Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Here's How MercadoLibre Cracked the Digital Payments Code in a Cash-Based Society

By Danny Vena - Dec 4, 2020 at 1:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company used a novel idea to address an age-old problem.

A large percentage of the population in Latin America doesn't have a checking account or credit card. This presented e-commerce provider MercadoLibre ( MELI -2.67% ) with a significant challenge. How could it get people to pay for digital transactions? By thinking outside the box, the company was able to turn a hurdle into a massive opportunity.

On this episode of Fool Live from Nov. 4, "The Wrap" host Jason Hall and Fool.com contributors Danny Vena and Asit Sharma discuss how MercadoLibre addressed the payments conundrum.

Danny Vena: I do think it's important to point out that MercadoLibre is coming from a different place in Latin America than where we are in the United States. In the United States, digital payments is something that has been around for a long time. It's well adopted. People have been using credit cards and bank accounts here regularly for decades.

In Latin America that's not the case. If I'm remembering the numbers correctly, only about half of the people in Latin America have a bank account and only about 30% have a credit or debit card. What MercadoLibre did in order to facilitate its e-commerce business, was to go out and it made agreements with a number of stores that are similar to 7-Eleven's here in the United States, these convenience stores. They are hooked up into MercadoLibre's system.

A customer can walk in and they can access their account and add money to it. They can make payments for goods there at their accounts. They can get a QR code scanned. This is something that really helped boost that digital payments business. Now they are, at least by my estimation, they are the undisputed leader in digital payments in Latin America. I think they make more money off every dollar from payments than they do off their commerce sales because I think their margins are much higher there.

Jason Hall: Here's my guess. Go look at Visa ( V -1.23% ) and MasterCard ( MA -3.57% ) gross margins. That's probably going to ballpark you, where they are. I think it's an enormous opportunity.

Asit Sharma: Or PayPal's ( PYPL -2.19% ). Visa's and MasterCard's margins are going to be even higher like through the roof higher like 90% high, but you're right. I think closer between the PayPal and a Visa or MasterCard, it's going to land there. It's such an exciting company.

Jason Hall: It is.

Asit Sharma: But thanks for all that insight.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$1,201.11 (-2.67%) $-32.99
Mastercard Incorporated Stock Quote
Mastercard Incorporated
MA
$311.49 (-3.57%) $-11.53
Visa Inc. Stock Quote
Visa Inc.
V
$193.87 (-1.23%) $-2.42
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$183.13 (-2.19%) $-4.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
673%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.