Digital disruptionreshapes financial inclusion

About a quarter of the world’s adults lack access to affordable, quality financial services – but digital disruption is helping bring them into the formal financial system. Financial inclusion allows individuals to save and invest, while also supporting entrepreneurship and business growth. And for investors, these developments are opening the door to varied investment opportunities among banks and nontraditional financial services firms.

Key takeaways

• By lowering costs and generating new business opportunities, digital innovations are helping make financial services more accessible to the underserved population.
• Digital connectivity helps nontraditional financial services gain traction in emerging markets (EM).
• In developed markets (DM), banks and financial technology companies extend services to the unbanked and underbanked populations in varied ways.
• Small business lending, once considered one of banking’s more challenging business lines, is seeing increased competition from digital disruptors.

Introduction

Financial inclusion refers to provision and accessibility of a broad range of affordable, quality financial services, enabling businesses and individuals to participate in the economy. About a quarter of the world’s adults don’t have financial accounts, which largely excludes them from such services. Bringing them into the formal financial system has important investment implications. Access to financial services promotes economic growth by allowing individuals to save and invest, supporting entrepreneurship and business growth, and helping to reduce economic inequality. Along the way, it also opens the door for new business and investment opportunities.^1,2

The rise of low-cost, innovative digital financial products and solutions has been a key enabler of financial inclusion over the last decade or so. We expect the digital transformation of financial services to continue to spawn innovative products serving a broad base of customers, including previously underserved communities; and that could bring diverse long-term investment opportunities.
Most of the world’s unbanked population, or the population without financial accounts, is in developing economies. Financial accounts can be those at a bank or another financial institution, or mobile money accounts, per the World Bank.

In recent years, increasing digital connectivity has been a key driver behind financial inclusion. The rise of nontraditional finance, such as mobile money,³ has greatly improved the ease and efficiency of accessing financial services, especially in areas where traditional banking infrastructure is limited. Many developing countries have made strong progress in financial inclusion as a result, where the share of people aged 15 and older with a financial account rose to 71% in 2021, from 42% a decade earlier.

Financial inclusion is not just an issue in emerging markets. About 4% of adults in high-income countries do not have financial accounts, but the diminishing presence of physical bank branches and automated teller machines (ATMs) endangers access to financial services, especially in rural and low-income communities where digital connectivity and digital literacy may lag. Some solutions are emerging. Digital financial products aiming to replace high-cost alternative financial products, such as payday loans, are gaining traction; some banks see the business potential and are opening new branches tailored to the needs of low-income communities.

Difficulty in accessing financial services extends from individuals to small businesses in both developing and developed countries. In developing countries overall, about 43% of formal small and medium-sized enterprises (SMEs) are estimated to have a combined unmet financing need of nearly US$4.1 trillion, according to the International Finance Corporation (IFC)⁴ Digital innovations are again at the forefront of efforts to tap this underserved market.

A broad range of technologies — from automating customer onboarding to mobile-enabled services — has emerged to help mitigate the higher risks and higher costs often associated with serving small businesses.

For long-term investors, these structural changes will present both opportunities and risks as innovations disrupt the financial services sector. Here, we highlight key trends and some of the compelling investment opportunities they are creating.

1. Sahay, Ratna, Martin Čihák, Papa N’Diaye, et al. “Financial Inclusion: Can It Meet Multiple Macroeconomic Goals?” International Monetary Fund, September 2015.
2. “Financial Inclusion.” World Bank. 27 January 2025.
3. Mobile money is a digital medium of exchange and store of value using mobile money accounts, facilitated by a network of mobile money agents. Mobile money agent refers to a person or business contracted to process transactions for users on mobile money networks. The most important of these are cash in and cash out (i.e., loading value into the mobile money system, and then converting it back out again). Traditional financial services include deposits and loans, debit and credit cards, and insurance. Nontraditional financial services include mobile and internet banking, and mobile money. (IMF, 2024 FAS highlights)
4. IFC. “Banking on SMEs: Driving Growth, Creating Jobs Global SME Finance Facility Progress Report.” International Finance Corporation, World Bank Group. September 2022.

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