The ARK Fintech Innovation ETF (ARKF) offers investors an array of long-term catalysts, but not to be underestimated in the fintech investment thesis are international opportunities.
In fact, the coronavirus pandemic is highlighting not only the utility of fintech as a play on conducting banking in a world eager to avoid the virus but also as an avenue to tapping a new wave of financial services in developing markets.
“Now that Brazil’s coronavirus death toll has surpassed Italy’s and the WHO expects 190,000 coronavirus deaths in Africa, once again digital payments could be imperative in preventing the spread of the virus in developing countries,” said ARK analyst Max Friederich in a recent note. “Several African central banks are promoting cashless payments to ‘reduce the risk of transmission of coronavirus’. Besides reducing its transmission, digital payments should be able to help organize the fight against the virus, as in Sierra Leone in 2014.”
Fintech companies looking to carry over their wave of disruption, especially in the online payment space can look to Latin America and Africa, among other regions, 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.
Not long ago, Square (NYSE: SQ) CEO Jack Dorsey was derided by some analysts and investors for saying he was considering spending several months a year in Africa. Though Dorsey didn’t give many details as to why he was mulling the move, perhaps he could have allayed investors’ concerns by highlighting what could be epic fintech opportunities on the continent.
“Given its underdeveloped medical system, Sierra Leone recruited workers to swab corpses for Ebola but struggled with paying and retaining them until the UN intervened,” notes Friederich. “Before introducing digital payments, remuneration was complex and irregular. Facing crowds and chaos, staff had to travel to payment centers only to find that authorities could not verify their identities. At one point, Sierra Leone’s National Emergency Response Center spent more than 70 percent of its time trying to resolve these payment issues, leaving workers no alternative but to go on strike.”
Square’s potential foray into Africa is relevant to ARKF investors because the fund allocates almost 12% of its weight to the Cash App purveyor, making it the largest holder of the stock among all ETFs.
Interestingly, the aforementioned Sierra Leone situation highlights the advantages of digital wallets, of which Cash App is one.
“According to the UN, the introduction of digital payments helped save 2,095 lives and $10.7 million in costs by reducing mistakes and fraud, removing the costs of physical cash transfer and cutting travel costs for response workers,” writes Friederich.