Osvaldo Gimenez: Building Mercado Livre and the Future of Payments in Latin America

Thank you very much for having me, Bianca. It's a pleasure to be here.

Wow, I've been with Mercado Libre for a very long time. So my story of Osvaldo before Mercado Libre: originally an industrial engineer, I did consulting throughout Latin America with a firm that was called Booz Allen Hamilton, mostly based out of Buenos Aires but spending a lot of time in São Paulo and throughout the region. Then went to business school at Stanford, and there I met Marcos Galperin, who would later start Mercado Libre, and I joined him a few months later when we were still at the garage, basically in the very early days of Mercado Libre. That was very early, the end of '99, beginning of 2000.

Absolutely not. Absolutely not. For several reasons. First of all, we never thought... we always knew it was a marathon, but we are 25 years into a marathon, so it was longer than the 42 kilometers we expected. And the other thing: back then, we were thinking we wanted to lead the technology revolution in Latin America, but our goal at that point in time was to build the largest marketplace in Latin America, which we did. But we were not thinking of the impact we would have on the fintech side yet. Fintech was not even a word yet.

Absolutely. So very early days, we were trying to replicate what eBay was doing in the US. eBay was probably the most successful internet company back in '99. They were public already, they were making money. So we wanted to replicate auctions in Latin America. There were many people trying to do the same thing as we were throughout the region, but we wanted to do auctions and to be the king of the marketplace of auctions. A few sometime later, we realized several things. Initially, auctions meant we were really hands-off. We did not touch the payment, we did not touch the good. We were just putting together buyer and seller, connecting the parts. But we soon realized... I don't know what we did. It was really a marketplace. Later on, we call it an enhanced marketplace when we started doing all of the things you do around the marketplace, such as fulfillment, payments, credits, and so on. But initially, it was just putting buyers and sellers in contact through an auction system, which we soon realized did not make a lot of sense in Latin America. eBay always said 'we make inefficient markets efficient.' That was their claim, and that was the same case in Latin America. However, markets back then in Latin America were significantly more inefficient. So there was a huge opportunity not only for auctions, which typically are for used items, but really for new, in-season items and to replicate more of the Amazon model than the eBay model. Fortunately, we were quick to realize that, and we started offering... we forgot about auctions and really went for a pure marketplace, but more of a fixed price and new, in-season items early on, I would say within one or two years since we had launched.

We operate in eight countries... it's more like 13 countries.

It was quite challenging to be able to... we did not have scale yet, and to be able to put together a team and, I'm sure we'll talk a lot about culture, but to have the same culture within the company early on where we were working thousands of miles from each other, that was quite challenging. One thing we relied on is several of us had gone to business school at Stanford, and so we ended up also hiring people in Brazil, in Mexico, in Colombia, and so on, who had exactly the same background. At least we had a common language and a common thread of culture that we had all learned at Stanford.

Oh, I think it has had a tremendous impact on Mercado Libre. Basically, we later on, much later on, we tried to codify that in what we call the DNA of Mercado Libre. And we did that, but initially it had all to do with being entrepreneurial, being willing to take risks, always thinking of the customer first, being in what we call continuous beta. Whatever we do is beta. We want to improve on it. And whenever we have been doing something in the same way for a long time, we know that it's time to change because truly, with new technology, surely there is a more efficient or better way to do what we were already doing. So all of those things were there from the beginning. And obviously, the challenges were quite different at each of the stages we were at. Initially, the big challenge was to be able to gain scale, to be able to convince people who, remember back 25 years ago in Latin America, probably less than 5% of the population had access to the web. So we had to find those users and convince them that it was safe to buy and sell stuff on the web. And that was the initial challenge we faced. And also, early in our life, we had the huge dot-com bubble and dot-com crash in early 2001. So we had to be able to survive that and be able to scale when all of a sudden there was no more funding available for internet companies in the region.

Yeah, and I would say that we definitely learned a lot from what was going on in different parts of the world. We realized, as we mentioned, we realized soon that fixed price was better than auctions for Latin America. We also realized, we saw what was happening in the US with the war between Amazon and eBay, and we realized that we had to go head-on into payments and head-on into fulfillment. Those were two things that when we started, we didn't know how to do. So we tried to learn from the best in the world. Not a small thing to do. Payments is not easy, neither is fulfillment. We were lucky back in the early days, eBay was an investor in Mercado Libre. They acquired 19% of Mercado Libre. So we had good access to PayPal, and in the early days we learned a lot from what PayPal was doing together with eBay. Early days, I mean 2004, 2003. And that got us started with payments. Then we evolved significantly from there. And also, at some point we realized that we needed to have a fulfillment network. And so we also started building a fulfillment network and hiring people who had done it before in different parts of the world and could teach us the best way to build that in a region that has its challenges because of the sizes we have and the distances between a city and another city in Brazil or Mexico or all over Latin America.

Well, it has evolved a lot since we got started. Remember, it was very small initially. And the other thing that happened that really accelerated change was the introduction of smartphones. Initially, all of the people were connecting through desktops or laptops, and then the iPhone and Android came along, and we saw huge acceleration in the region of access to the web. So that definitely has changed quite a bit in the last decade and a half. And that has also had a huge impact on the way we do business. On the one hand, on the marketplace side, we changed platform but the business is similar in the sense that you were buying something on a computer and now you're buying it on a phone. But for the fintech side of the business, it allowed us to go beyond online into offline. So initially, we could only process payments for e-commerce or for online payments. But with everybody having a computer in their pocket, eventually we were able to reach stores and have people pay with a wallet or with POS or whatnot. So it really hugely increased our addressable market and what transactions we could be part of with Mercado Pago.

I'll say that for us, this has been sort of... I like a phrase I repeat a lot: 'Opportunities multiply when you seize them.' Whenever you seize an opportunity, you have other opportunities coming along. And that has been exactly what happened to us. It's like this game of doors: you open a door and behind each door there are two doors, and you open another one and there are another two doors. It has been really, really forking paths, basically. Let me summarize quickly what we did on the fintech side, because we talked a lot about the marketplace already. We started trying to solve the problem within Mercado Libre for users to be able to pay merchants within Mercado Libre. Then we went online outside of Mercado Libre. And then, as I mentioned, the iPhone came along and Android came along, and we realized we had a huge opportunity to process payments in-store. We started with POS, and then we saw what was happening in China with QR codes, and we launched QR codes in Argentina, and that really took off. And we were doing the same in Brazil, but then PIX came along, and that really took off too and has been huge. And then we went into credits: credits to merchants, credits to consumers. We launched debit cards, we launched credit cards, we launched investment products, and also insurtech products. So what we realized is that we were able to use technology and leverage technology to, we like to call it, democratize or basically facilitate access to financial products throughout the region. It's a region with over 600, 650 million people, where many of those did not have access in the past to financial products, and now they do just because the cost of reaching them is significantly smaller thanks to technology. So that has been quite an evolution. And as you mentioned, COVID also worked as a catalyst. Many people who in the past had not tried e-commerce had to try it for the first time during COVID, and once they tried it and it worked fine, they stuck to it. And the same thing happened with electronic payments. People probably were not as willing to handle cash because it could be dangerous in the early days of COVID, and so they got to try financial products. Also, in some countries, bank branches were closed for nearly nine months, and people were totally able to survive without going to a branch and then realized that they could use fintech and wallets and whatnot, and they did not need a branch. So each of these things have built upon what we do and enabled us to grow. As you say, we are very excited with AI. Yes, we have been using machine learning for over 10 years now for fraud prevention and so on. But LLMs really also bring something new to the table, and we are already using it extensively, and we are very excited with how this third wave—we started with internet, then came mobile, and now AI—will also facilitate growth in the next few years.

I believe the opportunity is huge. We believe the opportunity continues to be huge. On the Mercado Pago side, as you mentioned, there were lots of people who were underserved. Basically, what we have always been obsessed with is customer centricity. The way we do that is by focusing on NPS, net promoter scores. We have been tracking net promoter scores for a long time, both on the individual side and on the merchant side, and continuously tinkering with that and seeing, 'Okay, what are people complaining about? What kind of products do they need? What are the main drivers for people to use us more often, to use us as their principal account?' And really tweaking and launching new products every quarter or every two quarters that are trying to address those specific needs of customers. So really listening very, very closely to customers. And again, given that we work mostly with technology, we have a lower cost to serve than many more traditional financial institutions, and therefore are able to offer conditions that some other people can't or won't. For me, a typical example is what happens with what we call in Brazil 'conta remunerada' or a yielding account. Traditionally, banks in Latin America, in most countries where you have a savings account, you don't get paid anything, despite having countries where inflation is high or very high, as in the case of what used to be in Argentina. And basically, most banks were paying you zero for having assets in those accounts. And we changed that. The way we changed that was, in countries where we had to, we associated with somebody who was running a money market fund, and we would transfer, we would sweep the funds people deposit with us to the money market fund in a way that they are available 24/7 and they yield something that is very in line with what inflation is or what the risk-free rate is in each of those countries. And that was a super strong, pretty basic but super strong innovation for Latin America. Because up until now, many small savers did not have the opportunity to save, and they were losing against inflation every month. And we changed that in a significant way. We have tens of billions of dollars doing this with us throughout the region.

Yeah, well, I would say close to 10% of those use Mercado Libre every month. We have over 65 million monthly active users, and a large proportion of those use us every day. So definitely they are relying on us. They forgot their wallet and they need to pay with their phone. They want to collect funds for their small business or whatnot. There are many, many different situations. And definitely, this has required a lot of investment in technology. Mercado Libre probably has one of the largest, if not the largest, IT team in Latin America. We have in total 18,000 engineers in between all of Mercado Libre.

Yes. Spread mostly in Latin America: Brazil, Argentina, Mexico, Colombia, and Uruguay, I would say, are the main hubs. Chile too. So mostly throughout Latin America. A few of them are outside of the region, but the vast majority are within the region. And we have had to reinvent ourselves many times. We have had to basically scrap and write all of our code from scratch again and again and again. We have done this several times throughout history. Something that when we tell the story, many people look shocked that we had to write all of our code.

In order to scale, when we started, it was really literally in a garage. So as we scale, technology has changed so many times. We went from having a central database to having a distributed database, to moving to the cloud, to using different providers in the cloud, and so on. So technology has changed so much that, in order to provide a fast response, we have had many, many times to optimize and basically rewrite most of our code. So it has been very challenging, but we have a very good team, and I think that is one of the advantages we have versus probably people who do not own their code or do not own their own developers and have to rely on third parties or a banking core that was made by somebody else that they need to adapt. It's very hard to have that flexibility. That's why I would say the vast majority of our code was written in-house by ourselves.

I believe the opportunity we have is huge. It is huge to work in a way that is smarter, to work in a way in which we can roll out products faster and serve a larger base of customers and serve them in a better way. We are deploying AI in many different ways. One is the one you mentioned: to build better code and to build code faster. We already have a very large team, but this enables us to make fewer mistakes and to write code faster. Also, we are using it front-end already to address customer support contacts, and this enables us to provide faster response, more accurate response because we compared those that were done before. In many cases, people who are providing customer support, it's very challenging given the size Mercado Libre and Mercado Pago already has. And so with AI, we can either answer the questions automatically or also help them a lot to provide a better response. When you are an agent and you get a case that has had two or three back-and-forths and you need to read all of the case, that will take you probably 50 minutes. If AI can really summarize the case for you and bring what is the problem that has not been resolved yet, you are more effective and you're able to provide a faster response. And that is just the beginning. I believe that we have a huge opportunity with AI in Latin America. One of the challenges I see is a significant lack of financial education in Latin America. It happens all over the world, but probably it's more acute in the region. And that is something that is very, very difficult to address from one day to the next. It's something that takes time. You have to teach people how to calculate something as basic as interest rates in some cases. So if you really have an agent that can help you explain what are the alternatives, what looks best for you, and is really an agent that is concerned with your welfare and trying to help you make a decision that is good for you, that is something that we are striving to build. We already started building it, and we believe this is a huge opportunity for the region.

We have been involved with crypto for some time now. Basically, the idea originally has been to experiment, to learn, and see where we see opportunities. The first thing we did was a pretty basic one: we connected our wallet to exchanges so that you are able to buy, hold, and sell some of the typical ones, like Bitcoin, ETH, and a few stablecoins in each country. And we have been doing that for several years now. But last year, we did something that is probably more exciting. We launched our own stablecoin. The way we did this: we launched a stablecoin called Meli Dollar, and we are initially using it as part of our loyalty program, which is called Meli Plus or Meli Mes. Basically, whenever you buy something on the marketplace in Brazil or Mexico, or the countries where this is already launched, you get a cashback in Meli Dollars, and you are able to hold that, to spend that. And basically, we will continue adding use cases. You can buy something on Mercado Delivery or pay something with Mercado Pago and then pay with Meli Dollar. But we believe there is a huge opportunity to grow that. I would say cross-border payments are still expensive throughout the region, and that could be an enabler.

Yeah, we're still early on. We just rolled this out a few quarters ago, initially in Brazil, then went to Mexico, and then other countries. So we're still early on. People have been accumulating in most cases. Some people have been buying Meli Dollars. You can also buy it on our platform. Some people have been redeeming it, but for the most part, they have been storing it. And it's an alternative. It's a token that is basically equivalent to USD. So you don't have a Latin America devaluation risk on it, and people are able to store it and save on it, or then transfer it. And ideally, the idea is later on it will facilitate, for example, cross-border transactions from one country to another in the region, which are still fairly small, but we believe we'll have an opportunity to grow quite a bit.

Yeah, I would say that on the one hand, looking internally, definitely maintaining the culture has been a challenge. When we started, we were a bunch of people having lunch together, we all saw each other or met for retreats. Today, we are over 70,000 people in Mercado Libre. So it's a challenge to be able to maintain culture, and we have been doing a lot of things to do that, basically to make culture part of our everyday life. We have created, as I mentioned, all of these DNA premises of what is Mercado Libre, and then we have included that in hiring decisions, into firing decisions, and also into performance review decisions. So in every performance review, we will evaluate people not only on how they get things done, on what they do, but also on how they do it, and if that is according to our culture. And that definitely has been a big part of the challenge. Another challenge has been, as you mentioned, when we started Mercado Pago in 2003, fintech was not a word. We were unregulated in every country where we operate. Today, we are regulated in every country where we operate. So definitely, we have had to create a lot of compliance mechanisms and to comply with all of the regulations for each of the different licenses we have in each of the countries where we operate. And that also has been challenging. And then the other big challenge I would say is people decisions. We have built a fantastic team, I believe, but as you scale, you need to have at each point in time the best people you can get for each of those positions. Definitely, it's different when we are 50 people than when we are 5,000 or 50,000. So we have been able to attract a lot of good talent in Latin America. There's a lot of very good talent, but it has been quite a challenge to attract and retain them.

I'm super optimistic about Latin America, and I'm super optimistic about the changes and changing attitudes I've seen in the region since we started. We were the first ever Latin American company to go public on NASDAQ. You have had several of those since then, and that definitely has been a change in attitude. When we started, Endeavor was only getting started in the region, and now you go to an Endeavor day in each of the countries where we operate, and it's thousands of people. So I would say that there is a significantly larger interest in technology, significantly larger interest in becoming an entrepreneur. That has been quite a significant change in culture, I would say. But there's still a lot to be done. I would love to see more engineers graduating in each of the countries in Latin America. When you compare the percentage of people graduating with a STEM degree in Latin America to India or China, you see the opportunity is huge. I'd like to double the number of engineers we have. In some cases, in some states or in some countries, given the amount of people we hire year after year, part of the reason we have to diversify and go into more countries is because there is not enough supply of engineers. And definitely, that should and could change.

Thank you, Bianca, so much. It's been a pleasure being here, and I really enjoyed our conversation a lot.

I think there could be many different things, but if I tried to summarize something, I always say that we were brainwashed when we were at Stanford into realizing that the glass is half full. That is so important in life: to really see whenever you see something, you can see the bad side of it, but you can also see the opportunity in it, and really focus on that opportunity because the glass, you have to see it as half full. There are opportunities everywhere. You have to be willing to take risks, and to take risks means to be willing to fail. There's nothing there. Failure is okay. There is something that is important in the Valley, in Silicon Valley, and that we try to bring to Latin America: failure is okay. When you are trying to do something that has not been done before, for some reason it has not been done before because it's risky, because you may fail. You may fail. That's okay. Go fail. Learn from it. Try again. Probably the only time you are not allowed to fail is the last time you try something.