MercadoLibre Has a Secret Weapon in Mercado Pago

You might not think of MercadoLibre (MELI 1.85%) as a fintech stock. The internet retailer dominates e-commerce in South America. But its payments solution, Mercado Pago, might be the secret weapon that will propel this stock much, much higher.

In this episode of "The 5," Danny Vena explains why he's excited about Mercado Pago. This segment was recorded live on Oct 11.

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

Danny Vena: This is true. When you first said "fintech," immediately all the regular suspects came to mind. Taylor just mentioned a couple of them, PayPal (PYPL 2.04%), Square (SQ 3.53%), SoFi (SOFI 3.65%), Upstart (UPST 5.30%). But for me, you're talking about the region of Latin America, which has twice the population of the United States. Secondly, it's much less banked or more underbanked than the United States. Essentially, you've got half the population doesn't have a checking account. You've only got about 30 percent of the population with a credit card, according to recent figures, I think it was from World Bank.

The bottom line is, a lot of people, not a lot of financial services being used. MercadoLibre introduced Mercado Pago as a way to get around that when the company introduced its e-commerce back in 1999. Now since then, they modeled Mercado Pago after PayPal. But they gave it a Latin American twist. This is a cash-based society largely. If you have cash in your hand and you want to buy something on e-commerce, you're stuck. But what they did was they made it so that these folks could walk into their local convenience store, they could hand the person at the register some cash, they'd get a receipt, the money goes into their Mercado Pago account, and then they can use that just like they could any other digital wallet.

That's been going on for years and years now. The company is very well entrenched in Latin America. In fact, Mercado Pago became so successful that they then turned around and unleashed it on the rest of retail. Now you can use Mercado Pago just about anywhere that you can use a credit card in Latin America. It's been growing hugely, triple-digit growth, going back at least five or six quarters year over year. There's a lot more growth that can happen. In fact, MercadoLibre's payments business has exceeded its e-commerce business largely because of the success of Mercado Pago.

There are a lot of fintech businesses out there that we're waiting for them to prove themselves. Mercado Pago already has, and it's been driving growth at MercadoLibre for years now. I would say, if you're looking for something that's already proven, I think MercadoLibre is the way to go.