Article

From ecommerce to fintech, the Latin American company that does it all

February 2023

Key Points

  • Ecommerce and fintech firm MercadoLibre is sometimes described as ‘the Amazon of Latin America’
  • More than 42 million people buy goods via its online shopping platform
  • And its digital financial services provide a further growth opportunity, in a region where many lack a bank account

All investment strategies have the potential for profit and loss, capital is at risk. Past performance is not a guide to future returns.

Four per cent of UK adults do not have a bank account. But go to Latin America, and the figure can be significantly higher. It’s:

    • 63 per cent in Mexico
    • 57 per cent in Peru
    • 54 per cent in Colombia
    • 51 per cent in Argentina
    • More than 150 million people are without an account in those four countries alone.

 

MercadoLibre (Meli) is Latin America’s largest online commerce and payments ecosystem. And it wants to become the region’s de facto digital bank for the ‘unbanked’ and ‘underbanked’ – people without an account and those that have one but regularly use money orders, payday loans and other alternatives instead.

Click here to download transcript

LISTEN: MercadoLibre's CFO Pedro Arnt speaks to Lawrence Burns about the company's ambition to provide Latin America’s 650 million-strong population with financial services.

Global impact

The company’s mission is to “democratise commerce and financial access”. It lends responsibly to consumers, entrepreneurs and small-to-medium enterprises. In addition, it offers insurance and other financial services.

Meli operates in a region with 650 million citizens who are increasingly using the internet.

Pedro Arnt is the company’s chief financial officer. Many on the management team have been with the company since the beginning, and he joined in 1999, its founding year.

“Part of what attracted us to building Mercado Libre together was not just the opportunity to disrupt retail and then eventually disrupt finance,” he explains. “It was, let’s build something out of Latin America that is on par in terms of how it’s run and the global impact it can have, as many of the multinational companies that typically came to dominate the region.”

He adds that believing “in the transformational power of technology” helped him and his colleagues keep innovating while they waited for the consumer internet to become mainstream.

Today, Meli’s online marketplace receives 668 million visits per month. That’s four times Amazon’s traffic in Latin America.

 

Innovation at the core

So, how did MercadoLibre do it when Amazon hasn’t been able to get close?

Arnt says two questions guided the company’s approach to innovation over the past two decades. The first asks: “How do we continue to innovate on our existing core business?”

He points to logistics as a way it’s sought to respond. “For the first 15 years of this company, touching physical inventory was an anathema,” Arnt says. “What we initially had built was a purely asset-light model, where the beauty of it was that we never touched inventory, we never touched products.”

Six or seven years ago, he adds, the management team realised that to keep growing, “logistics was going to be critical to the user experience we had to go all in”.

Today, Arnt says, MercadoLibre runs “the most efficient ecommerce logistics network in Latin America”.

 

New avenues of growth

The second question the firm asks itself is: “What are the new avenues of growth?”

Here, management is looking for opportunities that complement each other and extend the existing business. The firm’s move into digital financial services is one example of this.

“We’ve found a somewhat repeatable model for innovation that de-risks a lot of the new things we approach,” Arnt explains. This involves breaking down the company’s approach into three steps:

    • Identifying an addressable market where the scale of opportunity is large enough to warrant the risk of trying to build a business around it.
    • Launching at speed to a limited number of users and iterating based on the feedback they provide. Then gradually expand the service to others.
    • Only presenting the product to the open market once enough work has been done to improve quality and create a competitive cost structure.

 

Arnt confirms that the same logic applies whether the company is designing a new product or entering a new industry. “It allows us to kill things that aren’t working way before we’ve over-allocated capital,” he adds.

© Newscast/REX/Shutterstock

Day-one Latin America

Despite MercardoLibre’s success, the firm believes most of its growth lies ahead. Arnt describes it as operating under a “day-one mentality”, borrowing Jeff Bezos’ phrase for the start-up mindset, where companies remain nimble despite getting bigger because they are willing to take calculated risks and make decisions quickly.

He points to the logistics platform the company has built from scratch over the past five or so years, which now delivers almost 80 per cent of deliveries within 48 hours. In the context of Latin America, and in such a short timescale, that is phenomenal.

“We approached logistics with a keen eye on technology,” Arnt explains, “driven by technology software algorithms on the back end.” As a result, Meli has “been able to iterate and innovate at a pace where we’ve gone much further than even we had envisioned.”

“It’s early stage for ecommerce in Latin America,” he clarifies. “As we continue improving technological interfaces and experiences, we can unlock much of what eventually drives online retail penetration towards developed market levels.”

That also holds true for the credit and payment facilities Meli intends to become new engines of growth.

“The interaction between payments and commerce is much more relevant in emerging markets than developed markets,” Arnt adds.

One of the strengths the company can draw on is the vast amounts of data it’s gathered from its millions of customers and merchants. Meli’s financial products provide a simple, affordable way to access financial transactions and savings and credit solutions, many for the first time.

Arnt suggests Meli will capture further financial inclusion opportunities by combining its technological capabilities and assets in other ways. “There are many things that I think leave us optimistic in terms of competitive dynamics going forward, even with the most fearsome of competitors, such as Amazon,” he says.

Risk Factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in February 2023 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

 

Important information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

Europe

Baillie Gifford Investment Management (Europe) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018. Baillie Gifford Investment Management (Europe) Limited is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. Baillie Gifford Investment Management (Europe) Limited is also authorised in accordance with Regulation 7 of the AIFM Regulations, to provide management of portfolios of investments, including Individual Portfolio Management (‘IPM’) and Non-Core Services. Baillie Gifford Investment Management (Europe) Limited has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. Through passporting it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Similarly, it has established Baillie Gifford Investment Management (Europe) Limited (Amsterdam Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in The Netherlands. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions (‘FinIA’). The representative office is authorised by the Swiss Financial Market Supervisory Authority (FINMA). The representative office does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. Baillie Gifford Investment Management (Europe) Limited is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority.

Hong Kong

Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 and a Type 2 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713–2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.

South Korea

Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.

Japan

Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.

Australia

Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a ‘wholesale client’ within the meaning of section 761G of the Corporations Act 2001 (Cth) (‘Corporations Act’). Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client. In no circumstances may this material be made available to a ‘retail client’ within the meaning of section 761G of the Corporations Act.

This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.

South Africa

Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America

Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission (‘OSC’). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.

Israel

Baillie Gifford Overseas is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755–1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.