In recent years, Latin America has become a fertile ground for digital banking innovation. Fueled by increased smartphone adoption, better internet connectivity, and a surge in fintech activity, the region is undergoing a profound transformation in how financial services are accessed and delivered. But beyond the headlines, one of the most significant shifts is happening below the surface: the evolution of digital banking is reshaping how small and medium-sized enterprises (SMEs) access credit.
As highlighted in McKinsey’s 2023 report on digital banking, Latin America is at a pivotal moment. Over 50% of new financial products are now launched through digital-first channels. This digital momentum is not just improving user experience—it’s enabling a new era of financing models like embedded lending, which has the potential to unlock capital for millions of underserved businesses across the region.
SMEs make up 99% of companies in Latin America and generate more than 60% of jobs, according to regional economic development institutions. These businesses are not only essential to the region’s employment but also to its economic resilience and innovation. However, when it comes to accessing credit, SMEs consistently face obstacles. Traditional banks often classify them as high-risk due to informal accounting, lack of collateral, or thin credit histories that don’t align with conventional risk models.
This is particularly problematic because SMEs are actively seeking financing to:
invest in inventory, marketing or innovation, upgrade equipment, expand regionally, and bridge cash flow gaps.
Yet, nearly half report being underserved or excluded from formal credit markets. The result? Missed growth opportunities, limited ability to hire or digitize operations, and an overall disadvantage in a fast-evolving economy.
The region’s digital banking ecosystem has evolved rapidly. Digital banks—or neobanks—have been launched across Mexico, Brazil, Colombia, Argentina, and beyond. Many of them operate without physical branches, offering mobile-first solutions tailored to a young, tech-savvy population.
What’s driving this growth?
According to McKinsey, digital banks are now winning a disproportionate share of new retail and SME clients by offering lower fees, faster onboarding, and better digital experiences. These trends are also being mirrored in the B2B space, where digital banking infrastructure is enabling faster credit decisions and more customized financial services.
Digital banking sets the foundation, but embedded lending is the next frontier.
Embedded lending refers to credit products offered within the platforms that SMEs already use—whether that’s an e-commerce marketplace, a POS system, or a logistics app. Instead of applying through a bank and waiting days or weeks for approval, SME users can access financing directly through their digital environment, based on their real-time performance data.
This model is flourishing in LATAM for three key reasons:
These use cases demonstrate that SME financing innovation is not about more complex credit scores—it’s about leveraging existing data and embedding financial tools where they are most useful.
As digital banks grow, they unlock infrastructure that can be used beyond consumer banking. APIs, open banking initiatives, and digital KYC protocols make it easier to onboard and assess users in real time. This digital foundation is ideal for supporting scalable, bank-free financing solutions like embedded lending.
More importantly, embedded lending doesn’t just solve a problem of speed or convenience. It addresses a structural gap: credit access in LatAm is fundamentally different from developed markets. In countries with large informal sectors and inconsistent documentation, the future of SME financing lies in models that meet users where they are—on the platforms they already trust and use daily.
Financial inclusion in emerging markets is not just a moral imperative; it’s a growth strategy. The more SMEs have access to capital, the more they can:
McKinsey’s data points to a powerful trend: SMEs with access to digital financial tools grow 2–3x faster than those without. And for many of them, embedded lending is their first real interaction with formal credit.
To continue scaling digital SME lending, the region needs:
As the financial ecosystem matures, the lines between fintech, banking, and platforms will continue to blur. What matters is not where financing comes from—but how seamlessly it meets the needs of millions of businesses driving the Latin American economy.
For digital platforms—such as payment processors or marketplaces—embedding financing is not just a value-add for users. It enhances loyalty, boosts transaction volumes, reduces churn, and creates new revenue streams through commissions or service fees. In enabling financial inclusion, these platforms also unlock their own long-term growth potential.
The evolution of digital banking in Latin America has paved the way for a more inclusive, agile, and scalable financial ecosystem. And at the center of this transformation is embedded lending: a model that fits the region’s unique challenges and opportunities.
It’s not just the future of SME lending. In many ways, it’s the present reality that’s reshaping access to growth capital in Latin America.
McKinsey & Company. “Global Banking Annual Review 2023: The great banking transition.” https://www.mckinsey.com/industries/financial-services/our-insights/the-great-banking-transitionOECD, CAF, SELA. “SME Policy Index: Latin America and the Caribbean 2024.” https://www.oecd.org/dev/sme-policy-index-latin-america-2024.pdfHelmi Group. “Fintech in Latin America: Trends and Opportunities 2023 Q4.” https://www.helmigroup.com/insights/fintech-in-latin-america-trends-and-opportunities-2023-q4World Economic Forum. “Embedded Finance: A Disruptive Force for Financial Institutions.” https://www.weforum.org/stories/2025/04/embedded-finance-disruptive-force-financial-institutions
