Fintech ETF Could Get Long-Term Boost From Developing Economies

The fintech phenomenon is currently dominated by the U.S., but emerging markets will have their say in this thematic space. Investors can position for international fintech opportunities with the  Global X FinTech ETF (NasdaqGM: FINX).

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.

Many of the same catalysts bolstering the case for fintech in the U.S. are applicable to international markets, too.

“Such growth benefits EM consumers, who are becoming wealthier and entering the middle class by the hundreds of millions,” said Global X analyst Chelsea Rodstrom in a recent note. “And with more wealth comes more need for financial services. Older generations may want savings accounts and insurance products, while younger generations prioritize linking a bank account to their phones for easy online and mobile payments.”

FINX Diversity

FINX is one of the more geographically diverse fintech funds, featuring exposure to 11 countries, including some emerging markets. Brazil is the fund’s largest developing economy weight and second-largest country weight overall at just over 7%.

Fintech companies looking to carry over their wave of disruption, especially in the online payment space can look to Latin America for potential opportunities. This, in turn, could create interest in fintech-focused ETFs looking to add to their core portfolios of financial disruption companies by looking outside of developed markets.

In Latin America, online payments are still a relatively new concept as opposed to more developed economies where they have become standard fare.

“FinTechs are especially powerful in EMs because they are able to capture an unmet demand, filling gaps in the financial system left by traditional institutions for banking services and financial products,” notes Rodstrom.

The payment processing space is seeing a growing number of big bets placed by venture capitalists, which could give financial technology ETFs a boost. It’s a $1.9 trillion industry that the largest tech firms are trying to tap into.

“China has the highest adoption rate of mobile payments globally, leapfrogging credit cards, to spend over $15 trillion in 2017 digitally. This compares to just $2 trillion in the US, as consumers slowly shift away from paying with plastic,” according to Rodstrom.

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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.