Major banks in Latin America are racing towards 100% digital models. Despite the rise of fintech, traditional banks are determined not to be left behind.
Digital transformation is no longer a buzzword in Latin America; It is an existential necessity.
Digital natives such as Brazilian bank Nubank, Argentinian fintech company Ualá, and regional payments platform Mercado Pago are expanding into super app ecosystems, while giants such as Santander and BBVA are moving forward with their own digital units. The next several years may determine whether traditional banks are able to 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 fintech companies operating in the region has risen from 703 companies in 2017 to more than 3,000 in 2023: a staggering 400% increase, according to a joint study by the Inter-American Development Bank (IDB) and Finovista. The explosion of financial start-ups has upended the traditional banking system and is putting pressure on existing institutions to reinvent themselves or risk obsolescence.
Data from Accenture highlights our challenge: digital-only banking players increased their revenues by 76% compared to 44% for traditional banks replicating old models online. This suggests that simply installing digital interfaces on legacy systems results in diminishing returns. Instead, flexibility and modularity have become the new competitive currency.
The rise of digital-only players, the acceleration of instant payment systems like PIX in Brazil, 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 fintech companies are aggressively expanding into the core banking space.
Giorgio Tritnero Castro, Secretary General of the Latin American Federation of Banks (FELABAN), believes that the race towards 100% digital banking is being limited by the lack of modern basic infrastructure.
“Financial services require that the general public have access to high-quality internet at competitive prices,” he says. “This is not quite the case in Latin America, where rural areas face a deeper divide; only about 39% of the rural population has access to the Internet. Moreover, Latin America has only 4.8% of the world’s data centers, with Brazil leading the way. This shortage hinders competitiveness and increases costs.”
These structural weaknesses coexist with distinct opportunities. About 57% of fintech companies target unbanked populations in the region, according to the IDB and Finovista report. Currently, about 20% of adults in Latin America are not financially included, according to a 2024 study by Mastercard and Payments and Commerce Market Intelligence: a large population waiting to be exploited.
New entrants are reshaping the financial landscape
Traditional banks and fintech companies are increasingly similar to each other when it comes to their operations.
“In the past, a customer had to bring a pile of documents, meet a bank manager to open an account and wait several days,” says José Leoni, managing director at Moneymind Partners, a financial advisory firm based in São Paulo. “Now, everything can be done in minutes using a smartphone: an innovation that Nubank pioneered 12 years ago.” “In the 1980s, the main tool for customer retention was automatic debit, which was obviously a technical innovation at the time. Today, every bank has similar offerings. What makes a bank attractive now are the costs, a unified platform for all products, and the customer experience.”
Banco do Brasil has put a lot of effort into customer experience, but despite a $554 million technology investment last year, it still maintains legacy systems.
“We now have 30% of our applications in the cloud, so we are working on a hybrid system that has worked well so far,” says Barbara Lopez, head of customer experience for digital and physical channels at Banco do Brasil.
While part of its infrastructure is still on-premises, Banco do Brasil considers itself 100% digital, with 94% of customers who use its app carrying out their transactions through digital channels. Of its 86 million total customers, 31 million are active digital users, a number that continues to grow annually.
“Our goal is to provide a quality, personalized experience with AI to serve all of our different audiences: youth, vulnerable populations, agribusiness workers, and entrepreneurs,” Lopez says. She points out that competition is huge, and that personalizing the customer experience is one of the most important strategies for customer retention.
Banco de Inversiones de Chili (BCI) has adopted a similar strategy, focusing on investing in technology as critical to keeping up with trends and delivering a better customer experience.
“Innovation and data management are key pillars of BCI’s growth strategy,” says Claudia Ramos, Director of Innovation and Data Analysis. “For this reason, in recent years we have invested $100 million in our application, generating benefits representing approximately 20% of EBITDA. Today, all of our customers use digital channels.”
BCI’s path to digital transformation began in 2015; Two years later, it launched Machbank, a fully digital new bank offering investment solutions to improve customer experience and expand inclusion. Machbank now has 4.2 million customers, with a youthful and user-friendly profile, out of a total of approximately 6 million at BCI. The bank continues to deliver a strong digital value proposition across its network of 183 branches, with all customers now using digital solutions.
The latest trends point to interactions driven by extensive use of technology, says Ramos: “Simplicity, transparency and more objective experiences are the best propositions for financial inclusion. Our next step is to further leverage AI to enhance the user experience.”
Challenges ahead
For incumbents, the challenge is often less technological than cultural; Resistance within teams and reluctance to change established routines often slow progress. At BTG Pactual, Marcelo Flora, managing partner and head of digital platforms, says he has struggled for years to convince his colleagues to embrace digital transformation.
Like Goldman Sachs, BTG Pactual has built a reputation in asset management, wealth management, and investment banking, generating comfortable profits of R$4 billion a year ($736 million) in 2014.
“We were victims of our own success,” says Flora. Why change a model that was working so well?
Once fintech companies emerged and incumbents started falling behind, BTG Pactual positioned itself for the next wave. The results were amazing. Its profits quadrupled in 10 years, from $736 million to $2.9 billion.
“We now have the speed of fintech and the credibility of an established company,” says Flora.
Most banks that were established before the emergence of digital players faced similar hurdles.
“The main challenge is usually not technological, but cultural and regulatory,” agrees Andres Fontau, CEO of Finnosummit, organizer of the annual Latin American FinTech conference. “Many organizations carry legacy structures and processes, and if senior management is not fully aligned with the digitization mission or able to pass that vision down, change stalls.”
Digital banking reduces the barriers raised by traditional models: fewer documents, no need to visit a branch, and simpler interfaces. This opens doors to previously excluded populations.
“In Mexico, only about 55% of adults had accounts in 2023,” Fontau points out. “Other reports indicate that only 49% use banking services, leaving about 66 million people without access to banking services. 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 support distribution.”
This does not mean that subsidiary banking is going the way of the dodo.
“Although neobanks are cheaper to operate because they do not maintain physical branches and do not encourage digital inclusion, faith in bank branches in Latin America remains strong,” says Francisco Orozco, a professor at the Center for Financial Access, Inclusion and Research at 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.”
To take advantage of this preference, Nu Mexico signed an agreement with convenience store chain OXXO in January to expand its cash deposit and withdrawal network.
“This is a way to promote digital inclusion,” Orozco says.
Beyond branches and borders
The transformation taking place in Latin America could pave the way for other developing regions. It combines massive unmet demand, flexible fintech innovation, and regulatory experimentation. If incumbents can overcome cultural inertia and infrastructure gaps, they may leapfrog to a fully interoperable, end-to-end digital banking model.
