had when it offered the option to buy cryptocurrencies late last year.

Known for working with classes C, D and E, Mercado Pago says there was demand from its customers for investment products. The offer will start with simpler options, and then will be expanded. The debut product is a certificate of bank deposit (CDB) from the group’s financial institution, with investments starting at R$1, which delivers yields of 150% of the CDI (the interbank short-term rate), in a promotional yield valid for those who make the investment in May and limited to R$5,000. The strategy is very similar to what other investment platforms are doing, such as XP, Toro and Genial, which advertise on social networks CDBs with eye-popping returns.

“Even today we still have almost R$1 trillion invested in savings, with a very low yield, and that from all social classes. We already have the cryptocurrency offer and the interest-bearing account, but our users were asking for more investment options, with better returns and even longer terms,” says Túlio Oliveira, vice president and country manager of Mercado Pago in Brazil. “We seek to promote real democratization, with accessible investment, without fine print. It will be a simple and safe experience,” he says.

Habib Nascif, CEO of Órama, says the partnership marks the beginning of a complete and integrated investment platform. “We specialize in creating solutions so that more people have access to quality investments. But besides offering good products, we also have to democratize the distribution channels. With this in mind, the Mercado Pago marketplace puts the financial market in people’s day-to-day lives,” he says.

He says that the management company was one of the first financial institutions to be born totally in the internet cloud and that it is fully prepared, from an operational and technological point of view, to serve Mercado Pago users. “We were the first to offer zero fees, investments with no minimum values, and to adopt a less formal language in marketing campaigns. The democratization of investments, including financial education, is very important to us, and that’s why we had such a good connection with Mercado Pago,” he says. Today, the management company has more than 3,000 partners in its “white label” platform and 370,000 accounts.

Later this quarter, Mercado Pago will offer a solution to help users with financial planning. “With our investment marketplace, we will have options so that Brazilians can concentrate their lives in one place, as well as organize their finances, keep emergency reserves or have a savings account with defined life goals,” says Mr. Oliveira. For Mr. Nascif, Mercado Pago’s user base has a huge potential for investments and, with financial education and the possibility of designing specific products for them, the expectations are very positive. “They need to start investing, get into the habit. It is a short, medium and long term construction.”

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