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Fintech ETFs: Unleashing the Future of Finance

Fintech, short for financial technology, is a rapidly growing sector that has the potential to revolutionize the financial industry. By leveraging cutting-edge technologies such as artificial intelligence, blockchain, and big data analytics, Fintech companies are disrupting traditional financial institutions and paving the way for a more efficient and accessible financial ecosystem.

Notably, the traditional finance firms are feeling the heat of growing digitization and are turning to fintech companies for tie-ups. Several global banks, insurers and investment managers are looking to collaborate with the financial technology companies over the next three-five years.

The global Fintech market has experienced significant growth over the last decade and is projected to continue its upward trajectory. Per Expert Market Research, the global fintech market had a value of approximately $194.1 billion in 2022 and is expected to grow in the forecast period of 2023-2028 at a CAGR of 16.8% to reach $492.81 billion by 2028.

Key Fintech Subsectors to Watch

This growth the fintech sector is expected to be driven by factors such as the increasing adoption of digital payment solutions, the rise of mobile banking and e-commerce, and the growing trend of open banking.

Digital Payments

The digital payments subsector includes companies that facilitate online transactions and peer-to-peer payments. As consumers increasingly adopt cashless payments, digital payment platforms are poised to benefit from this trend. Digital payments are expected to stand out as the largest segment of the fintech market. Strong growth is expected in some emerging markets over the next few years, with projected CAGRs of 15% between 2021 and 2026, per Mckinsey.

Robo-Advisors and Wealth Management

Robo-advisors use algorithms and artificial intelligence to provide personalized investment advice and wealth management services. With lower fees compared to traditional financial advisors, robo-advisors are attracting a growing number of investors, making them a promising Fintech subsector.

Blockchain and Cryptocurrencies

Blockchain technology is not only the backbone of cryptocurrencies but also has the potential to transform various financial processes, such as remittances, supply chain management, and identity verification. Investing in Fintech companies focusing on blockchain and cryptocurrencies can offer significant growth potential.

Invest in Fintech ETFs

Exchange-traded funds (ETFs) provide an easy way to gain exposure to a diversified portfolio of Fintech companies. This can help mitigate the risks associated with investing in individual startups.

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

Global X FinTech ETF (FINX)

FINX seeks to invest in companies in the forefront of the emerging financial technology sector, which encompasses a range of innovations, comfortably transforming established industries like insurance, investment, fundraising and third-party lending through unique mobile and digital solutions. FINX has an AUM of $397.2 million and charges 68 basis points (bps) of fees. FINX trades in a three-month average volume of about 101,000 shares.

ARK Fintech Innovation ETF (ARKF)

ARKF is an actively-managed ETF that seeks long-term capital growth. ARK Fintech Innovation ETF provides exposure to fintech innovations like mobile payments, digital wallets, peer-to-peer lending, blockchain technology and risk transformation. With an AUM of $808.1 million, ARKF charges an expense ratio of 75 bps. Moreover, ARKF trades in a three-month average volume of about one million shares.

ETFMG Prime Mobile Payments ETF (IPAY)

IPAY 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 an AUM of $457.4 million, IPAY charges an expense ratio of 75 bps. Moreover, ETFMG Prime Mobile Payments ETF trades in a three-month average volume of about 45,000 shares.

Risks Involved in Fintech Investing

While Fintech investments offer high growth potential, they also come with inherent risks:

Regulatory Risk

As Fintech companies disrupt the traditional financial sector, they often face increased scrutiny and potential regulatory challenges. These regulatory changes can impact Fintech companies' growth and profitability.

Rising Rate Risk

Technology stocks or growth stocks normally underperform in a rising rate environment. With the interest rates have been running at a high level globally, the financial technology sector is also at tight spot.

Bottom Line

Keep abreast of the latest developments in the Fintech industry and economic policies and monitor your investments closely to identify new opportunities and potential risks. Fintech investing presents an exciting opportunity for investors to participate in the future of finance with a long-term view.

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Global X FinTech ETF (FINX): ETF Research Reports

ETFMG Prime Mobile Payments ETF (IPAY): ETF Research Reports

ARK Fintech Innovation ETF (ARKF): ETF Research Reports

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