Analysts at Susquehanna Financial Group say that Mexico’s underbanked and heavily cash-based economy is a good fit for three fintech companies that offer mobile financial services.
In a note released earlier this week, they named dLocal Ltd. (DLO, -0.24%), MercadoLibre Inc. (MELI, +1.01%), and NU Holdings Ltd. (NU, +3.67%) as their “best ideas to enjoy the exciting rise of fintech in Mexico.” All three stocks have good ratings from Susquehanna.
The three companies were named as major players in Mexico’s online shopping market in the report. In the meantime, Susquehanna said that only 49% of adults in Mexico have access to a bank account, which means that about 66 million people do not have bank accounts (see chart below).
Analysts say that Mexico has always been a cash-based society, with 38% of all point-of-sale (POS) transactions being made in cash. Oxxo, a store chain with 20,000 locations that lets you pay with vouchers after the fact, also lets you use cash for online purchases. Susquehanna said that about 21% of payments are made through Oxxo. Other popular ways to pay are cards that work with the domestic credit/debit network Carnet.
Even though Mexico is the second-biggest e-commerce market in Latin America by gross merchandise value, the market is still not fully developed. They said that payments data shows that e-commerce only made up 8.6% of all spending in Mexico in 2023, while it made up 15.6% in the U.S.
Analysts used data from FIS to say that e-commerce spending in Mexico will grow at a rate of 11% per year until 2027, while POS spending will only grow at a rate of 2% per year. This will make e-commerce an 11.6% share of all spending.
The analysts expect a shift away from cash to continue.
“The point is that Mexico adoption is now big enough to count,” the analysts wrote.
dLocal
Mexico has consistently been a top grower by revenue in recent quarters for dLocal, a Uruguay-based fintech that operates in 40 countries, connecting emerging market consumers to global merchants. Mexico accounted for 18.2% of revenue at dLocal in 2023, up from 16.2% in 2022.
Susquehanna calculates that if dLocal should take 1 percentage point of incremental market share, total revenue may rise by around 2.7%.
MercadoLibre
Argentina’s MercadoLibre operates the largest e-commerce platform in Mexico, according to some measures, and specializes in operating online marketplaces focused on e-commerce and online auctions, Susquehanna noted.
MercadoLibre has been operating a mobile wallet for years, but now the company is seeing traction with a new credit card. It may have an approximate 5.3% share of credit card volume, Susquehanna analysts said.
Susquehanna estimates that if credit-card penetration rises by 1 percentage point, MercadoLibre’s Mexico total payment volume might rise around 25%.
Nu Holdings
Nu Holdings, parent company of Brazil-based financial technology firm Nubank, arrived in Mexico in 2019 in its first international foray. After launching a credit card in 2020, Nubank saw an approximately 77% compound annual growth rate through 2024, the Susquehanna analysts said.
They calculate the platform has a market share of around 8% of customer accounts among those who qualify for a Nubank bank account. Susquehanna also estimates that should credit-card penetration in Mexico rise by 1 percentage point, Nubank’s total payment volume could rise by around 26%.
