Major Latin American banks are racing toward 100% digital models. Despite the rise of fintechs, traditional banks are determined not to be left behind.
Digital transformation is no longer a buzzword in Latin America; it is an existential imperative.
Digital natives like Brazilian neobank Nubank, Argentine fintech Ualá, and regional payments platform Mercado Pago are scaling into super-app ecosystems while giants like Santander and BBVA push forward with their own digital units. The next several years may determine whether traditional banks can reinvent themselves fast enough to remain competitive, or whether the fintech wave will carry Latin America into a new era of finance.
The number of fintechs operating in the region surged from 703 in 2017 to over 3,000 in 2023: a staggering 400% increase, according to a joint study by the Inter-American Development Bank (IDB) and Finnovista. The explosion of financial startups has upended traditional banking, and is pressuring established institutions to reinvent themselves or risk obsolescence.
Data from Accenture underscores the challenge: Digital-only banking players have grown revenue by 76% compared to 44% for traditional banks replicating legacy models online. This suggests that simply bolting digital interfaces onto outdated systems yields diminishing returns. Instead, agility and modularity are the new competitive currency.
The rise of digital-only players, the acceleration of instant payment systems like Brazil’s PIX, and the rapid adoption of super-app models are converging to redraw the competitive map. Traditional banks are racing to shed legacy systems and cultural inertia while fintechs expand aggressively into core banking territory.
Constraining the race toward 100% digital banking is a lack of up-to-date basic infrastructure, warns Giorgio Trettenero Castro, secretary general of the Federación Latinoamericana de Bancos (FELABAN).
“Financial services demand that the general public have access to quality, competitively priced internet,” he says. “That is not entirely the case in Latin America, where rural areas face a deeper divide; only 39% of rural populations have internet access. Moreover, Latin America has just 4.8% of the world’s data centers, with Brazil in the lead. This shortage hampers competitiveness and raises costs.”
These structural weaknesses coexist with distinct opportunities. About 57% of fintechs target the region’s unbanked population, according to the IDB and Finnovista report. Currently, around 20% of Latin American adults are not financially included, according to a 2024 study by Mastercard and Payments and Commerce Market Intelligence: a substantial population waiting to be tapped.
Newcomers Reshape The Financial Arena
Traditional banks and fintechs increasingly resemble each other when it comes to their processes.
“In the past, a customer had to bring a pile of documents and meet with a bank manager to open an account and wait several days. Now, everything can be done in minutes on a smartphone: an innovation pioneered by Nubank 12 years ago,” observes José Leoni, managing director at Moneymind Partners, a São Paulo-based financing advisory firm. “Back in the 1980s, the main customer retention tool was automatic debit, clearly a tech innovation for the time. Today, every bank has similar offerings. What makes a bank attractive now are costs, a unified platform for all products, and customer experience.”
Banco do Brasil has put significant effort into customer experience, but despite a technology investment that reached $554 million last year, it still maintains legacy systems.
“Now we have 30% of our applications in cloud computing, so we operate on a hybrid system that has worked well so far,” says Bárbara Lopes, head of Customer Experience for digital and physical channels Banco do Brasil.
While part of its infrastructure remains on-premises, Banco do Brasil considers itself 100% digital, as 94% of clients using its app carry out their transactions through digital channels. Of its 86 million total clients, 31 million are active digital users, a number that continues to grow yearly.
“Our goal is to provide a good, customized experience with AI to serve all our different audiences,” Lopes says: “young people, vulnerable populations, agribusiness workers, and entrepreneurs.” Competition is massive, she notes, and personalizing customer experience is one of the most important strategies for retaining clients.
Banco de Inversiones de Chile (BCI) has adopted a similar strategy, stressing investment in technology as critical to keeping up with trends and delivering a better customer experience.
“Innovation and data management are fundamental pillars of BCI’s growth strategy,” says Claudia Ramos, manager of Innovation and Data Analytics. “That’s why, in recent years, we invested $100 million in our app, which delivered benefits representing nearly 20% of our EBITDA. Today, all our customers use digital channels.”
BCI’s road to digitalization began in 2015; two years later, it launched Machbank, a fully digital neobank offering investment solutions to improve customer experience and broaden inclusion. Machbank now has 4.2 million clients, with a youthful, userfriendly profile, out of a total of almost 6 million at BCI. The bank continues to offer a strong digital value proposition across its 183-branch network, where all customers now use digital solutions.
The latest trends point to interactions driven by massive use of technology, Ramos argues: “Simplicity, transparency, and more objective experiences are the best proposals for financial inclusion. Our next step is to further leverage AI to enhance user experience.”
Challenges Ahead
For incumbents, the challenge is often less technological than cultural; resistance within teams and reluctance to change entrenched routines often slow progress. At BTG Pactual, Marcelo Flora, managing partner and head of Digital Platforms, says he struggled for years to convince his colleagues to embrace digital transformation.
Following the example of Goldman Sachs, BTG Pactual built its reputation on asset management, wealth management, and investment banking, generating comfortable profits of R$4 billion per year ($736 million) in 2014.
“We were victims of our own success,” says Flora: why change a model that was working so well?
Once fintechs emerged and incumbents started to lag, however, BTG Pactual prepared itself for the next wave. The results were striking; profits quadrupled in 10 years, from $736 million to $2.9 billion.
“Now we have the speed of a fintech and the credibility of an incumbent,” Flora says.
Most banks established before the rise of digital players have faced similar hurdles.
“The main challenge is usually not technological, but cultural and organizational,” agrees Andrés Fontão, CEO of Finnosummit, organizer of the annual Latin American fintech conference. “Many institutions carry inherited structures and processes, and if senior management is not fully aligned with the digitalization mission or able to transmit that vision downward, change stalls.”
Digital banking lowers the barriers that traditional models raise: fewer documents, no need to visit a branch, simpler interfaces. This opens doors for previously excluded populations.
“In Mexico, only about 55% of adults had an account in 2023,” notes Fontão. “Other reports indicate just 49% are banked, leaving about 66 million people without access. But between 2017 and 2021, Latin America saw the largest increase in financial inclusion globally—19%—thanks to innovations such as digital payments, online commerce, and digital subsidy distribution.”
That does not mean branch banking is going the way of the dodo.
“Although neobanks are cheaper to operate because they don’t maintain physical branches and promote digital inclusion, in Latin America, the belief in bank branches remains strong,” says Francisco Orozco, professor at the Center for Financial Access, Inclusion and Research of the Monterrey Institute of Technology and Higher Education. “Reputation is essential, and even though young people are digital natives, there is a kind of inherited financial habit. Most people still want to use cash and visit branches.”
Leveraging this predilection, Nu Mexico signed an agreement with the OXXO convenience store chain in January to expand its cash deposit and withdrawal network.
“This is a way to promote digital inclusion,” says Orozco.
Beyond Branches And Borders
Latin America’s transformation could point the way for other developing regions. It combines massive unmet demand, agile fintech innovation, and regulatory experimentation. If incumbents can overcome cultural inertia and infrastructure gaps, they may leapfrog into a model of fully digital, inclusive, and interoperable banking.