The financial services industry is experiencing a technological revolution that we believe will fundamentally disrupt legacy business models. In this piece, we highlight four companies that represent key areas of the FinTech industry targeted by the Global X FinTech ETF (NASDAQ:FINX), including:
- Digital Payments
- Wealth Management Software
- Peer-to-Peer Lending
- Financial Software
Digital Payments: Square Inc.
Square began by offering a solution to small businesses struggling to move from cash-based transactions to credit cards: the firm developed a small white credit card reader that attaches to an iPad or iPhone, allowing merchants to conveniently swipe a host of credit cards and complete transactions virtually anywhere.
Since then, Square has developed a variety of point-of-sale (POS) products that allow customers to pay with credit cards, mobile wallets, and wearables. In addition, the company has broadened its services offerings to include a business lending platform, a cash transfer app, customer and inventory management software, and an ecommerce website platform.
Square’s success is indicative of how critical payments solutions have become to small and medium sized businesses. From corner coffee shops to sophisticated ecommerce sites, it is table stakes for businesses to offer customers a variety of payments options that are safe and reliable. For all but the largest businesses, this service can be most efficiently provided by third party payments firms like Square, which in turn captures a percentage of the business’s total revenue.
Wealth Management Software: Envestnet Inc.
Envestnet is a digital wealth management platform that leverages technology to connect asset managers, financial advisors, and individual investors. Envestnet’s platform is designed to facilitate or automate a variety of tasks for financial advisors like constructing, monitoring, and rebalancing portfolios, vetting and on-boarding third party investment managers, and generating performance reports and analysis. These capabilities are designed to empower advisors with better tools and information, while freeing their time from repetitive tasks to focus on serving their clients. Wealth management software like Envestnet has become critical to financial advisors looking to improve their research, processes and client interactions.
Peer-to-Peer Lending: Yirendai Ltd
Yirendai is a Chinese peer-to-peer lending firm that facilitates small consumption loans to underserved borrowers and offers alternative investment options to investors. As the online consumer finance arm of China’s CreditEase, Yirendai has access to its parent company’s database of millions of customers and financial data which the firm has utilized to facilitate loans worth nearly 86bn RMB (12.6bn USD) since its inception in 2012.1 The firm’s growth is driven by the intersection of a variety of themes in China including an expanding middle class, rising domestic consumption, and greater demand for online and mobile wealth management platforms.
While Yirendai is just one peer-to-peer lending platform, it is representative of a broader trend in FinTech of utilizing scalable technology platforms to provide financial services to customers who previously were ignored by traditional financial institutions. This is most apparent in the emerging markets where the rising middle class has historically largely been deprived of small loans or wealth management solutions given a lack of scalable financial services.
Financial Software: MYOB Group Ltd
Based in Australia, MYOB Group offers business management solutions for firms looking to digitize their finance functions like accounting, invoices, and payroll. MYOB demonstrates how FinTech companies are increasingly looking to provide solutions to small and medium size enterprises (SMEs). SMEs often seek to improve their processes in non-revenue generating areas that can be expensive and distracting from their core business. By leveraging intuitive software design and cloud-based architecture, companies like MYOB offer SMEs high quality, scalable solutions at affordable costs.
As of 8/2/18, Square Inc.was 6.15% of FINX, Envestnet Inc. 2.22%, Yirendai Ltd 0.80%, and MYOB Group Ltd 1.13%. http://www.globalxfunds.com/funds/finx. Holdings are subject to change. There is no guarantee companies mentioned remain in or out of the Global X FinTech ETF.
1. Source: Yirendai Q1 2018 Investor Presentation
Investing involves risk, including the possible loss of principal. The investable universe of companies in which FINX may invest may be limited. The Fund invests in securities of companies engaged in Information Technology which can be affected by rapid product obsolescence, and intense industry competition. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. FINX is non-diversified.
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