The ‘invisible’ millions: banking’s new frontier

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As with any investment, your capital is at risk.

Most of us take our ability to borrow, send funds to loved ones and safely save for granted. But 1.4 billion adults lack access to even basic banking services. That’s more than one in five of the world’s population. And they could represent banking’s biggest growth opportunity.

Increasing these people’s resilience to adversity would transform their prospects, whether it be smoothing a tuk-tuk driver’s income to help them through slow periods, providing insurance to a corn farmer to give them the confidence to grow higher-value crops or making it cheaper for families to receive money from relations who have found work abroad.

Moreover, the scale of this challenge creates a win-win scenario: companies can profit by serving these markets today and benefit long-term as many customers escape poverty, build businesses and develop their personal wealth.

“The goal is to provide a full service to people who were previously invisible to the banks, lack credit histories and are often living on relatively low incomes,” Ed Whitten, an impact director in Baillie Gifford’s Positive Change Strategy, tells our Short Briefings on Long Term Thinking podcast.

“The world’s made a huge amount of progress in financial inclusion, but not necessarily in financial health. We want companies to design products that are highly specific to their customers’ needs. And there are many ways you can now personalise financial services thanks to smartphones and greater access to data.”

Positive Change is a dual-objective strategy that aims to provide our clients with attractive returns while contributing to a more inclusive, healthy world. Whitten’s role is to ensure the companies in its portfolio fulfil the second part of that pledge.

That involves speaking directly to the leaders of those businesses, as well as regulators, researchers and sometimes users of the products themselves.

“We commissioned a study that highlighted a terrifying level of financial vulnerability across Brazil, and I visited an area of São Paulo called Jardim Ângela to contextualise it,” Whitten says.

“There, I met a 27-year-old community worker who had recently gained access to Nubank’s Caixinhas.” The ‘moneybox’ service lets users set aside savings for different goals, such as a car, a trip or a wedding. Such products have helped the Brazilian digital bank grow revenue by 653 per cent since it floated on the stock exchange in 2021.

“Caixinhas is a free service,” Whitten adds, “and historically, accounts in Brazil weren’t. And it was amazing to see the excitement he’d gained from using it.”

When Positive Change first invested in 2021, about 28 per cent of Brazil’s adults were Nubank customers. That’s now more than doubled to nearly 60 per cent of the population. It also operates in Colombia and Mexico, and, in the latter case, recently won the local regulator’s approval to secure a banking licence.

“That would let Mexican customers get their salaries sent directly to their Nubank accounts and would remove other limits on deposits and savings, which is something we want to encourage both from an investment and an impact perspective,” Whitten adds.

Grab’s data-driven loans

Another holding, Grab, represents an example of an ‘embedded financial service’. The firm has been described as south-east Asia’s Uber, but in addition to running a ride-hailing and delivery app, it also provides financial services to the gig workers that make it possible.

“For drivers, that includes auto loans and insurance for their vehicles and also small loans to help them over quiet periods,” Whitten explains. “For merchants, many of whom are women running corner stores or small restaurants, it’s access to working capital loans.”

The firm draws on data it gathers from these service providers’ use of its platform to model their risk profiles and tailor its offerings. For example, it sets a borrowing cap to ensure a user’s debt does not exceed their expected income and can also automatically deduct repayments from their daily earnings.

These efforts encourage responsible borrowing, but Whitten would like the firm to make further progress in promoting digital literacy.

“We recently raised the topic in its Jakarta office,” he says. “Grab provides some excellent online tools. But we’ve seen other companies like Bank Rakyat Indonesia do a good job of educating people and supporting them at a local level, and Grab can learn from the microfinance world.”

Remitly’s fast, lower-cost remittances

Remittances represent another expanding sector of the financial inclusion economy. In 2024, according to the World Bank, migrants and others transferred about $905bn to families, friends and others – a gain of nearly 5 per cent on the previous year. Low- and middle-income countries received three-quarters of that sum.

“Remittances are a lifeline,” Whitten says. “The average amount is something like $200 per month, and the cost is typically about 6 per cent. So customers are losing $12 with each transaction, and that might be for a medical expense, energy bill or whatever. In the digital world, it should be possible to lower that.”

Remitly charges about 3 per cent for the same service. Moreover, it provides rapid transfers and has partnered with convenience stores and mobile money services worldwide, making it easy for recipients without a formal bank account to accept payments.

“It serves around eight million customers today, and obviously, the number of beneficiaries is more than that,” says Whitten. “And the bigger it gets, the cheaper it should be able to provide its service. That will help it take market share from Western Union and other rivals, which is important to our investors.”

HDFC Bank’s growing rural network

Nubank, Grab and Remitly all derive an advantage by focusing on digital offerings, avoiding many of the legacy costs that many of their longer-established counterparts face.

Our Indian holding HDFC is, by contrast, expanding its branch network into the country’s lower-tier cities and the countryside. One of financial inclusion’s critical insights, reinforced by Positive Change’s commitment to on-the-ground research, is that one size doesn’t fit all. What works well with one region or demographic may require a different approach elsewhere.

“There’s still a large proportion of the Indian population that is unfamiliar with these services, so it’s beneficial for staff to start these vulnerable customers on their financial journey,” says Whitten.

“Ultimately, most things will still move digital, but in this case, it’s great to have the presence of people who speak the local language and can explain things. And it’s helping HDFC raise its profile in areas it hadn’t penetrated before.”

These and other companies Baillie Gifford has invested in can both alleviate poverty and provide our clients with a way to tap into a fast-growing sector. While many of the individual sums are small, the number of potential customers is vast, and many will climb the wealth ladder.

“These firms are thinking of those on lower incomes as the more lucrative customers of the future,” Whitten says. “So, bringing them to a more financially healthy place makes great business sense.”

Words by Leo Kelion

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