Argentina’s Central Bank Measure Sparks Dispute with E-commerce Behemoth MercadoLibre

Argentina’s Central Bank Measure Sparks Dispute with E-commerce Behemoth MercadoLibre

The Central Bank of Argentina’s recent decision to bifurcate platforms for debit payments and transfers has triggered a response from Mercado Pago, the fintech subsidiary of MercadoLibre Inc., a leading e-commerce company. Mercado Pago has voiced concerns that this shift will create hurdles for over four million people in replenishing their digital wallets. The fintech firm interprets this move as another hurdle to financial inclusion, which will adversely affect millions of individuals. It also insinuated that conventional banks might have influenced the Central Bank to implement this new system.

Government Measures Stirring Business Unease

This move is just the latest in a string of actions by the ruling Peronist government that have been perceived as anti-business since it assumed office in 2019. Measures such as strict currency controls and a failed attempt to nationalize a soy firm have drawn criticism. The government, which is facing presidential elections on October 22, is grappling with maintaining its power after finishing third in an August primary vote.

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Mercado Pago’s Wallet App: A Key Investment Channel

Mercado Pago’s wallet application is a preferred investment avenue in Argentina, boasting over eight million users who invest in mutual funds. This represents nearly 20% of the country’s entire population. The application reported a significant increase in assets, holding over 367 billion pesos ($1.4 billion) as of early July, a sharp rise from three million accounts in June 2021.

Central Bank Changes Impacting User Experience

For the past three years, Mercado Pago has employed the “immediate debit” or DEBIN system, enabling users to transfer funds to their accounts. However, the Central Bank now plans to use the DEBIN system exclusively for payments, with “pull transfers” designated for transfers. According to Mercado Pago, trial runs of the pull transfer system have resulted in a 90% failure rate, compelling some users to confirm their identity at an ATM.

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Competition and Regulation in Argentina’s Digital Payments Sector

Argentine banks have intensified efforts to gain traction in the nation’s digital payments segment. However, they face competition from market leader Mercado Pago and new regulations in the sector. Over 35 financial institutions operating in Argentina launched the mobile payments platform Modo in December 2020, which has attracted a million users in less than three months. The platform offers account-to-account money transfers, in-store QR payments, and other features.

Regulatory Changes and the Future of Digital Payments

Recent regulatory developments have added a layer of complexity to the competition between Modo and Mercado Pago. The Argentine Central Bank’s introduction of Transferencias 3.0, which caps the fees merchants can be charged for transactions debited directly from account balances, has potential implications for the market. This regulation is expected to benefit both platforms in the long term by promoting client base growth.

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