Embedded Credit in Action: empowering tech platforms to unlock SMB potential in LatAm
How technology companies revolutionize SMB financing in LatAm with R2’s unique revenue-based lending. Deep-dive into credit innovation, AI-powered tech, and real impact on underserved businesses.
Bridging Latin America's $1.8 Trillion SMB Credit Gap
Small and medium-sized businesses (SMBs) are the backbone of Latin American economies, representing over 90% of all companies in the region. They are the "productive engine of society," driving job creation, fostering innovation, and ensuring economic stability. Yet, these vital enterprises face a colossal financing challenge: a staggering credit gap estimated to be as high as $1.8 trillion across Latin America. A significant 87% of Micro, Small, and Medium-sized Businesses (MSMBs) find their credit demands unmet, severely stifling their growth and leaving them vulnerable to liquidity issues, delayed payments, and even bankruptcy.
Traditional financial institutions often overlook these otherwise creditworthy SMBs. This pervasive issue stems from a fundamental mismatch between conventional lending criteria and the evolving nature of modern businesses. Traditional banks struggle to leverage the granular data needed for accurate risk assessment of informal or digitally native businesses. Their reliance on tangible assets as collateral also presents a significant barrier for asset-light, technology-driven companies that lack the physical property typically required for securing loans. This systemic deficiency is not just a capital deficit; it's a persistent market opportunity for fintech credit innovation capable of deploying alternative data and flexible financing models.
It is within this context that R2 emerged in 2020, headquartered in Mexico City and other latin countries, like Colombia, Chile and Peru. R2's mission is clear: to unlock the untapped potential of SMEs by delivering innovative financial solutions precisely tailored to their distinct needs. R2 aims to fundamentally reshape Latin America's financial infrastructure, ensuring SMBs can access necessary capital without the cumbersome and often exclusionary processes of traditional banking. Since its inception, R2 has rapidly scaled, securing over $180 million in funding, including a notable $100 million line of credit from Community Investment Management. This robust investment is further bolstered by support from world-class investors like Google's AI-focused fund Gradient Ventures, General Catalyst, and Y Combinator. This substantial capital injection provides R2 with the resources to expand its operations and technology, serving as powerful validation of its approach and the immense market potential within Latin American embedded finance.
Demystifying Revenue-Based Lending: A Paradigm Shift in Financing
Revenue-based lending (RBL), often called revenue-based financing (RBF), signifies a profound departure from conventional capital-raising methods. In this model, businesses secure an upfront lump sum of capital by pledging a predetermined percentage of their future ongoing revenues. A hallmark of RBL is its inherent flexibility in repayment. Unlike traditional loans, which mandate fixed monthly payments or rigid interest rates, RBL repayments dynamically adjust with the company's monthly or quarterly income. This means that during periods of robust revenue, repayments are proportionally higher, while during slower periods, they decrease accordingly, directly aligning repayments with the business's actual performance and significantly alleviating cash flow pressures. The total repayment amount is typically capped at a pre-established multiple—for instance, 1.5x to 2.5x—of the original investment, known as the "repayment cap" or "factor rate." Once this cap is reached, the obligation to share revenue concludes, providing a clear and defined exit for the financing.
The advantages of RBL over traditional financing options are multifaceted and compelling. A primary benefit, highly attractive to businesses, is the absence of equity dilution; RBL does not necessitate relinquishing any ownership stake or control over the company, a stark contrast to equity financing. This empowers entrepreneurs to retain complete control and full incentive to drive their business's growth. The flexible repayment structure, where payments adjust to sales, offers unparalleled adaptability compared to the rigid, fixed monthly payments of traditional loans. This dynamic arrangement is particularly advantageous for businesses with fluctuating revenues.
RBL also boasts a significantly faster approval process, often less stringent than conventional methods. The assessment primarily focuses on revenue potential and cash flow rather than extensive financial statements or collateral. Decisions can frequently be rendered within 24 hours, with funds accessible in days or weeks, a dramatic improvement over the months often required for traditional bank loans. Moreover, RBL providers generally do not demand tangible collateral or personal guarantees from business owners, mitigating the risk of losing personal or business assets. This feature is especially beneficial for modern, asset-light, technology-driven companies that may lack traditional physical assets. The very structure of RBL inherently aligns the interests of both the business and the investor, as investors are motivated to actively support the company's growth because their returns are directly tied to its revenue success. Unlike traditional bank loans, RBL typically avoids imposing restrictive covenants that dictate business management, such as maintaining minimum liquidity levels, granting businesses greater operational autonomy.
This model represents a more appropriate and enabling financing option for the new generation of scalable, digital businesses. Traditional loans, by demanding tangible assets as security, often present an insurmountable hurdle for tech-driven companies whose primary value resides in intangible assets like intellectual property or software. RBL, by shifting its focus to recurring revenue streams, effectively bypasses this requirement. By providing capital access that traditional systems would deny, RBL directly accelerates innovation, fosters entrepreneurship, and contributes to economic diversification.
R2's Core Differentiator: Embedded Credit for Platforms
R2 significantly distinguishes itself within the fintech ecosystem by operating not as a direct lender to SMBs, but as an "embedded lending infrastructure provider." This strategic positioning enables R2 to empower other digital platforms—including e-commerce platforms, payment processors, Point of Sale (PoS) systems, and online marketplaces—to seamlessly offer financial services directly to their own merchant customers.
This service is delivered as a "white-labeled financial service" or "Capital-as-a-Service (CaaS)" or “Lending-as-a-Service (LaaS)” solution. This critical aspect allows R2's partners to offer financing under their own brand, preserving their existing customer relationship and brand integrity, without R2's name being front and center to the end merchant. R2 provides the comprehensive "lending stack," encompassing all complex back-end operations: data acquisition, sophisticated risk assessment, compliance, loan servicing, back office management, and even collections. This end-to-end solution is transformative, enabling platforms to launch a fully functional lending program in as little as two weeks, entirely bypassing the need to build complex lending capabilities from scratch while also not having to put a single penny.
Payment Processing Platforms Unlocking SMEs Potential
By integrating financing directly into the platforms where SMEs already operate and manage their daily businesses, R2 facilitates truly "frictionless capital" access. SMEs can access vital working capital and growth financing seamlessly within their existing workflows, eliminating the need to navigate external banking systems, complete extensive paperwork, or endure lengthy approval processes. The offers are tailor-made to specific merchant needs, ranging from $500 to $50,000 USD. The API-first approach is central to achieving this seamless integration, allowing for instant access to financing offers and real-time balance checks directly within the partner platform's interface.
This embedded model creates dual benefits, for both the digital platforms and the merchants they serve. For digital platforms, partnering with R2 unlocks and activates entirely new, diversified revenue streams beyond their core business. This embedded credit for platforms significantly boosts their merchants' Gross Merchandise Value (GMV) and dramatically increases customer retention and loyalty, making the platform inherently "stickier" for its users. This also provides a substantial competitive edge in increasingly crowded digital markets. For SMEs, they gain faster, fairer, and more convenient access to crucial growth capital. The automated deduction of principal and interest payments directly from their platform revenues minimizes trust requirements and streamlines the credit system, making repayments effortless and integrated into their natural cash flow. This model is precisely tailored to their cash flow needs and directly supports their growth and operational efficiency.
The B2B2B embedded model is more than just a distribution channel; it is a profound strategic move that leverages existing digital ecosystems. By integrating directly into established platforms, R2 taps into a pre-existing, captive audience of SMEs who are already engaged and generating valuable transactional data. This approach significantly reduces the high customer acquisition costs and overcomes the trust barriers that direct lenders typically face when trying to reach individual SMBs. This embedded strategy positions R2 as a critical enabler of the digital economy in Latin America. It transforms platforms from mere service providers into comprehensive financial hubs, deepening their relationship with merchants and creating a powerful network effect that reinforces R2's market position and accelerates its scaling capabilities.
R2's promise to be a platform's "financial arm, in days not years" highlights an immense value proposition for non-financial companies (e-commerce, POS, marketplaces). These entities often wish to offer financial services to their users but lack the specialized expertise, robust infrastructure, or regulatory know-how required. R2 addresses this by taking on the credit risk and handling the entire complex back-end of lending. This effectively democratizes access to financial services provision, allowing virtually any platform with a significant merchant base to become a fintech player without the prohibitive upfront investment or operational complexity. This will inevitably accelerate the proliferation of embedded finance solutions across Latin America, pushing financial inclusion forward by meeting SMEs precisely where they already conduct their business.
Beyond Credit Scores: R2's Data-Driven Underwriting Innovation (R2’s Lending Model Explained)
At the very core of R2's unique value proposition is its revolutionary departure from traditional, often exclusionary, credit history-based assessments. Instead, R2 bases its lending decisions predominantly on dynamic, real-time income streams, comprehensive transaction history, and detailed payment flows. This approach is a direct and necessary response to the prevailing reality in Latin America, where a vast number of SMEs, despite being creditworthy and economically active, lack formal credit histories or the tangible assets typically required by traditional banks. This is a crucial aspect of the R2 lending model.
R2 leverages "alternative data" sourced directly from its platform partners. This encompasses rich data generated from the merchants' daily operations within e-commerce, POS, or marketplace ecosystems. Examples of such data include sales volumes, customer reviews, delivery performance, inventory turnover, and other crucial operational metrics that paint a holistic picture of a business's health and potential. This model fundamentally redefines what constitutes creditworthiness. Instead of relying on traditional, often non-existent or inadequate, credit scores for SMEs in Latin America, it shrewdly leverages the "digital footprint" created by their online transactions and platform activity. This pivotal shift is directly enabled by the accelerating digitization of commerce across Latin America, which provides a rich, real-time data stream. This innovation is not merely about using alternative data; it is about establishing a new, more relevant, inclusive, and dynamic standard for financial assessment in the digital era. It transforms previously "unbankable" businesses into creditworthy entities, thereby fostering financial inclusion on a massive, unprecedented scale by recognizing their true economic activity.
AI Applying Millions Of Data Points And New Financial Use Cases
R2's sophisticated technology platform is built upon "data-driven underwriting" and advanced "AI-trained credit models." These proprietary models are extensively pre-trained on data from millions of merchants, allowing for a far more precise, nuanced, and accurate risk assessment than outdated traditional methods can achieve. This technological breakthrough truly enables R2 to offer capital in a way that is "faster and more inclusive than legacy financial institutions." It facilitates the generation of tailor-made offers for individual merchants and significantly reduces the time and manual effort required in loan origination and servicing through highly automated workflows. The ability to analyze vast datasets and diverse alternative data sources empowers R2 (and by extension, its partners) to gain a deeper understanding of the market, effectively lessen financial constraints for businesses, and more effectively handle demand shocks. The extensive use of AI-trained credit models and automated workflows is not just about making faster lending decisions; it is about making demonstrably better decisions. AI algorithms can process, analyze, and identify complex patterns in alternative data that human underwriters or traditional statistical models might entirely miss, leading to significantly more accurate risk assessments and, consequently, potentially lower default rates for lenders. The inclusion of "AI-driven solutions" even within their collections processes further reinforces the end-to-end integration and reliance on AI for operational excellence and risk management. The strategic and pervasive application of AI allows R2 to scale its operations with remarkable efficiency while simultaneously maintaining robust and sophisticated risk management capabilities. This technological edge is absolutely crucial for navigating the inherent complexities and unique risks of emerging markets, enabling R2 to consistently deliver on its promise of frictionless, inclusive, and sustainable financing.
Traditional banks often struggle with what is termed "financial mismatch and funding limits" for businesses, particularly those engaged in basic and high-technology R&D. Their rigid, strict underwriting processes can notoriously take months to complete, creating significant delays for businesses needing agile capital. Crucially, their inherent reliance on conventional credit scores and the requirement for physical collateral fundamentally excludes a massive segment of the vibrant SME market in Latin America, thereby perpetuating the pervasive credit gap. R2 directly addresses this systemic failure by constructing a robust lending stack powered by AI-trained credit models, effectively bridging the chasm between SME financial needs and the complexities of accurate risk assessment.
Driving Fintech Credit Innovation in Latin America
R2 operates squarely at the forefront of the "fast-growing Latin American fintech and SME lending space." The alternative SME financing sector in the region is experiencing truly rapid growth, projected to reach US $57.8 billion by 2028, reflecting a robust Compound Annual Growth Rate (CAGR) of 19.6%. This explosive growth is fundamentally fueled by a confluence of factors: innovative product offerings, strategic partnerships that expand reach, and evolving regulatory frameworks that aim to balance market expansion with consumer protection. R2's unique model, particularly its deep focus on embedded finance, is a pivotal driver of this broader wave of fintech credit innovation. Fintech, in general, demonstrably improves regional innovation efficiency. It significantly increases the processing speed of loan applications (by approximately 20%) and effectively leverages big data and machine learning to lower risk and enhance access to financing for businesses.
The region is undergoing a profound "digital transformation," characterized by high smartphone penetration and widespread internet access, which are rapidly fueling the shift from traditional cash-based transactions to digital payments. E commerce, in particular, is booming, with transaction volumes more than tripling between 2019 and 2023. The market was valued at $509 billion in 2023 and is projected to grow to an astounding $923 billion by 2026. Within this dynamic environment, sub-segments like peer-to-peer lending and fintech-driven credit platforms are gaining substantial traction, specifically catering to previously underserved populations and small businesses. The escalating demand for digital services is actively pushing traditional financial institutions to offer more sophisticated digital banking services, thereby creating a supportive and competitive environment that fosters local innovation across the financial sector.
The rapid and widespread growth of e-commerce and digital payments in Latin America is not merely a contextual backdrop for R2's operations; it is the fundamental enabling condition for its innovative model. Without the verifiable digital footprints of SMEs on these platforms, R2's data-driven underwriting would be impossible. Conversely, R2's embedded finance solutions actively accelerate e-commerce adoption and digital payment usage by providing essential growth capital directly to merchants within those digital ecosystems. This creates a powerful, self-reinforcing virtuous cycle: increased digitization fuels the efficacy and scalability of embedded finance, which in turn drives further digital adoption and formalization of businesses. R2 is therefore not just participating in the digital transformation of Latin America but is actively accelerating it, strategically positioning itself as a foundational layer for the future of commerce and finance in the region.
R2's model directly and effectively addresses the immense challenge of the large unbanked population in Latin America (estimated at 178 million as of 2021) and the pervasive SME credit gap. By enabling platforms to seamlessly offer financing, R2 helps "underbanked businesses" gain crucial access to capital, directly stimulating economic growth and advancing financial inclusion. A key operational aspect of R2's model is the automatic deduction of principal and interest repayments directly from merchant platform revenues. This mechanism ensures that merchants are "banked and have a financial footprint," a critical step towards formal financial participation and building a verifiable credit history within the digital ecosystem. This process minimizes trust requirements and significantly streamlines the credit system, fostering a more robust and efficient financial ecosystem. R2's vision is deeply aligned with the future of finance, where "AI-powered credit underwriting will become more precise, leveraging transactional and behavioral data instead of traditional credit scores," thereby unlocking lending opportunities for millions who were previously excluded.
R2 explicitly states that it takes on the credit risk and handles the intricate "full lending stack," which includes everything from sophisticated risk assessment to compliance and collections. This comprehensive risk and operational burden transfer is a massive incentive for platforms. It allows them to offer valuable financial services to their users without having to take on the inherent financial risks, regulatory complexities, or operational burdens of becoming direct lenders themselves. This "de-risking" function is a powerful differentiator for R2, making its solution highly attractive to platforms, especially those without prior financial services expertise or the capital to build out such capabilities. It enables these platforms to diversify their revenue streams and significantly enhance customer value without diverting critical resources from their core business or incurring substantial financial and regulatory liabilities. This positions R2 as an indispensable strategic partner for any platform looking to expand its offerings into the financial realm.
Real-World Impact: Partnerships and Success Stories
R2’s lending model is best explained through its real-world impact. The company’s business strategy relies on strategic collaborations with leading digital platforms across Latin America. These alliances are essential for R2’s B2B2B model, as they provide robust, pre-existing distribution channels to deliver embedded lending services at scale.
R2 has partnered with several prominent regional platforms—including apps used for delivery services, point-of-sale solutions, and online marketplaces—which are widely adopted by SMEs across the region. For instance, a successful case in southern Latin America involved embedding merchant lending within a food delivery management app, enabling thousands of restaurants and grocery stores to access working capital directly through a familiar interface.
R2’s seamless integration into these environments ensures that capital reaches businesses precisely when and where it is needed. Additionally, R2 has extended its reach by collaborating with vertical-specific digital platforms—such as an online farmers' market operating in Colombia—to offer financing solutions tailored to the needs of small vendors.
These partnerships not only demonstrate R2’s adaptability across various digital ecosystems, but also highlight how embedded lending enhances platform value.
The strategic relationships with top regional platforms—ranging from delivery apps to retail marketplaces—create a powerful, self-reinforcing network effect. These platforms offer a wide merchant base and high volumes of transactional data, enabling R2 to scale effectively while refining its underwriting models.
In return, R2’s embedded financing tools make these platforms more appealing to merchants, increasing engagement and retention. This mutual value creation accelerates R2’s market presence and strengthens its position in Latin America’s embedded finance landscape. The more platforms R2 integrates with, the stronger its competitive edge becomes—fueling smarter credit decisions and improved loan performance.
R2's impact is not just theoretical; it is quantifiable and demonstrably impactful. The company has facilitated over $130 million in loans to over 70,000 businesses and independent contractors across Mexico, Colombia, Chile, and Peru, showcasing its broad regional reach and commitment to financial inclusion; the growth rates underscore R2’s rapid scaling capabilities and effective market penetration. A compelling individual success story highlights the transformative power of accessible capital: Francisco Rodriguez, a mini market owner, secured over $40,000 in loans through R2's infrastructure (via a partner platform) and subsequently grew his monthly sales by an astounding 400% since 2021. This anecdote powerfully illustrates how R2's model translates into tangible, life-changing growth for individual SMBs. Furthermore, the broader market context supports R2's impact: the growth of SME restaurants on a popular delivery app saw a 150% increase in sales, with 58% of new associated restaurants being SMBs. This data provides compelling evidence of the vast market opportunity R2 is effectively tapping into by partnering with such high-volume digital platforms. The compelling success stories, particularly the mini-market owner's 400% sales growth and the significant growth of SME restaurants, clearly demonstrate that R2's financing is not just enabling existing businesses to survive; it is actively fueling their expansion and success within digital ecosystems. By providing readily accessible capital, R2 directly empowers these businesses to invest in scaling their online operations, enhancing their marketing efforts, and accelerating product development. R2's lending model serves as a critical, often overlooked, enabler for the broader digital transformation of Latin American economies. By making capital accessible to SMEs that embrace digital platforms, R2 is not only effectively closing the credit gap but also actively accelerating the fundamental shift towards a more digital, formalized, and financially inclusive economy across the region.
Conclusion: Reshaping the Future of SME Financing in Latin America
R2 stands out as a pioneering force in the alternative SME financing landscape by championing an innovative embedded credit for platforms model. This strategic approach allows it to reach a vast, underserved market. Its core uniqueness is rooted in its revenue-based lending approach, which fundamentally redefines credit assessment. Instead of relying on traditional, often inaccessible, credit histories, R2 bases its decisions on dynamic, real-time income streams and comprehensive transactional data. This shift is particularly impactful in Latin America, where traditional credit data is scarce for many SMEs. This profound fintech credit innovation is powered by advanced AI-trained models and seamless API integration, enabling R2 to provide white-labeled, frictionless capital directly to SMBs through the digital platforms they already use daily. The R2 lending model explained above is not merely a financial product; it is a powerful, systemic solution to Latin America's persistent $1.8 trillion SME credit gap, directly fostering financial inclusion and stimulating vital economic development across the region.
The trajectory of SME financing in Latin America increasingly points toward a future where capital will be accessed not through banks, but through the very digital platforms that SMBs already use to operate and grow. This shift signals a profound change: platforms are no longer just tools for sales or logistics—they are becoming key financial enablers.
Embedded lending, when integrated into these platforms, allows them to offer seamless access to capital, helping SMEs bridge financing gaps in real time. As platforms collect vast streams of transactional and behavioral data, AI-powered underwriting can unlock new lending opportunities for millions of businesses previously excluded from traditional credit systems.
In this context, platforms act as growth engines, offering not only distribution and visibility, but also embedded financial services that anticipate and respond to liquidity needs. Real-time cash flow tools and lending offers tailored to platform activity transform financing from a burden into a built-in growth lever.
As these platforms scale, embedded lending becomes a strategic advantage—boosting merchant retention, platform loyalty, and overall ecosystem value. R2, with its infrastructure and deep partnerships, is perfectly positioned to support this transformation—empowering platforms to empower SMEs, and in doing so, closing Latin America's $1.8 trillion credit gap.
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If you're a digital platform looking to unlock new revenue streams, increase merchant loyalty, and offer seamless financial services to your users, contact R2 today to learn how our embedded lending infrastructure can transform your business.
Sources:
OECD, CAF, SELA. “SME Policy Index: Latin America and the Caribbean 2024” https://www.oecd.org/dev/sme-policy-index-latin-america-caribbean.htmHelmi Group. “Fintech in Latin America: Trends and Opportunities 2023 Q4” https://www.helmigroup.com/insights/fintech-in-latin-america-trends-and-opportunities-2023-q4Entrevista exclusiva con Guillermo Bravo, Chief Product Officer de R2.World Economic Forum. “Embedded Finance: A Disruptive Force for Financial Institutions”https://www.weforum.org/stories/2025/04/embedded-finance-disruptive-force-financial-institutions/