Regional Focus

LATAM’s digital revolution

Published: Jan 2023

LATAM’s digital revolution has transformed payments and enabled new e-commerce business models. Elsewhere a new generation of non-traditional banks have piled into financial services and shaken up traditional incumbents with new offerings for businesses and the unbanked. In an explosive pace of change LATAM is reducing cash use and formalising its economy.

Brazil is the best place to witness the change underway in Latin America’s payments landscape. To the beat of samba drums emanating from the country’s historic city centres, a new payments system is bringing the unbanked into the formal economy, fuelling growth in a new generation of companies and fundamentally changing the economic landscape. The central bank only launched its flagship payment scheme Pix in 2020 but the network already has an estimated 135 million users (out of a population of 213 million) and has supported around US$190.5bn transactions.

Pix supports the transfer of funds between people, companies, and government entities encompassing the payment for goods in physical stores and online, bill and invoice payment as well as scheduled payments. Small retailers that have always dealt in cash now accept Pix payments while people who have never had a bank card in their life (the IMF estimates over half the young people in Latin America have never had a debit card) can pay for things via their smartphone, using an alias or scanning a Quick-Response, QR Code. Pix is instant, available 24/7 and evolving fast. For example, more business participation, credit transactions and innovation around near field communication to make payments even faster, is all in the pipeline.

Pix’s success is linked to a few key factors. Launched by Brazil’s central bank rather than a private payment player, it is mandatory for certain institutions to participate. Pix is also inclusive. It has bought different institutions (around 800) from banks to fintechs and credit unions under one, all-encompassing umbrella with the same rules on participation for all. It’s free to use unlike the fees attached to direct-debits or credit cards, while merchants deal with far fewer intermediaries. One of its greatest advantages is speed, writes the central bank on its website. Instead of asking for information regarding the beneficiary’s account and personal data, the payer just asks for the Pix alias or QR code.

Brazil’s success is being closely watched by other countries in the region. Colombia, Argentina, and Peru have launched real-time payment schemes and Chile already has an established scheme. It is also helping fuel the next level of payments innovation. For example, BNPL providers are spreading across the continent. In Mexico, Aplazo works with over 2,000 merchants to offer credit to a growing pool of customers. Through Aplazo, consumers can split their online and offline purchases into multiple instalments without needing a credit card and avoiding the debt trap. Something the company’s purpose-driven founders Angel Peña and Alex Wieland see as a fundamental offering that will empower consumers in Latin America with simple, inclusive and financially responsible payment solutions.

Payment innovation is just one consequence of the digital transformation of financial services underway in Latin America led by Brazil, Mexico and Argentina. Open banking regulation in many countries now permits financial institutions to share customers’ financial data, allowing non-traditional banks to participate in the financial system. Brazil’s Open Finance programme went live in 2021 and already has more than 800 financial institutions participating and more than 9.6 million customers who have consented to information sharing. In Mexico, a 2018 Fintech Law was another catalyst, establishing a framework for fintech companies to legally offer services within the Mexican regulatory system.

Elsewhere, treasury conversation is littered with references to API inventories and e-wallets, the state of CBDC rollout or news of the latest VC in town and scouting for investment opportunities. In 2021, venture and technology growth investors ploughed in an estimated US$19.5bn to Latin American startups, more than in any other region.


Seismic change is happening in the banking space where, in Brazil at least, a handful of big banks have dominated the industry, long criticised for costly fees, high borrowing rates and low levels of public trust. Today, digital, so-called neobanks, are shaking up incumbents by rolling out apps, software and other technology to offer loans, current accounts and investments, explains Philip Benton, principal Fintech Analyst at Omdia. “Real-time payments (RTP) and the growth of neobanks are the most interesting innovations in LATAM,” he says, although he warns that the region’s tougher economic climate visible in high interest rates, double-digit inflation, and weak economic growth, is beginning to test growth in the digital banking sector.

Challenger banks’ ease and speed onboarding new customers has allowed them to reach new customers. Like Nubank, the largest neobank in Latin America, with a customer base of almost 60 million since it launched in Brazil in 2014. The São Paulo-headquartered group has attracted billions of dollars from foreign investors – and given millions of poorer citizens their first ever bank account. “Nubank is one of the most interesting neobanks in the region, globally in fact, due to the sheer scale and profitability it has managed in a short space of time,” says Benton. Elsewhere, he highlights Argentina’s Ualá as another successful and interesting fintech with its focus on financial education.


Such is the growth in digital banks, they are now taking on incumbents. In a bid to build up their customer base and tap government licenses, neobanks are buying traditional banks. For example, Mexico’s Credijusto, a fintech lending to small businesses, recently acquired Banco Finterra to further roll out its offering of services and banking products to micro businesses. Mexico has 51 banks but only a handful grant most of the country’s loans. “By combining our proprietary software and data science expertise with Finterra’s banking capabilities, we are building a next-generation of financial services business,” said Eduardo Mendoza, Executive Vice President of Credijusto. “This acquisition will facilitate cross-border opportunities for the thousands of companies involved in trade between the United States and Mexico, an opportunity that we see as an important growth driver for Credijusto.” Elsewhere, Argentina’s central bank recently approved digital banking startup Uala’s acquisition of rival Wilobank, granting it scope to expand its financial services across the region.

In response to challenger competition, Latin America’s traditional banks have deployed front-end digital infrastructure to improve the customer experience and prioritised data security. However, they have faced a significant challenge in modernising back-end operations because of high costs and the risks associated with overriding legacy IT infrastructure. This is a key impediment in their ability to match the agility of digital challengers and improve the inefficiencies and high costs that have long hindered traditional banking.


New forms of payment coinciding with pandemic-induced lockdowns have triggered an explosion in e-commerce across the region. Because end consumers can now pay online via credit cards, debit cards or from an e-wallet in an instant, automated payment journey it has led to a new generation of companies. Like Latin American delivery app business iFood, founded 11 years ago. “Innovation in the financial sector is generating new business opportunities for the entire production chain,” says Julia Barroso, Vice President, fintech, at iFoods. “Financial solutions created by technology companies have accelerated the consolidation of online habits like ordering food and digital payment services, making it easier, and secure, to pay for goods online,” she says.

In a recent innovation, iFood developed its own fintech, creating a “fintech” vertical in 2020 when it launched Banco do Restaurante in partnership with Movile Pay, part of iFood’s parent company, Movile. Banco do Restaurante enables iFood’s partner restaurants to access financial services ranging from banking transactions (transfers, payment of slips, and cards) and credit transactions (including prepayment of receivables by iFood) to acquiring services (POS offers and payment via QR Code) “iFood’s provided more than R$700m in credit for partners seeking to strengthen their cash flow during the most critical period of the pandemic,” says Barroso.

It’s just the type of innovation alluded to in a recent McKinsey & Company report which highlighted the particular nature of LATAM’s digital revolution. “Too many executives view transformations as one-time events with clear beginnings and ends. Our data shows that Latin American companies that have made their transformations ongoing efforts – essentially incorporating them as the new way of working – have identified up to three times the value originally planned for capture.”

In a next step innovation is leading companies to overhaul their treasury operation. Rappi, one of LATAM’s largest online delivery groups, recently adopted an API solution providing ERP connectivity to enhance visibility and control and make use of multicurrency options in some markets. Rappi’s treasury function can now manage payments from initiation through to proof-of-payment and the company can process around 900 payments per minute (up from 150) across the nine LATAM countries it operates while a centralised and centrally funded treasury has transformed transparency and efficiency.

Still, the region’s new generation of e-commerce companies face daunting hurdles. Getting products from the factory floor into the hands of consumers remains difficult because of challenges around last-mile logistics, returns and handling. As the market size for retail e-commerce in LATAM balloons (it’s forecast to increase to US$160bn by 2025, compared to an estimated US$85bn in 2021) so it requires logistics infrastructure and specialised services across the entire supply chain. But for some companies this is just another opportunity. Like 99minutos, the logistics service group for e-commerce vendors, which uses software to create a faster, cheaper, and more accurate last mile delivery option for merchants, and is already bigger than UPS in its core market of Mexico.

Financial services in LATAM are evolving faster than any other region. The latest innovation will be data availability, say Treasury Today interviewees. Employment data or prior credit repayment data will increasingly support the ability of lenders to underwrite customers leading to an explosion of credit products from credit cards to mortgages or car loans. Digital innovation has fostered a new wave of companies amongst which regional champions are now transforming their own treasury function. Above all, LATAM’s digital revolution is formalising the region’s economies, offering financial services to the unbanked and reducing the use of cash by people and businesses across the continent.

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