Figure 1 shows how a leading electronic bond-trading platform is gaining share of the total credit trading market. While growth has been strong in recent years (at over 10% per year), market penetration is still low (at roughly 25%).1 We believe this exemplifies the opportunity set’s substantial for long-term future growth as penetration rates steadily grow.
Importantly, this opportunity stretches across every asset class and the potential “winners” appear to be distinct in every geography. Local companies have thus far been better able to cater to the distinct needs of local populations. We therefore believe deep subsector expertise across financial technology is critical to finding opportunities within these diverse markets.
Opportunity and accessibility through digital platforms
Large segments of the world’s population still do not have access to fairly priced banking options or convenient ways to invest their money. For instance, approximately 1.4 billion adults do not have access to a bank account.2
To help serve these populations, online investment platforms are digitizing their product sets to provide easily accessible, cheaper, and less complex offerings in comparison to traditional banks. Fortunately, access to and adoption of digital financial products and services has been expanding globally at a rapid rate in recent years.
In particular, these companies are greatly improving accessibility in emerging markets. New online services make investing easier in markets where many have not historically had easy access to a bank account or brokerage services. One such example is a leading digital investing platform in Brazil.
For many years, Brazil’s onshore retail investing market was narrow and limited to buying high-yielding government bonds. However, the rise of easily accessible digital offerings has led to a broadening of investment culture, and since 2015, the demand for investing has been exploding. Notably, Brazil is more digital than many EM countries, making human interaction with customers a less-relevant hurdle, which was particularly significant in the wake of COVID-19.
Many online platform providers such as this have successfully expanded their existing customer base into adjacent product sets. For example, a digital investing platform can more easily cross-sell existing customers into its banking, lending, and insurance offerings as it has already established connectivity and trust. As digital platforms develop and then broaden to adjacent products, we think their underlying customer populations will further benefit from increasing opportunity and accessibility.