While financial technology, or fintech, might still be in its nascent stages, this means investors looking to capitalize on the space need to exercise due diligence. While many see opportunities existing in fintech, they need to be wary that there’s still a high risk of failure.
“I absolutely believe that there will be fintech failures,” said President of Promontory Interfinancial Network Jane Gladstone, in an American Banker interview. “In fact, I think there will be hundreds of fintech failures precisely because too many companies got funded. You might say there’s been a bubble. There are hundreds of fintech companies that I expect will run out of money in the next year or so.”
As such, more investors are starting to refocus on companies that are in their later stages of the business growth cycle. Per a Peer2Peer Finance News article, the first quarter of 2020 was a tough one for fintech, but “the second quarter saw some major financing rounds for companies like Stripe and Robinhood.”
“Therefore, investors are putting money in later-stage, more mature companies (like Robinhood) with clear unit economics and paths to profitability,” said research financial services company CBI Insights, per the Peer2Peer article. “In general, we expect continued uncertainty and funding pullbacks.”
Consider These Fintech ETF Options
For exposure to fintech, ETFs to look at including the Global X FinTech ETF (NasdaqGM: FINX) and 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.
FINX seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Fintech Thematic Index. The underlying index is designed to provide exposure to exchange-listed companies in developed markets that provide financial technology products and services, including companies involved in mobile payments, peer-to-peer (P2P) and marketplace lending, financial analytics software, and alternative currencies, as defined by the index provider.
Another fund to take advantage of within financial innovation is the Goldman Sachs Motif Finance Reimagined ETF (GFIN). GFIN seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Motif Finance Reimagined Index.
The fund seeks to achieve its investment objective by investing at least 80% of its assets in securities included in its underlying index. The index is designed to deliver exposure to companies with common equity securities listed on exchanges in certain developed markets that may benefit from the on-going structural changes in the support and delivery of financial services.
For more market trends, visit ETF Trends