Financial Sector Ideas

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>>> 4 ETFs For Investing In FinTech And The Payments Industry


Nasdaq.com

by Prableen Bajpai

JUL 8, 2019


https://www.nasdaq.com/articles/4-etfs-for-investing-in-fintech-and-the-payments-industry-2019-07-08


Technological advancements are disrupting various industries, challenging traditional players to make timely adaptions in order to remain relevant. The payments industry is no exception. The innovations based artificial intelligence, cloud and biometrics coupled with demand for fast and secure cashless transactions, use of smart devices, internet penetration, increasing adoption of e-commerce and changing consumer demographics is bringing in a wave of digital transformation.

Here’s an overview of the payments industry and a look at the exchange traded funds (ETFs) providing an investment opportunity in this space.

Global revenue from payments surpassed $2 trillion in 2018 and is set to approach $3 trillion within the next five years. While cash continues to be king, the potential for digital payments is immense. The Digital Money Index of 84 countries that track the development of digital money readiness shows an improvement of 5.5% over the last five years.

China continues to lead the movement away from cash with the share of electronification increasing by more than ten-fold over the last five years, according to a McKinsey report. In terms of regions, North America is the first region to execute more than half of its transactions electronically. India is pushing its initiative dubbed as ‘Digital India’ which highlights “faceless, paperless, cashless” as one its professed roles.

Several studies recommend the potential benefits of digitized payments, ranging from time savings among consumers, increased sales revenues among businesses, reduced government administrative costs and higher tax collections. A research by Citi shows that “a 10% increase in digital money adoption by countries (constituting the index) would deliver a $150 billion lift in consumer spending, which raises business revenues, while digital payments also cut cash handling costs for services and businesses by $100 billion. Meanwhile, governments pocket $100 billion more in taxes and savings of $200 billion by digitizing disbursements. In total, up to $1 trillion of new flows would enter the formal economy.”

Here’s a look at some exchange traded funds which invest in companies that are a part of the transformation that’s underway.


The ETFMG Prime Mobile Payments ETF (IPAY) is a one of the oldest exchange traded funds providing exposure to stocks in the payments industry which is experiencing a shift from credit card and cash transactions to digital and electronic methods. The fund was launched in 2015 and has Prime Mobile Payments Index as its underlying benchmark index. In terms of geographies, the ETF has majority exposure to the U.S. with smaller exposure towards France, Netherlands, Germany and Japan. The ETF has a portfolio of around 40 stocks with the top ten holdings adding up to 48.62%.

The top ten holdings in its portfolio are:

Mastercard
Visa
American Express
PayPal Holdings
Fidelity National Information
Worldpay
FinServ
Square
First Data
Discover Financial Services


The ETF has $680.43 million as assets under management, 0.75% as expense ratio and has posted 35.14% year-to-date (YTD) returns.

Tortoise Digital Payments Infrastructure Fund (TPAY) is one of the recent ETFs, launched in 2019 providing access to the payments space. The ETF tracks the Tortoise Global Digital Payments Infrastructure Index represents 53 companies which are a prominent part of the global digital payments landscape. The ETF has $4.58 million as assets under management and an expense ratio of 0.40%. In the last three-months, it has given 8.93% returns.

The top holdings have a 45.62% allocation and comprise of companies such as:

Fleetcor Technologies
Square
First Data
FinServ
Worldpay
Fidelity National Information
American Express
MasterCard
Total System Services
Wirecard


Next is the Global X FinTech ETF (FINX). Launched in 2016, the ETF seeks to invest in companies that are on the leading edge of the emerging financial technology sector and are looking at industries such as insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. The ETF tracks the Indxx Global Fintech Thematic Index. The country-wise break-up reflects 70% exposure to the U.S., followed by countries such as Switzerland, Germany, Australia, New Zealand, Demark and Brazil.

With $415.58 million as assets under management and an expense ratio of 0.68% as expense, the fund has delivered 33.82% YTD returns. The ETF has close to 40 stocks in its portfolio with top ten holdings that combine to almost 55% of the portfolio.

First Data
FinServ
Fidelity National Information
Wirecard
Intuit
Square
PayPal Holdings
Adyen
Guidewire Software
Black Knight


ARK Fintech Innovation (ARKF) is another ETF has been launched in 2019. ARKF is an actively managed ETF with a focus on companies engaged in the theme of fintech innovation. The ETF holds a portfolio between 35-55 stocks with a large-cap bias. The ETF has posted 4.93% YTD returns. It has $72.09 million as assets under management and an expense ratio of 0.75%.

The top ten holdings of the ETF are:

Square
Tencent
Apple
Zillow
com
Alibaba
PayPal
Rakuten
LendingTree
Line


Final Word

Global investment in financial technology ventures more than doubled in 2018, to $53.3 billion. A major part of it came for a single record funding round worth $14 billion in Ant Financial, best known for its mobile payments service Alipay.

Juniper Research projects that the number of people using digital wallets touch nearly 50% of the world’s population by 2024, pushing wallet transaction values up by more than 80%. Overall, the global digital payments market is expected to reach $7.64 trillion by 2024, recording a CAGR of 13.7% (2019-2024).

With the advancement in payments industry and colossal scope for growth, these ETFs are a favorable way to be a part of the digital journey, which has begun across the globe.

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