Fintech is a great illustration of the Technochasm at work … one leading fintech company’s returns are dominating the S&P … a simple, one-click way to invest
As the story goes, Jim McKelvey was unable to complete a $2,000 sale of one of his glass faucets.
The reason?
He didn’t have the ability to accept a credit card from his would-be buyer.
InvestorPlace – Stock Market News, Stock Advice & Trading Tips
When McKelvey relayed his frustration to his friend, Jack Dorsey, the idea for “Square” was born.
I expect you’re familiar with it, but to make sure we’re all on the same page, Square is a digital payments company. One of its services is enabling “mom ‘n pop” retailers to accept credit cards. It accomplishes this with a small piece of hardware – a credit card reader – that hooks up to a smartphone.
Here’s our macro specialist, Eric Fry, with more details:
You may have seen a taxi driver, for example, take a payment by swiping your credit card through a plug-in device on his smartphone. That taxi driver was probably using the Square app.
Square is a leading payment processor that is attempting to become a leading digital bank, also known as a “digital wallet.”
From its humble origins in 2009, Square has gone on to become a massive company. Its market cap is currently more than $115 billion.
That growth has generated enormous wealth for its early investors.
As you can see below, since early 2016, Square has soared nearly 2,300% compared to the S&P’s 140% gain.
Source: StockCharts.com
Much of Square’s growth in recent years has come from its digital banking aspirations which Eric just noted.
Back to Eric for more:
The company also operates fast-growing digital banking services via its Cash App. Because this business has been growing at triple-digit rates year-over-year, it now accounts for about one third of Square’s gross profits.
And based on the growth trajectory of this business, it should account for half of gross profits within two years.
Let’s back up a moment…
Why are we beginning today’s Digest with this focus on Square?
Because it’s a poster child for the fintech revolution that’s been reshaping the financial services community in recent years… and the fintech revolution is a manifestation of something that regular Digest readers know well – The Technochasm.
If you’re a newer Digest reader, Eric coined this term. It describes the vast, and growing, wealth divide in our world that’s being fueled, in part, by huge profits from tech companies. These profits are flowing from the masses to a relatively small group of key employees and investors.
Today, we’ll look at fintech and the Technochasm. But as importantly, we’ll put an investment on your radar that will help you land on the right side of this cavernous divide as the 2020s roll on. Because despite how wide this tech-fueled wealth gap is today, it’s only going to get worse.
Let’s jump in.
***The rise of fintech, and how it fits into The Technochasm
For newer Digest readers, Eric is our global macro specialist and the editor behind Investment Report. As a macro investor, he evaluates markets and asset classes from a big-picture perspective to identify attractive opportunities.
Once a macro trend is in his crosshairs, he digs down to find the right, specific investment to play the opportunity.
It’s been a powerful strategy…
In his decades in the business, Eric has dug up more 1,000%+ gaining investments than anyone we know of in the newsletter industry.
The rise of technology has been on Eric’s radar for years. That’s because it’s the most significant macro trend – not just in the investment markets – but in in the world.
Within the broad category of technology, we find “financial tech” commonly called “fintech.” This is the sector in which Square operates.
Back to Eric:
(Fintech) refers to any new technology that improves or automates financial transactions. But increasingly, fintech has become shorthand for any type of disruptive finance-focused technology, from mobile payment apps to, yes, cryptocurrencies…
The long-term trends for fintech are rising. Adapt Insights pegged the market at $4.8 trillion at the end of 2019, and it says that figure will more than double to $10.1 trillion by 2024.
That’s because companies that develop and employ cutting-edge technology are growing to huge sizes faster than ever… grabbing market share faster than ever… and changing the world faster than ever.
You could almost take that last sentence from Eric and use it to define The Technochasm. The only thing missing is the socioeconomic aspect.
On that note, cutting-edge tech products and services are simplifying our lives, making them far more convenient. This is why Americans are happy to continue opening their wallets for tech, even those who aren’t necessarily earning high incomes.
As just one example, a recent study from Pew Research looked into what percentage of U.S. adults who make less than $30K a year own a smartphone. Not just any ‘ole cell phone, but a fancy, expensive smartphone.
You have a guess?
It’s 71%.
This is the Technochasm at work. It’s an ocean of dollars changing hands – a wealth transfer from the masses, to a select group of technology business owners, key employees, and investors.
And it’s a key factor in creating today’s sharp wealth divide.
***The convenience afforded by today’s fintech products/services is resulting in the same wealth transfer
Back to Eric:
Products from (leading fintech companies) are seeing wider use thanks to the pandemic, and people are more satisfied with their banks when they integrate peer-to-peer payment methods into their systems.
Research from McKinsey shows that 6% of U.S. consumers have opened a new fintech account during the pandemic. Mobile banking traffic ballooned by 85% in April 2020, and older Americans are becoming increasingly comfortable with online banking.
I expect these new habits to stick around, giving fintech companies an advantage going forward.
As they become more accessible, more people will adopt them. Because the pandemic made these technologies more necessary, it has only accelerated their widespread adoption.
So, how can you be on the right side of this specific manifestation of the Technochasm?
***Investing alongside the fintech revolution
If you’re looking for one-click convenience that offers diversification, Eric has highlighted the Global X FinTech ETF (FINX). It holds fintech heavyweights including Square, PayPal, Afterpay, Fiserv, and Intuit.
Here’s Eric commenting on how it has treated shareholders:
Exponential progress is creating a Technochasm between companies that develop and use technology successfully… and those that don’t.
We’ve been seeing the effects in my Fry’s Investment Report service.
One of our fintech investments, the Global X FinTech ETF (FINX), has gained nearly 70% since I recommended it on June 11, 2019 – handily outperforming the S&P 500’s 33% return over the same time frame.
And this isn’t just because fintech recovered faster than the broader market following the COVID selloff. The S&P is up by just over 16% from this time last year, while FINX is up by more than 45%.
As a quick aside, Square recently announced plans to acquire Afterpay (the third company noted above that’s held in FINX). This is going to make Square even more of a fintech juggernaut.
Obviously, Square would be a great investment. Just keep your eye on its price-to-earnings ratio. (221 as I write – though even more mind-boggling is that its five-year average price-to-earnings ratio is 267!)
Whether Square, FINX, or some other leader, fintech is changing the financial services game. Make sure it’s on your radar.
I’ll give Eric the final word:
Almost everyone I know uses fintech, even if they don’t realize it. That tells me the fintech industry is likely to continue growing rapidly over the next few years.
I’m always looking for new fintech stocks – and other Technochasm-related investments – to bring to my Investment Report subscribers. Learn how to join us here.
Have a good evening,
Jeff Remsburg
The post The Growing Power of Fintech appeared first on InvestorPlace.
Credit: Source link
