Cashless payments, cryptocurrencies, and digital wallets are among the catalysts propelling stocks such as PayPal and and Square (NYSE: SQ). The Fintech Innovation ETF (NYSEARCA: ARKF) is profiting too.
The actively managed ARKF is up 99% year-to-date, making it the king of fintech exchange traded funds in terms of performance. Investors that missed out on this year’s run in ARKF can take heart because this is still an early innings story.
ARKF components, including Square and PayPal, have a myriad of tailwinds. Square and PayPal are threatening the duopoloy power of major credit card networks. That threat is emerging more rapidly than many industry observers expected.
“Based on recent earnings reports and product launches, Square and PayPal could threaten the duopoly power of the major card networks sooner than many investors expect. PayPal’s management mentioned digital wallets more times than ever before during its third quarter earnings call,” according to ARK Research.
More to Come for the ARKF ETF
ARKF member firms are companies that are powered by innovations, working to disintermediate or bypass the current financial markets and challenge traditional institutions by offering new solutions that are better, cheaper, faster, and more novel and secure.
While PayPal and Square aren’t overtly saying so, they’re targeting areas previously dominated by traditional credit card networks.
“Tied into PayPal’s digital wallet ambitions is further penetration of the physical world. PayPal already has QR code partnerships with major retailers including CVS in the US and is in discussions with more than 100 other large retailers,” notes ARK. “By rolling out QR codes and embedding wallet payments, PayPal could disintermediate third parties, improving its transaction economics.”
Square, the largest holding in ARKF, is working on a similar endeavor.
“At the same time, Square is rolling out Cash for Business, a service that enables businesses to accept payments through their business accounts on Cash App,” says ARK. “We believe most Cash for Business transactions should be funded with Cash App users’ balances, and not linked credit cards, suggesting that transactions between Cash App users and Cash App sellers will be closed loop, disintermediating third party platforms and enabling Square to reduce transaction related costs.”
Making ARKF’s Square exposure all the more compelling is that Cash App and digital wallets are not being appropriately factored into fintech share prices.
For more on disruptive technologies, visit our Disruptive Technology Channel.
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.