A quick glance at the name of the Emerging Markets Internet Ecommerce ETF (EMQQ), and it’s reasonable for investors to infer that this exchange traded fund is all about online retail in developing economies.
However, there’s more to the story, and some of that story’s chapters center around an increasingly compelling fintech opportunity set in emerging markets. Many consumers in developing economies lack access to the traditional financial services that many people in the U.S. and Europe take for granted.
“While the majority of people in Europe and North America have bank accounts and, therefore, access to credit or debit cards, this is not the case in many emerging markets. Here, often 50% or more of the population does not have the opportunity to use traditional banking,” said Frank Breuss in an interview with Business Leader.
Those consumers can’t participate in online retail because international merchants require credit or debit cards for payment. However, there are some workarounds.
“In Emerging Markets, access to online payments is usually restricted to Local Payment Methods (LPMs, also referred to as Alternative Payment Methods). These LPMs are essentially payment options that do not include the use of bank transfers or major credit cards,” according to Business Leader.
As LPMs evolve, the services can take on more of a fintech feel, potentially expanding the purchasing horizons for participating consumers. Indeed, there’s a rich field of potential growth in the fintech/emerging markets combination. EMQQ is responding to that trend.
The exchange traded fund’s underlying index, the EMQQ Index, was rebalanced last month, and those changes brought more fintech companies into the fold. In fact, four of the top five new additions to the benchmark are fintech companies, while new members of the index have some fintech exposure, too.
Breuss added that if merchants and payment providers work together, they can reduce friction in developing economies and expand their customer bases. If that happens, it could be meaningful for EMQQ over the long term.
“Country-specific legislation, currency restrictions, as well as logistics, are among the key issues hindering e-commerce growth. One of the key ways to accelerate the wider inclusion in global e-commerce is through local know-how. This way, the complexity of entering Emerging Markets for global Merchants, as well as Payment Service Providers, can be reduced,” Breuss said in the Business Leader interview.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.