Banking & Finance

Cathie Wood's Fintech ETF Has Profitable Past and a Bright Future

Over the last 12 months, this fund has returned more than 18% to investors, and its chart path closely matches that of iShares and Global X funds. Here’s a full chart of the four ETFs, along with the performance of Square and PayPal over the same period. Including the fintech stocks and excluding all the big bank stocks made all the difference for the Ark’s fund.

If FIS Worldpay is accurate, fintech will continue to grow and share prices for fintech stocks right along with the technology. For global e-commerce payments, digital/mobile wallets accounted for 44.5% of all payments last year, and FIS Worldpay forecasts that total to rise to 51.7% by 2024. Credit cards accounted for 22.8% of all e-commerce payments last year, but that is forecast to fall to 20.8% and debit card payments are expected to slip from 12.3% to 12.0%. Bank transfer payments accounted for 7.7% of online payments last year, and those are forecast to fall to 5.3% by 2024.

Cui bono? Who benefits? First off, people do. Mobile wallets mean never having to hand a credit or debit card to another person or even having to punch the buttons on the POS gizmo at the checkout line. It may take longer to eliminate the ubiquitous ATM machines, but they’re eventually gone too.

Between early June and mid-August of last year, Australian firms had removed 2,150 ATMs and the country’s top four banks had closed 175 bank branches in an effort to protect people from the spread of the coronavirus. However, the head of the Reserve Bank of Australia’s payments policy, Tony Richards, told Adelaide Now that the central bank “expects the long-term downward trend in the use of cash to continue.”

Businesses benefit from some lessons learned from the pandemic. For example, in 2019, physical checks accounted for 29% of all business-to-business transactions with two-thirds of those checks issued by small and medium-sized businesses. According to the FIS Worldpay report, research firm Juniper Research estimates that the global transaction value of virtual (digital) cards increased by 11% to $1.6 trillion. The researchers expect that total to more than triple by 2025.

The financial services sector benefits in a number of ways. First, digital wallets like Square’s Cash Pay, PayPal’s Venmo and Zelle, owned by a consortium including BofA, Capital One, JPMorgan Chase and Wells Fargo (among others), make it possible to avoid touching filthy lucre at all. The switch to digital wallets also means fewer branches, which means lower costs and higher profits.

Who might benefit? In the first place, people who don’t have bank accounts. According to a report issued last October by the Federal Deposit Insurance Corporation (FDIC), about 5.4% of U.S. households (around 7.1 million) do not have a bank account. One proposed remedy for that is postal banking, offering basic banking services through the 30,000 or so U.S. Post Offices scattered across the country.

If postal banking, along with digital wallets, were available to the so-called unbanked (and everyone else), would that drive the final nail in the coffin of cash payments? The financial services sector will not give in quietly on this subject, however, especially the payday lenders that likely benefit most from Americans who don’t have bank accounts.

Catherine Wood, ARK Invest CEO, is a shareholder of 24/7 Wall St. LLC.