The coronavirus pandemic is dramatically altering a variety of industries, speeding along with shifts that were already rising. Fintech is one of the epicenters of that change, explaining why the ARK Fintech Innovation ETF (ARKF) is a star among thematic exchange traded funds this year.
With the pandemic spurring increased use of digital payments platforms, reducing use of cash, ARKF is higher by 110% year-to-date. The cashless/digital trend is a boon for ARKF components, such as Square (SQ) and PayPal (PYPL).
“We see PayPal (PYPL) as the best positioned in the very near term, given its focus on e-commerce, but we believe it will ultimately give back a portion of recent growth,” writes Morningstar analyst Brett Horn. “We think the market is overly focused on this near-term tailwind and competition for online payments will heat up over time.”
The actively managed 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.
Plenty of 2021 Catalysts for ARKF
With COVID-19 flaring up again in some regions, contactless payments and the ARKF components with exposure to that theme stand to benefit again. At the industry level, contactless is viewed as a futuristic concept, but integral to the ARKF thesis, that future is now. Contactless payments could see their share of all payments rise 10% to 15% because of the coronavirus. Adding to the case for ARKF is that the idea of digital payments isn’t confined to younger, more tech-savvy generations.
Importantly, the move to cashless and contactless payments isn’t going to abate when the coronavirus is defeated. Demographic tailwinds could see to this being a move with major long-term implications.
Cards and digital payments are slowly, but surely usurping cash as primary forms of payment, providing a compelling, long-term runway for growth for ARKF investors.
“Numerous payments industry participants have said that they have seen the shift away from cash accelerate through the coronavirus pandemic, as handling cash is viewed as a potential way to spread the disease,” notes Horn. “The shift away from cash was an existing trend, but if this persists it could pull forward this trend and benefit the payments industry as a whole by increasing the volume running through electronic payment systems.”