Key facts
- Mercado Pago is expanding its credit card business in Brazil despite concerns over rising household debt.
- The company issued 2.6 million credit cards in the second quarter, an increase from 1.6 million a year earlier.
- Mercado Pago reported delinquency rates of 4.6% for its card portfolio and 7.0% for its total loan book.
- Loans over 90 days past due increased to 18.7% for the company.
- Mercado Pago utilizes AI and extensive customer data, including from MercadoLibre's e-commerce platform, for its credit models.
Mercado Pago, the fintech division of e-commerce giant MercadoLibre, is proceeding with the expansion of its credit card business in Brazil, despite growing concerns from the Brazilian central bank regarding increasing household indebtedness. Ignacio Estivariz, Mercado Pago's Vice President, stated that the company's underwriting models are robust and its loan portfolio remains healthy, allowing for continued growth.
Brazilian policymakers are increasingly focused on the rapid rise in household debt, particularly within credit card balances and unsecured consumer loans, which are segments where Mercado Pago has been aggressively increasing its presence. In the second quarter, Mercado Pago issued 2.6 million credit cards, a significant increase from 1.6 million in the same period last year. The company reported delinquency rates of 4.6% for its card portfolio (between 15 and 90 days overdue) and 7.0% across its entire loan book. Loans more than 90 days past due rose to 18.7%.
MercadoLibre has also experienced rising funding costs and higher credit-loss provisions, with provisions for doubtful accounts increasing by nearly 85% year-on-year in the second quarter. This contributed to a decline in net profit, despite record revenue growth. However, Estivariz dismissed concerns about asset quality, emphasizing the strength of Mercado Pago's credit models, which leverage artificial intelligence and thousands of customer data points, including information from MercadoLibre's e-commerce platform, to determine creditworthiness.
Estivariz added that Mercado Pago maintains regular communication with regulators and will adhere to any measures the central bank eventually implements. Earlier on Tuesday, Ailton de Aquino, the central bank's supervision director, indicated that a "relevant measure" aimed at curbing indebtedness in higher-cost credit segments would be announced soon.