No matter where you sit on the Apple credit card, enthused as an Apple-lover or watchful as a credit card analyst, consider the case of Mercado Libre, a shining star in Latin America.
With 102% net revenue growth just announced for 2Q19, the QR-code driven retailer is more than an Amazon look-alike. Regulatory filings, reported on a news wire, indicate the firm added 57.6 million accounts last quarter, for a total of 292.5 million accounts. That is pretty good in a market of 700 million people.
Mercator’s latest research on Latin America and the Caribbean reports “the market is highly unbanked, and payment card usage is low. Only 12% of the populace carry credit cards, and 41% hold debit cards in LAC.”
Although the Mercado Libre accounts are free and intended to enable access to Mercado’s marketplace, they are not credit cards. The accounts provide access into Mercado’s ecosystem. Research indicates that there are 32 ways to fund Mercado Libre accounts and eight ways to exit money.
And fund accounts they do. Public filings show that Mercado Libre generated $542 million in revenue during 2Q19. This is a 102% increase over 2018 for the same period. The marketplace has almost 7 million unique sellers.
Total payment volume generated 325.6 million transactions during the second quarter, up from 159.8 million in 2Q18.
There are learnings both for Apple and Mercado Libre. The Apple credit card has the potential to gain quick scale. It protects its infrastructure for Apple’s captive client base. Reports are that Goldman Sachs is dipping down deeply into FICO score ranges, with a report by CNBC that a 620 sub-prime user just received a solicitation from Apple. Apple/Goldman Sachs came in with a low credit line at $750 which is certainly outside the realm of Goldman Sachs well-heeled target market.
What Mercado Libre needs to learn from the Apple startup is that good credit scoring, and well-engineered processes, can enable businesses to harvest a broad spectrum of potential credit card accounts. Goldman Sachs, traditionally a firm that services the elite, comes out of the gate accepting subprime users, pricing credit card risk at the high end of their posted rates (23.99%) indicates balanced risk-based pricing, which could be used to broaden relationships at Mercado Libre, particularly given the low take-up of credit cards in the market.
For Goldman Sachs, Mercado Libre’ broad account growth is notable. In a market such as LAC, population demographics are diverse, ranging from Brazil’s progressive markets, such as São Paulo and Rio de Janeiro, to the rural areas of Argentina. Either way, assuming you can work within the “4 ‘C’s” of credit, there is a way to risk base price and build a credit card book of business. Maybe a secured card covers the gamut for both Apple and Mercado Libre. More credit, less risk, everyone with a deposit is welcome.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group