FinTech Revolution Still in Its Early Innings

For a period, the coronavirus pandemic altered how consumers consume. These days, the long-term case for e-commerce investing remains strong, but it’s also clear that obituaries for brick-and-mortar stores, broadly speaking, may have been penned prematurely.

Both of those things can be true at the same time. Another certainty is that the pandemic reshaped how consumers pay for goods and services and that hasn’t waned. Translation: The fintech revolution remains in its early innings and the investment implications are substantial.

There’s no denying that stocks such as Block (NYSE: SQ) and PayPal (NASDAQ: PYPL), among many more, are growth stocks. As such, they were battered last year and remain in tenuous spots despite decent starts to 2023. Conversely, the runway for growth for established and some younger fintech companies is undoubtedly compelling, indicating the asset class warrants some examination.

Fintech’s Fantastic Long-Term Outlook

As an investment theme, fintech sports an array of attractive attributes, including the aforementioned room for growth and global utility.

“Despite progress in mature economies like the United States, cash still accounts for 11% of the market for payment methods at the point of sale, indicating meaningful growth potential,” notes Mayuranki De of Global X. “In emerging markets, where the penetration for digital payments is much higher due opportunities for financial inclusion and favorable demographics, China leads the market for POS payments at 54% of consumers, followed by India at 25%.”

Data confirm that shoppers are returning to brick-and-mortar, but there’s more to that story. They want their shopping experiences, be they grocery shopping or something experiential, to be efficient. Digital payments systems provide that efficiency, highlighting fintech’s obvious intersection with traditional retail.

“In a recent Visa survey, 41% of consumers surveyed in nine markets around the world said that they had abandoned their shopping carts in a physical store because it didn’t have digital payment options,” adds De. “Global POS transaction values are projected to approach $58.9 trillion by 2025. Adjacent to this rapid digitization of the global economy is the decline in physical cash payments, which are expected to dip from 18% in 2021 to 9.8% of the total share by 2025.”

Don’t Forget Digital Wallets

In addition to POS and the increasing digitization of old guard retail, fintech, as many advisors already know, is disrupting traditional banks. One of the avenues through which this is occurring is digital wallets. Those not familiar with that term may still know about Block’s Cash App or PayPal’s Venmo – both of which are mobile apps.

Cash App and Venmo were started, in part, to make money transfer more efficient, but that was merely a foundation for a broader financial revolution. Today, users of these apps can get traditional banking services and buy and sell crypto and stocks. In fact, Cash App has become the preferred bank for many folks that were previously under-banked or unbanked. And yes, there are millions of Americans that fit into those categories.

Consider the potential disruption digital wallets can bring to the standard banking industry as highlighted by ARK Investment Management in its 2023 “Big Ideas” report.

“With 3.2 billion users, digital wallets have penetrated 40% of the global population. ARK research suggests that the number of digital wallet users will increase 8% at an annual rate, penetrating 65% of the global population by 2030,” according to the ETF issuer. “Cutting out middlemen, digital wallets could facilitate closed-loop transactions for more than 50% of their payment volumes, potentially adding $450 billion to the current $1 trillion in digital wallet enterprise value by 2030.”

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