The total presentation is about two hours and a half but my part comes in at just under 20 minutes and starts at 1:57:35.
There are several other interesting speakers and topics too. Here are time Stamps, so you can cherry-pick your way through the recording.
2:50 - Matt Cochrane - Fintech Industry Overview
13:50 - Tim Sojda - Square (SQ)
25:35 - Jay Shah - PayPal (PYPL)
39:10 - Kishin Manglani - Venmo employee #20 about Venmo and fintech in general
51:05 - Alex Kagin - Shift4 Payments (FOUR)
1:17:00 - Wolf Financial - Futu (FUTU)
1:26:35 - Jonah Lupton - Uptstart (UPST)
1:44:15 - Kingtutspacs - SoFi (NYSE:IPOE)
1:57:35 - Kris (ME) From Growth To Value - MercadoPago and SeaMoney/ShopeePay
2:18:00 - Andreas Hansen - Grab (AGC)
If you are more of a reader than a listener, here's the transcript of my talk.
First, I actually want to talk about something general, I mean about space. What you see is that banks, I mean traditional banks, are like the infrastructure for FinTech, and they have built the networks, and this reminds me off of the internet and how it was built, you know.
The infrastructure was built by companies like Verizon at&t etc, but they haven't, you know, caught the biggest gains, because that was for companies like Google, Facebook, Amazon, you know them, so the companies that were built on top of the infrastructure.
I think the same will happen for companies built on top of banking infrastructure now, so we FinTech so banks, big banks will, you know, will be okay but nothing exciting. They're heavily regulated, as we have already heard a few times, just like the telecommunication players.
I think Fintech is, is at the same place where, you know, the internet, took off, or really took off. That means a ton of competition, and at the same time, you know, a lot of winners as well. So that was something that popped in my head, and I thought, well, let's share.
So I'll start with Mercado Pago. Mercado Libre was founded in 1999 and four years, Mercado Pago was founded.
I looked it up in the S-1, e in 2007, whhen Mercado Libre had its IPO, the total payment volume of MercadoPago was 26.6 million for the whole year of 2007. Now in 2020 That was 49.7 billion, and that means a compound annual growth rate of almost 80% on average over 13 years which is incredible.
In the fourth quarter of 2020, the total payment volume was 15.9 billion. That was up at 4% year over year. But, you know, there's high inflation in certain parts of Latin America, and more specifically, in the home turf of Mercado Libre, Argentina, which had 42% of inflation over the last 12 months. So that means that the actual growth in local currencies was actually, you know, 135%.
The interesting thing about Mercado Pago is that the offsite payments are now bigger than the onsite payments. So, that means that in a lot, in Latin America, a lot of offline stores accept MercadoPago. And if you look at the numbers of q4, 2020, you see that 6.8 billion of total payment volume was on the site so on Mercado Libre, and 9.2 billion was off the site. And I think that is really interesting to see.
So, 75% of the numbers are of all transactions also were offline, which means that MercadoPago is used a lot for smaller purchases offline as well. So I think that that's really interesting to see that three quarters of the things paid with MercadoPago were actually, you know, made offline. And that's during the pandemic, that's also important. The offline payments grew 150% offline during the pandemic, which is great, I think.
So, if you look at the numbers of the online total payment volume you see that there was a big boost of the Coronavirus. Before the pandemic, in q4 2019, total payment volume grew online by 46% and 36% in q1 of 2020 and then 111% in q2. So you see a huge jump there.
But if you look at the offline, you know, It was 176% in q4 2019, it was 139% in q1, it was 175% in q2, it was 197% in q3 and 150% in q4. So, you know, despite the fact that it's already bigger than online payments, it's still growing faster as well. And I think that is very interesting and it's also interesting because you'll see that, SeaMoney or ShopeePay, actually uses the same strategy.
Products of MercadoPago
So maybe just a quick overview of the business of Mercado Pago. So what do you have as solutions? So they have a mobile point of sales solution, comparable to Square's original business, you know, the card reader for credit cards and debit cards. MercadoPago actually has two, one, you know, exactly the same, more or less the same as Square, and the other one is more, you know for swiping.
The core product is the digital wallet. I think a lot of people will know what you can use it for. So you can use it to pay your utility bills, you can use it for QR payments, which are actually quite popular in Latin America. Of course, p2p transactions, cell phone top-ups, transportation tickets, etc. You can pay from your balance on MercadoPago or you can pay with the traditional bank account that is linked to it.
And then, also very interesting I think is Mercado Fondo, which means Market Fund is actually a fund. So it gives users the opportunity to invest in low-risk assets. You can place money in an open ended fund, and take it out again, and I've looked it up and low-risk really means low risk. In Argentina, the stock market dropped by more than 10% and over the same period, Mercado Fondo fund only dropped 0.9% So it's really low risk. And it's very interesting because you know, people are encouraged to leave more money on MercadoPago. Maybe MercadoPago could add stock trading as well but I don't think they will do that immediately; they will first focus on other possibilities, I think.
So then you have the merchant solutions, you know, check out for payments online etc, credit cards, you know, all those things, then the prepaid card, which may sound a bit old fashioned, but they are quite popular in Latin America, and they make sense, and they often provide, you know, good margins for MercadoPago as well. And the card can be used anywhere and you can also withdraw money at the ATM. So that's also interesting.
And then, Mercado Credito, so that is a credit solution. And that is loans for both merchants and consumers. You know we have already heard that of the others do it as well so Upstart, for example, but also Shopify and Mercado Pago use AI, and use the purchase history, and combine that with algorithms. So they see or they can determine who they give credit to and who not. So it can be used by merchants and it can be used by consumers, and they can even, you know, apply offline via the point of sale system.
They also have insurance, although that is a smaller part. It's just damage and theft insurance. Again, they have the possibility there to expand, but I don't think that they will do that soon, but it's one of their opportunities, definitely.
Then for the Bitcoin bulls, also a bit of candy. Mercado Libre has just launched a test case on their real estate division, where they will start with Bitcoin. Mercado Libre is just a connector and the transaction is done off-site between the potential buyer and real estate agents. I think it could be very interesting because in Argentina, as I already said, there is an inflation of 42%, and people are only allowed or restricted to buy $200 of foreign currencies per month. So Bitcoin, and other cryptocurrencies are seen as a safe haven a bit, actually, which might sound strange to Western ears if you have 42% of inflation, I think it makes more sense so Mercado Pago is trying that out to see if there's enough interest.
And then about a month ago, I think, it also launched a credit card, together with Visa, first for its own customers but then for the whole public. It's without an annual fee if you use it for at least $10 a month. And it also has some sort of buy now, pay later system in that way that you can buy up in up to 18 installments without any extra interest. So I think that's very interesting as well and can definitely boost the buying power of certain customers, and it will be a boost for Mercado Libre's ecommerce platform as well.
And then the second one is SeaMoney. Everybody knows that I'm a huge Sea bull, and I think SeaMoney is still underrated. It was launched in 2014 under the name, AirPay, you still sometimes hear it and I think they still use it in one or two countries, I'm not sure which ones.
It was actually meant for, you know, unbanked and underbanked customers who wanted to pay online in Garena+ games. Shopee wasn't launched yet in 2014. That was only in 2015. It saved the company a lot of money because Sea didn't have to pay commissions on its transactions.
Now, it offers an e-wallet, payment processing solutions, micro lending and other digital financial services, which we all know. I saw a quote from Forrest Lee and I will read it, and he wrote that on the first quarter of the 2020 conference call. And he said:
Based on a recent Google, Temasek and brain report, sorry Bain, of course, the digital financial services industry in the six largest economies of Southeast Asia is expected to grow at 20 to 22% compound annual growth rate between 2019 and 2025 to reach 38 billion in revenue in Southeast Asia alone.
So, based on the report, three out of every four adults in Southeast Asia had insufficient access to financial services, and 49% are underbanked so this is really similar, actually, to MercadoPago, and I think it's sometimes underappreciated by Western investors that the situation is completely different there.
For a lot of people those digital wallets are their first, you know, bank account, It's better than in Latin America, it's a bit better, that's it but because there are more people in Southeast Asia, you know, the total number is higher. So, on a percentage base, it's lower, on the number is higher. So, there's a massive untapped opportunity still there. I think Sea is perfectly positioned to capture that. If you know, if you compare ShopeePay with Mercado Pago, it's, it's already much further in its, you know, and it's traject that Mercado Pago was at, you know, at the same age, seven years ago.
So, also very important is that SeaMoney has been able to get a full bank license, digital full bank license in Singapore, and it did that independently so not in a combination with a traditional bank. In Indonesia in has bought two smaller banks, which also sets it up to get a banking license. It's the biggest market. Indonesia is the biggest market in Southeast Asia, with 270 million people. And there are projections that show that Indonesia could be the fourth biggest economy in the world by 2050. So very important and very early.
So, what I also see is that my subscribers, they me send me pictures of cashback discounts at the counter in Singapore, in a local shop or a bakery or whatever. So, you get 2% back, if you pay with ShopeePay. And that also means that Sea pushes ShopeePay offline as well, just like that Mercado Librehas done.
Another initiative, that it has taken recently, is 'Deals near me'. A few weeks ago when we, it's an 02O feature, so online to offline. It shows you deals online, temporary promotions, vouchers and those kinds of things to go buy something in your local store. It was also launched as a means of recovery for merchants after the pandemic, of course.
It was started with 130 shops, and in the first two weeks, those 130 shops, saw 100,000, visitors, because of the 'Deals near me' feature, in just two weeks, which is incredible.
It really shows that Sea is great at making people adopt something extremely fast. Of course, customers only get the benefits, the deals, when they pay with ShopeePay, so that again will be a boost for the revenue of SeaMoney.
You know, as with Square, as with Mercado Libre, you see the combination of the two ecosystems. Merchants and customers are brought together, which gives the opportunity to cut out the middleman. And of course, there's a lot of insights that banks don't have. For example, when you put something expensive into your basket, and you don't pay for it, maybe you don't have the money or you think it's too much and ShopeePay can offer you a buy now, pay later solution, for example, or consumer credit or something like that.
Shopee was launched in Brazil as well and yeah, probably in Mexico soon. So, over the longer term, ShopeePay and Mercaopago could actually become competitors.
In the meantime, keep growing!
Analyst's Disclosure: I am/we are long MELI PYPL SE SQ UPST.
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