Much remains to be done to make financial inclusion a reality, however. Globally 1.7 billion people did not have a bank account in 2017 (source: World Bank). And this situation is disproportionately affecting vulnerable groups – such as low-income households, women and young people – in emerging markets.

Figure 1: Globally around 1.7 billion people don’t have a bank account

Adults having a banking account as a % of the adult population

Adults having a banking account as a % of the adult population

Source: World Bank

Technology and digital finance are key drivers of financial inclusion

Historically, branches were the main driver of financial inclusion. However, they are often uneconomical outside of large urban areas and developed markets. In Africa, a report from Accenture and Standard Bank estimates that 70% of unbanked people would have to spend more than an entire month of salary even to get to the nearest branch.

However, the increase in internet penetration and the emergence of online and mobile banking have now created an opportunity to promote financial inclusion without relying on old branch networks. Digital finance is now seen as “the primary route for financial inclusion” by the United Nations Capital Development Fund.2

Digital Finance and virtual payment wallets already played a vital role in mitigating the impact of the pandemic this year. In Togo, for example, informal workers are able to sign up on their phones for a government mobile money transfer service.

Figure 2: The penetration of internet services is increasing steadily 

% of internet users in the global population

% of internet users in the global population

Source: eMarketer (April 2016)

Chinese fintech platforms have led the way…

China is a good example of the way online and mobile banking can promote financial inclusion. Mobile payment applications like Ant’s AliPay and Tencent’s WeChat gained widespread acceptance in the last 10 years as QR codes and electronic payments displaced cash at the point of sales. The near uniquity of Alibaba’s AliPay and Tencent’s WeChat have provided these companies with a platform to distribute financial services in a country where an estimated 224 million of people did not have a bank account in 2017.


Ant Financial now sells lending, insurance and asset management products to a user base of over 1 billion individuals and 80 million small merchants. This new business has been growing twice as fast as the traditional payment business and represented 56% of the company’s revenues in 2019. At some point, Ant’s money market fund was the largest in the world with over RMB1 trillion of assets under management.

Figure 3: Online represents a growing share of financial services in China

China’s online penetration for various financial products

China’s online penetration for various financial products

Source: CLSA

…but are now facing greater regulatory scrutiny

So far, companies like Ant Financial have acted as platforms. They provide access to clients as well as the data and technology required to assess the solvency of potential borrowers. But at the end of the day, the traditional financial institutions are the ones that provide the funding and carry the risks.


This sharing of responsibilities has been beneficial for fintech companies. They were able to grow rapidly while avoiding the capital requirements and the risks that normally come with banking activities.


However, there are signs that public authorities are now concerned that this model could threaten the stability of the financial system. In China, the government first cracked down on peer-to-peer lending in 2018 following a series of scandals were investors found themselves unable to retrieve their savings. Authorities are now trying to regulate the massive growth in online and micro lending and are notably considering rules that would require the likes of Ant to take more loans on their own books. The ultimate goal seems two-fold: level the playing field with banks and make fintech players accountable for the risks on the loans they facilitate.

How to access the theme

There is a clear opportunity around financial inclusion, however one has to be mindful of the regulatory risks.

In China, Alibaba (which owns a 33% stake in Ant) and Tencent could be impacted by changes in the regulatory framework. These risks already led Ant Financial to suspend its IPO in November. But with a diversified business, a strong ecosystem and ample financial firepower, the risks should be manageable.

In developed markets, payment platforms don’t yet enjoy the same level of ubiquity AliPay and Tencent have in China, and banks also tend to be more entrenched. However, there is still room to promote financial inclusion. The Federal Deposit Insurance Corporation estimated that 6.5% of US households did not have a bank account in 2017 (a proportion that reached 21% and 18% for the African American and Hispanic communities).3 An additional 18.7% of US households were considered to be “under-banked”. Innovative players are starting to take steps to address this untapped market.

Paypal offers Venmo, a payment app and digital wallet for millennials, and Xoom, a digital wallet solution that has become widely used by migrants in the United States – not all of whom would have bank accounts – to send money to relatives back in their home countries.

Square Inc. is famous for providing payment acceptance services to micro merchants that are under-served by banks. It also offers a payment wallet similar to Venmo called CashApp. The function gained significant traction this year and has been extensively leveraged by the US government to provide stimulus money to individuals and small businesses affected by the pandemic.

Paypal’s Venmo and Square’s CashApp already have over 60 million and 30 million users respectively. Both of these stocks are ways in which we play the theme in our Global Financials and Financial Innovation strategies.

Figure 4: More than one in five US households was either under-banked or unbanked in 2017

Figure 4: More than one in five US households was either under-banked or unbanked in 2017

Source: FDIC (2017)

Please note

Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances.

Important information

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