CFO Martín de Los Santos: “Investments across our ecosystem continue to deliver growth. Revenues rose 39% YoY, marking the 27th consecutive quarter above 30%.”

Mercado Pago: Credit Card Portfolio Fuels Expansion

Mercado Pago had a strong quarter. Monthly active users accelerated thanks to UX improvements, credit card investments, and growth in interest-bearing accounts. Credit card usage and share of wallet increased in Brazil, Mexico, Argentina, and Chile. The loan portfolio expanded without compromising credit quality, and more Credit Card accounts are reaching profitability. In Chile, Mercado Pago MAUs grew 75% YoY.

Mercado Libre funds credit card loans through borrowing. Profitability typically lags until users maintain balances and pay interest for a period. This margin compression is expected during portfolio growth. Commerce President Ariel Szarfsztejn noted that credit card customers become profitable after two years. In Brazil, where cards launched in 2021, cohorts from 2023 and earlier—about 50% of cards—are profitable. Mexico, which began issuing cards in 2023 with Visa, is not yet profitable. Argentina only started issuing cards late in the quarter.  The business is hampered by high rates and reduced net interest margins due to inflation.

Mercado Pago benefits from Mercado Libre’s e-commerce market share which lowers credit card customer acquisition costs. This is an example of the mutually reinforcing competitive advantages of Mercado Libre’s ecommerce and fintech businesses.

The investor might question,  Given the perennial economic difficulties in markets such as Argentina, and the expected margin compression as the company invests in Mercado Pago credit growth, what should he expectations?  Mercado Libre’s 25-year track record of overcoming impressive hurdles and building synergies supports confidence in management strategy and execution.

The credit card growth reinforces Mercado Libre ecommerce in various ways.

Credit cards drive financial inclusion. Many new holders never owned a card before—especially in underbanked markets like Mexico, where Mercado Libre ranks second in MAUs among all financial enterprises, including banks,  and first in app downloads. Credit cards accelerate e-commerce adoption.

The Mercado PagoCredit Card has boosted loyalty.  It is one of the few cards with no annual fee in its markets, and various incentives boost usage on MELI ecommerce as well as offline.  In Brazil, the Mercado Pago cards leads on-platform and dominates installment transactions, aided by extra installment incentives. Despite Brazil’s economic slowdown, Mercado Pago’s credit card TPV grew 28% YoY, with over 50% off-platform, signaling broader wallet adoption. Principality in Brazil rose 11 points, driven by three factors: credit cards, interest-bearing accounts, and salary deposits (the latter pending a banking license in Mexico).  The cards  integrate with the Meli Plus loyalty program, incentivizing usage both online and offline.

Mercado Pago’s credit card strategy has resulted in portfolio growth of 83% yoy.  The card introduces new consumers to digital payments, and  incentivizes purchases on Mercado Libre ecommerce, buttressing the competitive advantage of switching costs for the customer.

Reduced Delivery Charges leading to Ecommerce Sales Growth

Another salient achievement noted in the earnings call, was the growth spurt in Mercado Libre ecommerce during the quarter in Brazil.  This resulted from the strategic reduction in shipping charges to customers purchasing online.

In the previous quarter, in Brazil MELI had decided to lower the price threshold to obtain free shipping of purchased items  from R$79 to R$19 (R$19 is approximately $3.5).  During the current Q3 FY 2025, this resulted in increased rate of growth in number of items sold from 26% to 42% yoy. GMV growth increased from 29% to 34% yoy.  NPS reached an all time high. The number of listings has increased sharply in the R$19 to R$79 price range, as new sellers were attracted,

Not only did the expanded free shipping incentive to purchase result in increased ecommerce sales. In addition, the higher transaction volumes enabled MELI to reduce per unit shipping cost in Brazil by 8%, because the slow delivery shipping option enabled more complete utilization of shipping capacity. The slow delivery is a shipping option a purchaser can choose, which allows free shipping with more flexibility in delivery date, allowing MELI to optimize utilization of its containers and network.  As CFO Martin de los Santos described,  this will be part of a long term process of optimizing the slow shipping layer of the logistic network, as the company iteratively improves its process and technology

In Mexico as well, increased sales volume enabled optimized utilization of logistics. Here, as GMV growth accelerated, per unit shipping and fulfillment costs continued to fall. In this case, without the specific new incentive of expanded free shipping.

The decision to lower shipping costs resulted in higher sales volume, and Mercado Libre employed its competitive advantage of scale, as the relatively fixed costs of the logistics infrastructure carried the increased sales volumes.