Fintech is the future of financial services and that future is now. Fortunately, there’s a “now” for fintech investors that embrace ETFs, one that includes the ARK Fintech Innovation ETF (NYSEARCA: ARKF).
ARKF invests in equity securities of companies that ARK believes are shifting financial services and economic transactions to technology infrastructure platforms, ultimately revolutionizing financial services by creating simplicity and accessibility while driving down costs.
One of the big drivers of long-term upside for ARKF could prove to be digital wallets and related apps, such as Venmo and Square’s (NYSE: SQ) CashApp.
“According to ARK’s research, digital wallets will be valued at a premium to retail banks and, thanks to their low cost of customer acquisition, will offer banking services to low-income earners in a way that traditional banks cannot,” said ARK Invest in a recent report.
Finding That Digital Demand
Payments are increasingly going digital with a number of start-ups seeing venture capital seed money to help facilitate online purchases. According to the research company Pitchbook, data shows that investors put $18.5 billion into the payment processing sector in 2018–an increase of five times the previous year.
Fintech allows financial firms to leverage cutting edge technology to reduce costs, improve decision making and risk controls, remove middlemen and enhance customer experiences. A thematic approach includes investments that stand to benefit from structural change driven by demographic and technological changes.
“Given ARK’s estimate of 220 million digital wallets in the US by 2024, if every user were to be valued according to the lifetime value of traditional bank customers, the digital wallet opportunity could be worth more than $800 billion,” according to ARK.
Obviously, fintech is a growth, not a value, proposition, but some data points suggest markets are undervaluing digital wallets and that could spell opportunity for ARKF investors.
“Public markets are valuing digital wallets, such as Square’s Cash App, at a significant discount per user to private fintech valuations. ARK believes that, at maturity, a digital wallet user should be valued at roughly $3,650, similar to a retail bank customer,” notes ARK.
Speaking to that growth opportunity, ARKF is up 6.29% to start 2020 while the more traditional S&P 500 Financial Services Index is lower by 1.66%.
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.