Buenos Aires — There aren’t many people who know more about MercadoLibre than Osvaldo Gimenez, the Argentine unicorn’s current Fintech President.
The executive, who leads the MercadoPago e-wallet unit, joined MercadoLibre as country manager for Argentina and Chile in December of 1999, just four months after the company was created. Since then, Gimenez has been one of the main protagonists in its explosive growth.
With a current market cap of more than US$75 billion, the Argentine giant seems to have deciphered the recipe to navigating Latin America’s frequently volatile landscape, and continues to bet on more growth and innovation. Beyond the pandemic, the growth in digital payments and e-commerce over the last two decades has offset the negative impact of recessions, Gimenez says.
Eager to continue innovating, MercadoPago is “closely analyzing” the implementation of a cryptocurrency storage and sending functionality on its platform, as has been implemented in the US by PayPal’s Venmo and Square’s Cash App. This year, MercadoLibre, which will post its second-quarter results this week, announced the addition of US$ 8 million in bitcoin to its balance sheet, and has started to publish prices for real estate listings in said cryptocurrency.
The following conversation has been edited for length and clarity.
Bloomberg Línea: MercadoLibre has overcome the dot-com bubble, the 2001 Argentine crisis and, since then, several crises in the different countries where you operate. What were the keys that allowed such growth in the region?
Osvaldo Gimenez: We always think about MercadoLibre in the long term. That particularly helps in Latin America, where there are many cycles. Sometimes if you’re looking at nothing but this cycle, you make shorter-term decisions. The other aspect has had to do with being in technology, in a very resilient business model. Throughout the last 20 years, e-commerce and online payments have been trends that have grown a lot. We have seen a very large trend in the digitization of payments, of greater savings in electronic channels, and more electronic credit. This trend has been greater than what may have happened in the macroeconomic cycles. It is also a very resilient model, because it makes it easier for people to start businesses, either by selling on MercadoLibre or receiving payments with MercadoPago. Even in years that have been more difficult, we have seen volumes grow.
You have also grown in the Argentine market despite recurring obstacles such as inflation, devaluation, a high tax burden and having been one of the last countries in the region to incorporate 4G. What were the keys to that success?
There was a very great opportunity to make the commerce more efficient. In Argentina some products were only available in large cities. We managed to federalize that, first through users and then with our own distribution network. That was very disruptive. The logistical effort that we have made in recent years has been an accelerator of all e-commerce, something that was seen a lot last year, during lockdowns, where many retail stores were closed. On the fintech side, there was a large deficit to be able to receive credit card payments, because there was a very low amount of POS devices. Ours is mobile, it’s sold, not rented, and it’s cheaper. Same with the QR code. It allowed us to reach a lot of small businesses with electronic payments. This very lack of access to financial services gave us an opportunity to provide them. On the credit side, many individuals and small businesses had never received a loan from traditional banks. Today we also have three million people who have funds invested on MercadoPago, when before there were only 400,000 brokerage accounts [in the country].
A recent report by Goldman Sachs claims that 60% of MercadoLibre’s value today is attributable to MercadoPago. What percentage of MercadoLibre’s total income did the unit represent in the first quarter?
It depends on how you measure it. Most of it is still within MercadoLibre, but MercadoPago participates in the transactions that occur within MercadoLibre. If we were to talk about the volume of transactions, which perhaps is more simple, today we’re reaching 60% of the volume transacted outside MercadoLibre and 40% inside, in dollars.
Of these transactions, how many are attributable to Argentina, Mexico and Brazil, in percentages?
Brazil is a little more than 50% of the transactions, Argentina and Mexico are closer to 20% each, and the rest is included in the other markets, which are Chile, Colombia, Peru and Uruguay.
How do you see MercadoPago’s income evolving as a percentage of MercadoLibre’s total income?
In recent years, the growth of MercadoPago transactions used to be higher than that of MercadoLibre. Since the pandemic began, we had a very large jump in the volume of e-commerce, and consequently in the transaction volume in MercadoLibre. Once that normalizes, the expectation is that MercadoPago will continue to grow faster than MercadoLibre. We have a larger market, because we’re not just e-commerce, we also participate in transactions in the physical world.
Do you aspire to compete with big banks by offering a wider variety of loans?
Yes and no. When we look at Latin America, loans as a percentage of GDP are a fraction of what they represent in more developed markets. There’s room for the pie to grow for everyone. In our case, the vast majority of loans are to people who do not have a credit line available at a the bank. It is the first time they’ve received a loan. Most are not credit-rated by the financed system, or are incorrectly rated. We believe that we’re contributing, helping to expand the [credit] universe, and not competing. In Brazil we have just launched our credit card. Until now we only issued debits. There, clearly, we do compete a little more with traditional products, but most of what we do with loans is for MercadoLibre or MercadoPago users.
Is the implementation of cryptocurrency storage and sending on MercadoPago’s roadmap, as has been done in the US by the likes of Cash App and Venmo?
We never pre-announce what products we’re going to launch, but we’ve seen what they’re doing, and it’s something we’re looking at closely, so let’s save it for when we can make an announcement. Us starting to buy cryptocurrency shows that we’re convinced that there is very great potential. We think this could be a revolution in finance, so we’re going to see what is the best way, but in some way or another, we’re going to participate. The real estate thing is more about marketing strategies, showing how some properties are priced in cryptocurrencies, but it’s not that you can pay for the property in cryptocurrencies.
In which areas will you focus your investment in Argentina and what are your main growth objectives?
When we compare credit as a percentage of GDP, Argentina has one of the lowest numbers in the region. It is a fraction of what it is in Brazil or Uruguay, so there is indeed a very great opportunity. Also on the side of debit cards, or prepaid cards. We have launched cards in Argentina and there are many users who now for the first time are able to consume digital services. Our QR code is also a true revolution. We have 1.3 million users receiving payments with MercadoPago’s QR code. These codes, as per the Central Bank’s regulation, will become interoperable with the [Transferencias] 3.0 [program]. The goal is for that to happen in November of this year. In Argentina and other countries in the region, more than 50% of retail payments are still made in cash, and that has many disadvantages in terms of costs, inequality, tax evasion, and we have to work toward changing that.
What has to happen for the penetration of credit to grow again in Argentina?
It’s definitely challenging, but we feel comfortable in our bid to keep growing, because we really see a lot of unmet demand. In general, the loans that we offer are usually short-term, typically in six installments, so they are subject to six months. The credit we offer to companies that sell on our platform usually have a duration of 12 or 18 months. In those terms, I think we are comfortable with continuing to grow. We spend our own capital and then we secularize the portfolio. In Argentina, we have found a lot of buyer interest in these secularizations and portfolios. That allows us to go climbing.
At the regional level, what are the main growth objectives for the coming years?
At MercadoLibre, over the last decade the volume transacted has grown on average above 50% annually, in dollars. In the first quarter of 2021 we grew 82% in dollars. In the last year we grew 129%. We see a very big opportunity in Mexico and in particular in Chile and Colombia, [where] so far we have launched only part of the products we have. Credit cards is how we’re expanding in credit. We’re also looking to expand with more investment products in Brazil.
You had a confrontation with Argentina’s Central Bank on June 29 regarding the amount of time it takes for funds from credit card payments to be released, which led you to change your own terms and commissions. Could a fintech law, like Mexico’s, be a solution to these gray areas?
I don’t think that’s the solution. Two years ago the Central Bank sped up credit card payment terms. Funds were previously released in 18 business days and began to be released in ten business days. At that time, what we did was improve the terms or commissions of all our clients, transferring that benefit to users in Argentina. Now the Central Bank has decided to change the terms for small companies to eight days, for medium to ten days and for large to 18 days. Ninety-nine percent of our clients are small companies, so we expected that they would pay us within eight days, but the interpretation of the financial system and the Central Bank is that, as MercadoPago is a large company, it must receive payments in 18 days. That is what we, unfortunately, are transferring to users, in the same way that we had transferred in the opposite direction two years ago. Today we have perfect information on whether behind each transaction there is a large or small company, which we could share and use, which in fact we share with the AFIP [tax agency], to pay small companies quicker.
Do you perceive an intention on the part of the Central Bank to clarify these gray areas?
We approached them with our position and they saw it differently, so unfortunately we could not [resolve the issue]. We believe that the important thing is who is the final recipient of the funds is, to interpret the payment chain.
How do you see the state of competition between payment platforms in Argentina?
The payments industry in the world is becoming even more competitive, because traditional players are modernizing and being more aggressive, there are fintechs and companies that weren’t fintechs until now, such WhatsApp Pay in Brazil or Google Pay. The consumer will be who ends up winning.