MercadoLibre, a rival to Amazon.com’s I Fly, is gaining popularity thanks to artificial intelligence, lending and drones

Authors: Lucinda Elliott and Kylie Madry

BUENOS AIRES/MEXICO CITY (Reuters) – When Wagner Dias and his wife Mariana needed a loan to expand their children’s clothing business, the Brazilian entrepreneurs turned to Argentine online platform MercadoLibre Inc, which they use to sell their products.

MercadoLibre, which is entering the increasingly crowded regional financial technology and lending market, already had the data it needed to make the loan. Latin America’s Amazon.com has leveraged such innovations to cement its status as the region’s most valuable company with a market capitalization of more than $100 billion.

“Since they had access to my entire application history as a seller and buyer, there was no red tape. The money was paid immediately,” said Dias, who loaned a total of about $30,000 to start the couple’s business in Sao Paulo.

“I can request a loan with one click,” Dias said, explaining that the first $11,000 loan tranche increased sales by 40% in six months.

MercadoLibre, which this year overtook Brazilian state energy giant Petrobras to become Latin America’s most valuable company, is finding new ways to serve Dias and others in its online “ecosystem” to attract buyers and sellers. The new offerings, from credits to videos, helped drive rapid growth.

The company is increasing its digital advertising revenue to $1 billion this year thanks to partnerships with companies such as Disney. It has added distribution centers to support sellers and is using artificial intelligence to streamline its lending operations and optimize administrative costs.

“We believe we have a huge competitive advantage because of the ecosystem,” CEO Marcos Galperin told Reuters in an interview in Buenos Aires, adding that the financial and trading businesses were mutually motivating.

“When you have more financing, e-commerce grows. And vice versa.”

MercadoLibre is the dominant e-commerce player in Latin America, resistant to aggressive pressure from Amazon and other companies. However, in the fintech industry, it still lags behind digital-only rivals such as Brazil’s Nubank and Argentina’s Uala. It wants to repeat the success of the Chinese online marketplace Alibaba, whose Alipay wallet is one of the leading players in the world’s second-largest economy.

Galperin said growth in the fintech industry is strong given strong regional competition. Fintech revenue rose by almost a third over the past year, second-quarter data showed, although it fell slightly as a percentage of total sales. The credit unit grew at a faster rate, close to 50%.

Galperin said MercadoLibre wants to be the main option for Latin Americans who are rapidly moving away from cash as a traditional form of payment and saving.

“Basically, the idea is for each user to have their own private banker,” he said. He downplayed concerns expressed by some analysts about non-performing loans, saying the wealth of data the company has on its users reduces that risk.

“We use artificial intelligence, we use machine learning, we have a lot of information between MercadoLibre and Mercado Pago that we can use… We have so much information about these people that we feel very comfortable lending to them.”

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Investors are optimistic about the company’s prospects. The company’s stock is currently valued at $2,100, and Morgan Stanley raised its price target on the stock to $2,500 from $2,175 in September. Also in September, JPMorgan signed a $250 million financing agreement to expand MercadoLibre’s fintech business in Mexico.

Growing smartphone use in Latin America opens up opportunities for millions to save and spend money online in a region where about a quarter of the population has little or no access to bank accounts or relies solely on cash.

“We’re really just scratching the surface of everything we can do,” Galperin said, explaining that e-commerce and digital payments are much more widely used in Asia, Europe and North America. His goal was to triple the number of active users to 300 million.

But MercadoLibre faces stiff competition from regional fintech rivals such as Nubank and Uala, which obtained a banking license in Mexico last year and use artificial intelligence to power credit scoring systems, a company spokesman said.

“It is still smaller than large competitors, but it is attracting attention in the space,” said Maria Clara Infantozzi of Itau Bank in Sao Paulo.

The owner of an Argentine confectionery company, Silvina Riveros, was tired of traditional banks, but decided to take out a loan from Uala to buy household appliances, “mainly because of the lower commissions for the service and the speed of the money being credited to the account,” she said.

“I’ve given up on mainstream banks, there’s too much paperwork and bureaucracy.”

However, MercadoLibre’s potential ace card remains the combination of trading and finance. The company is expanding into areas such as food, clothing, beauty and electronics, and has opened more warehouse and distribution centers to speed up deliveries.

It is also experimenting with an electric delivery fleet and drones to deliver goods to hard-to-reach consumers in isolated areas of Brazil. While drone technology remains niche, Galperin said “this kind of geography is quite common in Latin America.”

Meanwhile, millions of customers like 24-year-old Irlanda Zermeno from Mexico are taking out smaller loans on the platform to help them buy more products at checkout.

Zermeno told Reuters she was shopping on the MercadoLibre app for a pair of new shoes when a message appeared offering funds to pay for the purchase in installments.

“I wasn’t looking for (a line of credit), suddenly they asked me: do you want it?” said Zermeno, who works in public relations. “I’ve been using it a lot since then. If you repay on time, the loan amount you can take increases.”

(Reporting by Lucinda Elliott in Buenos Aires. Additional reporting by Kylie Madry in Mexico and Andre Romani Pinto in Sao Paulo. Editing by Adam Jourdan and David Gregorio)