When investors think about Visa (V) and Mastercard (MA), two huge companies, they don’t immediately think “disruptive finance companies.” Disruption isn’t just for the small, software-focused, “App” economy names, however. Visa and Mastercard are continually anticipating the future. They also participate in the evolution of digital finance by investing in disruptive firms. That search for disruptive finance companies also drives the Fidelity Disruptive Finance ETF (FDFF ).
While Visa and Mastercard have expanded their digital payments capacity and infrastructure meaningfully over the last several years. Neither is a newbie in the space. The reality is without Visa & Mastercard, disruption doesn’t happen. Fintechs like Cash App, Venmo, and many others use Visa and Mastercard to facilitate their transfers and other transactions. It is their payment rails that offer the scale and distribution necessary to deliver the fintech solutions young people crave within the U.S. and around the world.
The Shift in Progress
The shift to digital payments between businesses is happening across nearly every industry. It’s here from manufacturing and professional services to finance and insurance, as well as rental and leasing, among many others. Each industry has specific needs for its transactions, which gives fintechs countless opportunities to develop products and services that can cater to these businesses and industries.
For Visa, that effort comes via “Visa Direct”—initially launched in the late 2010s—which allows companies to send money to consumers or employees. For example, it helps Uber drivers get paid and can be used for Doordash and delivery services, and as a way for insurance companies to pay claims. Visa Direct has expanded to digital wallets within the last year. Digital wallets store card or bank information so businesses and consumers don’t need to carry cards with them. They can also carry IDs, licenses, tickets, and even car keys.
Digital wallets increase access to Visa’s financial offerings for those lacking access to financial services in foreign countries. At the same time, Digital Wallets like Visa Direct can also facilitate holding cryptocurrency.
How do Visa and Mastercard Participate in the Disruptive Finance Ecosystem?
Mastercard, meanwhile, saw its “Masterpass” service transition to “Click to Pay,” a joint effort with Visa and others, in 2020. As recently as April, the company shared news about a “crypto credential service” to help streamline crypto products moving across borders. The Mastercard Crypto Credential service leans on tech from CipherTrace, a blockchain analytics platform the firm agreed to acquire in 2021.
While crypto products did enter a “crypto winter” last year, cryptocurrencies and the blockchain itself remain important areas of financial innovation. The ongoing investment in innovation, ubiquity, and above moves help categorize Visa and Mastercard as true disruptive finance names for an ETF like FDFF to consider. FDFF weights the two at 6.2% and 6%, respectively, per the most recently available data.
FDFF is competitively priced at 50 bps compared to similar active thematic strategies. It looks for long-term capital appreciation, investing in growth and value stocks of global disruptive finance companies. That not only includes firms working on digital payments innovation, but also the blockchain, embedded finance, and AI-enabled underwriting services. For those who want exposure to that area and names like Visa and Mastercard in an active wrapper, consider FDFF.
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