Why Fintech Infrastructure is the New Multiplier to Scale Financial Inclusion

Speaker A: Foreign.

Speaker B: Hi everyone. I'm Rahul Rangwalam, the managing partner of Accion Ventures, and I'll be your host for our ninth season of FinTech for the People. Axion works to build a more inclusive world with access to economic opportunity for everyone. And at Axion Ventures, we believe in the power of fintech to reach those who've been left behind. As an early stage investor in fintech startups, we've invested in more than 70 companies across Africa, Latin America, Asia and the U.S. this season we'll be talking about fintech infra and the role it plays in financial inclusion. Our first guest this season is Monica Brandengel, someone who has been thinking about this theme for many years. Monica is the co founder and managing partner at Kona Capital, and Kona has been a leading investor in companies building financial services for underserved consumers and businesses across emerging markets. In this conversation, we'll talk about how financial infrastructure is evolving across global markets, what it takes to build scalable financial systems in emerging economies, and why this next generation of fintech innovation may be defined less by new products and more by the systems that make these products possible. Let's get started. Hi Monica. Uh, welcome. Welcome to the podcast. It's great to have you.

Speaker A: Great to be here, Raheel.

Speaker B: Thanks for joining us. Where are you dialing in from?

Speaker A: I'm dialing in from Washington, D.C. awesome.

Speaker B: Welcome and um, excited to have this conversation with you. You particularly have been investing in financial inclusion for more than a decade, and historically the focus has always been on building financial products that go to the last mile, whether it be lending digital banking services. But increasingly we're hearing founders talk about infrastructure and the scene, sort of this shift. From your perspective, what has changed in the ecosystem that makes this moment so important for financial infrastructure?

Speaker A: That's a great question, Raheel, and great to be here. The moment now we're in is really a milestone, watershed moment, in fact, that we are moving from, as you said, pure play fintech, where you simply in the past had to put sort of quality products and digital accounts in the hands of the unbanked and you would have some pretty important transformation. What's happening now is a new layer of public infrastructure that's been built, whether you're talking about PICS in Brazil or UPI in India. And that's the plumbing that really has enabled a very big shift. And we see it in our cloister portfolio. And what's exciting is now the private sector has stepped in to really begin building upon or complementing the gaps that that public infrastructure has laid the foundation for and it's really not just the products but the plumbing that allows that massive scale.

Speaker B: I ah, like the analogy and it kind of makes it very tangible for the listeners. This idea of building the plumbing that's the bedrock of what then other entrepreneurs and other founders can come and then build and deliver services to the last mile. One theme that we're exploring this season is the idea that this infrastructure acts as a multiplier for financial inclusion. So instead of serving the customer directly, these customers enable the entire ecosystem. And you made some references to pix and UPI that then we see um, a lot of innovation and financial services emerge from that. How has this affected your own thesis in expanding access to financial services?

Speaker A: Previously most of the fintechs we back had to build this infrastructure themselves whether it was in compliance or digital lending infrastructure identity. So there's many areas in which the fintech was required to do that alone. And what's happened now that these infrastructure players, whether it's banking as a service and we'll talk a little bit about some of the other types of infrastructure we're backing, we realize that the one to many thesis really allows us to reach many more people and have much larger impact with the same amount of capital. So infrastructure now is a specific thesis. It took some time to kind of both explain the impact which is more indirect to our stakeholders as well as measure and um, be able to calibrate which of those infrastructure plays had really breakthrough innovation. But now whether it's digital assets or looking at infrastructure built on agentic AI, it really does make a difference and it actually has led us to focus. In fact some of our earliest investments in Fund 4 are actually around this digital infrastructure piece.

Speaker B: Can you give a few examples? I think I'd love to get a little bit more specific. So you mentioned a few things like digital ID compliance which some of your earlier investments had to build themselves. They had to do that themselves and that's potentially distracting from their main mission. What have you seen that's solved for these gaps? And then maybe a follow up to that is where are the gaps today that continue to exist in financial infrastructure?

Speaker A: I'll give an example both from our past funds as well as some of our current ones. So let's take one of our first investments was a company called creditas. It's a secured asset lender, does home equity and auto equity financing. So allowing a modest income household to unlock assets that were previously illiquid and actually access much lower cost Financing because it's guaranteed now. Previously creditas was had a number of constraints. In fact it was, it had such a pent up demand its constraint became the bank. So it started financing off balance sheet and creating Fidix which are the specialized finance companies in Brazil that allow you to structure credit and capital in a way that meets the supplier's needs. So if I'm a bank and I want senior secured financing or else I won't lend, you can take the top tranche, the fintech itself takes uh, the lowest tranche and actually almost equity like. And these fatigues were what enabled creditas to scale. But actually the fatigue cent became the bottleneck meaning fund administration was a real limitation not just for creditas but for any type of alternative lender that was serving the unbanked. So there was a company, this is fund two. So um, credit tax was fund one. Canastra which was a fund three investment actually was developed specifically to provide fund administration services not just in Brazil but other countries in Spanish speaking latam as well. And that infrastructure, whether it's in the fund administration, the securitization process, that's a very labor intensive lot of regulatory hurdles. All of these pieces are incredibly time consuming and resource consuming and before each fintech would have to do that and kind of reinvent the wheel. So what Canastra does is it enables all of these fintechs to focus on how do I design excellent quality services for my underserved customer. I don't have to worry about the registration or the securitization or the fund administration or the fund management. All of that now is done by this one entity. And so it really does show you again what it enables and unlocks from not just creditas but for any alternative lender. So that's on an example um to your question on what are the gaps that we're still financing because that's an example of one that's been solved. Um credit infrastructure is probably the number one and that's an example of one of many that we're seeing in this area. Um a second is and actually another investment we recently made is in the compliance and identity place. So um, especially around digital assets. So um, there's an investment we made called Blueprint, um which basically provides kind of the connection between off chain regulatory um requirements and on chain execution for alternative financial institutions. And this kind of know your issuer, um again it's a new um type of compliance that's really critical to prevent fraud. Uh without it the power of digital assets really will Stay in the hands of the very informed um, kind of higher sophisticated users versus the mass market that we want to bring the, these tools too. So it's another example compliance um, is a big one and maybe the last one I'll mention, and I said it quickly before is banking as a service. And that's another company we have, it's called Belvo. Um, it is uh, basically allowing a fintech not to worry about getting the regulatory uh, compliance so basically allowing the banking as a service provider to go through the registration and allow it to provide those regulated services to fintech. So once again they can specialize rather than trying to be uh, a multi product, multi service entity.

Speaker B: I love these examples because I think in each one you can, you can see how there's a multiplier effect um, with having this, this core foundation allowing for other fintechs, allowing for other innovation to sort of just focus on, on that last mile customer or the last mile business um, and solve for the, the core problem that they're, they're trying to address versus get distracted by making sure that they dotted the I's, cross their T's. From a regulatory perspective or the fund administration and the example of Canastra, those are great examples. Thanks, thanks a lot. And do you see anything across geographies along these opportunities for infrastructure in the space and any differences or opportunities from that perspective?

Speaker A: Absolutely. So let's take banking as a service which I think is the um, classic, the most important example of infrastructure because banking is one of those spaces that regulators are quite precious about. They don't want to give out banking licenses lightly. They really do view themselves as fiduciaries and want to make sure that you have certain minimum thresholds to be able to mobilize people's life savings. So it's an understandable concern. So banking as a service. Actually in India we have a really interesting company called Shivalic which basically is providing banking as a service for some of these newer age fintechs. And it's a very different model than Belvo. And I think to your point about the differences in these markets both the Indian regulator has a different approach to how it views a um, much more prescriptive model, a regulatory environment. Again it's, I won't say better or worse, it's different and I think the banking as a service providers and the thesis we underwrote in India was complementary. Meaning the underlying thesis which is how can you leverage this infrastructure to really allow the specialized fintechs to go deep in a market. But the specifics about how that company earns money, how it is compliant, where the regulator, what kinds of fintechs it serves are very different. And I think that reflects the difference in how the Indian financial inclusion market has evolved from Brazil.

Speaker B: One of the other differences that we've seen is that investing in an infrastructure company is very different than investing in something that's sort of solving for an SME or a farmer or blue gray collar worker or that last mile customer. These businesses are often a lot more complicated. They have different kind of partnerships, they have to think about different regulatory constraints. The deep technical integration with some of these larger enterprises, longer sales cycles. We're going to be speaking to actually a lot of founders this season about this. But as an investor, when you're evaluating infrastructure plays in these businesses, what's the different perspective? What are the different signals that you guys are looking at, uh, to evaluate these very complex opportunities?

Speaker A: It is more complex for heel in many ways. Sales cycles are longer. The technical integrations required a much deeper and you're often looking for them to be regulated. So regulatory compliance becomes the center of the operation. So it definitely requires a different type of, we call it alchemy to make these successful. The first. So maybe starting with the founder we really do look for some deep domain expertise and credibility and of course that always is true of any fintech founder. But in infrastructure in particular you need to be a door opener. So it really requires someone who's got deep domain expertise but also understands how to build relationships and actually make the sale because it is a new category. So there's a little bit of market building that happens. I mean once you make the click and the connection, the unlock is tremendous but it's not um, it's not like a pent up demand where someone wakes up saying oh, I need to find an infrastructure player.

Speaker B: There's an element of market creation is what I'm hearing you say.

Speaker A: Exactly. And then so maybe that leads to the second thing we look for which is you do really need to be patient and really understand when we were talking about the different market environments like in India versus Brazil, how do you have that kind of patient systematic approach while that urgency you always look for

Speaker B: in an entrepreneur in a VC business.

Speaker A: Exactly. So that's uh, a second thing that again it's required. But even more so, the third it's a level of degree is the regulatory fluency. So just understanding not only what do the regulations say today but where are their opportunities. Regulators we've found especially in thriving ecosystems like India, like Brazil, they're constantly innovating themselves and they are looking for thought partners to really help design regulatory environments that are conducive to this kind of innovation. So having that ability to kind of act not just as an uh, entrepreneur but a cfo, cto, because a regulator really wants to feel like they have a counter part that is again sharing their sense of fiduciary, not just kind of product innovation. And maybe the last point, and this is a really important one, is the, we call it the measurement discipline. So we are looking for entrepreneurs that come to us when we ask questions with dashboard answers where really they're trying to understand both the vulnerabilities and opportunities in their system. And again these things, domain credibility kind of patients come by with urgency. Regulatory fluency, measurement discipline, these are not things that we don't look for in our normal fintechs, but the bar is much higher and it really is for how we separate out those that we think will be the winners versus just uh, another player.

Speaker B: I know it's very dangerous to have rules of thumb in vc, but when you were saying that you need to have more patients, would you agree that these kind of infrastructure businesses require a lot more capital?

Speaker A: I would say required more patience, not more capital. And what I would say is what we have found, and this is uh, the kind of exciting, and it's part two of our thesis is around agentic AI and how you use artificial intelligence to make these models so much more efficient. So in fairness maybe it would have required more capital in a previous era. But what we're seeing now is again very capital efficient entities that once they have that sales cycle, it's almost like a binary outcome. It's a step jump difference in revenue. We have one company called Hamza that's actually looking at leveraging the blockchain in order to make you know, kind of alternative assets more accessible. It is amazing how long it takes to sign on large US banks, but once you do, it really does kind of 10x your revenue in the period of months, not years.

Speaker B: This is a great segue to the next question, which is the forward looking part of the conversation. Five years or ten years from now. And I know you've given examples of crypto and agentic models, but where are you seeing the ecosystem um, evolve to in financial infrastructure? What is the next part of the stack that's going to be built out? And primarily from an inclusion perspective that would probably have the most impact? Uh, from a financial inclusion lens there

Speaker A: is so many exciting opportunities and what I find Particularly interesting is this gap. So this gap between like the Rails, the foundational Rails that have been laid and some of the technologies that is used that have been developed to unlock it. But there's the whole gap on the integration implementation and value extraction, those three pieces. And when I talk about integration I could be talking about orchestration. So for example you might have old style mobile phones as well as stablecoin enabled transactions. So you have this variety now of digital payment methods and how do you reconcile them and just execute them in a normal way. So there's this whole orchestration layer, the intelligence layer which is how do you take out information? To your point about the unserved, how do you make sure that you're taking out information that allows you to reach the customer that might be more invisible, might be harder to reach. And again there's a bunch of technologies that are and business models that are allowing you to build make a sense of now this inundation of data that we have and then the value extraction that's really around how do you develop products that are applied to our customer? I'll give you another example that's kind of unusual. I think really shares the power. We just are looking at a company called Justfy that actually helps people with small, mostly legal shops, but sole proprietors in terms of how they are able to collect money more quickly. And this idea, or maybe another better example is Okta in the Middle east where you are trying to help small businesses, sole proprietors with their collections. And this idea of leveraging using these, the technology is really around how do you extract information so that the small uh, business can take advantage of some of the infrastructure that's been laid out. So it is filling this gap between the application and the infrastructure that we see is a tremendous opportunity is where we are seeing a lot of interesting new deal flow across our geographies.

Speaker B: Those sound very exciting and it sounds like uh, a very promising future for the space given some of the examples you gave. I'm um, going to go back in the conversation a little bit. You talked about early on in this idea of measuring the impact and explaining to your stakeholders how financial infrastructure also has this last mile impact. Tell us a little bit more about that. It is intangible. How have you guys evolved on that internally to measure this?

Speaker A: It's a very important effort and one that is a serious undertaking. We actually in our annual report did a whole section on the infrastructure because it is indirect and I think that's the place you have to start understanding that you're enabling other actors to then reach your end client. So one way we do it is actually to begin understanding those other fintechs that these infrastructure players serves and what is the kind of before, after. So what is both reach wise and cost wise, their ability to serve before the infrastructure and then leveraging the infrastructure. And that part of it is an attribution question of how much gets attributed to the infrastructure. But we think it's important to recognize contribution as much as attribution. So again, we know empirically that the scale has exponentially grown because of this layer of infrastructure. So then we make assumptions around kind of the before, after and how different, just even by super users, how different fintechs are using this infrastructure. That's one way, the second. So through some assumptions and kind of the comparison before, after. The other important work we do is on relative benefits. So which types of infrastructure are more increasingly going to lower income markets to services that help the segment we care about. And then the last thing we do is, is we do some very bespoke direct consumer interviews, it's called 60 decibels. And we actually interview some of the end clients to understand what their experience was with the product or service. Again with the infrastructure enabled and without it. All of these are, I would call them, imperfect measures because again, you don't have that direct attribution between the infrastructure to the end client. But again, through a structured, systematic way that compares different impacts, we've been able to score them again in a very more, I would call them a relative score versus an absolute one that allows us to make decisions about where to pull our capital.

Speaker B: You clearly have been doing this for a while and you really deeply thought about it. So I really appreciate you coming on today and m sharing this with us and it's a great introduction episode for our season because I think this really sets the stage as we talk in our next few episodes to a few founders across the globe on how they are seeing the innovation and what they're doing. Thank you so much again for coming on and sharing your perspective and talking about a fairly complex topic and really making it simple for the audience. So I appreciate that. Thanks so m much Monica.

Speaker A: Thank you Raheel. It's a great pleasure

Speaker B: and thanks to all of you for listening to Fintech for the people. If you enjoyed this conversation, be sure to subscribe and share the episode with a colleague or friend who's interested in the future of fintech. That's a wrap for today. We'll catch you on next episode. Fintech for the people.

Speaker A: Where?

Speaker B: Uh, we'll continue the discussion on fintech infrastructure.