MercadoLibre has a secret weapon in Mercado Pago

you may not think about free market (MELI -6.64% ) as a fintech stock. The Internet retailer dominates e-commerce in South America. But its payment solution, Mercado Pago, could be the secret weapon that will drive this action much, much further.

In this episode of “The 5,” Danny Vena explains why he’s excited about Mercado Pago. This segment was recorded live on October 11.

Jason Hall: Danny, you’re going to talk a little bit about a company that led the fintech world in providing digital payment services for people who don’t have access to banks.

Danny Vena: This is true. When you said “fintech” for the first time, all the usual suspects immediately came to mind. Taylor just mentioned a couple of them, PayPal (PPYL -2.72% ), Square (SQ -3.76% ), sofi (SOFI -4.60% ), Upstart ( UPS -6.15% ). But to me, you’re talking about the Latin American region, which has twice the population of the United States. Second, it is much less banked or less banked than the United States. Essentially half the population does not have a checking account. Only about 30 percent of the population have a credit card, according to recent figures, I think it was from the World Bank.

The bottom line is that a lot of people use it, not a lot of financial services. MercadoLibre introduced Mercado Pago as a way around that when the company introduced its e-commerce in 1999. Since then, they have modeled Mercado Pago after PayPal. But they gave it a Latin American touch. This is a very cash based society. If you have cash in hand and want to buy something on e-commerce, you are stuck. But what they did was they made it so that these people could walk into their local convenience store, they could give the person at the register some cash, they’d get a receipt, the money would go into their Mercado Pago account, and then they can use that as they would any other digital wallet.

That has been going on for years and years now. The company is very well rooted in Latin America. In fact, Mercado Pago was so successful that they later turned around and launched it into the rest of retail. Now you can use Mercado Pago almost anywhere you can use a credit card in Latin America. It’s been growing tremendously, triple-digit growth, going back at least five or six quarters year over year. There is much more growth that can happen. In fact, MercadoLibre’s payment business has surpassed its e-commerce business largely due to the success of Mercado Pago.

There are many fintech companies out there that we are waiting for them to prove their worth. Mercado Pago has already done that and has been driving growth at MercadoLibre for years. I would say that if you are looking for something that is already proven, I think MercadoLibre is the way to go.

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