FINX: When Fintech Meets The Capital Markets

This week’s Fintech Focus podcast looks at how one New York-based ETF sponsor is bringing the old and the new together. 

Established in 2016, the Global X Fintech Thematic ETF FINX seeks to invest in companies on the leading edge of fintech, including insurance, investing, payments, and peer-to-peer lending. The fund currently has $271 million assets under management, making it the largest pure-fintech ETF play.

Below are some highlights of our interview with Jay Jacobs, SVP and head of research and strategy at Global X, proprietor of the FINX ETF. 

At what point do you think we'll start to see the big traditional banks become synonymous with the word fintech and in thematic ETFs like yours? 

I think there's a long way to go. I think there's some banks that are making more progress than others in terms of becoming digital only banks... If you look at some estimates for where banks are going to be spending their IP budgets, some estimates show that 70 percent of their dollars are going to be spent on third-party technology companies to update their technology platform to become a digital bank.

We want to invest in the companies that are those third-party technology companies that are going to enable those banks to go from old school to digitalized rather than the banks themselves because that's just the banking industry whereas we're really looking at the technology enablers for helping those banks.

You hear stories of Chinese cab drivers refusing cash and insisting on mobile payments. How can investors get access to that market and that growing demand?
I think the challenge is some of these companies that are facilitating payments in China, for example, are much bigger companies involved in other forms of e-commerce, or search, or social media. The payment side of their business is just too small for them to really be classified as a fintech company. In that case, they probably would not be picked up by the index that our fund tracks.

So, it's going to depend on the accessibility of the investment and kind of the play of the investment. But there is a few companies that have already IPOed and there's a discussion of potential IPOs in the future or spin-offs in the future that could provide more direct access into that play, in the future.

What if I'm worried that one day down the line, everybody will own the same 50 stocks? 
I would make the distinction between ETFs and market cap waiting, so if everyone goes in from market cap waiting, of course, it's funneling more money into those specific stocks but at the end of the day, you have different benchmarks. There's many different index providers, providing different exposures to different types of US large cap companies. Some cut it off at 500, some cut it off at 1,000, some capsized exposures.

And that's not even introducing the entire smart data space where it's completely jumbling up who you owe and in what proportion. I wouldn't put this all on ETFs themselves because the anecdote to that also lays with ETFs.

If you just look at alternative waiting schemes. But if more and more people, I think this is a self-correcting mechanism because if more and more people on the same stocks, that should also create opportunity in the stocks that people don't own, which active managers should be able to capture. And if do that then people are going to be more interested in active again.

Listen to the full interview with Global X’s Jay Jacobs here.