The ETF ARK Fintech Innovation (NYSEARCA: ARKF) is nearly 55% higher year-to-date, leaving old-school financial ETFs in the dust as fintech companies continue to forge new market segments.
FinTech enables financial companies to take advantage of cutting-edge technology to reduce costs, improve decision-making and risk controls, cut out middlemen, and improve the customer experience. A thematic approach includes investments likely to benefit from structural changes brought about by demographic and technological changes.
When it comes to pushing new boundaries, Square – ARKF’s main asset – is among the names of the fintech leading this charge.
Why this is important for ARKF
Square could move to direct deposits is the latest sign of fintech companies, including many ARKF components, moving into areas previously dominated by traditional banks. For example, Square also plays an important role in the processing of Payroll Protection Program (PPP) loans. In addition, the company has also obtained a banking charter in Utah.
As ARK Invest analyst Max Friedrich points outA new frontier for Square are the loans known as payday loans. Square is beta testing this offering through its rapidly growing Cash App platform, offering loans of $ 20 to $ 200 to users in some regions.
This is a potentially lucrative opportunity for Square because, as Friedrich notes, Americans withdraw $ 27 billion in payday advances each year, resulting in fees of $ 4 billion. The industry, often referred to as predatory lending, is ripe for disruption. Payday lenders typically charge borrowers excessive interest rates, which means they are doing well in triple digits. Plus, lenders love to renew loans and keep borrowers in debt and living off their loans.
Friedrich notes that a traditional payday loan could charge a borrower $ 15 for every $ 100 borrowed, plus an additional $ 15 for $ 100 over a two-week extension. Conversely, Square can make the same loan for $ 5 per $ 100 loaned and a compound interest rate of 1.25% on a one-week extension.
Bottom line: A loan that costs a $ 200 loan from a payday store costs the borrower $ 230, but Cash App can take it down to $ 210.
“With this new product, Cash App offers consumers a cheaper and more humane alternative to expensive payday loans. Cash App does not have the high infrastructure costs and capital intensity as payday lenders ”, said Friedrich.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.