November 4, 2013, 2:34 PM

Latin America's leader looks ahead

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About 40% of transactions on MercadoLibre's marketplaces are settled with MercadoPago, the company's online payment service, which processed $1.79 billion in 2012, roughly seven times its volume in 2008. MercadoPago is also accepted on thousands of other e-commerce sites, MercadoLibre says, and those sites account for more than 10% of its payment volume.

Two-thirds of consumers fund their MercadoPago accounts through credit cards, with the rest using local ways to pay that MercadoPago has linked to in the six countries where it operates. Those localized payment methods are important for Latin America's growing middle class who, in many cases, are just starting to shop online and may not have international credit cards, says Kent Allen, principal of U.S. consulting firm The Research Trust who specializes in cross-border e-commerce. "They want to pay as they do at home," Allen says.

MercadoPago also guarantees shoppers refunds if the merchant doesn't deliver the goods, an important reason Latin American consumers like it, says Mauricio Salvador, an e-commerce consultant and president of the Brazilian Ecommerce Association. It also provides fraud-prevention services to merchants who accept MercadoPago. That is why, Salvador says, many smaller e-retailers are willing to pay its higher fees—which he estimates at roughly 5% to 6% for MercadoPago versus 3% for credit cards.

MercadoLibre has launched several other services in recent years. One is MercadoClics, which lets retailers and brands bid for pay-per-click ads that appear next to search results on MercadoLibre sites. Another is MercadoShops, which hosts retailers' off-MercadoLibre online shops; a basic site is free and enhanced services are available for a monthly fee.

Much more is in the works. The company is creating subsections of its marketplaces for specific verticals. It started with real estate, then automotive, and in early 2013 introduced pages customized for apparel retailers. These pages allow shoppers to filter by color and size, and let retailers post higher-quality pictures, Galperin says.

A further step that would make MercadoLibre more attractive to global brands would be to let those big-name companies establish shops on the marketplace that they can customize, following the lead of marketplace operators like eBay in the United States and Alibaba Group Holdings Ltd.'s Tmall in China, says Forrester Research Inc. analyst Zia Daniell Wigder, a specialist in international e-commerce. "If I were a brand, I'd be asking, 'How can you enable me to stand out from the competition on your site?'" she says. "'How can I as Nike compete against smaller sellers selling my brand?'" Galperin responds that MercadoLibre has created a program called eShop to allow for a separate store within the marketplace, and that the company has "a lot of other features in the pipeline to allow for increased brand presence. This is one of the areas we are working on aggressively as we are now increasingly focused on working with larger retailers."

In another major move, in October 2012 Mercado Libre made it possible for outside developers to link to its marketplace sites with new features. The idea, Arnt told analysts, is to let outside companies offer services, such as the kind of price-optimization technology that ChannelAdvisor Corp. and Mercent Corp. offer eBay and Amazon sellers in the United States. MercadoLibre plans to launch a $10 million fund to invest in these ideas, Galperin says. "We were a web site," Galperin says. "Now we're a platform."

Also on the agenda is helping MercadoLibre sellers handle fulfillment, one of the thorniest problems for direct-to-consumer retailers in the region. MercadoLibre has created a program that lets marketplace sellers connect directly to major delivery services to obtain volume discounts that can lower the cost of shipping up to 30%, Galperin says.

In discussion is a broader program in which MercadoLibre, or a company it partners with, would operate central warehouses where shipping services could pick up goods from marketplace sellers. Galperin demurs at the suggestion that this would be like Fulfillment by Amazon, in which Amazon holds goods for sellers and delivers the orders they receive. "I wouldn't say it's like FBA or not, but having a central warehouse where thousands of sellers send their packages and the shipping carrier goes to one place rather than thousands of different places makes sense for bringing down the overall cost of logistics."

Doing so many things at once hasn't been easy for MercadoLibre, says David Bernardo, an e-commerce consultant with LITS e-business consulting and a professor at the Nova School of Business and Economics in Mexico. "They're having growing pains," he says. "They're in a lot of markets. They have to manage growth, compete for people [and] update their platform." But, he adds: "They're a great company with a very smart top management. They built e-commerce in Latin America. They're not sleeping at all."

don@verticalwebmedia.com

@dondavisIR

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