PayPal Deepens LATAM Reach With MercadoLibre Integration

Today (Dec. 30), PayPal President and CEO Dan Schulman announces a tie-up with Latin American eCommerce conglomerate Mercado Libre, which sees PayPal and Mercado Libre’s ePayments offering, Mercado Pago, adding support for each others’ online payment acceptance capabilities. Their collaboration reflects the rising importance of Latin America for PayPal, where growing eCommerce penetration and a largely underbanked population create an attractive market opportunity for the payments technology firm.

Digital payments firm PayPal is turning to Latin America to strengthen its position in the eCommerce payments and remittance arenas. Today (Dec. 30), PayPal announced an expansion of its partnership with Argentinian eCommerce company MercadoLibre (dubbed the “eBay of Latin America”), as it positions itself to capture more of Latin America’s market share.

In a statement published on LinkedIn by President and CEO Dan Schulman, PayPal revealed that Brazil- and Mexico-based users of MercadoLibre’s digital payment technology, Mercado Pago, will now be able to use PayPal for online checkout at merchants integrated with Mercado Pago. According to Schulman, this integration means that PayPal’s 300 million existing users will now have the opportunity to shop and make payments at “hundreds of thousands of new merchants.” PayPal will also be a payment option at checkout on the MercadoLibre platform.

Furthermore, Schulman noted, PayPal will offer Mercado Pago as a payment method at merchants accepting PayPal, expanding PayPal’s reach to Mercado Pago’s more than 48 million existing users. PayPal is also expanding Xoom — its online money transfer service — to power remittances paid into Mercado Pago wallets in Mexico and Brazil, he added.

Citing PayPal and MercadoLibre’s “shared vision,” Schulman said the companies are further integrating each others’ technologies to promote an expanded global footprint, helping businesses reach a wider buyer pool across borders, while connecting those buyers to financial technologies that can address their needs as consumers “underserved by the traditional financial system.”

“This is just the beginning of things we can do together,” he said. “By working closely, we can jointly leverage our scale and platform capabilities to help drive inclusion and access to the global digital economy. I could not be more pleased to end 2019 with such a meaningful development, and look forward to an exciting and productive new year.”

PayPal’s expanded integration with MercadoLibre follows its strategic investment in the eCommerce conglomerate earlier this year. In March, MercadoLibre announced a $1.85 billion equity offering, which included PayPal’s $750 million investment in the company through the purchase of common stock. At the time, MercadoLibre CEO Marcos Galperin said the investment would accelerate the company’s growth and leadership to “foster financial inclusion in Latin America.”

The Latin America Market Opportunity

At the time of the initial investment in MercadoLibre, Schulman released a statement, pointing to the market opportunity of the region.

“Digital commerce in Latin America is experiencing tremendous growth, and MercadoLibre is well-positioned for continued leadership,” he said, adding that the company sees “great opportunities to integrate our respective capabilities to create unique and valuable payment experiences for our combined 500 million customers throughout the region and around the world.”

Analysts at Stephens Inc. held a call with MercadoLibre management to explore the opportunities that Latin America presents, with PayPal noting similarities between its evolution beyond eBay and the growth trajectory of Mercado Pago beyond MercadoLibre.

According to the report, Mercado Pago has, for the first time, seen the total payment volume of transactions made apart from the MercadoLibre platform surpass the volume of transactions made on MercadoLibre. PayPal noted that this trend is similar to PayPal’s own history of expansion, with the rise in transactions using PayPal apart from eBay critical to demonstrating the independent value of the digital payment technology. Today, Mercado Pago’s own growth — independent of MercadoLibre — reflects the market opportunities for both MercadoLibre and PayPal in markets like Brazil, Mexico and the broader Latin American region.

The region will continue to become particularly important to PayPal, the company said in the report, as more payment and banking partners single out the region for their own expansion plans.

“We believe competition for payments, credit and banking services in Brazil is intensifying as a result of updated regulations and a new political environment,” the report said, pointing to the significant, addressable market opportunity for both PayPal and MercadoLibre.

The report estimated that about 50 percent of consumers across Latin America are unbanked and underbanked, while 75 percent of all payments occur in cash. Online commerce penetration in the region remains low, with only about 3 percent of all retail sales occurring online (compared to about 7 percent in Brazil, and 12 percent in the U.S.).

As PayPal and MercadoLibre continue to build up their partnership, the companies also see opportunities in QR code payments, enhanced logistics capabilities to support eCommerce growth and MercadoLibre’s consumer credit offering, the report noted.