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Why You Should Tap Fintech ETFs & Stocks in the Holiday Season
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The Federal Reserve has maintained the 22-year high benchmark lending rate. Yet, recent economic data points hint at a strong start to the festive season for the U.S. economy, which expanded by a commendable 4.9% in the third quarter of 2023, indicating economic resilience.
Despite decreasing personal income and savings rates, personal expenditure saw a sequential increase of 0.7% in September. Additionally, retail sales topped expectations, rising by 0.7% in the same month, breezing past the consensus forecast of 0.3%.
Optimistic Holiday Retail Sales Outlook
Meanwhile, anticipations for the holiday retail sales season are positive, with Mastercard SpendingPulse estimating a 3.7% year-over-year increase between November 1 and December 24, excluding automotive sales. E-commerce and online sales are expected to grow by 6.7% and 2.9%, respectively.
Deloitte's research firm forecasts total holiday retail sales in 2023 to range between $1.54 to $1.56 trillion during the November to January period, indicating a year-over-year improvement of 3.5% to 4.6%. E-commerce sales within this total are projected to reach $278 billion to $284 billion, reflecting a year-over-year increase of 10.3% to 12.8%.
Bain & Company foresees a 3% year-over-year growth in nominal U.S. retail sales in November and December, totaling about $915 billion. Notably, 90% of this growth is expected to come from non-store sales. Adobe Analytics predicts online sales growth of 4.8% year over year during the 2023 holiday season, as quoted on Reuters.
Are Cash-strapped Consumers Likely to Opt for BNPL Service?
Retailers will likely focus on bigger discounts and promotions to woo inflation-hit consumers. Younger shoppers are more likely to use buy-now-pay-later (BNPL) services to stretch their budgets, according to the Adobe report, as quoted on Reuters. This is quite expected as inflation has been leaving a dent in consumers’ pockets. Hence, companies like Block and Mastercard have dominant positions in the BNPL market (read: A Guide to Fintech ETF Investing).
Benefits of BNPL Service to Retailers & Consumers
Increased Spending: Retailers have noticed that offering BNPL can lead to an increase in average order value. When customers know they can spread the cost over time, they may be more likely to add more items to their cart.
E-Commerce Growth: The rise of online shopping has been a driving factor for BNPL. Online retailers embed BNPL options right at the point of sale, making it an integral part of the checkout process.
Mobile Shopping Rise: BNPL apps are mobile-friendly, capitalizing on the increase in mobile commerce. They fit well with the on-the-go lifestyle of modern consumers.
Accessibility: BNPL services often have lower eligibility requirements compared to traditional credit options. This accessibility can attract a broader customer base, including younger shoppers or those with less established credit histories.
Credit Card Alternative: For consumers who are wary of credit card debt or those who don’t have a credit card, BNPL offers an alternative that often comes with zero to low interest if payments are made on time, unlike typical credit card interest rates.
Competitive Landscape: As more retailers adopt BNPL, there’s competitive pressure for others to do the same in order to keep up and meet consumer expectations.
Improved Conversion Rates: Retailers use BNPL as a tool to convert more browsers into buyers by reducing the financial friction at the point of sale.
Fintech Partnerships: Many retailers partner with fintech companies to offer BNPL services. These partnerships can often be implemented with minimal changes to the retailer's existing payment infrastructure.
ETFs in Focus
The optimistic sales forecast along with a less-hawkish Fed make some payment ETFs well-positioned ahead of holiday season. Here’s are the options you can play now.
The underlying Indxx Global FinTech Thematic Index invests in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. The fund charges 68 bps in fees.
ARK Fintech Innovation ETF (ARKF)
The fund looks to offer exposure to fintech stocks. A company is deemed to be engaged in the theme of Fintech innovation if (i) it derives a significant portion of its revenue or market value from the theme of Fintech innovation, or (ii) it has stated its primary business to be in products and services focused on the theme of Fintech innovation. The fund charges 75 bps in fees.
The underlying Prime Mobile Payments 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. The fund charges 75 bps in fees.
Stocks in Focus
As far as stocks are concerned, investors can play the below-mentioned stocks.
The Zacks Rank #2 (Buy) company offers financial and marketing services through its comprehensive commerce ecosystem that helps sellers to start, run and grow their businesses. The company has a dominant position in the BNPL market. The company hails from an industry (top 36%) and sector (top 38%) that have upbeat Zacks Ranks.
Affirm (AFRM)
Affirm Holdings is an emerging growth company. They are building the next generation platform for digital and mobile-first commerce. The stock has a Zacks Rank #3 (Hold).
The Zacks Rank #3 company is a leading global payment solutions company that provides an array of services in support of credit, debit, mobile, web-based and contactless payments, and other related electronic payment programs to financial institutions and other entities. The company’s effort to involve more partners to strengthen its BNPL program has been noteworthy.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
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Why You Should Tap Fintech ETFs & Stocks in the Holiday Season
The Federal Reserve has maintained the 22-year high benchmark lending rate. Yet, recent economic data points hint at a strong start to the festive season for the U.S. economy, which expanded by a commendable 4.9% in the third quarter of 2023, indicating economic resilience.
Despite decreasing personal income and savings rates, personal expenditure saw a sequential increase of 0.7% in September. Additionally, retail sales topped expectations, rising by 0.7% in the same month, breezing past the consensus forecast of 0.3%.
Optimistic Holiday Retail Sales Outlook
Meanwhile, anticipations for the holiday retail sales season are positive, with Mastercard SpendingPulse estimating a 3.7% year-over-year increase between November 1 and December 24, excluding automotive sales. E-commerce and online sales are expected to grow by 6.7% and 2.9%, respectively.
Deloitte's research firm forecasts total holiday retail sales in 2023 to range between $1.54 to $1.56 trillion during the November to January period, indicating a year-over-year improvement of 3.5% to 4.6%. E-commerce sales within this total are projected to reach $278 billion to $284 billion, reflecting a year-over-year increase of 10.3% to 12.8%.
Bain & Company foresees a 3% year-over-year growth in nominal U.S. retail sales in November and December, totaling about $915 billion. Notably, 90% of this growth is expected to come from non-store sales. Adobe Analytics predicts online sales growth of 4.8% year over year during the 2023 holiday season, as quoted on Reuters.
Are Cash-strapped Consumers Likely to Opt for BNPL Service?
Retailers will likely focus on bigger discounts and promotions to woo inflation-hit consumers. Younger shoppers are more likely to use buy-now-pay-later (BNPL) services to stretch their budgets, according to the Adobe report, as quoted on Reuters. This is quite expected as inflation has been leaving a dent in consumers’ pockets. Hence, companies like Block and Mastercard have dominant positions in the BNPL market (read: A Guide to Fintech ETF Investing).
Benefits of BNPL Service to Retailers & Consumers
Increased Spending: Retailers have noticed that offering BNPL can lead to an increase in average order value. When customers know they can spread the cost over time, they may be more likely to add more items to their cart.
E-Commerce Growth: The rise of online shopping has been a driving factor for BNPL. Online retailers embed BNPL options right at the point of sale, making it an integral part of the checkout process.
Mobile Shopping Rise: BNPL apps are mobile-friendly, capitalizing on the increase in mobile commerce. They fit well with the on-the-go lifestyle of modern consumers.
Accessibility: BNPL services often have lower eligibility requirements compared to traditional credit options. This accessibility can attract a broader customer base, including younger shoppers or those with less established credit histories.
Credit Card Alternative: For consumers who are wary of credit card debt or those who don’t have a credit card, BNPL offers an alternative that often comes with zero to low interest if payments are made on time, unlike typical credit card interest rates.
Competitive Landscape: As more retailers adopt BNPL, there’s competitive pressure for others to do the same in order to keep up and meet consumer expectations.
Improved Conversion Rates: Retailers use BNPL as a tool to convert more browsers into buyers by reducing the financial friction at the point of sale.
Fintech Partnerships: Many retailers partner with fintech companies to offer BNPL services. These partnerships can often be implemented with minimal changes to the retailer's existing payment infrastructure.
ETFs in Focus
The optimistic sales forecast along with a less-hawkish Fed make some payment ETFs well-positioned ahead of holiday season. Here’s are the options you can play now.
Global X FinTech ETF (FINX - Free Report)
The underlying Indxx Global FinTech Thematic Index invests in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. The fund charges 68 bps in fees.
ARK Fintech Innovation ETF (ARKF)
The fund looks to offer exposure to fintech stocks. A company is deemed to be engaged in the theme of Fintech innovation if (i) it derives a significant portion of its revenue or market value from the theme of Fintech innovation, or (ii) it has stated its primary business to be in products and services focused on the theme of Fintech innovation. The fund charges 75 bps in fees.
ETFMG Prime Mobile Payments ETF (IPAY - Free Report)
The underlying Prime Mobile Payments 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. The fund charges 75 bps in fees.
Stocks in Focus
As far as stocks are concerned, investors can play the below-mentioned stocks.
Block (SQ - Free Report)
The Zacks Rank #2 (Buy) company offers financial and marketing services through its comprehensive commerce ecosystem that helps sellers to start, run and grow their businesses. The company has a dominant position in the BNPL market. The company hails from an industry (top 36%) and sector (top 38%) that have upbeat Zacks Ranks.
Affirm (AFRM)
Affirm Holdings is an emerging growth company. They are building the next generation platform for digital and mobile-first commerce. The stock has a Zacks Rank #3 (Hold).
Mastercard (MA - Free Report)
The Zacks Rank #3 company is a leading global payment solutions company that provides an array of services in support of credit, debit, mobile, web-based and contactless payments, and other related electronic payment programs to financial institutions and other entities. The company’s effort to involve more partners to strengthen its BNPL program has been noteworthy.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)