Mercado Libre leaves no room for competition | The c …

One of the news of the week was the quarterly balance sheet results
of Mercado Libre (MELI), which more than doubled its turnover between April and June 2020 with respect to the same period of 2019. While its shareholders celebrate this and other successes that the firm achieved in recent months -as having been the only Latin American company included in the list of the 100 companies that grew the most during the pandemic prepared by the Financial Times-, during the audience in which he presented his balance, some news emerged that could affect merchants and consumers who use the platform.

On the one hand, the company celebrated its alliance with PayPal, which increases its market power and therefore reduces competition. In addition, I anticipate a change in the mode of collection of commissions, which in recent years have not stopped growing for the benefit of the corporation that takes advantage of its dominant position to increase its profit margins.

Mercado Libre is listed on the New York Stock Exchange and presents the company’s balance sheet to its majority shareholders on a quarterly basis. The audience consists of relating a speech that the company has written with an analysis of the results, and then answering the questions of its shareholders.

Market power

“We are very happy to announce that PayPal is available for cross-border operations in MELI, and was also added as an option in Mercado Pago for foreigners in Brazil and Mexico,” celebrates the presentation of the balance sheet. Signing a strategic agreement with Paypal, an internationally recognized US company that acts as a mirror of Mercado Pago in the payment system, and could perfectly be classified as competition, is a clear technological cooperation agreement.

“That MELI is willing to make an agreement with PayPal and is promoting it as a success, speaks of the power that the Argentine firm has, which makes it more convenient for this international player to associate than to enter the region as a competition”, analyze Cecilia Rikap, researcher at Conicet associated with the “Center for Internet and Society” in France. “Let’s imagine then what is left for emerging players or the different businesses that hire their services“, he adds.

Commission alert

A great concern that emerges from some sectors linked to local businesses are the Commissions charged by the portal. In Argentina, Mercado Pago charges fixed commissions that represent a percentage of the sale depending on the income generated, the means of payment and the term to receive the money. In Mercado Libre, the commission depends on the positioning of the product.

At the hearing, the company mentioned that they are introducing a new commission system that would consist of establishing a cross-subsidy among the merchants themselves: raising tariffs to the categories in which merchants have large profits while maintaining or lowering others. However, they did not give very explicit details and neither did they name the Argentine market; the concern, however, exists.

Gustavo Corrales, a merchant member of the Ituzaingó Chamber of Commerce, has a business selling pipes and accessories for sanitary installations, and explains: “I stopped selling through Mercado Libre because it was only a business for the company. At first the commission was 7 percent, but they started to grow and there came a time when if you wanted to be positioned, you had to pay 25 percent. My profit margin is small, 20 percent so the business did not close me“He explains. In addition, the portal obliges to offer free shipments for sales over 2,500 pesos where the seller pays part or all of the cost. The business is used for items in which the margin of profitability is large.

Conflicts with the banking sector

Mercado Pago is an important business branch of MELI: today 50 million users operate in the region. The commissions for their use are diverse, depending on the form of payment of the seller: if the option is the QR, they can go from 0 (with payment to 60 days) to 6 percent + VAT, if paid by credit card and the collection is at the moment. In the case of point or internet charging, the rate varies.

Although they facilitate their business for many businesses, this branch also generates conflicts: the company faces a dispute with Sergio Palazzo, head of La Bancaria, who claims that the regulations of his sector must be applied to the workers of the Fintech branch of the business, which are currently governed by the collective agreement of commercial employees. Adeba, one of the chambers that brings together the banks, adheres to a similar argument. In this case, they denounce regulatory and tax asymmetries and demand that the Central Bank make a change in the conditions in which fintech companies can provide loans, transact payments and allow investments.

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