“Fintech” is short for the “financial technology” sector. It consists mostly of start-up companies that have developed digital technologies to provide cheaper and faster financial services to tech-savvy consumers. They are disrupter, who often shake up their industry. Fintech services include payment processing, online and mobile banking, online and peer-to-peer (P2P) lending, and lately even brokerages. Fintech is still a small part of the overall global banking and financial sector. But it is growing fast and has plenty more growth ahead. E-commerce and digital payments exploded during the worldwide pandemic.
Fintech is a global phenomenon. If you think of technology and innovation you think of Silicon Valley and the US. But U.S. tech companies are far less dominant in the fintech sector as we believe. Millions of UK citizens have abandoned traditional high street banks for online financial institutions like Monzo, Starling Bank, TransferWise and Revolut to name a few. These upstarts offer bill splitting, cheap currency transfers, virtual cards, crypto currencies and even stock trading for far lower fees than established rivals offer.
Fintechs are allowing less developed countries to leapfrog their more developed rivals. In Latin America, Nubank and MercadoLibre are shaking up the traditional banking sector. Most Africans don’t have bank accounts. They use mobile phone payment systems instead. But no region of the world has embraced fintech like Asia. A group of “super apps” offering a remarkable range of services puts them far ahead of any rivals in the U.S.
The biggest Fintech market is of course… China and the biggest Fintech company is Chinese firm Ant Group valued at an amazing $300 billion, putting it on par with Mastercard. Ant has more than a billion active users in mainland China. the company processed more than $17 trillion in digital payments in the 12 months ending in June. That’s about 25x more than PayPal, the biggest online payments firm outside China.
So how can you best profit from and invest in the fintech industry?
as start-ups, fintechs often do not trade on an exchange or are easily accessible for private investors. To spread your investment you can invest in an exchange-traded fund (ETF). The star among the fintech ETFs this year is the ARK Fintech Innovation ETF (NYSE: ARKF). As an actively managed ETF, ARK is not constrained by an index. That allows the ETF to make big, concentrated bets. ARK is also different from its competitors in that it invests only about two-thirds of its portfolio in U.S. stocks. The remaining one-third is spread throughout the world. ARK’s top 10 holdings include bets on U.S.-based Square (NYSE: SQ), Latin America’s MercadoLibre, and China’s Tencent Holdings Ltd. (OTC: TCEHY) and Alibaba.
Sven Franssen