LATAM Weekly: AMLO Plans to Overhaul Mexico’s $266 Billion Pension System and More...

Mexican President Andrés Manuel López Obrador presented a plan to overhaul the nation’s $266 billion pension system, seeking to have companies pay more toward employee retirement funds, in a rare display of unity with business leaders.

In a Wednesday morning press conference, AMLO said that the reform will stave off a looming retirement crisis. The bill would focus on boosting pensions for low-income workers and increase them for employees overall by 40%, Finance Minister Arturo Herrera said at the event, talking alongside business, union and congressional representatives.

According to Bloomberg, this deal appears after months of speculation that the president would potentially back a more radical reform of the system, that would increase state control. However, AMLO’s announcement signaled a rare conciliation between the president and corporate Mexican leaders, who have fought with the government over the lack of fiscal stimulus and the administration’s cancellation of key investment projects in the country.

The plan, which was being immediately sent to the lower house of congress, mandates that employers nearly triple over a period of eight years the amount they pay toward pensions to 13.87% of worker salaries, officials said.

Terluk said the bill was broadly similar to a recent proposal from the country’s conservative opposition party. “This will be readily passable in some form that is similar to what is being presented. That seems to rarely happen with this administration,” he added.

Not changing the system “would have caused a crisis, and those who would have suffered the most are the workers,” AMLO said. “For this reason, a commitment was made for a new pension system reform, and it had the support of the business sector and the labor sector.”

Benito Berber, an economist at Natixis SA, said the plan was “very pro-market and positive” and silenced - at least for now - concerns that the government would try to force pension funds to invest in the president’s big infrastructure projects. Among the key proposals is a reduction of the required weeks a person must work to have access to their pension in the first place.

The government will lower the obligation to 750 weeks, or almost 15 years, from 1,250 previously.

The move by López Obrador is in keeping with his pledge to protect Mexico’s poor. A Finance Ministry presentation showed that workers who earned minimum wage will receive 103% of their salaries upon retirement, while those who make 5-times the minimum wage will receive 54%.

At the same time, the announcement allows the president to show a conciliatory tone toward business after months of confrontation as Mexico faces what could be its worst economic crisis on record.

Brazilian energy trading firm 2W Energia has hired banks to manage an initial public offering which may reach up to 1.5 billion reais ($281.48 million), sources with knowledge of the matter said last Thursday.

As reported by Reuters, investment banking units of Banco BTG Pactual SA, XP Inc, Bank of America and Credit Suisse will manage what would be the first Brazilian stock exchange IPO by an energy trading firm. Riza Capital is also advising the company.

2W plans to use proceeds from the offering to build solar and wind plants in Brazil’s northeastern region, expanding its business beyond trading. Companies that both trade and generate energy usually cater to large customers, but 2W plans to sell energy to small- and mid-sized businesses with short-maturity contracts.

The company, which has former Renova Energia founder Ricardo Delneri among its partners, aims to debut on the B3 stock exchange by August or September.

Brazil’s central bank will authorize a payments system involving Facebook Inc.’s WhatsApp messaging service, to send money and make payments via chats, as long as all rules are respected, director João Manoel Pinho de Mello said this Monday.

The New York Times reports that the central bank suspended the newly launched WhatsApp payment service last month and said it is analyzing whether the service can operate safely in terms of data protection and competition

Open banking is appealing to financial institutions (FIs) and regulators in many markets, even as the pandemic sweeps across the globe. FIs and financial authorities in Brazil, Chile and Mexico are considering how best to apply open banking within their home markets, assessing the unique challenges they face as the pandemic affects transactions and consumers’ and merchants’ access to funds. This means the crisis may have large-scale effects on how open banking develops in Latin America. 

According to Pymnts, regulators tasked with crafting these rules are dealing with other banking and payments shifts in their countries, too. The pandemic is keeping brick-and-mortar branches shuttered and limiting cash transactions as smartphone penetration rises. Many consumers are unbanked, including more than 45 million Brazilian customers, meaning they are likely interacting with financial and merchant entities primarily through mobile channels. Many nations in the region are thus examining their open banking proposals to ensure they address this behavior.

The latest Merchants Guide To Navigating Global Payments Regulations examines how open banking initiatives are developing in Latin America as well as how the pandemic is affecting these moves. The report also analyzes how such rules are likely to change in the next several years as the health crisis alters the region’s online banking adoption and digital payments volumes. Key findings from the report are discussed below. 

Open banking is developing quickly in Brazil, where financial authorities recently announced plans to implement an initiative for the country’s FIs. The Conselho Monetário Nacional (CMN) as well as the Banco Central do Brasil, its central bank, have created a four-stage plan to introduce open banking. The first stage is set to take place in November, according to the financial entities, and will detail how Brazilian FIs can store and transfer data across digital customer service channels. The next three stages concern increasingly complex banking layers, with the last phase set to take place in October 2021.

Brazil’s plan to implement a dedicated open banking strategy is also drawing more FinTechs and third-party banking providers into its market. Uruguay-based FinTech Prometeo recently unveiled that it will expand into Brazil and Panama, for example. It provides application programming interface (API)-based open banking solutions for other financial entities and services, allowing clients to send and receive data with more transparency and flexibility. These solutions thus offer similar support as those pitched to FIs within the EU, which have been searching for easier ways to share online data since open banking’ implementation in 2018. Prometeo’s product will be available in nine Latin American countries with the addition of Brazil and Panama.

Latin American countries like Brazil and Mexico are continuing to develop open banking rules during the pandemic, and regulators and banks in these countries are analyzing how best to create networks that can address their customers’ needs. Many of the region’s consumers remain unbanked or lack access to traditional banking products, but smartphone penetration is increasing, giving many individuals the ability to make online transactions via their mobile phones.

PYMNTS spoke with Paula Arregui, Chief Operating Officer for Mercado Pago, the payments unit for Argentinian eCommerce marketplace MercadoLibre, and João André Pereira, Head of the Financial System Regulation Department for Brazilian regulator Banco Central do Brasil, to discuss how open banking is developing in Brazil and in Latin America as a whole.

Digital banking is a popular concept in Latin America, with one recent study finding that 73 percent of Brazilian consumers would be open to using online-only banks, for example. Regulators within the country are taking this interest — and the changes necessary to secure such digital transactions — seriously, unveiling a four-stage open banking plan to get the nation’s FIs up to speed. Banks, merchants and regulators in Brazil and other Latin American countries must examine how recent events such as the pandemic could change what consumers expect from their banking relationships, however. These customer behavior shifts would therefore necessitate upgrades to upcoming rules designed to keep consumers’ financial information and money safe.

Major League Baseball has named Betcris, an online sportsbook based in Costa Rica, as its first official wagering partner in Latin America. The partnership is similar to deals that the MLB has done with licensed sportsbooks both domestically and internationally. Betcris will receive access to MLB’s official data feed as well as rights to league marks and logos.

According to CEO JD Duarte, Betcris- which is not licensed in the U.S.- has not taken bets from anyone in the U.S. since 2007, after a federal law was put in place targeting the monetary transactions involving online gambling.

According to ESPN, 

Duarte denied that his company was involved in the bookmaking operation. He maintains that the company does not accept bets from the U.S. and is not involved with any other operators that do.

A source familiar with the league’s thinking said MLB was aware of the attention Betcris had received from U.S. authorities but ultimately was comfortable that since Duarte took over the business around 2007, the sportsbook had operated within the rules.

The American Gaming Association, a Washington, D.C. trade group that represents the U.S. casino industry, has launched an initiative to help educate bettors and media outlets distinguish between legal and illegal betting markets.

Duarte said Betcris does have hopes of becoming a licensed bookmaker in the U.S.

The first decade of the new century brought to Brazil stable economic growth that- for years- was unseen. With millions of Brazilians ascending socially and businesses thriving all around the country, demand for air travel was at an all-time high. 

Airline Geeks reports that between the deregulation of the 1990’s and the growth of the early 2000s, a number of unsuccessful ventures tried to capture the price-sensitive population, making use of aggressive pricing. GOL Airlines succeeded by exploring this niche. However, one specifically stood out by systematically charging ultra-low fares, an airline that is still remembered to this day: Webjet Linhas Aéreas.

In the “golden” years of the airline, Webjet managed to continuously offer the cheapest fares and deals that shook up the market, especially in the years between 2009 and 2012. The path to its short-lived success, however, was difficult and more complicated than often thought.

In 2005, as GOL and TAM quickly took over large chunks of the market over a weakened VARIG, a group of investors saw the  opportunity to emulate the business model which made GOL a superpower, radicalizing it to make costs even lower. This airline would be a synonym of “low-cost/low-fare” in Brazil in the years to come, and thus, Webjet Linhas Aéreas was born.

Along with a group of four investors, Ottoni raised 10 million Brazilian reals — about $4.26 million at the time, or $5.6 million in current values.

Despite the small-capitalization, Ottoni aimed high. Initially based in Rio de Janeiro and flying a single 737-300, Webjet expected to carry 500,000 passengers in its first year of operations, with expected revenue of 120 million reals ($22.4 million), as per reports from the time.

Two crucial pieces of Webjet’s business model differed greatly from GOL’s. First, the airline would charge the same fare for every seat, only eventually changing the price according to demand behavior. Second, it would only sell its tickets directly to passengers, through its website or via telephone bookings. Prices for its inaugural flight connecting Rio de Janeiro/Galeão to Brasilia, reported ISTOÉ Dinheiro at the time, would cost 238 real, against GOL’s 319 real.

As expected, competitors did not stand still with the newbie in the market, quickly reacting to Webjet’s launch prices. The company initially opted for a network connecting high-traffic markets, where it directly competed with GOL, TAM and VARIG.

With these upsetting numbers and no sign of recovery, Webjet’s management team started taking panic measures to prop revenue up. In September, the airline changed its marketing by allowing ticket sales through travel agencies. In October, it also started flights to two new destinations: Belo Horizonte and Florianópolis. All of these tactics proved to be worthless.

In October, even fewer passengers were transported: 8,316. For three days, the airline even decided to cancel all of its flights, claiming the move was meant as a response to low load factors. 

To Folha de São Paulo, Rogério Ottoni even pleaded for passengers’ trust at the time, saying, “The construction of a company in this industry passes by the passenger. It may be utopic, but we [convinced] society to do that.”

Suffering from the increased competition and continuously losing cash, Webjet gave up in November, paralyzing all its operations. At the time, Ottoni publicly blamed a coordinated action of the major airlines to bring fares down and take the startup out of the market. Before fully stopping, the airline mentioned it was considering charter flights and even carrying cargo to assure its survival, but it was too late.

The report  titled ‘The impact of FinTech innovations in Mexico’ by Startupbootcamp FinTech in Mexico City, a program managed by Finnovista in Latin America, takes a look at the role of Fintech innovations in the region and the challenges to be faced by startups, agents regulators and financial institutions.The report, in collaboration with EY, examines the progress toward financial inclusion, regulatory advancement, and cybersecurity as drivers of change in Mexico and Latin America. The report also highlights how Fintech innovations are transforming the financial culture of Mexicans.

The impact created by Fintech startups in Latin America, and particularly in Mexico, has allowed for greater access to digital financial products and services to niches of the population that needed greater financial inclusion. In recent years, Mexico has become, together with Brazil, one of the largest entrepreneurship hubs for the support and great takeoff of Fintech startups that begin their acceleration or escalation within Latin America. According to the Startupbootcamp FinTech report, carried out in collaboration with EY, this is, among other reasons, due to the large number of opportunities related to financial inclusion offered by Mexico and the rest of the region.

The objective of the report is to showcase the infinite opportunities for change that digital financial services present amid our world’s changing “reality” that will change the current economy. The report highlights various impact factors in the region’s fintech innovation ecosystem. 

The full report (published in Spanish) can be accessed here.

Since Latin America’s debt-ridden 1980s, many aspects of business in the region have changed for the better. Other areas, however, have not. The first is the plethora of small businesses, from family-run corner shops and ice-cream parlours to hardware stores, that by and large are as run-down as they were back then, which stubbornly enforce cash-only payments (even if cashiers still struggle to work out how much change you are due). The second occurrence is visiting a bank, which seems just as antiquated. 

The two traits reinforce each other. Small businesses fail to modernise because they struggle to tap credit. Oligopolistic banks feel vindicated in not caring about firms stuck in the past. 

According to The Economist, the resulting lack of dynamism among the small and medium-sized firms that account for more than 99% of enterprises in Latin America is a brake on economic activity. With COVID-19 still wracking the region, the vulnerability has become worse. Total or partial lockdowns as well as fear of contagion and a deep recession have put many of the region’s smaller businesses in mortal danger.

Not all, though. Enter MercadoLibre, the pan-Latin American e-commerce and fintech firm, whose market value has doubled to $50 billion during the pandemic as it has provided online sales and payments lifelines to such vulnerable companies. Since it was founded in 1999 by, among others, Marcos Galperin, an MBA graduate from Stanford University, it has become the region’s biggest tech darling, although in 2020 revenues are projected to be just $3.2 billion and it will lose money for a third year running. Profit, though, is for the future. MercadoLibre is part of a wave of digital disruption that may propel smaller firms—which make up about 80% of those using its platforms—into the modern era.

MercadoLibre, which means “free market” in Spanish, has been compared to eBay, the American online marketplace that was an early investor, although it is now worth more than its American mentor. The company shares some characteristics with Amazon (with which it competes, especially in Mexico). 

 Like Amazon in its early days, it is prepared to forsake short-term profit for rapid growth. It has also been developing a logistics network. But unlike Amazon, it rarely trades on its own behalf; its e-commerce business earns a fee from transactions between buyers and sellers on its platform. In that way it resembles Alibaba, owner of China’s online emporiums. Its fintech arm, Mercado Pago, is loosely modelled on Alipay, Alibaba’s payments system. Plans announced on July 20th by Alipay’s owner, Ant Group, to issue shares that could value it at $200 billion have MercadoLibre’s investors salivating over the prospect of a Latin American equivalent.

What attracts those investors most is the promise of a digital revolution in Latin America. It has been slow to get going. Last year less than 5% of retail sales in the region took place online, compared with 12% in America and 20% in China. Half of all Latin Americans lack a bank account.  

Fear of credit-card fraud has held back e-commerce, as have logistical nightmares in Brazil, where MercadoLibre generates more than half its revenues. Yet in a mixture of luck and good timing, the firm had invested in logistics just as e-commerce penetration surged into double digits amid the pandemic. Pedro Arnt, its Finance Chief, says Latin America’s move online has been “fast-forwarded” by three to five years in the past few months. That is true everywhere. But if first-time online shoppers in Latin America make it a habit, MercadoLibre has plenty to gain. 

According to Barclays, the value of merchandise traded on MercadoLibre averaged $30 per Latin American last year. The equivalent figure for Amazon in its core markets of America, Europe and Japan was $405.

The potential for payments may be even greater, though this business has had a bumpier ride in the pandemic. Beforehand, MercadoLibre was busily trying to bring offline merchants into its orbit by encouraging them to accept mobile payments via QR codes at bricks-and-mortar outlets. With the closure of restaurants and shops this initiative slowed. But QR adoption as a social-distancing measure may flourish as businesses reopen. Marvin Fong, a brokee with BTIG, says a push by Latin American central banks to promote QR-style digital payments could galvanise fintech platforms in Latin America, such as Mercado Pago.

On Wednesday, Chinese Foreign Minister Wang Yi announced a $1 billion loan to Latin America and the Caribbean for COVID-19 vaccine access during a virtual gathering with his Latin American counterparts, according to a statement released by the Mexican Foreign Affairs Ministry.

CNN reports that during a daily briefing on Thursday, Mexican President Andrés Manuel López Obrador thanked China after the loan announcement.

Ahead of the meeting, China’s Foreign Ministry spokesperson Wang Wenbin said in his daily briefing that during the pandemic, "China and Latin American and Caribbean countries, though oceans apart, have stood together against this common foe and conducted practical and effective cooperation to the benefit of all our people.”