Buenos Aires — It’s no secret that Latin America still has a way to go in terms of the adoption of digital financial tools, as well as in the reduction of the high levels of informality that persist in its economies.
One of the companies best positioned to contribute in that direction, due to the scale it has achieved globally, is PayPal, and Federico Gomez Schumacher, general manager for Latin America of the North American giant, expressed in conversation with Bloomberg Línea his “great optimism for growth in the region”.
“We want to work and work with others to increase the penetration of financial services and hopefully lower poverty a little bit,” he says.
The pandemic certainly spurred an acceleration in the adoption of digital payments by both individuals and merchants, and Gomez Schumacher points particularly to the case of Mexico, where PayPal added 1.5 million new customers since the start of the health crisis. Regarding the volume transacted on the platform, he adds that “we are talking about three figures, which is something we had not seen before”.
The announcement of the incorporation of the cryptocurrency payment service on November 18 is currently limited to the United States, but will eventually reach other regions, potentially including Latin America, a region that represents 5% of the company’s global revenues.
EDITOR’S NOTE: The headline of this article was modified on December 9 at 2:27 p.m. in New York to reflect PayPal’s global policy on crypto. The previous headline stated that PayPal had confirmed the arrival of cryptocurrency services to Latin America. PayPal clarifies that it has not confirmed the arrival of crypto services to the region.
The following conversation has been edited for length and clarity.
How do you interpret the drop in PayPal’s stock from over US$300 in July to less than US$200, considering that the NASDAQ was up quite a bit in that same period?
As we all know, stocks go down and up all the time. What I could tell you is that on our side the results have been and continue to be at a pretty good moment, as you can imagine. During the almost two years that we have been in the pandemic, the adoption of electronic payments and digital commerce has been incredible, not only in the region but all over the world, so the growth we had in the business, in the evaluation of the company was quite accelerated, and the truth is that we are in a moment where we continue to see this going forward. We are in a moment where we are starting to see the opening of the physical stores slowly coming back to certain areas of normalcy. We are not seeing a decline in the adoption of online transactions. On the contrary, many people who first used online services have continued to use them. To give you an idea we recently reported third quarter results, which were very strong results, we added 13 million accounts in one quarter, and we’re going to have added 52 million accounts in this entire year at PayPal, so what we see going forward is a continuation of accelerated growth.
Yesterday [Thursday, November 18] they announced that in the new version of PayPal you will be able to pay using your crypto balance. Does that apply to Latin America as well or just the U.S. for now?
At this moment, we are currently doing a roll out of our services around cryptocurrencies, starting with the United States. We have already announced the international expansion following with England, and the idea is to continue in other regions of course. The first service we launched was to be able to acquire and store cryptocurrencies within PayPal, basically four of the most important ones. The next one was to be able to use cryptocurrencies to make purchases in the PayPal merchant network. What we can do ourselves is something that is quite unique in the world, because we have a network of over 40 million merchants around the world. Through this platform of merchants and buyers, what we call a complete network, we can enable this purchase immediately to all the millions of merchants and we’re going to continue to do more things, both more services and more geographies in the future.
What is the potential you see for this type of service, of cryptocurrency payments, in Latin America?
There is quite an important potential, because what we have seen is that they facilitate transactions between countries, even within certain countries where perhaps the breakthrough of financial services has certain restrictions. If there is an adoption, of course, it is very important that there is a well-defined regulation, because obviously these things have to be done within a correct regulatory framework, which protects all the actors in these transactions, and the other is to do it in a way that is convenient, easy and safe for the clients.
Do you have on the horizon the launching in the region of Venmo, or any other app with similar characteristics?
At this moment we are not ready to announce anything yet, but actually the evolution of our service is towards providing certain type of transactions and financial services to the customers that are asking us. If you think about today where we are in Latin America specifically our core of course is payments. The idea of being able to send money between people is something that we have done quite a lot in the region, in fact, we acquired a few years ago a company called Xoom, and what they do is remittances. It is one of the most important companies that has grown and is based 100% on mobile transactions, that is, it is not the traditional model of remittances, of physical places. So I would say that the idea is to continue growing these services and specifically the question of Venmo, one of the interesting bases of Venmo is the way they make transactions. The market that is going, which is a market of slightly younger people, the basic transaction is the same, sending money from person to person. The idea is that it is done in a framework where, for example, emojis are always used, you send the transaction and you put an emoji, so it has an element almost like social media, which makes it more interesting for customers, so of course this is part of our future plan of the things we are going to have in different countries.
What will be the priorities for 2022 in the region in terms of results, operating growth and investment?
2022 for us is going to be a year with very high growth. We had a 2020 and 2021 of incredible growth. The adoption of online services was so strong, which in itself brought very big growth to our business, but we were fortunate that at the same time we launched new products in the region. In Brazil and Mexico we launched products dedicated to merchants, where they can use this new platform to accept all types of online payment methods. We enabled credit cards, debit cards, and in countries like Brazil, where traditionally debit cards, although they are much more than credit cards, were not accepted online. We are also enabling other means of payment such as in-store payments, ticket payments in Brazil, the equivalent in Mexico where convenience stores make payments for products with Google Pay and Apple Pay. There are the largest merchants you can imagine, like Uber throughout the region, but most of our business is still with SMEs.
Of the major markets, Brazil, Mexico, Argentina, Colombia, is there one that has stood out in terms of growth in the adoption of these digital tools during the pandemic?
The phenomenon was quite global. On our side we did see perhaps more accelerated growth in Mexico and partly because the situation that Mexico had in 2019, for the size of the economy, still had certain areas where they were a little bit behind, if you compare them with Brazil, even potentially Argentina. So, of course, when you come a little bit further back and you have this phenomenon, where there are not many things that you cannot acquire them if not online, then the growth for obvious reasons becomes much faster.
There is still a dependence on cash in Mexico
Of course, throughout the region, but Mexico, again, given the size of the economy, still has the level of breakthrough of financial services and cash is a little bit lower than in some other countries in the region.
Are there any numbers from Mexico that you can share, in terms of number of new customers?
Yes, we have more than six million active customers. We are talking about having acquired more than 1.5 million customers in a very short period of time, and we are talking about triple-digit volume growth, which we have not seen before.
What percentage does Latin America represent in PayPal’s total revenues?
Today it is still a small percentage. It is less than 5%, but it is also the fastest growing region. That is very important because there is a great interest in continuing to invest and see the region grow. We are in a very interesting moment in PayPal, because despite the size of the company, you can open a PayPal account in more than 200 countries, we are operating directly in local currency in more than 25 countries, which for a fintech, even for a global bank is very difficult to have a footprint of this size, for many reasons, but the very interesting part is that even in our largest markets, the United States, Germany, where we understand a significant penetration, the growth is still very large for the size of the company. Again, Latin America is growing much faster and there is already a lot of interest in continuing to invest.
In Brazil you launched a partnership that allows discounts on fuel purchases at Shell stations. How has this partnership performed and how much do fuel purchases represent in PayPal’s total transactions in Brazil?
It has been quite important for us. We have seen in Brazil that there has been a strong movement towards the convenience of being able to make fuel purchases through a mobile device. What we are having is the expertise that we create with other related industries, where the user experience at the time of purchase is very important. I am referring to companies like Rapi, Uber, IFood, all of them very important clients of ours. There the idea is that the payment almost disappears, that is, you generate your account, you put a payment method that you want to use to make the purchase and at the time of purchase it happens on your mobile. We originally developed this model with customers starting in the United States with the platform and it has been very successful worldwide. In our business in Brazil, it has become a very powerful tool for customer loyalty due to the ease of payment.
Apart from partnerships, what other strategies do you have to grow in the coming years in Brazil?
Partnerships are definitely very important. Brazil is a large, complex market. We are working very hard, and there are also many regulations that are helping the market to grow, and Pix is a very important one. The adoption it has had is something that I honestly do not know if many other countries, I am not saying in the region, in the world, have seen an instant transfer system as such. So we are doing a lot of work in helping again all our customers, consumers, merchants, working with our partners to improve the user experience, which is the other part. There is the network, which is very good, but in addition to the network there always has to be a very good user experience, we are going to keep working on bringing more functionality into the existing products. We have just launched new products this year, so next year is a year of very strong consolidation, of finishing what we have started and giving value to our customers.
Turning to Argentina, how did the reinstatement of exchange restrictions at the end of 2019 impact the operation and your growth outlook?
Well, for us the way we operate has not really had significant changes. We have provided the service we offer, which is basically to offer Argentines the possibility of making purchases abroad. Our business in Argentina is purely a cross-border business, where, for most of the time since we started doing this more than ten years ago, we worked under this scheme with exchange restrictions. It is true that it was opened for a while, but our business was already ready to operate in both ways, so I would say that the change for us was not significant, we did not have a strong impact. We have always seen the value that we bring in being able to help connect buyers and sellers inside and outside Argentina, and of the two flows, that is to say when the buyer is in Argentina the seller is outside or the other way around. In many cases it is also the seller who is inside Argentina and the buyer is outside, and since we have local alliances so that the businesses that have sold something can have access to their funds locally, we can work perfectly within the regulatory framework.
In such a complex regulatory context that Argentina has, I imagine that the growth during the pandemic was lower than that of Colombia, Mexico and Brazil during the pandemic
A little, but not much. In other words, it was a little lower because we are not in all the flows, but there was a demand to continue wanting to make cross-border purchases.
And how was the growth in Colombia?
Colombia has been a country that is developing quite well and it is interesting because it also comes from having a series of important exchange regulations, maybe not exactly the same as other countries, but important. Our strategy has been the same, to offer the service of cross-border purchases again from both sides of the flow, buyers and sellers, and to make alliances with local financial institutions to provide the last mile service: how do I withdraw my funds locally since the transaction is done outside the country. What we were seeing before the pandemic is that Colombia has had one of the most sustained growth for us. Colombia has the potential to digitalize to the level of Brazil in a not very long period of time, so the growth was quite important. In purchases, after Mexico and Brazil, it was the highest.
How do you expect the region to evolve at the macroeconomic level next year?
I am not an economic expert, but I will give you a little bit of a point of view. Of course 2022 feels like a year that could be complex. The factors that are affecting and again we are seeing factors that have become very global, the supply chain issue is impacting, we see it of course in the United States which seems to be what everyone wants to talk about right now that is creating inflation, but we are also seeing it in countries in the region, that is, countries particularly those that are very open to trade, such as Mexico. Yes it is true, and we heard from some of our clients that they do not have the same inventory as in previous years, and this is clearly going to be impacted by the increase in rates, by central banks in developed countries. Inflation creates this scenario that is a bit uncertain for some things. In e-commerce, the issue continues to be penetration, which is still very low. Brazil was in a period of economic decline a few years ago, but e-commerce continued to grow at almost the same rate as before, and this is partly because the breakthrough is still low, so the base scenario for us is sustained growth. The exact pace is probably the question, but the direction is very clear.
Would you like to add anything on a topic that we haven’t touched on?
I would say that my point of view is one of great optimism for growth in the region, because the other issue that is also worth talking about is the potential effect that the growth of more online transactions has on society, that there are more financial institutions providing services, because we still have a very big problem in the region of lack of breakthrough of financial services and perhaps we do not talk enough about this, for us it is a critical issue, we want to work and work with others to increase the penetration of financial services and hopefully reduce poverty a little, these are very important issues.