Hello, everyone, and welcome to the MercadoLibre Earnings Conference Call for the Quarter Ended June 30, 2019. I am Federico Sandler, Investor Relations Officer for MercadoLibre. Our Senior Manager presenting today is Pedro Arndt, Chief Officer. Additionally, Marcos Arberin, Chief Executive Officer and Osvaldo Jimenez, Executive VP of Payments, will be available during today's Q and A session. This conference call is also being broadcasted over the Internet and is available through the Investor Relations section of our website.
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 are occurring assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections 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 discussed in this call for a variety of reasons, including those described on the forward looking statements and risk factors sections of our 10 ks and other filings with the Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non GAAP measures.
A A reconciliation of those measures to the nearest comparable GAAP measures can be found on our Q2 2019 earnings press release available on our Investor Relations website. Now, let me turn the call over to Pedro.
Great. Thank you. So let's dive straight in and let me kick off this quarter's call by saying that we are pleased and optimistic about how this year is playing out. We've delivered another very strong quarter from a gross billings perspective as we continue to grow and gain scale on our leading e commerce and fintech ecosystems across Latin America. Let's first take a look at how we closed a great second quarter that carries us into the Q3 of 2019 with solid momentum.
The following KPIs place consolidated quarterly results within context. Gross merchandise volume accelerated to 33% year on year on an FX neutral basis, reaching $3,400,000,000 Total payment volume also accelerated versus the prior quarter to 90% year on year on an FX neutral basis to $6,500,000,000 while total payment transactions grew in triple digits at 112.5 percent year over year and reached 100 and 82,000,000 payments processed. Gross billings grew 73% year on year on an FX neutral basis, ascending to $606,000,000 We're encouraged to observe these robust rates of growth in key performance integrators, all of which are pointing to increasing consumer validation of the innovative product and service offerings we have built around e commerce and FinTech. As a result of this and given the size of the opportunity, we continue to garner confidence in our cycle of investing aggressively to add more users at the expense of near term profitability. Let me now walk you through our FinTech progress report.
During the quarter, total payment volume accelerated both in dollars and on an FX neutral basis, driven for the most part by off platform TPV growth. The latter not only explained a majority of total TPV growth during the quarter, but reached an important milestone during June as that was the 1st month that TPV from off platform surpassed on platform TPV in our history. In line with that, consolidated total payment transactions also grew triple digits, driven by strong growth in off platform transactions as a result of the performance in the growth of transactions across our product portfolio of merchant services, MPOS and wallet initiatives. Off marketplace, in other words, off platform total payment transactions grew 2 33% year on year, the 2nd consecutive quarter of total transactions in number from off platform growing above 200%. We also continue to execute well on our MPOS business.
Device sales grew again during the Q2 in Brazil, Mexico and Argentina, while at the same time the size of the active installed base of MPOS devices continues to grow. On a consolidated basis, we have more than doubled the number of quarterly active devices versus the Q2 of last year, while MPOS TPV both in dollars and on an FX neutral basis grew triple digits in all of the countries where we offer the device. Also, and as a result of this solid execution, MPOS devices that processed at least one transaction over the last 12 months on a consolidated basis almost reached $3,000,000 Our Merchant Services business, where we process payments of other online businesses, had an exceptional quarter both in terms of merchant net new adds and TPV growth. On an FX neutral basis, Merchant Services total payment volume accelerated to 130% year on year, reaching $1,000,000,000 for the first time ever in a single quarter. Additionally, and a result of the aforementioned TPV growth of this business, Merchant Services revenues accelerated for the 3rd consecutive quarter to 113% year on year on an FX neutral basis.
On our wallet initiative, we observed that the shift to a mobile first digital payments ecosystem continues to resonate with our users. As such, we are fortunate to benefit from increasing secular tailwinds as cash digitalizes and more aspects of the lives of our users become mobile. Consequently, during the quarter, wallet total payment volume accelerated both in U. S. Dollars and on an FX neutral basis to 2 51% year on year and 4 19% year on year respectively, driven mainly by successful execution in Argentina, the first market where wallet initiatives were launched.
Complementing this solid growth and also helping us scale out the build out of our network of digital mobile wallet, during the second quarter, we have more than doubled the issuance of prepaid FX neutral basis. Still on our wallet initiative, during the month of June, we reached the $3,000,000 monthly active payer mark on our mobile wallet in a single month for the first time on a consolidated basis. We are also making inroads building and distributing innovative and inclusive asset management products for our users, as adoption of our asset management solution continues to grow. During the quarter, in Argentina and Brazil, the countries where the product is available, already over half of MercadoPago balances in both countries were invested in these asset management products. Lastly, on FinTech, let me give you an update from our merchant and consumer credit business.
During the quarter, Mercado Credito delivered healthy metrics. Loan portfolio grew 75% year on year and 44% quarter on quarter in U. S. Dollars driven by the successful rollout of consumer credit and MPOS credit products in Brazil and by retraining of our behavioral credit scoring models that have enabled us to roll out the product to new users with improved credit terms and conditions. We're also pleased to report that Argentina also contributed to the loan portfolio growth as we have began offering loans to consumers to purchase away from our marketplace.
This is the 1st country and we look forward to replicating this consumer credit business line in other markets as it is the largest addressable market in terms of size and a potential source of very relevant profit stream for us going forward. With that, let's now move on to Marketplace and Logistics. On a consolidated basis, marketplace GMV on an FX neutral basis accelerated versus the prior quarter, growing 6 percentage points faster. Unique buyers as well as new buyers delivered robust rates of growth as well. With 14% growth respectively.
Supply is also growing nicely as live listings grew for the 10th consecutive quarter above 50% year on year reaching 224,100,000 live listings. On a market by market basis, let's start with Brazil. FX neutral GMV accelerated almost 10 percentage points versus the Q1 of 2019 to 27.1% year on year. This sequential acceleration was driven in part by easier comps as we had the Struckers strike and the World Cup during the same quarter last year as well as greater investments targeted to generate traffic and improve conversion rates. Mexico continues to maintain momentum growing almost in line with the Q1 of 2019.
On an FX neutral basis, GMV grew 45% year on year as assortment quality continues to grow. Mexico is the country with the highest official store penetration at almost 18% of GMV. Another positive readout for the hypercompetitive Mexican market is that our net promoter scores are also ticking higher, signifying growing user promotion of our platform. Moving south to Argentina, despite the implementation of a ARS 10 Argentine flat fee during April, our marketplace continues to show resilience, growing FX neutral gross merchandise FX neutral grossmerchandise volume meaningfully above the rate of inflation, while also accelerating traffic. On an FX neutral basis, GMV grew 63% year on year on the back of solid 57% year on year growth during the same period last year.
Growth in Apparel and home and garden verticals were highlights during the quarter. On the mobile front, mobile app GMV surpassed 50% of total GMV during the month of June for the first time, while our e grew over 10 percentage points year on year to 80% of all registrations as we successfully transition users from desktop to mobile. Let's now move on to the build out of our warehousing and logistics managed network, another strategic building block and critical enabler of our enhanced marketplace. We continue adding more product features and tools for our merchants into our proprietary logistics and warehousing management technologies, while also improving productivity in those distribution centers. The latter initiatives should also enable us to add more verticals to our logistics network and consequently help us drive higher penetration as we head into the coming quarters.
On a consolidated basis, managed network penetration continued to gain share from drop shipping as it gained 16 percentage points year on year reaching 26% of items shipped. These gains were driven mainly by execution in Argentina and Mexico. In Argentina, MercadoEnvios penetration reached an all time high of 62% of items shipped versus 42% last year, driven by the successful MELI Flex Shipping platform, which reached 8% of items shipped. It's important to highlight here that MELI Flex adoption is positively impacting the efficiency of Mercado and Vios in Argentina as almost 60% of Flex shipments are same day. Additionally, we also continue to optimize lead times through addition of more zone skipping routes in Argentina and improved service levels on existing ones, also contributing to higher Envios penetration we delivered in the 2nd quarter.
On the fulfillment front, not only did we successfully initiate operations of our 65,000 square meter fulfillment center in Buenos Aires with adoption numbers that give us confidence that we can continue scaling the solution as we enter into the back half of twenty nineteen, but also our fulfillment operations in Mexico exceeded expectations, growing 27 percentage points year on year, reaching 29% of items shipped. Additionally, and as part of our efforts to expand our managed network during the months of May June, we also successfully launched
our MELI logistics platforms in
Brazil and Mexico. Along with Flex, MELI Logistics platforms in Brazil and Mexico. Along with Flex, MELI Logistics is another innovative proprietary logistics platform that we have built from the ground up to prop up the scale and reach of our managed networks. It combines in house technology and existing physical distribution capacity to reduce dependency on traditional carriers, shorten lead times, cost and perhaps more importantly to significantly enhance the end to end shipping experience for our buyers. Lastly on logistics, the Brazilian managed network penetration increased 13 percentage points versus last year, driven for the most part by our cross docking centers and initiatives.
As of the Q2, 20% of all items shipped went through our own managed logistics network of cross docking and fulfillment. Although penetration of fulfillment solution was flat versus last quarter in Brazil, we have continued iterating to improve processes, productivity and also improve our warehousing management technology and algorithms. As a result, we have observed a reacceleration of adoption of our fulfillment solution in the back end of the quarter, generating expectations on our end that we have positioned ourselves to drive higher merchant adoption of fulfillment during the second half of twenty nineteen. Now that I've covered the main highlights and KPIs for the let's move on to financials, where we began to accelerate the pace of investment in our growth initiatives as we move into the back half of twenty nineteen. During the Q2, gross billings extended to $606,000,000 and grew 73% year on year on an FX neutral basis.
The latter, I remind you, marks the 21st consecutive quarter of gross billing growth 60%, driven by continued monetization on our marketplaces as well as successful execution on our FinTech initiatives. In particular, our financing business, merchant and consumer credit and off platform payments processing through our merchant services and MPOS businesses have been strong drivers of this growth. Gross billings in our main countries on an FX neutral basis was robust across the board. Mexico delivered a 6th consecutive quarter of growth above 50%, while Brazil and Argentina maintained momentum growing 55% and 117% year on year respectively. Consolidated net revenues grew faster than gross billing on an FX neutral basis, accelerating to 102% year on year and reaching 5.40 $5,000,000 as we continued calibrating and optimizing shipping and loyalty program subsidies and implemented flat fee initiatives in Argentina for the full quarter.
Gross profit ascended to $272,000,000 representing 50% of revenues during the quarter versus 48% a year ago. The 2 33 basis points of scale year on year was driven for the most part through collection fees and sales taxes, which were partially offset by shipping subsidies and warehousing costs as our managed logistics network expands. We've included a detailed breakdown of these and also other OpEx margin evolution in the slides that accompany this presentation. Consequently, as reported, operating expenses ascended to $285,000,000 or 52 percent of revenues versus 56% during the Q2 of 2018. On a sequential basis, however, operating expenses increased almost 26% explained for the most part by increases in marketing expenses as we began to invest more aggressively in customer acquisition for our multiple product lines as well as new headcount we've added to our engineering product development teams, which increased by over 50% versus the same period last year.
Operating losses decreased to negative $12,500,000 as a result of the aforementioned investments. We saw $14,700,000 in financial expenses attributed for the most part to interest accrual on our convertible notes due 2028. Interest income increased by 2 40 percent year on year to $33,700,000 attributable to the proceeds from the convertible note and the follow on offering proceeds from earlier this year. Our ForEx line was $800,000 mainly as a result of the strengthening of the Brazilian real over the U. S.
Dollar net liability position in Brazil during the Q2 of 2019. We delivered an income tax gain of $8,900,000 attributed for the most part to tax loss carry forwards in Mexico, which were partially offset by income tax expenses in Argentina and Brazil. Net income ascended to $16,200,000 for the Q2 of 2019, resulting in a basic net income per share of $0.31 In summation, we feel we've delivered another great quarter, which leaves us on a strong footing to pursue our strategic objectives in second half of twenty nineteen and beyond. Our focus will be on disciplined execution against our priorities as we aspire to be a leading platform for mobile digital commerce and FinTech throughout all of Latin America. We have already built out a well diversified product portfolio across multiple countries and are confident that the strength of these business lines, the flexibility of our balance sheet offers us and the still nascent digital opportunity in Latin America will continue to enable us to deliver long term value to all our stakeholders as we move into the rest of 2019 and beyond.
And with that, we can now take your questions. Thank you.
Thank I show our first question comes from Stephen Ju from Credit Suisse. Please go ahead.
Okay. Thank you. So Pedro, so I'm thinking through the mobile point of sale opportunity. It seems like the per merchant utilization rate seems to be a fraction of where some of your competitors are probably right now. So given that the size of the merchants that you have may be smaller, but can you talk about what you may be able to do to drive faster per device TPV?
And secondarily, I don't think we've ever seen a sequential dollar pickup in sales and marketing spend from Q1 to Q2 at the level that you showed on this report. So can you talk about where the main focus of that incremental spend may be and whether it's consumer center facing? Okay. Thank you.
Let me start again. We have some technical problems. So, Stephen, part of what you see in terms of per merchant decision rate are, if you want, by design, When we started our NPOS business, we first addressed the very low end of the long tail of the market, and that is where we have been gaining a lot of traction. And so it is to be expected that the number of transactions per device is more than that of some of our competitors. Having said that, during last quarter, we started to move up market.
We launched a new device towards the end of last quarter where we are starting to address small businesses, still small businesses, but not the low end of the long tail as what we are addressing before. So as this strategy moves forward, we believe we will be addressing this upmarket segment that we have not addressed in the past.
Great. On the second question very quickly, Stephen, I think the Q2 many times is somewhat heavy on marketing spend. It's when the hot sale occurs in Mexico. So there's always increased investment there. Having said that, I think this year what you see is the growing number of product lines we have, particularly in FinTech that we begin to invest more aggressively behind in terms of marketing and also a renewed focus on brand building and brand marketing investments.
Part of that is to start generating the MercadoPago brand and sub brands around MPOS, credits, merchant services. But some of that is also to strengthen the marketplace brand equity positioning. If you look at it on a country basis, you will realize that it's pretty much spread even across the significant margins, the pickup in marketing spend.
Thank you.
Thank you. Our next question comes from Robert Ford from BOA. Please go ahead.
Thank you. Congratulations on the quarter and thanks for taking my question. Osvaldo, can you discuss wallet funding frictions across the major marketplaces and how you're addressing those please?
Hi, Bob. So I would say that this is changed on a country by country basis. We made a lot of progress in the last few weeks in Argentina, and we are in the process of making that same progress in Brazil. First, in Argentina, in the last few weeks, we were able to receive payments from or transfers from any bank accounts through what the Citibank called BU. So we are able to receive transactions or transfer from any bank account, and that is way easier than what it used to be in the past.
And in the case of Brazil, we are integrating right now with SPV, the system of Brasilio del Taguos, and we expect that also to make the funding significantly easier than what it has been so far.
That's helpful. And can you talk a little bit more specifically on the growth of the mobile wallet two sided network in Brazil in terms of the number of payers, collectors in the frequency? And then maybe can you share with us what you're doing there to make the wallet stickier? It seems that you've had several successful strategies in Argentina. And I was wondering how difficult it is to replicate that in Brazil?
Bob, let me we have not disclosed numbers of specific payments in the wallet industry. So let me give you a qualitative approach. As we've said in the past, we are probably 1 year behind what we were in Argentina. We are later to launch, but we are starting to see tractions, both in terms of some large merchants where we are adding and also in terms of consumers who are starting to use the platform and we're starting to see monthly growth rates that are very interesting. As we mentioned in the past, we know this market will take longer to develop than the one in Argentina since we require maritime integrations with softer houses, but we are encouraged by the results we are seeing.
All right. Thank you very much.
Thank you. Our next question comes from Edward Yruma from KeyBanc Capital. Please go ahead.
Hey, good afternoon. Thanks for taking the question.
I guess first in Brazil,
I know you seem to remediate some of the issues that you encountered there, but maybe digging in a little bit deeper, what do you think caused kind of the flat penetration to 1Q? And then I guess second, obviously some big competitors moving to markets like Mexico. Any change you think in the competitive environment that you're observing thus far? Thank you.
Can you just clarify which penetration you're looking at if it's fulfillment by MercadoLibre or which adoption of which metrics?
Yes, the fulfillment by MercadoLibre.
Great. Yes. So just to put that in context, I think what we said in the earnings is that we saw a quarter that exited on actually a much more positive note than it started. So a lot of the initiatives in terms of investments and technology behind making it easier for sellers to adopt our fulfillment solution and also incentives for them to adopt our fulfillment solution are beginning to gain traction. That's encouraging.
I think also very importantly, when you look at the end game here, the end game is to improve the cost and the quality of deliveries in the country. And I think the other side of the coin for Brazil and fulfillment is the cross docking efforts, which are evolving extremely well. And consequently, Brazil already has 1 5th of all volume going away from the dropship market, which is not that far behind where Mexico is. So all in all, I would say overall shipping strategy in Brazil continues to perform very well, driven primarily by cross docking, but also when we look at the end of the quarter, adoption of fulfillment was beginning to ramp up. Let's see how that evolves over the next few quarters if it becomes a trend, which we hope that is the case.
And then on the
competitive environment in Mexico?
In terms of the competitive dynamic in Mexico on the retailing business, I don't think there have been any significant changes over prior quarters. I think Mexico continues to be hyper competitive. We continue to see very strong performance from our business. And I think we're pleased with the GMV growth we continue to deliver there. And obviously, the financials have begun to improve considerably from a top line perspective as we get more efficient and rationalize more and more our free shipping spend.
Great. Thanks so much.
Thank you. Our next question comes from Deepak Mathivanan from Barclays. Please go ahead.
Hi, guys. It's Trevor on for Deepak. First question, can you elaborate a bit on the GMV growth in Brazil? The 27% was faster than overall e growth, but the comp was a lot easier and you have strong momentum on various categories. Is there anything specifically that you can highlight that maybe is going to offset some of these tailwinds?
I know you guys don't give guidance, but is this sort of the run rate we should expect going forward? 2nd question on the FinTech side, can you talk about the frequency increase on some of the new use cases that you're launching? What should we expect in 2H along the lines of new use cases in merchant categories? Thank you.
Let me take the Brazil number first. Waldo can take the payments question. I think like we've said, going forward with Brazil, we've done a lot of innovative work around improving shipping, not just the quality, but also the pricing around that. And so hopefully that continue to generate positive momentum going forward. Additionally, from a comp perspective, I think the tougher comps are behind us.
So, we don't tell much we'll grow. We'll give that out once we report future numbers. I think in general terms, we'll continue to have an ambition to gain market share and to continue to grow faster than the market is growing. And if we remain focused on the innovation that we've been delivering on the marketplace front, that should play out favorably.
Regarding the second question regarding FinTech, we are seeing increasing frequency. And probably the one place where we see the most is in Argentina with the wallet, where over the last year what we have seen is the number of transactions per user is increasing and also the number of users who do, let's say, 2, 3, 4 or over 5 transactions per month is also increasing. And when we look at that and try to understand why that is happening, we see that those users who adopt multiple flows of payments are accelerating, They are accelerating the growth. And by that, I mean users who are doing not just one kind of transactions, such as paying with a QR code or topping up a mobile phone or paying for a utility. And when we get users to do more than 1 or 2 of these flows in a given month, we get them to significantly increase their frequency of use.
So we are in the process of ramping that up in Argentina and trying to replicate it in Brazil and Mexico.
Great. Thanks, guys.
Thank you. Our next question comes from Ravi Jain from HSBC. Please go ahead.
Hi. I have two quick questions starting with Pago first. The credit business is scaling up nicely. So could you give us some color on what are the real key initiatives that you are focusing on for now and how you want to manage risk around the credit business? And second thing on the e commerce coming back following up on the Brazil question, how is the competitive environment in Brazil you're seeing?
Is it getting more competitive? Is it neutral? I mean, how are you seeing like the new product categories that you're focusing on, which is maybe apparel and the basic items? Thank you.
So in terms of the credit business, as you said,
we are
we have been able to scale during this year. Part of the things that have been going very well are the consumer credit business, which we launched in Brazil last year and in the process of launching in Mexico and Argentina. We have gone beyond just pay to buy us to include personal loans. So we're already offering payers in Argentina where people can take the money and not put it on our platform, but just take into the bank account or withdraw it and then pay us back. And all of these initiatives have shown lots of traction, and those are what are driving the consumer business this year.
In terms of merchants, as we've seen in the script, what we have been doing is being able to improve our models. And as we improve our models, we are more comfortable reaching out to more merchants and offering them the larger loans.
Great. In terms of Brazil competitive scenario, again, I think no significant shift from the last few quarters. Brazil has always been a very competitive market with multiple players. I think we've seen some nice share gains this quarter when we look at consolidated market numbers. From a category perspective, I think apparel continues to perform well for us.
Consumer packaged goods, which was your other question, I think is more of an opportunity going forward, perhaps the back half of this year, beginning of next year. And when we break down market share gain opportunities on a category by category basis, there clearly are categories that we still haven't fully explored and that we hope to tackle moving forward. So I think there's still room for us to sustain our leadership and even gain in terms of share as we focus on these categories and just in general on continuing to improve the user experience that we offer in that market. Thank you.
Thank you. Our next question comes from Eema Zagh from Goldman Sachs. Please go ahead.
Yes. Hi. Thanks for taking my question. Two quick questions. Firstly, on the TPB, you obviously reached a milestone this quarter with off platform TPV in June surpassing the on platform TPV.
And I think you've in the past sort of consistently said that you're you see room for obviously having the off platform TPV growing to multiple times the volume of the on platform TPV. Now I was wondering, as you sort of think about the road map going forward, do you still think that it makes sense to run this business directly? Or would there, at some point, also be an opportunity to potentially sort of partially separate your payment or fintech opportunities from the e commerce in a more formal way? I hope you sort of understand where I'm going with this question. And then the second question on customer acquisition.
I think very much in line with the messages that you passed on the past quarter that you're investing more on the marketing side and driving further customer acquisition. I was just curious if you could shed a little bit more detail on where you may be seeing the biggest opportunities in terms of driving additional cohorts of customers into your base? And is that maybe mostly on the e commerce side or is it mostly on the Pago side and sort of the consumer facing side? And are there any specific regions or demographics that you're going after in this push? Thank you.
Sure. So the first question, your investment banker question, I think quite the contrary, when we look at the roadmap for the next few years, what we still see is significant opportunity for cross selling across the different pieces of our ecosystem, very closely tied to each other. So when we look at adoption of many of our FinTech products, for example, among our marketplace users, both merchants and consumers, there is still significant adoption opportunities there. And those are obviously the lowest customer acquisition costs we have. So as we roll out our loyalty program and as we try to get better at cross selling across platforms, the synergies of having these businesses together, I think is potentially the biggest competitive advantage and differentiator we have against many of the competitors that we face, both on the FinTech side and the retail side.
So we still see these businesses as very, very intrinsically united and as a critical component of our competitive advantage. In terms of where new user cohorts and customer acquisition can come from, like I said before, the investments have applied to both the payments businesses and the marketplace. I think just the nature of the addressable market that we have in front of us in payments probably means that if we look at a 3 to 5 year view, payments should be an area of greater user acquisition as we aspire to become a digital wallet for mass markets. But that doesn't mean that there still aren't opportunities to increase the number of users on the marketplace. We've seen a pickup this last quarter, as we noted, in terms of new users for the marketplace as a consequence of this investment.
And I think that's very positive news as well. So again, customer acquisition investments for both marketplace and payments, obviously payments as we roll out QR and MPOS across multiple countries will probably be a source of new users. And then as we cross sell, hopefully, some of those users also become marketplace users. Regionally, I think the strategy is typically we would like to eventually have coverage of all countries. The MPOS and the QR strategy sometimes do start with a certain regional focus and then expand.
But at the end of the day, our aspiration is to become a payment standard across entire markets.
Very clear. Thank you very much.
Thank you. Our next question comes from Kunal Madhukar from Deutsche Bank. Please go ahead.
Hi,
You talked about new users. Can you talk about the geographies from which the new users are coming from? And as you roll out the newer FinTech products, how many users do you have that are on both platforms, both the e commerce platform and are also using fintech products on a regular basis?
Great. So if you look at the ramp up in investment of marketing, as I said before, it's not focused on any specific geo. Marketing spend as a percentage of revenue has increased sequentially in most markets and certainly in the 3 largest markets. And so we're looking to drive acceleration in new user acquisition, both marketplaces, certainly for payments as we build out the ecosystem across different markets. You'll probably see the heaviest estimates in Brazil, Mexico and Argentina, which are the 3 areas where we're most focused on right now in terms of building out the Paco ecosystem.
And so that we see opportunities for selling both marketplace to Mercado Bio and vice versa and pursue with these problems of Mercado Bio. Sometimes we use the wallet but not asset management, for example, or not MPOS. So this is something we are working on and we see a huge opportunity, but we do not disclose how many how many users are private. It's only one of our customers.
Thanks. And a follow-up on the more extensive discussions with PayPal with regard to how you're going to invest the investment that they had made. How are you thinking in terms of investment over the next few quarters in terms of like the amount of investments and the direction that those investments
could take?
Yes. So I think
a lot of investment will be behind the rollout of the FinTech platform. So that's a combination of online marketing, brand marketing, subsidy of MPOSs and commercial agreements trying to increase the number of large scale investments to pursue. There are investments in our logistics efforts for the marketplace as we roll out a growing number of warehouses, sortation centers and distribution centers. And I think
those are the focus
in terms of incremental spend going forward. Consumer and merchant acquisition on fintech, branding and marketing efforts and continued investment behind the rollout of logistics.
Thank you.
Thank you. Our next question comes from Gustavo Oliveira from UBS. Please go ahead.
Hi, Pedro. Thank you for taking my question. I have two questions. The first one is, if you could give us the rationale for the flat fee implementation in Argentina. And when and if you think about removing the flat fee in Brazil?
And I would like to understand what are your thoughts on GMV impact if that was the case? And then the second question would be about your agreement with PayPal. If there is anything you can comment about it or on whether you expect to finalize in general lines, what would be the thinking behind?
Let me start with the second one very quickly. So we continue to work through implementation details with PayPal, more and more working now on the nuts and bolts of process and technology. I think we'll disclose where we come out at the appropriate time. This is a long term relationship. So whatever we'll launch now is the initial and then we'll see where it goes from there.
But I think it makes more sense to disclose it when we actually launch the different efforts. The rationalize for the flat fee in Argentina, I think we learned a lot from the launch of the flat fee in Brazil. And if you look at the way we launched flat fee in Argentina, you'll realize it's a much smaller amount. I think it's positive in terms of eliminating from the site items that potentially don't really rotate well, because there is a fixed cost for very small cost items that aren't that relevant. But the way we've managed it in Argentina has been detrimental to units sold than in Brazil.
I think in terms of Brazil, whether we would remove it, I think it's something that we will always leave ourselves open to analysis, either removing it or lowering it, but there's nothing that we've announced to our sellers or that had in the cards, that we can disclose right now.
Thank you, Pedro.
Thank you. Our next question comes from Pedro Falgunis from BDI. Please go ahead.
Hi, good evening, everyone. Thank you for taking my question. Just one quick follow-up on the customer acquisition question. In Brazil specifically, now that you're investing more heavily in fulfillment adoption and probably also investing more heavily. Pedro, Youssef, you mentioned maybe NPLS subsidies and things like that.
Does it make sense to assume that we should assume relatively weaker margins going to the back half of the year in Brazil specifically? Thanks. That's my question.
So, we don't give forward guidance, the P and L. I think what we've been answering is that we see an enormous mid- to long term opportunity. A lot of that is in the fintech space. Obviously, I think we've raised capital so that we can make sure that we capture that opportunity over the long run and not try to opt for any specific results over the short term. So you will see incremental investment behind building out our logistics capabilities, building out the FinTech network across multiple geographies.
I think we'll try to remain disciplined in how we deploy capital and make sure that it makes sense for the long term, but not focusing on short term results.
Got it. Thank you.
Thank you. Our next question comes from Jamie Friedman from Stuttel Hannah. Please go ahead.
Hi. Thanks for taking my question. I wanted to ask Pedro Verstado, with regard to the merchant services growth, that was very impressive this quarter. What is the use cases an online merchant using merchant service solution? What I mean is that typically a larger merchant or a smaller merchant?
Is there any profile of who's using the Pagos solutions for merchant services?
So this is Alvaro. So mostly we have been focused, I would say, in the mid market. These are not the larger merchants. We usually
don't direct the
larger market, but
the mid market to whom we provide a very good solution both in terms of it's a full stack subgenre in terms of fraud prevention, ease of integration, customer support and so on. What we have been doing lately is start to focus more also in the long tail, which was not really our success in the past. And so we continue to drive growth mostly through medium merchants, but we're more focused on the long tail. And it has led us to accelerated growth over the last year.
Okay. I mean, Veres, I don't know this. I should. But in terms of the QR code and MTAC overlap, did the QR codes just go to merchants that do not take their mobile point of sale? Or is there a use case where they would have both if someone wanted a card, a non carded transaction or a carded transaction?
How should we be thinking about like the rollout of the QR versus the MPI?
Sure. So, the
rate is mostly in
B2 up in some cases. Purecovers is more efficient, but we have in some very large margin. For example, in Argentina, we had likes of McDonald's or Burger King or Shell or Exxon and so on. And
Our next question comes from Marvin Fong from BTIG.
Great. Thank you for taking my question. Just the first one, I guess, could you just update us on your goals in terms of how much you want running over your managed network? Have your goals changed? I think you had a plan for over the next 2 to 3 years.
I was just curious based on how you guys have been performing, if you updated those goals at all? Thank you.
Hello? Can you repeat the beginning of the question?
Yes. It was just, I think from talking to the before that there were some goals that you had out in terms of how much of the deliveries that you wanted going over the managed network. I was curious if you what those if you could just remind me what those goals are and if you've gotten more aggressive with your outlook on how much you want running over the managed network in the past few quarters as your thinking changed?
I think we've said that we strive over a multiple year view to deliver delivery times and costs that are best in market. And as a consequence of that, we would need to run-in excess probably of 60% of all units shipped through a network that isn't the old drop ship network that we had. So when we look at the evolution versus that long term goal, Mexico is at roughly a third, I think of all shipments already not running on drop ship. Brazil is slightly above 20. Argentina is higher than both of those and we're seeing consistent improvements in terms of lead times and also overall cost.
So I think we remain optimistic with the rollout of our logistics capabilities. Obviously, if we are at a third and a fifth in Brazil and Mexico, there's still a lot of work to be done over the next multiple quarters to get to that mid term goal. But I think we see very good traction in that direction. And I would say equally important, we see our lead times as being very competitive in all of the markets where we operate. So things are planning out, I think very much in line with what we had set out to accomplish on the logistics front.
Okay, great. Thanks. Thank you very much, Thank you.
Thank you. Thank you, ladies and gentlemen, for attending today's conference. This