A new era of fintech evolution is dawning in various emerging markets, and that trend carries with it potentially compelling implications for select exchange traded funds, including the Emerging Markets Internet Ecommerce ETF (EMQQ).
As has been seen in developed markets, e-commerce and fintech go hand-in-hand in emerging economies. Arguably, fintech is even more important in the developing world because e-commerce and online retail are the primary sources of retail spending in many of those economies, which often lack brick-and-mortar retail infrastructure. Additionally, the coronavirus pandemic is playing a role in speeding fintech adoption in emerging markets.
“With lockdowns pushing e-commerce forward, the payment ecosystem now includes many emerging markets that quickly embrace and adopt the new reality. The changing landscape, inclusive of this new customer base, has become a very lucrative source of growth for global merchants, who are presented with a massive opportunity to expand their business reach,” says PayU CEO Mario Shiliashki in a piece for Fintech Magazine.
One of the primary reasons that the emerging markets fintech investment thesis, which EMQQ has leverage to, is compelling from a long-term perspective is that there’s considerable differences in payments between various developing economies. Said another way, it’s relatively easy for online retailers in the U.S. to accept payments from Canadian customers, but much less easy for those same retailers to accept payments made from developing nations.
As PayU’s Shiliashki observes, merchants need to know local tax and regulatory compliance as well as the payment platforms customers prefer. Since there’s little uniformity from market to market in the developing world, fintech companies, including some EMQQ components, are becoming essential partners to online retailers looking to tap into the emerging markets consumer opportunity set.
“It may seem like a conundrum, but as the world is becoming increasingly global, local preferences are becoming more pronounced and need constant attention and adoption from international merchants,” adds Shiliashki. “Localisation means that merchants need to provide various local payment methods, usually not cards, to appeal to different customers in different regions.”
From a long-term investment perspective, it’s worth remembering that EMQQ and its stablemate — the Next Frontier Internet & Ecommerce ETF (FMQQ) — are among the ETFs most levered to the emerging markets fintech theme. In fact, following the rebalances of both funds last month, fintech exposure in each is significantly higher than it was prior to the rebalances.
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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.