09/21/2024 – 9:01
The digital bank is already Mercado Pago’s biggest business, with the expansion of the digital account, card and credit lines with higher ticket prices. This means that customer service has gone beyond payment processing, which was the company’s genesis 20 years ago. Now, the fintech wants to expand the generation of results on the banking front.
The company does not disclose the results of Mercado Pago or the digital bank, but investment banks are starting to do the math. Earlier this month, Itaú BBA estimated that the operation had a profit of R$2 billion in Brazil last year, and that in card machines, it reached 7% of the market.
In digital banking, the strategy is to use the account as a gateway and expand the relationship with customers through other products. This explains why the account is remunerated from day one, a practice that other fintechs have stopped adopting to reduce acquisition costs.
According to the head of Mercado Pago in the country, André Chaves, the account is closed thanks to a lean cost structure and the profitability that sales of services and credit will bring. “We will monetize the customer with credit, insurance and investment products,” he says to Broadcast. “We don’t want to make money from float, but rather for the user to keep the income from their money.”
The so-called float is the profit that financial institutions obtain by investing the customer’s resources until they decide to withdraw them.
Mercado Pago has been investing in attracting customers to its account. In March, it announced that it would start paying 105% of the CDI on deposits from customers who transferred at least R$1,000 in funds to the accounts within a month, and extended the benefit to subscribers of Meli+, Mercado Livre’s loyalty program, this month, with no minimum deposits. Since March, more than 6 million “boosted accounts” have been created.
Mercado Pago’s active user base in the second quarter was 52 million, which included Brazil, its largest market, Argentina and Mexico. Year-over-year growth was 37%, with Brazil growing 46% thanks to the higher-yielding account. The deposit base reached US$6.6 billion across the three operations. Mercado Pago does not provide figures broken down by country.
Until the end of October, the company will temporarily increase the remuneration of the turbocharged account to 107%, and may increase it to 110% if the number of eligible accounts reaches 14 million. There will also be a promotional bank deposit certificate (CDB) for new customers, with 150% remuneration, to encourage them to invest in Mercado Pago. The three products are linked to the digital bank’s sponsorship of the reality show Estrela da Casa, on TV Globo.
Another measure associated with Meli+ is a “stablecoin” (digital currency pegged to the dollar), which is granted to customers based on purchases made using a credit card or on Mercado Livre. Tied to the dollar exchange rate, the currency can be traded, for now only within Mercado Livre.
Capturing from the banks
According to Chaves, Mercado Pago customers still invest through traditional banks. The fintech’s goal is to attract these resources, and to that end, it has designed investment alternatives focused on fixed income, but which also include multimarket funds. “The retail portfolio in Brazil has a very large share in fixed income,” he says.
Another part of the portfolio that the fintech wants to conquer is credit. Mercado Pago has been advancing in loans with higher average terms and amounts, which allow financing purchases of higher-value products on Mercado Livre or elsewhere.
“We created a product designed for Mercado Livre, to buy a cell phone, a television or a refrigerator, and as this becomes more efficient, we can provide it to the customer to consume where they need it,” says the head of the digital bank. “We are not talking about lending R$100,000, but rather R$5,000.”
Mercado Pago’s credit portfolio was US$4.9 billion in the second quarter, growth of 51% in a year led by Brazil and Mexico. The default rate was 18.5%, considering delays of more than 90 days, compared to 25.1% in the same period in 2023.
The number above that of traditional banks is explained by the fintech’s portfolio profile, which is riskier. Chaves says that Mercado Pago makes provisions equivalent to all the losses it expects to incur as soon as it grants credit, in accordance with the rules of the United States, the country where Mercado Livre is listed.
“In the first month, we always lose money by this definition, but if everything goes as planned, we don’t make any more provisions,” he says. “We’re not creating a time bomb; the investor already knows what the expected loss on the credit is.”
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