Fintech ETFs: Unleashing the Future of Finance – April 27, 2023
Fintech, short for financial technology, is a rapidly growing sector that has the potential to revolutionize the financial industry. By leveraging cutting-edge technologies such as artificial intelligence, blockchain and big data analytics, Fintech companies are disrupting traditional financial institutions and paving the way for a more efficient and accessible financial ecosystem.
In particular, the traditional financial firms are feeling the heat of increasing digitization and are turning to fintech companies for tie-ups. Several global banks, insurance companies and investment managers want to work with the financial technology companies over the next three to five years.
The global Fintech market has experienced significant growth over the past decade and is expected to continue its upward trajectory. According to Expert Market Research, the global fintech market was valued at approximately USD 194.1 billion in 2022 and is expected to grow during the forecast period 2023-2028 at a CAGR of 16.8% to reach USD 492.81 billion by 2028.
Key Fintech sub-sectors to watch
This growth in the fintech sector is expected to be driven by factors such as the increasing use of digital payment solutions, the rise of mobile banking and e-commerce, and the growing trend of open banking.
Digital payments
The digital payments subsector includes companies that facilitate online transactions and peer-to-peer payments. As consumers increasingly adopt cashless payments, digital payment platforms are poised to capitalize on this trend. Digital payments are expected to stand out as the largest segment of the fintech market. Strong growth is expected in some emerging markets over the next few years, with a projected CAGR of 15% between 2021 and 2026, per Mckinsey.
Robo-advisors and wealth management
Robo-advisors use algorithms and artificial intelligence to provide personalized investment advice and wealth management services. With lower fees compared to traditional financial advisors, robo-advisors are attracting a growing number of investors, making them a promising Fintech sub-sector.
Blockchain and cryptocurrencies
Blockchain technology is not only the backbone of cryptocurrencies, but also has the potential to transform various financial processes, such as money transfers, supply chain management and identity verification. Investing in Fintech companies that focus on blockchain and cryptocurrencies can offer significant growth potential.
Invest in Fintech ETFs
Exchange-traded funds (ETFs) provide an easy way to gain exposure to a diversified portfolio of Fintech companies. This can help reduce the risk associated with investing in individual start-ups.
Here we highlight some fintech ETFs that can profit from the growing fintech market:
Global X FinTech ETF (FINX – Free Report)
FINX seeks to invest in companies at the forefront of the emerging fintech sector, encompassing a range of innovations, comfortably transforming established industries such as insurance, investment, fundraising and third-party lending through unique mobile and digital solutions. FINX has AUM of $397.2 million and charges 68 basis points (bps) in fees. FINX trades in a three-month average volume of around 101,000 shares.
ARK Fintech Innovation ETF (ARKF – Free Report)
ARKF is an actively managed ETF that seeks long-term capital growth. The ARK Fintech Innovation ETF provides exposure to fintech innovations such as mobile payments, digital wallets, peer-to-peer lending, blockchain technology and risk transformation. With AUM of $808.1 million, ARKF charges an expense ratio of 75 bps. In addition, ARKF trades in a three-month average volume of around one million shares.
ETFMG Prime Mobile Payments ETF (IPAY – Free Report)
IPAY seeks to replicate as closely as possible, before fees and expenses, the price and yield of the Prime Mobile Payments Index. The index provides a benchmark for investors interested in tracking the mobile and electronic payment industry, particularly focusing on credit card networks, payment infrastructure and software services, payment processing services and payment solutions (such as smart cards, prepaid cards, virtual wallets). With AUM of $457.4 million, IPAY charges an expense ratio of 75 bps. Also, the ETFMG Prime Mobile Payments ETF trades in a three-month average volume of around 45,000 shares.
Risks involved in Fintech investments
While Fintech investments offer high growth potential, they also come with inherent risks:
Regulatory risk
As Fintech companies disrupt the traditional financial sector, they often face increased scrutiny and potential regulatory challenges. These regulatory changes can affect Fintech companies’ growth and profitability.
Rising interest rate risk
Technology stocks or growth stocks normally perform worse in an environment with rising prices. With interest rates at a high level globally, the fintech sector is also in a tight spot.
The bottom line
Keep up to date with the latest developments in the Fintech industry and financial policies and closely monitor your investments to identify new opportunities and potential risks. Fintech investments provide an exciting opportunity for investors to participate in the future of finance with a long-term perspective.
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