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More Solutions Lead to Broader Financial Inclusion

Pedro Rivas - Mercado Pago
General Manager Mexico

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Sofía Hanna By Sofía Hanna | Journalist and Industry Analyst - Mon, 08/22/2022 - 10:00

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Q: How does Mercado Pago use AI and machine learning to provide more and better credit opportunities to SMEs?

A: We have the largest engineering team in Latin America. We use AI to analyze the large amounts of data created by our vast number of customers and sellers and the millions of transactions that take place on our system on a daily basis. We also use AI to prevent fraud, ensuring the platform is safe for both buyers and sellers.

 

We can detect deviations in transactions and verify that people are who they say they are and that the transactions are real. We manage over 2,000 different variables that our credit scoring machine uses to understand if the user has the ability to repay the loan that they are requesting. Through a mix of trial and error, we have deployed processes to get better information to decide where to allocate loans and the probability of default for each of them. AI is a powerful tool that allows us to evaluate risk and grant loans only to those who will repay them. We also finance only the right amounts to avoid under- or overextending credit.

 

Q: How would you describe Mercado Pago’s technological journey?

A: Technology and engineering play an essential role in Mercado Libre. Putting engineering products at the center of the company allows us to iterate and build tools and solutions that are more likely to solve problems. We deploy AI and other safeguards to ensure an above-average user experience and fast problem-solving, which demonstrates Mercado Libre’s world-class sophistication. This is a Latin American company that is using the same technology that is being deployed in the US, China and other major markets.

 

Q: How is approval as a fintech and allowing people to have a Mastercard-issued card impacting your growth strategy?

A: The big milestone was obtaining the license. Before we had it, we tested the waters, but we lacked the solid legal footing to do what we wanted to do. With the license, we now know exactly what we can and cannot do according to Mexican regulations. Without that solid legal footing, companies might be wasting resources on something that might go down the drain if the regulation does not approve of it. The license opened the door to the introduction of debit cards and many other additional value propositions. Within a year, Mercado Pago could become the one-stop shop for financial solutions for individuals and SMEs. Mercado Pago will also allow users to receive remittances in the app and many more applications will be announced in the coming months.

 

Q: What is Mercado Pago’s strategy to continue growing in Mexico?

A: There are many opportunities in Mexico due in part to its lagging financial inclusion. Less than 50 percent of people in the country have a bank account. Moreover, those who use financial institutions are not always well attended. There is a large opportunity for people to grasp the benefits provided by the financial system instead of keeping their money under their bed. About 90 percent of Mexicans have a smartphone, which is the perfect delivery tool for our financial services. We were born as a digital institution and we know how to deploy and communicate with any kind of user while we deliver financial services.

 

Although we are the No. 1 fintech in Mexico, our penetration is still low in comparison to Argentina and Brazil, but we can achieve the same results in Mexico. We are eager to see how this will evolve in the next year.

 

Q: What innovations is Mercado Pago planning to launch shortly?

A: We are about to deploy a wholesale market for crypto in Mexico. Besides the debit card, we have a couple of things up our sleeve that addresses the financial needs of those participating with Mercado Pago.

 

Q: How has economic uncertainty affected your operations?

A: Economic uncertainty is affecting everybody. That is the reality of the market. Mercado Pago and Mercado Libre will come out better after these challenges because the company was born in Argentina, where economic uncertainty has been the norm for the past 20 years. Dealing with these crises is not new to our executive team. We know that this is the natural cycle of business.

 

Interest rates are also going up because of inflation, which will affect credit. At the end of the day, Mercado Pago and Mercado Crédito will act like a mangrove when a tsunami hits and provide a safe haven for SMEs. We are a stable institution with a stable balance sheet. We will continue rolling out the strategy we had before the pandemic, taking into account that things have changed. We are in a solid position and Mercado Pago and Mercado Libre will gain market share.

 

Many small businesses and startups have raised capital but lack a solid plan and will probably start being squeezed into generating profits, which some might not have prioritized as they focused on growth. The market has changed and investors are looking for companies that can make a profit in this economic environment.  Mercado Pago and Mercado Libre have proven that we can do both: we can grow very quickly while creating profits.

 

Q: Mercado Pago has many initiatives to promote Mexican women-run businesses. Why is this important for a company, especially in Mexico?

A: Our goal is to democratize both commerce and financial services. In Mexico and most of Latin America, women have had limited access to these services. Our mission is to create equal footing for anybody who participates in the economy, whether they are a large business or an entrepreneur. By being able to accept credit card payments, small sellers are seeing their average ticket size increase by 30 percent. Mercado Places also allows small businesses anywhere in Mexico City to become a pickup and drop-off point for merchandise, which provides additional business.

 

Q: How will Mercado Pago’s partnership with the Ministry of Mobility of Mexico City (SEMOVI) contribute to the advancement of contactless payment technology in Mexico City?

A: Before some of SEMOVI’s recent developments, many modes of transport within Mexico City had to be paid in cash. We want a future where no-one pays in cash. Most people in Mexico City use public transportation and not all of them know that this is an easier way to pay for it. This project will change how people think about their relationship with cash, which is the real battle that most fintech and Mercado Pago are facing in Mexico. It is time for cash to go away and for digital money to come in because it is more efficient, more secure, safer and faster.

 

Q: As the new head of Mercado Pago in Mexico, what are your plans and strategies to keep the company on a growth path?

A: We aim to combine our technology and market position in Mexico to deliver value to society. We have and will continue to deploy strategies to provide financial services. When users buy something online, they can choose from different payment options, such as buy-now-pay-later or using debit cards or peer-to-peer transfers. All these options form a large technological product that we offer to both buyers and sellers. Our goal is to create products that make sense to consumers and later show them the many financial tools we can offer them.

 

Mexico, as the second-largest economy in Latin America, is a strategic country for Mercado Pago and Mercado Libre. For years, we have seen double- and even triple-digit growth. We are committed to continue growing in the country and recently announced a US$1.5 billion investment in our solutions in Mexico.

 

Mercado Pago is a digital payments platform available to consumers and businesses in Mexico and Latin America. Originally created as an integrated online payments solution to complement e-commerce platform Mercado Libre, Mercado Pago offers online and offline payments solutions.

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