Fintech giant Square (NYSE: SQ) continued its torrid pace Monday, jumping 6.37% while extending its second-quarter gain to 157.23%. With the largest weight to Jack Dorsey’s company among all ETFs, the ARK Fintech Innovation ETF (ARKF), is positioned to benefit from Square upside.
Fortunately for investors considering ARKF, Square’s recent bullishness is rooted in solid fundamentals, including the company’s processing payroll protection program (PPP) loans.
“Square facilitated $820 million in loans for 76,000 businesses, averaging roughly $11,000 or one-tenth the average loan size that large banks facilitated,” said ARK analyst George Whitridge in a recent note.
The size of the loans processed by Square relative to traditional banks isn’t important. What is important is that ARKF’s largest holding filled a void old school banks could not did not want to fill themselves.
ARKF Proves Its Worth
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. ARKF if higher by almost 73% just this quarter and hit an all-time high yesterday.
“47% of Square’s loans were to businesses in low-income zip codes averaging less than $50,000 per household,” according to Whitridge. “Square Capital originated in 6 weeks the number of loans it typically delivers in 4.5 months.”
Bolstering the cases for Square and ARKF is that six in 10 of PPP recipients on the fintech platform were new Square customers.
Fintech allows financial firms to leverage cutting edge technology to reduce costs, improve decision making and risk controls, remove middlemen, and enhance customer experiences. A thematic approach includes investments that stand to benefit from structural change driven by demographic and technological changes.
“In our view, traditional banks could not facilitate the smaller loan amounts profitably, ceding an important role in the stimulus program to Square and other fintech lenders,” notes Whitridge. “We believe Square has a battle-tested digital platform geared to small merchants while traditional lenders had to launch and debug new platforms for a new demographic and couldn’t ‘get to market’ on time.”