MercadoLibre to expand Brazil credit offering after winning key permit

MercadoLibre plans to further expand its portfolio of credit offerings in Brazil after being granted a key authorization by the central bank to operate as a financial institution in Latin America’s biggest economy.

The permit gives greater autonomy to the company to create and directly operate financial services in Brazil. It also allows MercadoLibre to access different sources of financing, which is expected to complement the company's funding strategy.

Since it was launched in Brazil in 2017, MercadoLibre’s credit arm MercadoCredito, which is tied to the MercadoPago mobile wallet service, has approved loans of more than 4bn reais (US$742mn) to 1.7mn people in some 10mn transactions, the e-commerce group said.

Mercado Pago has had authorization from Brazil's central bank to act as a payment institution since 2018 in the format of an electronic money issuer. 

The latest license comes over a month after MercadoLibre publicly announced an investment of 400mn reais from Goldman Sachs, mainly to expand its credit services.

"Having a broader array of funding instruments will structurally benefit the entire area of fintech and bring greater strength, as well as resilience for the business," said Pedro de Paula, director of MercadoCrédito in Brazil.

RECORD LOAN ORIGINATIONS 

MercadoCredito reported a record number of loan originations in 3Q20, up 157% quarter-on-quarter, MercadoLibre stated in its latest financials.

Default and delinquency rates also improved in Brazil, where the company is investing in AI to fine-tune credit offerings.

"As the quarter progressed, we observed that defaults were, in fact, improving, resulting in better profitability profiles. In Brazil, we extended terms for online merchants up to 18 months and increased caps, while also improving lifetime values," CFO Pedro Arnt said in a Q3 earnings call.

"In consumer credit and express money users, we made our policies more flexible by lowering caps. Additionally, we've been able to enhance adoption of our credit products by leveraging artificial intelligence methods," the executive added.

Overall, MercadoLibre reported US$1.12bn revenues in Q3, up 85% year-on-year, and 76.1mn unique active users for the period, up 92.2%.

The number of items sold reached 206mn, which was 110% year-on-year growth, while total payment volume through Mercado Pago reached US$14.5bn, up 91.7% year-on-year in US dollars and a 161% rise on an FX neutral basis.