The relevance of Mercado Libre’s fintech business became increasingly apparent in the third quarter of 2022, as revenue tied to financial initiatives nearly doubled in size over the past year.
Shares of the e-commerce giant jumped 8% on Nov. 4 following the release of third-quarter results on the back of a strong performance of its financial technology division, Mercado Pago.
The Argentine company, with a presence in all of Latin America largest markets, reported a third-quarter net income of $129 million, up 36% from a year earlier.
Its fintech revenue, however, contributed sharply to offset a deceleration in online shopping. Income on its payments and loan businesses grew 94% yearly to $1.2 billion, compared to a 20% growth rate for its core marketplace operation.
“Mercado Pago had another exceptional with unique fintech active users surpassing the 40 million mark for the first time,” Pedro Arnt, the CFO, said in an earnings call to discuss quarterly results.
Fintech revenue drives results
Fintech revenue in the quarter accounted for almost 45% of Mercado Libre’s total income, the latest illustration of how relevant the unit has grown for the $50 billion company, which started in 1999.
Although the company had provided payment capabilities from an early age, Mercado Pago — its fintech unit, which also encompasses its loan subsidiary Mercado Credito — was officially several years later. From then onwards, its growth has been meteoric.
“Not even five years have passed, and yet it already occupies a substantial part of the Mercado Libre ecosystem,” Ignacio Carballo, a fintech adviser from Argentina, told Fintech Nexus. “It is a hyper-accelerated case which resembles the case of PayPal and eBay.”
The U.S. marketplace repurchased PayPal in 2002, ultimately spinning off the faster-growing fintech company in 2015. The U.S. digital payments firm partnered with Mercado Libre and invested $750 million in the Latin American company in 2019.
In Latin America, Mercado Pago is now one of the leading fintech players in the region. Its product suite ranges from digital payments and a virtual wallet to investments, point-of-sale devices, a widespread QR code network, and, more recently, cryptocurrency.
Unleashing a digital bank
The broader array of financial products is now leading Mercado Pago to market itself as a full-fledged digital bank.
“We now have a complete offering tailored to the needs of our users, allowing 36 million people to manage all of their financial services within our ecosystem,” the CFO said in a statement to investors. “That enables us to position Mercado Pago as a digital bank, as we are now communicating in our more recent campaigns in Brazil.”
The results warmly received by financial markets did not offset a dire year for technology companies in general. Mercado Libre stock is down roughly 50% from all-time highs by the end of last year. Earlier this 2022, the company secured a private financing line of $233 million from Goldman Sachs to expand its credit offer in Latin America’s two largest markets, Brazil and Mexico.
Related:
- Mercado Libre, Latam’s e-commerce giant, launches cryptocurrency token in Brazil as part of loyalty program
- The state of Central Bank Digital Currencies in Latin America
- Open banking regulation to boost LatAm fintech growth
A cautious approach to loans
As its footprint in fintech becomes massive in terms of users, the company wants to expand its loan business. Mercado Libre has been traditionally cautious in granting credit, with the portfolio reaching $2.8 billion by the end of October, up 4% from the linked quarter.
Generally speaking, rising rates do not bode well for delinquency. Its executives reflected that idea in the earnings call, signaling that the company had slowed down the pace of new credit to its clients in the face of a more challenging macro environment for Latin American countries.
“We’re not looking to maximize the size of the credit portfolio over the next two or three quarters,” Arnt said. “We’re looking to build a healthy and sustainable credit book and business over 10 years.”
