In the past year, digital payments have become such a massive secular trend that revenue from the payments segment has overtaken e-commerce to become MercadoLibre's (NASDAQ:MELI) biggest growth driver. As the company expands into financial technology (fintech), payments could be just the beginning.
On this episode of Fool Live that aired on Nov. 23, Motley Fool co-founder David Gardner and Fool.com contributor Danny Vena were joined by Federico Sandler, MercadoLibre's head of investor relations, who laid out the company's plans to expand its ecosystem of financial service products.
Danny Vena: Fede, looking out into the future and actually just capturing a little bit of what happened over the last couple of years, we've seen that Mercado Pago really has been one of the biggest growth drivers over the past couple of years. So what do you see driving the business over the coming several years?
Federico Sandler: Sure. I think I briefly mentioned, Mercado Pago started payments processing, but I think as we move and look at our financial services business, I think the payments processing, the consequence of not only greater competition but there's also regulatory initiatives like instant payments in Brazil.
I think it's a decent to assume that the trend of payments will be a high volume, low margin business will occur. But I think the way we think about the monetization of the fintech businesses, the offset to that lower monetization in payments will be all the other financial services that we can distribute where it may not even be a pay great, but actually the revenues from consumer and an emergent credit books that spreads on asset management, the insurance distribution, to name a few.
In theory, as payments monetization compresses, that financial services kicks in, and how that mix looks like, I think it's [too] early to tell because that depends on the investors' assumptions on how successful we will be in distributing the financial services. But certainly, the size and the opportunity are there. I just think there is a challenge is how long it will take, but we're very optimistic about those prospects because of what I mentioned previously.
The traditional financial institutions haven't done that well of a job in serving many segments of the population, A, and then B, I think particularly in insurtech [insurance technology], I think we see a big opportunity to disrupt the broker figure, which in Latin America takes a significant portion of the economics of an insurance policy, so we can potentially distribute that a lot cheaper and they could be an arguably high-margin business because it's a revenue share with an insurance company that actually is underwriting the risk.