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Mercadolibre Inc
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Hello, and welcome to the MercadoLibre earnings conference call for the quarter ended March 31, 2022. I’m Lissa Schreurs, Investor Relations Officer for MercadoLibre. Today, we will share our quarterly highlights on video. After which, we will begin our live Q&A session with our Chief Financial Officer, Pedro Arnt; and Chief Executive Officer of Mercado Pago, Osvaldo Gimenez.
I remind you that management may make Forward-Looking Statements relating to such matters as continued growth prospects for the Company, industry trends and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements.
Our actual results may differ materially from those included in this conference call for a variety of reasons, including those described in the forward-looking statements and Risk Factors sections of our Form 10-K for the year ended December 31, 2021, and any of MercadoLibre, Inc’s other applicable filings with the Securities and Exchange Commission, which are available on our Investor Relations website.
With that, let’s begin with a summary of our results.
Hi, everyone. I’m pleased to present some of the highlights and key messages regarding the performance in Q1 of 2022. We had a very strong start to the year, setting a sound base for the challenging ramp-up ahead of us in the coming quarters.
Our Marketplace growth has remained consistent for yet another quarter. We reached almost $7.7 billion in gross merchandise volume, growing nearly 32% on an FX-neutral basis and sustaining a two-year CAGR above 70% with almost 40 million unique buyers in the quarter, buyer behavior remains sticky, total items per buyer continues to grow versus last year’s pandemic-impacted year.
We are confident that the depth of product and category mix on our Marketplace and the quality of our seller base places us in a unique position to drive continued growth with solid monetization in commerce.
The services attached to our Marketplace are also continuing to expand. Specifically, the Advertising business has been a consistent highlight in terms of growth and margin structure and has almost doubled in revenues year-over-year as we have improved our technology to serve ads throughout our platforms. We will continue to launch more features and channels behind this business.
We are also very encouraged by the performance of the FinTech business during this quarter. Total payment volume surpassed $25 billion for the first time ever and has accelerated in both Acquiring and in digital account TPV with important growth in overall FinTech take rates.
We had almost 36 million unique active users in the FinTech segment, growing across all of our geographies, boosted by higher engagement in wallet payments and the growth users. The credit portfolio continues to deliver consistent profitable growth, while the credit books are performing to our expectations.
Regarding our financial results, we have achieved a new record in terms of total revenues, even higher than the fourth quarter of last year, with improvements in monetization in both commerce and FinTech.
Our gross margins have improved year-over-year with better operating leverage over our cost base. And in line with our objective to grow profitably, we have sustained consolidated EBIT margins at similar levels to Q1 of last year despite the tough comp.
Bottom line performance was equally strong, delivering record net income for the first quarter. A more detailed customary commentary on the first quarter operational and financial highlights are now available in letter to stakeholders, which we will now release to our Investor Relations website on the day of earnings.
And before initiating the live Q&A section of tonight’s earnings call, there are a few more highlights we want to share with you.
MercadoLibre continues to expand its ecosystem to offer its 140 million users solutions that simplify and improve their digital experience for buying and selling and to deliver on our mission to democratize access to e-commerce and financial services in Latin America. Logistics operations are increasingly efficient, not only due to scale, but also through the use of technology to optimize each step of the process.
Our fulfillment continues to grow, driving more same-day and next-day deliveries. We started the year of 2022 with 40% of the volume of delivery by fulfillment. And we already have 20 sites in operation.
MELI Places is also growing. There are already more than 5,800 spaces like this in Latin America, offering sellers the ability to drop off and allowing customers to pick up and return packages in a very convenient manner.
Mercado Credito is an important catalyst of the MercadoLibre ecosystem. Almost 10 million users already have an active credit line. The greater their engagement on our platform, the better we can score them for credit. Users can take loans through the app to make payments on the Mercado Pago checkout or when making a PIX payment in Brazil. The merchants receive the funds instantly.
We are also creating an easy way to manage crypto currencies on our digital accounts. In the first quarter of the launch, the crypto wallet reached the mark of one million users that have purchased or sold crypto currencies.
The MercadoLibre ecosystem is experiencing a peak of operations growth in recent years and will continue to evolve. In this complex environment, clear priorities and agility will be essential to perform with excellence and to continue to innovate. To do so, we will also hire over 13,000 employees in the region by the end of 2022, totalling a team of more than 43,000 employees.
As always, the best is yet to come.
[Operator Instructions] Our first question comes from Andrew Ruben with Morgan Stanley. Your line is now open.
Hi thanks very much for the presentation and a question. And I might like to dig in a bit more on, there is a number of cost pressures in the backdrop, whether it is oil or rising interest rates. I was hoping you could update us on your strategy of passing through these higher costs on the commerce side and any thoughts on elasticity when you make those moves. Thank you.
Andrew, thanks. So we have been trying to pass on at least a portion of those costs to offset both increases in transportation costs through labor increases and obviously, oil cost. And if you look at the management of the interest rate increases that have been significant principally in Brazil over the last two, three quarters, I think we have done a good job of being able to offset a lot of that pressure through pricing.
And clearly, the business continues to grow at a healthy clip. So we will continue to try to find the right balance of being able to push through cost increases and finding the right mix of elasticity so that we don’t slow down the business more than what makes sense, given how much opportunity still lays ahead of us.
Very helpful. Thank you.
Thank you. Our next question comes from Irma Sgarz with Goldman Sachs. Your line is now open.
Yes, hi. Thanks for taking my questions. So also on expenses, when you think about the forward for the different lines, and we have seen some moving parts here in the quarter, obviously, with the build-out of the credit book on the one hand side, but you also, in the release, called out sort of higher G&A and expenses around some of the investments that you are making. When you think about the cadence of these investments going forward, can you just talk us through a little bit of the puts and takes of different areas where you are incrementally investing more, specifically on the operational expense side? And then if I may ask a second question, you make an interesting point in the release about the next leg of fulfillment improvement being about technology to optimize the operations. So just curious if you could share some examples, whether it is in warehousing or routing, what you are implementing to just run your operations at an even higher level. Thank you.
Great. So product development, primarily through the increase in engineers, is the one of the three areas where potentially we continue to be very committed to investing behind that. These are the kind of investments that then unlock all sorts of software development and product improvements that should help us to sustain growth for many years and launch all the different products we have in mind.
Sales and marketing was showing operational leverage. And ideally, we can continue to deliver on that going forward. And then G&A on a year-on-year basis didn’t, but I think that is another line where we would strive to deliver operational leverage there going forward.
I think in general, our management of the P&L continues to be what it has been over the last few quarters of communication, which is we run a business that is growing very well, and on top of that is a profitable business with a growing operational income profile, which I think in this day and age is the right way to manage an e-commerce business and something that not many competitors necessarily can say. So that will continue to be the way we are trying to manage the P&L.
In terms of where technology impacts our logistics operation, I think in general, everything we do at MercadoLibre tries to have technology at the core. This is a combination of software to improve routing, to optimize demand analytics, to try to get more items into a parcel and also increased investments in automation.
You look at most of our warehouses, cross docks, service centers, we continue to invest in improving automation, layout to increase productivity and be able to continue to drive down costs, which we then - some of that drops to our bottom line. Some of that allows us to afford an even more expensive free shipping program.
But most importantly, we think is one of the biggest competitive advantages we have is the quality of our logistics network and also our continued commitment to continue to drive cost out of it.
Thank you.
Thank you. Our next question comes from Rob Ford with Bank of America. Your line is open.
Hey thank you very much. Congratulations on the quarter. Pedro, you comment a little bit about the competitive response with the increases in terms of the reductions in terms or other pricing that you may have taken?
Bob, so look, I think we are going to do what we think is right for the combination of our business and our consumers. And I think we have been intelligent in the way we have optimized pricing and optimized installments.
And again, like I said in the earlier question, if you look at growth over the last few quarters, combined with bottom line performance, I think we have been able, especially on the financial piece, to weather a very dramatic increase in interest rates quite interesting.
If you look at take rates on the FinTech business, it does show how we have been activating the pricing levers to offset those increases in costs and yet, TPV, creditor originations, all of those businesses continue to deliver incredibly strong growth rates even against an incredibly tough Q1 comp.
So I think our commitment is to try to continue to deliver that kind of performance as we did in this last quarter. Competitors will do what competitors will do. I think that is not where we have to focus and not where we will focus.
Understood. And I have been fascinated with your entry into the payroll services space. Can you talk a little bit about your initial pilots and how we should think about that scaling?
Hi Bob. I think that we are still very, very early on with regards to payroll. We are very excited about the opportunity in terms of having more principality and we are just really getting started with the ballot and we cannot comment on it yet.
Understood. And then when it comes to putting multiple items into a single parcel, Pedro, can you talk about the implications for maybe delivery costs, but also centralizing more inventory and maybe further build out of the work to warehouse network.
Sure. So clearly, the ability to continue to drive more items per purchase is one of the most critical drivers of continuing to lower cost. Obviously, the centralization of inventory. So continued adoption of fulfillment by MELI, combined with intelligent inventory location, should help us improve even more on our ability to reduce split purchases where we might be shipping one item from one FC and another item in the same shopping cart from a different FC, and that is a big focus for us right now.
And it should have a positive impact across most of our categories, but a more dramatic impact on higher item per basket categories such as CPG and groceries, which long term is an important category for us.
So the better we can get at that, the better the economics look in groceries in some of these categories and the faster we can accelerate there. And obviously, those are large share of consumer wallet categories in the region and also importance for engagement and recurrence.
So it is an area of focus for the logistics team and something that we should be working on diligently through the remainder of the year to continue to improve our ability to increase items in a single box leaving from a single FC.
Very helpful. Thank you very much and again congratulations.
Thank you. Our next question comes from Marcelo Santos with JPMorgan. Your line is open.
Good evening. Thanks for taking my questions I have two. The first is if you could discuss the NPLs on the credit product, how it behaves on a same product basis, like on each portfolio? And if you could attribute how much of the increase we saw sequentially to changes in the mix and how much to macro scenario. And the second question is if you could comment on your efforts to increase logistic monetization, what have you done so far? And what’s in store for the rest of the year? Thank you.
So Marcelo, with regards to NPLs, directionally, I would say that the combination of factors, we are very, very confident with how the business is evolving. There has been a little increase in NPLs, but it is mostly because we are growing the consumer business faster than the merchant business and that we are pricing that risk already.
So the spreads remain fairly constant. There was nothing unexpected here. And that is related to two factors, as I mentioned. First is the increase of the consumer volume. And particularly, we are doing more personal loans rather than buy now, pay later.
And we know that is a little bit riskier, and it is priced higher and also is related to the increase on the size of the share of credit card within all of the credit volume. But I think that is going exactly as we expected.
Sorry, there is a second part to the question. So look, in terms of - no, we were - in terms of monetization of fulfillment, it is still very much in the early phases today. In terms of overall commerce revenues, it is insignificant. It is less than 1%.
And we have only really initiated most of the charges so far for low-rotating inventory that is not intelligently utilizing capacity in the warehouses. And only over the last few months have we launched utilization rental space. So actually having to pay to use our fulfillment centers.
So we will try to keep you posted over the next few quarters, what the reception to that by merchants is, whether it is having any negative effects on incremental adoption of fulfillment or not. So far, the charges for poorly managed inventory have been very positive because they help reduce low-rotating inventory in the warehouses.
And as you can see, fulfillment percentages, although somewhat flat, it is not driven by this. It is driven by other factors. So that is been working very well. And we will now have to see what the impact of the introduction of the rental for using fulfillment. So the fulfillment by now a service fee will be, again, very early for that.
Thank you Pedro.
Thank you. And the next question comes from the line of Kaio Prato with UBS. Your line is open.
Hello everyone. Thank you for the opportunity for asking question. So my question is related to Mercado Credit Solution as well. So I would just try to understand what gives you confidence that you can continue growing the credit portfolio, even with the signs of NPLs increasing today? And just would like to better understand about the risk models, if you believe you have an advantage versus other FinTechs because of your Marketplace data that helps you on the underwriting or if there is any other reason? And finally, I would like to understand as well, if you are increasing rates charges in the credit business because of higher policy rates in LatAm as well. Thank you.
So look, what gives us confidence is simply looking at performance so far. I don’t want to get into any forward-looking comments on how the credit business will perform. If we look at what we have done so far in a tough environment, we have been able to continuously grow originations in the size of the book at a good pace.
And as Osvaldo just walked you through, the significantly largest portion of the increase in NPLs are a consequence of product mix, and only a smaller portion of the NPL increases are driven by improvement in existing products. So less than a third of the NPL dis-improvements.
We continue to believe that the data we have on consumers, the touch points with consumers, the collections operations we have built are competitive advantages that help our underwriting. But notwithstanding, I think we need to continue to deliver on that and continue to grow the books in line with our confidence in our underwriting, and then we will see what happens going forward. But so far, all the signs continue to be positive and executing to plan.
Complementing on that basically, today, the three main products, which are merchant loans online, merchant loans off-line and consumer grade, in each of the three countries, Argentina, Brazil and Mexico, all those nine segments are profitable. So we remain confident that we will continue being profitable going forward. And this has been in an environment where the SELIC over the last year has increased from 2.75% to 12.75%.
Yes, thank you. Just a follow-up in terms of the policy rate. I just would like to understand if in the Quadrem products are you also increasing the rates charges because of this increase in select rates.
So certainly, we are. But again, remember that given the segments where we lend, the performance of the credit books, because of the spreads, is the more relevant driver versus incremental points in terms of cost of capital. So the answer to your question is yes. But really the most significant driver to sustain the profitability and the performance of the books continues to be the quality of the underwriting.
Okay, great. Thank you very much.
Thank you. Our next question comes from Deepak Mathivanan with Wolfe Research. Your line is open.
Great. Thanks for taking the questions. So first, Pedro, can you provide a little bit more color on the GMV growth during the quarter? You guys are compounding at a pretty healthy pace on top of very tough comps. Maybe elaborate a little bit on how the cohorts that came in during the 2020 are behaving in terms of the spend. And what are the spend levels you see in the initial transaction levels of some of the new customers?
And then the second question, obviously, many companies, in our coverage universe and certainly much more broadly, are revisiting their capital allocation decisions in the face of tough capital markets and then also a weak macro environment. You guys obviously have a lot of growth opportunities ahead. What is the kind of thought process in terms of balancing between an uncertain macro environment in the future and then also your capital allocation needs? Thank you.
Thanks, Deepak. So if you look at the two-year CAGRs, we continue to deliver very consistent growth, which for us is a sign that unlike other e-commerce markets or players that have given back significant portion of what was gained during the pandemic, MELI purchases for our consumers seem to have been very sticky.
When we look at cohort behavior or engagement behavior in general, it is up a little versus last year. So there hasn’t been a deterioration in engagement levels or cohort behavior. We haven’t seen a continuation of the incremental engagement from new cohorts either. So it has been slightly above flattish, which, again, in the context of dramatic reopening of physical retails, we think is very, very strong performance.
In terms of capital allocation along similar lines, I think we are in a privileged position of running a high-growth e-commerce business that is a market leader and yet also is able to deliver profits, incremental profits. And so we are not at a point where we are changing our capital allocation.
As I answered earlier on the margin question, we will continue to invest in engineers. We will continue to invest in capacity for our fulfillment network. We believe that those generate long-term competitive advantages. We might even see some rationalization in the market over the next few years, which could position us to capture even more of the incremental consumer spend that moves online.
Latin America is still early stage. So there is a lot of incremental spend that will move online over the next few years, and we want to make sure that we continue to take a long-term view on all that. At the same time, we continue to strive to generate operational leverage where it makes sense, sales and marketing, G&A.
You have seen us rationalize very, very significantly the amount of couponing and discounting spent on our FinTech business. And all of that is what leads to the incremental operating income that we have delivered this quarter versus many previous quarters.
And so I think that management of the P&L, commitment to invest where we need to invest for the long term, is still the same, and we really are not reassessing capital allocation. Should conditions change, obviously, we will move quickly, but that is not where we are at so far.
Got it. okay, thanks Pedro.
Thank you. Our next question comes from Jamie Friedman with Susquehanna. Your line is open.
Hi, congratulations on the results. I just wanted to ask a kind of combination of Slide 9 and Slide 17. On Slide 9, you showed the growth of the off-platform. And so this is a TPV off Marketplace, I mean. And that is now up to 68% of your total, up 103%. So Pedro, when you think about the impact of that on the take rates, like does off-platform have inherently different take rates than everything else? And then related to that, in terms of the 65 basis points of increase in your FinTech take rate, I realize you decompose that between credit and other. If you could help us a little bit to think about pricing, I think it is a fair question, why is the FinTech take rate up to that degree?
So I will let Osvaldo answer the take rate question. In general, off-marketplace TPV today is driven significantly, and so is the acceleration, by the - not the Acquiring business, but the processing business. A lot of that is on the back of our wallet. Some of that is because our wallet, in a way, is a natural hedge to re-openings as is our MPOS business.
And so as economies have reopened, we have seen those businesses step in with strong acceleration in growth. The wallet business is not a business that has a higher take mix than the TPV average. So the strong improvements in take rates are explained by what Osvaldo will walk you through right now.
Those have been mostly related to the increase in credit revenues on the overall Mercado Pago TPV - or Mercado Pago revenues actually. And therefore, I would say, we have been able to maintain typically the same transactional revenues about increased component of credit revenues and a few other things, but mostly has been required revenues on top of what we are already doing, given that our mix - our portfolio has grown faster than our TPV over the last year.
Great. Thanks guys, I appreciate it.
Thank you. Our next question comes from Marvin Fong from BTIG. Your line is open.
Congratulations on the quarter. Two questions. I would like to follow up on what you are saying about the great performance in the wallet and, in particular, the 100% plus growth in QR payments. So should we view that primarily as driven by the reopening? Or were there other factors at play to drive the acceleration in QR?
And my second question is just on Argentina. We don’t talk about it much, but it looks like it had a nice step up on the e-commerce side, both in terms of units sold and GMV on a two-year basis. Anything to call out there that you are doing in Argentina that you can then apply to your other geographies?
Marvin, yes, I would say that there has been an acceleration in the use of their wallet. Probably part of that is related to reopenings across all countries. Basically, we are comparing with the first quarter with some lockdowns last year. Nonetheless, we believe this has been a significant aspiration.
I think that in all of last year, we never grew at this pace at the 200% year-on-year. And significantly, this has happened. We have grown a lot in Argentina. Really our world has taken a lot of traction, and it is pretty much everywhere in Argentina. And we have also seen significant growth, both in Brazil and Mexico. So it has happened in those three countries.
And Argentina, so certainly, it is shown acceleration in units and acceleration in GMV. I would say that it is good to see Argentina rebounding. If you look at the previous two quarters, that business, which has historically been very strong because of tough comps and other things, had delivered somewhat sluggish growth.
And we are seeing it come back to, I think, the kind of growth that we expect from that business. So it is good news. It was a strong performance, but I think it is also fair to acknowledge that it is coming off of two previous Qs that were fairly easy to accelerate growth given that they were clearly among, most of our geos, some of the sluggish growth.
Great, thanks guys. I appreciate it.
Thank you. Our next question comes from Stephen Ju with Credit Suisse. Your line is open.
Okay, thanks guys. So hi Pedro. So I guess, kind of taking a step back and looking at it from, I guess, 30,000 feet, the relationship that you guys have with the merchant and the nature of what you are selling them has expanded pretty significantly over the years. So you first provided them with the traffic and the transactions and then you help enable payments and you are - now you are helping to provide delivery and logistics services and now you are increasingly providing them with working capital. So this is a pretty significant suite of services you are providing your merchant clientele. And I think in the past, you have talked about wanting to provide folks with the e-commerce platform services. So where are you in bringing all of your services together holistically in an e-commerce in a box type service? Thanks.
Yes. So I think increasingly, when you look at the different pieces that we have built: logistics, payments, credit, even the relaunch shops, front-end, plus the integration with the marketplace so that you can drive multichannel operations, each one of those now is probably scaled.
And we have built enough capabilities that we can start considering becoming more aggressive there in terms of bundling it all together or in different combinations and then offering that to merchants away from the marketplace.
And then if you think of advertising as an overlay on top of that to assist merchants to drive traffic to their shop store or back into their MercadoLibre listings, it really becomes a very powerful combination that when you look at many of our competitors that offer each one of these services on a stand-alone basis, whether that be payments processing or credit or marketplace or storefronts or just an advertising platform, we believe that the ecosystem approach is a really, really powerful way to sell these different services.
So clearly, this is something that we are doing work on. It is part of our strategy, and we will keep you guys appraised on this as these products take more and more form. You already see live Pago clients that have an integrated shipping offering.
And obviously, Mercado Shops has an integrated shipping offering to many of these clients. So these things are already being piloted in market, and we will have to iterate and see how we improve on those products and then go into full deployment mode sometime in the future.
Thank you.
Thank you. [Operator Instructions] Our next question comes from Trevor Young with Barclays. Your line is open.
Great, thanks. Just looking back at last year, your nearly doubled headcount, and a big piece of that came on your R&D organization, can you just tell us how you feel staffing levels now kind of going forward into this year? Are there any pockets where you expect to have kind of outsized investment or should we expect headcount growth to maybe slow here and more closely near your revenue growth?
Yes. So like I said before, I think the engineering headcount commitment remains unwavering. I think as in most product-focused technology companies, the biggest bottleneck is the number of engineers that you have that are able to push code and build products. And so we want to continue to be aggressive in growing that team.
I think when we have looked at the moments MELI has sputtered in growth, it has been the moment where we have run up against more engineering bottlenecks. And the moments where we have grown the most is when we have had enough output capacity in terms of code and product build-out to continue to innovate and launch and cater to all the needs of our consumers. So we are not going to, I think, waver on the commitment to continue to grow the engineering talent pool.
I think all other areas we will look to grow headcount significantly less than revenue growth. There are inflationary pressures in terms of salaries and wages. I think the battle for talent is heating up throughout Latin America. So we will be as diligent as we can in terms of managing salaries and wages.
But again, we need to make sure that we are not trying to drive too much operational leverage short-term and sacrificing on continuing to have the best human capital in the region, which is our objective. So again, we will do what’s right there, but it is an area that we believe investing behind, particularly engineers and the product development organization.
That is really helpful, thanks Pedro. And just a quick follow-up on ad revenue. I think in the video, you mentioned that it nearly doubled year-on-year. It is now up over 1% penetration, I believe. Can you just unpack what the lift is there on gross margin or EBIT and then saving the bridge? And then remind us where you think that penetration rate as a percentage of GMV can go over time. Thank you.
Yes. So the more we build product and technology, here we are again, and we improve the ACOs for our merchants, the quality of the platform that we serve, the more we believe in the long-term potential of that business to grow significantly.
So no publicly stated long-term goal. I think certainly, it can be a lot more than 1% of GMV, and we will continue to strive to deliver significant growth there, both in absolute terms, but also as a percentage of GMV. And of course, GMV should also continue to grow for many years to come. In terms of the impact, I think we have gone on record saying that it is an extremely high-margin business. It runs at an over 70% EBIT margin today.
And so a lot of those incremental revenues really have a very, very good flow-through to the operating income line, more so than most of our other business units, which also makes it a very attractive opportunity. So it should be one of the big drivers of take rate increases over the next few years and certainly of incremental operating income.
Thank you. Our next question comes from Soomit Datta with New Street Research. Your line is open.
HI guys, thanks for the question. It is on FinTech and focusing on Brazil for a second, please. First of all, are you seeing any impact of PIX at all on debit volumes in the long tail? I take it the acquirer volumes look very healthy this quarter, but I just wondered whether within the mix, you are beginning to see any impact from that.
And then secondly, I think you recently launched installment, buy now, pay later scheme over PIX as well, beginning to see a few of those in the market in Brazil. What are your expectations for that product? Can you give any initial feedback on how that is going? Thanks.
Hi Soomit. I would say, yes, regarding the first question, with debit volume being affected by PIX, I would say it is marginal at this stage. Probably, what we are seeing is very, very small individuals who - in the past, who buy small POS and MPOS, where they don’t need to do it because they get - they used to get a few payments per month by debit card, and now they are able to get those through PIX. That is really a very, very small long tail.
So I don’t think it is affecting our numbers necessarily. And if anything, we are - we continue to see a healthy increase in the mix of credit versus debit card in our POS. So I will say there is some impact, but in a very long tail. When we look at larger merchants, the volume they are getting from PIX is really marginal.
And then moving on to buy now, pay later and PIX, it is a product we have already developed and we are starting to test first within our own - with our own merchants. And we are excited by that opportunity. It means that anyone who has our wallet and is trying to pay on a QR code will be able - today, he is able to do it with a store balance.
But in the future, he will also be able to do it with a grade we are providing them on the spot. So we believe that this will significantly expand the scope of merchants where we can offer buy now, pay later because it is not only will be the merchant acquired, but any merchant who has PIX.
And if I may, just a quick follow-up. I mean is that expected to cannibalize credit cards, do you think, at all or is this going to kind of sit alongside it? Thanks.
I think it will be more of a different segment. Typically, most of the target of our Buy Now, Pay Later consumers are consumers who either don’t have a credit card or they have topped up their credit limit. And that is why they are willing to pay extra - we charge for buy now, pay later. Remember as opposed to some players in the U.S., in Latin America, we charge for that because interest rates are higher. So if you have balance available on your credit card or you will still use your credit card, but this expands the market for financing at the point of sale.
Got it. that is very clear. Thank you.
Thank you. And at this time, I’m showing no further questions at this time. I would like to hand the conference back over to Pedro Arnt, CFO, for closing remarks.
Thank you. Thanks, everyone, for assisting. We hope the new format has made the initial remarks more engaging, certainly shorter. Just a reminder to everyone, the traditional management comment that you have grown accustomed to is still available. It is now simply in the form of a letter that we post on the IR website rather than having to hear me voice over.
We are quite pleased with the video format. It gives us more time for Q&A as well. So hopefully, we will repeat that next quarter. And we look forward to speaking again in three months with an update on the full first half of the year. Thank you.
Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.