MercadoLibre expands free shipping, fintech services

Latin American e-commerce giant MercadoLibre is ramping up free shipping and loyalty programs as well as innovating with new payments as the company seeks to break down e-commerce barriers in the region.

On a conference call to discuss 2Q results, MercadoLibre CFO Pedro Arnt said that the first half of the year had marked the initial stages of the company's shipping and loyalty strategy.

"We believe that the sustained rollout and broadening of these two major initiatives over time will foster the ongoing switch from offline buying to online buying, as the cost and time of delivery are significant barriers to adoption to online shopping," Arnt said.

"This in turn should serve as a catalyst for sustained growth as we gain scale advantages and benefit from a leadership position within an accelerating e-commerce market."

The executive added that the Mercado Pago secure payment platform was becoming an increasingly important part of its business. "Large portions of financial services still remain untouched by digital technologies. Just to put this in perspective, less than 1% of loans currently originate online.

"This means that there will be a significant demand for new digital products to transform existing financial services in the coming years, and we believe that Mercado Pago will be at the forefront of this transformation."

In Q2, total payment transactions on Mercado Pago increased 63.3% year-on-year to 52.1mn. Total payment volume was US$3.1bn, up 73.5% in dollar terms.

According to Arnt, Argentina has been largely responsible for the increase in penetration of Mercado Pago on the MercadoLibre marketplace. Mercado Pago's penetration on MercadoLibre increased to 93% versus 70% in 2Q16.

Colombia and Chile also made strides increasing 33 percentage points and 28 percentage points, respectively.

Arnt said the company is starting to offer working capital loans and cash advances to merchants in Brazil and Argentina through its Mercado Crédito lending product.

"We believe we are just scratching the surface in filling the void in the traditional retail banking environment throughout Latin America, where our merchant base has been underserved for decades.

"Many of those merchants who paid off a loan or advance cash immediately reapply for funding."

MercadoLibre's Mercado Envíos shipping service shipped over 54% of all units sold on MercadoLibre in the quarter. Mexico was a highlight with shipping increasing 287% to 3.6mn units versus 1mn a year ago.

Building on the success in Mexico, the company launched its free shipping and loyalty program in the quarter in three additional markets: Brazil (for orders over US$40); Colombia (for orders over 23); and Chile (for orders over US$22).

Overall, MercadoLibre saw net profit of US$5.3mn, up 17% y-o-y. Revenues were US$316mn, up 58.5% from about US$200mn a year ago.

Brazil was the largest growth market in the quarter with 41% of revenues, followed by Argentina (19%) and Mexico (15%).