Use of cash was already declining at the expense of digital and mobile payments, but with businesses and consumers implementing social distancing protocols, cash use is dwindling in favor of other payment options, a theme that speaks to the utility of fintech ETFs, such as 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.
ARKF, which turned a year old last month, allocates nearly 11% of its weight to Square (NYSE: SQ). Jack Dorsey’s company is the purveyor of Cash App, one of the most downloaded financial applications in various app stores and one that’s seeing increased usage due to the coronavirus.
“According to our research, Square’s Cash App is gaining share from PayPal’s Venmo,” said ARK Invest analyst Max Friedrich in a recent note. “As illustrated previously, Cash App’s most rapid adoption in the US has been in the south where unbanked rates are the highest. Cash App not only accommodates peer-to-peer transactions but also provides users with free and easy-to-use banking/saving accounts and debit cards.”
Making the Cash Call
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.
Data suggest that Cash App is benefiting as buyers and businesses look for cash alternatives during the COVID-19 pandemic. That’s a potential boon for ARKF because its Square allocation is among the largest among all ETFs.
“With access to the 8.4 million unbanked households in the US, Cash App could become an important financial conduit during the COVID-19 crisis. According to the US Government, the ~$3400 in direct bank deposit stimulus payments per family won’t reach households for three weeks while, for those not registered with the IRS, paper checks will take at least four months,” according to Friederich.
The ARK analyst points out that Cash App is ideally suited to help Uncle Sam deliver those stimulus checks and do so in cost- and time-efficient fashion.
“With unique access to data about the unbanked community, including KYC/AML (know your customer/anti-money laundering) and social security numbers, Cash App could distribute stimulus funds in days instead of months,” said Friederich. “In Jack Dorsey’s words: let innovative companies help the government during this crisis.”
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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.