Access to financial products like bank accounts, loans and insurance enhances security and economic participation. Innovative companies use digital technology to overcome banking barriers, secure payments, and improve global credit access, addressing unmet financial needs in a more inclusive economy.
Innovation and digital technology are transforming the global financial system by reducing friction and lowering costs, thereby integrating more people into the financial infrastructure. This increased financial inclusion has the potential to significantly boost the global economy, with estimates suggesting that connecting the unbanked population to banking services could add $250 billion to global GDP, equivalent to the economy of Portugal.
This presents substantial opportunities for companies that can develop innovative solutions to finance-related challenges such as extending banking access and helping individuals plan for their financial futures, particularly in emerging markets where financial security is often lacking.
Additionally, making payments more efficient and secure, along with improving credit data, represents another global opportunity. Financial services companies that can meet these evolving needs and enhance customer outcomes are well-positioned to benefit from long-term demand drivers as the global population becomes wealthier, older, and more connected.
Banking in the emerging billions
Over 1.4 billion adults globally remain unbanked, primarily in rural regions of developing economies. Mobile banking has revolutionized access to financial services in these areas. For example, pioneering mobile money services, like Safaricom's M-Pesa in East Africa, allows users to send and receive money and apply for short-term loans, significantly increasing financial inclusion rates.
Bank Rakyat Indonesia (BRI) has developed a hybrid business model to serve Indonesia's vast archipelago of more than 17,000 islands. With nearly 7,000 microfinance outlets and over 600,000 agents, BRI has helped increase access to financial services in rural and remote areas. This approach has proven effective in boosting economic development and responsible lending practices.
Making transactions frictionless and secure
The expansion of internet access has ushered in a new era of low-cost, secure payments. Digital payment systems are faster and more efficient than traditional methods, helping small businesses reach new markets and improving accountability.
Adyen, a Netherlands-based company, offers a globally integrated, multi-channel payments platform. Its end-to-end solution enhances security and reduces fraud, making transactions more efficient and cost-effective. One Australian retailer reduced fraud from nearly 3.5% to under 0.1% using Adyen's platform, saving millions annually.
Improving access to credit
Reliable access to credit is essential for business growth and personal financial stability. Companies that gather and package personal financial data play a crucial role in connecting lenders and borrowers, removing barriers to finance.
Experian, the world's largest credit bureau, offers credit data services to financial intermediaries and consumers. Its products, accessible on digital platforms, promote financial inclusion by supporting identity protection and debt renegotiation. Experian Boost, for example, helps consumers improve their credit scores by making on-time online payments for utilities, rent and streaming services.
Providing for more secure, healthier ageing
As the global middle class expands, so does the demand for products that promote financial security and healthier ageing. The global population is quickly getting older, especially in many emerging markets where governments offer very limited healthcare and social security.
Demographic trends point towards a growing opportunity for solutions providers. In China, for example, the population of over-60s is forecast to exceed 400mn by 2040, up from 254mn in 2019. Rising wealth is meanwhile boosting the purchasing power of older generations: the amount spent by seniors in China alone is expected to grow from US$4.5tn in 2020 to US$15tn by 2050.
This trend creates numerous opportunities for banking and insurance companies. For example, Hong Kong-based insurer AIA offers accident protection, health and life insurance, and retirement and savings solutions. Its Vitality program incentivizes active lifestyle choices, rewarding customers with travel, gym and insurance discounts. This approach supports customer loyalty and helps Asia's emerging middle class better meet healthcare challenges and plan for their financial futures.
The potential economic benefits of greater financial inclusion are vast. By leveraging digital technologies, companies can address unmet financial needs, seizing opportunities in a more inclusive global economy. From mobile banking and secure payment systems to improved credit access and financial planning products, the future of finance is bright.
Companies that innovate and improve access to financial products and services have a clear trajectory for growth as society transitions to better financial inclusion.
NEI Global Corporate Leaders Fund seeks to generate long-term capital growth by investing in companies with strong corporate cultures that are focused on addressing changing demographics and societal needs.
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About this article
This is a condensed version of an article published by Impax Asset Management in April 2024. You can read the original article in full. Impax is the subadvisor for the NEI Global Corporate Leaders Fund.
