Rise of the people’s bank: How financial inclusion is creating long-term opportunities in emerging markets

Nimble challenger banks in developing economies are disrupting sleepy incumbents by offering superior service. In doing so, they are opening new markets and delivering benefits for citizens. 

Around 1.4 billion people globally lack access to formal banking, most of them in emerging markets.¹ Think of the garment worker in Bangladesh, who stashes her wages in the folds of her sari for safekeeping. Or the Mexican taxi driver who pays into a tanda (a community loan club) as a substitute for a savings account.

But this picture is changing, as emerging-market “challenger” banks offer new ways for people to move out of the cash-based economy. Where financial institutions in developing economies traditionally ignored the “unbanked”, deeming their transactions too small and inconsequential to bother with, the challengers have devised products calibrated precisely to their needs. In doing so, they are winning the trust – and the custom – of a growing and increasingly affluent demographic.

Take Capitec. The company was founded in 2001 with the explicit goal of democratising South Africa’s banking system. At the time, major banks mostly served an affluent white clientele, and would typically charge high fees even for simple transactions. Capitec co-founder and Chief Financial Officer, Andre du Plessis (now retired), once told us at a meeting in Cape Town that these incumbents were effectively “robbing the poor but not the rich”.

Capitec did things differently. It opened branches near bus stops and town centres, and operated longer hours than the larger banks, so as to be more accessible to Black middle-class commuters. Its products were standardised, so loans could be quickly processed and tellers rapidly trained. With simplicity came cost efficiency, allowing Capitec to offer comparatively low fees and rates of interest.

The results were impressive. Starting out with 30-day micro-loans, Capitec soon launched other products, including savings accounts and credit cards. By 2018, it had amassed 10 million retail customers, more than any other bank in the country. The company now has more than 24 million active retail customers, many of whom access services via a mobile app renowned for its intuitive design (see chart).

Capitec has been at the forefront of wider changes sweeping South Africa’s banking industry, as technological developments and favourable regulatory reforms have encouraged competition and incentivised financial institutions to broaden their customer base. Between 2003 and 2023, the proportion of the country’s adults with a bank account rose from 52% to 84%.² (World Bank research shows Capitec was responsible for almost 50% of new South African bank accounts opened in the early 2010s,³ which suggests it took a sizeable share of the growth.)  

Despite this progress, structural challenges persist. The “big four” incumbents (FirstRand Bank, Standard Bank, Absa Group and Nedbank) continue to control most of the country’s financial assets, and customer outcomes are often poor. A March 2025 review by the South African Financial Sector Conduct Authority pointed to widespread shortcomings in how the leading banks respond to complaints.

In this context, Capitec’s focus on customer service means it should continue to improve its current 17% revenue share within the country’s consumer banking sector.⁴ Over the years, its leadership team has consistently chosen to reinvest excess profits, not just for shareholder returns, but for the direct benefit of customers. This reinvestment has created a virtuous cycle, whereby improvements in Capitec’s products attract yet more customers, generating economies of scale and scope for further reinvestment.

The company is now expanding into new areas, such as lending to small-and-medium-sized (SME) businesses. In doing so, it is employing the same methods – slashing fees, simplifying pricing and improving service quality – that made it such a potent disruptive force in retail banking.

While Capitec has built arguably the best digital service and IT infrastructure in South Africa’s financial sector, another emerging-market challenger bank has taken this tech-focused approach a step further, with an entirely digital offering.

Like Capitec, Brazil’s NuBank was born out of frustration with the existing banking system. The company’s Chief Executive Officer, Colombian native David Vélez, tells a story of the first time he tried to open a simple savings account in Brazil. Walking into a branch of a leading bank, he was turned away by gun-toting security guards, who told him to stash his bag in a locker outside. On his return, he had to wait 45 minutes to see the branch manager, who handed over a sheaf of paperwork and told him opening the account could take months.⁵

Vélez knew there had to be a better way – and the answer lay in technology. In 2013, alongside co-founders Cristina Junqueira and Edward Wible, Vélez launched NuBank (“nu” is the Portuguese for “naked”, in a nod to the transparency the bank aimed to offer its customers).

NuBank started by offering a mobile-only credit card with no annual fees, although it soon added checking accounts, personal loans and life insurance to its roster of products. Growth was explosive. By 2016, NuBank had attracted two million customers; as of June 2025, it had 123 million customers across Brazil, Colombia and Mexico.

Along with savvy marketing – the company’s purple-hued credit card quickly became fashionable – NuBank’s success can be put down to its clear strategy and genuinely inclusive, customer-focused approach.

Without physical branches or legacy systems, NuBank keeps its overheads low, which means it can offer services at a lower cost than its traditional rivals. Anyone over the age of 18 can download the Nu app and create an account, even if they lack a credit history. From there, they can build up a transaction record as a basis for future credit applications. This may be why increasing numbers of people are choosing NuBank for both their primary account and new credit cards (see charts).

Despite its rapid growth, the company takes an admirably measured approach to expansion. It keeps the initial borrowing limit on its cards relatively low (around half the level of other banks), and gradually increases it over several years, as a way to both manage risk and educate first-time borrowers.

An estimated 170 million people in Latin America remain unbanked, but those in the region are moving out of cash and opening bank accounts at twice the global average rate.⁶ This gives NuBank plenty of room for further market penetration over the coming years.

In helping to bring people into the formal financial system, companies like Capitec and NuBank are delivering important benefits. Research has shown people with access to savings accounts are more likely to be able to provide for their families, invest in their businesses and absorb negative shocks to their income than those who rely on cash.⁷ For their part, the challenger banks are capturing a large swathe of new customers.

In this respect, rising financial inclusion is one of most exciting long-term trends playing out across emerging markets – but not every EM challenger bank will succeed. At FSSA Investment Managers, we take a bottom-up approach, based on identifying outstanding companies. We invested in Capitec and NuBank not just because their strategies are aligned with a promising secular theme, but because they are fundamentally excellent businesses, with robust franchises and key competitive advantages, stewarded by impressive leadership teams.

The metrics bear this out. Capitec’s book value per share has compounded at 24% over the past two decades, and the bank delivered impressive average returns on assets (ROA) and equity (ROE) of 6% and 24%, respectively, over this period. NuBank has a shorter track record, having listed in 2021, but it turned profitable in 2022 and has consistently grown its ROA and ROE, which stood at 4% and 28%, respectively, as of end-2024.

While there are risks – a severe economic downturn or financial crisis in South Africa or Latin America would affect their prospects, as would intensified competition or more-restrictive regulation – we are confident these firms’ strong business models will enable them to stay resilient. Over the longer-term, Capitec and NuBank’s shared focus on superior service means they should continue to outpace their traditional rivals. The challengers are just getting started.

References

¹ “Why financial inclusion is the key to a thriving digital economy”, World Bank, 2024.

² “South Africa’s inclusion story: Two decades of financial progress amid economic challenges”, Center for Financial Inclusion, 2025.

³ World Bank Technical Note on financial inclusion, 2022.

⁴ Morgan Stanley Research, May 2025.

⁵ “David Vélez: An outsider upends the Brazilian banking system”, Sequioa Capital, 2025.

⁶ “Latin America is making progress on banking the unbanked”, The Economist, 2024.

⁷ “Financial inclusion and development: Recent impact evidence”, CGAP, 2014.