The move to cashless and contactless payments is on in a big way and that has long-ranging, positive implications for fintech ETFs, such as the ARK Fintech Innovation ETF (ARKF).
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. Moreover, this trend was starting well before the coronavirus and is being sped along by the global pandemic.
“Global non-cash transactions were booming even before the coronavirus pandemic struck. And then the pandemic further accelerated the shift to digital payments as people avoided handling cash to prevent contact and spread of infection,” notes Morningstar analyst Vikram Barhat.
New Normal Benefits ARKF
The time could be right for fintech names to push into more traditional banking services, potentially stealing market share from their slow-growth rivals.
Social distancing may have kept customers away from brick-and-mortar banks more often than not, giving financial technology time to shine. As consumers forge on following the pandemic, the ease of use provided by fintech could be a major disruptor for banks.
“The trend has created a growth tailwind for payment processors that are cashing in on the continuing global pivot toward cashless payments,” said Barhat. “The global digital payments market is projected to grow from USD 3,885 billion in 2019 to a staggering USD 8,059 billion by 2023, growing 20% annually. In no small measure, the trend is propelled by the global mobile payments market, which is set to skyrocket from USD 1,139 billion in transaction value in 2019 to a staggering USD 4,690 billion by 2025, at a 27% annual clip.”
PayPal (NASDAQ: PYPL), which is an ARKF component, is a winner under the new payment regime and its e-commerce exposure is a significant driver for the stock.
“The second quarter provided further confirmation that the coronavirus has led to a material shift toward online payments, a trend that PayPal is well-placed to benefit from,” according to Morningstar. “The absolute increase in net active accounts set a record for the company, suggesting the coronavirus has meaningfully expanded its customer base.”
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.