Financial Inclusion: Lowering the Drawbridge

Highlights from Growth & Innovation

Martin Toner, MBA, CFA

In our opinion, Fintech is an area where the pace of innovation is accelerating. Enabling technologies like Banking as a Service (BaaS) are lowering barriers to entry, and new solutions are proliferating. Like Software as a Service (SaaS) solutions, the cheaper go-to market model is enabling Fintechs to target smaller customers like small and midsize businesses (SMBs) and lower-income individuals. The result is dramatic improvement in Financial Inclusion globally. Technology can be a phenomenal problem-solver; in this report, we discuss some of the Financial Exclusion issues that still exist and the Fintech companies that are creating value by delivering solutions. We give recommendations within our coverage universe and a general rule of thumb for investors looking to commit time to this space. The rule: look for financial inclusion, and do not underestimate the size of the new markets that it can create. 


  • To date, Fintech has meant Financial Inclusion. Most of the value creation by Fintechs has been derived from new products and services that target the underserved, leaving the profit pools of financial services incumbents relatively untouched by disruption. Investors often underestimate the size of new markets, especially low-end markets, which have a large number of small customers. Fintech leaders, like Block Inc. (SQ-N, NR) and Shopify, prove that underserved customer bases can represent significant, untapped markets.
  • Underserved and unbanked customers globally have long been significant socio-economic issues, and they represent large, attractive markets for Fintechs. Solving these problems also represents a dividend for the global economy, with snowball effects for GDP growth, higher standards of living, and other positive social impacts.
  • Fintechs are filling the holes in traditional financial services offerings, especially on the low end. A lower cost base, including lower up-front costs and a lower cost to reach underserved customers, provides the ability to dramatically improve upon the financial services industry’s most predatory products.
  • Capital is available, the infrastructure tools are proliferating, and innovation in Fintech is accelerating. Banking as a Service solutions are making it easier and cheaper for other Fintechs to reach underserved consumers and businesses faster. It is a broad, fragmented space, with thousands of companies, both private and public.
  • Traditional financial services players are deploying resources, not only to protect their businesses but also to benefit from technological change. Is it inevitable that Fintech players move up-market?
  • The basket of publicly traded Fintech companies has broadened significantly, offering options to investors of all sizes. We have three Outperform-rated Fintech stars in our coverage universe. Shopify, Lightspeed and Thinkific are strategically positioned to deliver new products and services, many of them financial, to their underserved customer bases, starting with payments, but it does not stop there. We believe it is just beginning.
Martin Toner, MBA, CFA 416.428.5150

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