The ARK Fintech Innovation ETF (NYSEARCA: ARKF) devotes almost 12% of its weight to Square (NYSE: SQ), the largest weight to the rising fintech star among all ETFs and that exposure is becoming more relevant and rewarding for investors.
ARKF’s Square exposure is meaningful on multiple levels, not the least of which is, well, customers actually the company. That’s a rarity when it comes to financial institutions because many folks simply don’t like their banks.
“In the US, most customers do not like their banks. In a survey ranking the 100 most popular companies by customer satisfaction, banks took three of the bottom ten places. According to another survey, 71% of Millennials would prefer to visit their dentists than engage with their banks,” writes ARK analyst Max Friedrich.
More Reasons to Like Square
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.
Other reasons to be bullish on Square include the company’s penetration in small business lending in the wake of the Coronavirus, but that just scratches the surface of opportunity with the company and its Cash App digital wallet.
“Square’s Cash App, seemingly the fastest-growing consumer financial product in the US, has taken a different tack, offering products for free and building a brand that consumers like,” notes Friedrich. “Among recent marketing initiatives, it sent a limited number of users ‘fun boxes’ with Cash App branded socks and stickers – products typically associated with sports clubs or music groups, not banks.”
Making ARKF’s Square exposure all the more compelling is that Cash App and digital wallets, in general, are not being appropriately factored into fintech share prices. Nor is brand value as it pertains to Square.
“While investors are beginning to understand and acknowledge the commercial potential of Cash App, in our view they are underestimating the value of a consumer finance brand that customers trust and want to support,” according to Friedrich.
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.
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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.