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A Comprehensive Guide to Fintech ETFs

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The world is gradually moving toward digitization that is increasing the dominance of technology on the financial sector. A Market Data Forecast (MDF) report also highlights the growing opportunities in the global financial technology market, which is expected to see a CAGR of 23.4% between 2021 and 2026. According to the report, the fintech space is expected to reach a market value of around $324 billion by 2026.

The combination of financial services and technology has allowed providers to focus on a more customer-centric approach. The combination is steadily improvising or replacing traditional financial services methods in several fields such as payments, digital lending, insurance, ecommerce, banking and wealth management along with social commerce, per a MDF report.

Factors Behind the Growing Fintech Space

The emergence of cutting-edge technologies like AI, cloud computing, big data, the Internet of Things (IoT) and machine learning is driving the fintech space. The growing popularity of smartphones, rising demand for industrial automation and the increased utilization of wireless communication are boosting the transition to digital platforms.

The traditional firms are feeling the heat of growing digitization and are turning to fintech companies for tie-ups. According to a Mordor Intelligence report, several global banks, insurers, and investment managers are looking to collaborate with financial technology companies over the next three-five years. These firms forecast an average return of about 20% on investment on innovation projects, per the report.

Fintech firms are using infrastructure-based technology through platformification and open application programming interfaces (APIs), per a Mordor Intelligence report.  Going by the report, the fintech space is also witnessing operational advancements with the help of robotic process automation (RPA), chatbots, and Distributed Ledger Technology (DLT), which are providing for improved and enhanced agility, efficiency, and accuracy.

Moving on, the growing participation of traditional investment banks and fintech firms with an aim to add cryptocurrency to their products is opening up investment opportunities.

Certain other ‘new normal’ trends have also emerged amid the health crisis like work from home, increasing digital payments, growing video streaming as well as soaring video game sales. The pandemic is also a boon for the e-commerce industry as people continue staying indoors and shopping online for all essentials, especially food items.

Along with increased interest in online shopping, customers are resorting to digital payments to clear their bills. At the same time, merchants and utility providers are increasingly advocating the same.  Payment services from tech titans like Alphabet's (GOOGL - Free Report) Google Pay, Facebook's (FB - Free Report) Facebook Pay, Apple's (AAPL - Free Report) Apple Pay, Amazon.com's (AMZN - Free Report) Amazon Pay, PayPal (PYPL - Free Report) and Square Inc.’s (SQ - Free Report) Cash App are the key winners amid the increasing shift to digital payments.

Notably, the United States is witnessing a considerable rise in the number of COVID-19 cases. Going by Johns Hopkins University data, the United States is witnessing an average of 160,000 new COVID-19 cases a day, per a CNN report. Considering the current situation, Dr. Rochelle Walensky, the director of the US Centers for Disease Control and Prevention (CDC), has urged unvaccinated Americans to avoid travel during the Labor Day holiday weekend, according to a CNN report. Considering the current situation, Americans are expected to keep making digital payments.

Fintech ETFs to Keep a Track of

Here we highlight some fintech ETFs that can gain from the growing financial technology market:

Global X FinTech ETF (FINX - Free Report) — up 30.5% over the past year

The fund seeks to invest in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations, helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. It has AUM of $1.39 billion and charges 68 bps in fees. It trades in three-month average volume of about 177,000 shares (read: ETFs to Gain on Solid Q2 Coinbase Earnings).

ARK Fintech Innovation ETF (ARKF - Free Report) — up 29.4%

It is an actively-managed ETF that seeks long-term growth of capital. The fund provides exposure to fintech innovations like mobile payments, digital wallets, peer-to-peer lending, blockchain technology, and risk transformation. With AUM of $3.71 billion, it charges an expense ratio of 75 basis points (bps). Moreover, the fund trades in three-month average volume of about a million shares (read: Robinhood Warns on Trading Activity: ETFs in Focus).

ETFMG Prime Mobile Payments ETF (IPAY - Free Report) — up 27.4%

The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Prime Mobile Payments Index. The index provides a benchmark for investors interested in tracking the mobile and electronic payments industry, specifically focusing on credit card networks, payment infrastructure and software services, payment processing services, and payment solutions (such as smartcards, prepaid cards, virtual wallets). With AUM of $1.29 billion, it charges an expense ratio of 75 bps. Moreover, the fund trades in three-month average volume of about 90,000 shares (read: ETF Areas in Spotlight as Delta Variant Cases Rise).

Ecofin Digital Payments Infrastructure Fund (TPAY - Free Report) — up 22.3%

The fund uses a passive management approach and seeks to track the total return performance of the Ecofin Global Digital Payments Infrastructure Index. With AUM of $14.3 million, it charges an expense ratio of 40 bps. It trades in three-month average volume of about 812 shares.