Market Overview

The Mobile Payments ETF Has Plenty Of Tailwinds

The Mobile Payments ETF Has Plenty Of Tailwinds

In the conversations about disruptive technologies and thematic investing, mobile payments has earned its place.

Among the exchange traded funds investors can use to tap the rise of non-traditional payment purveyors is the ETFMG Prime Mobile Payments ETF (NYSE: IPAY).

What Happened

The $399 million IPAY follows the Prime Mobile Payments Index and is nearly four years old. The first ETF dedicated to the mobile payments industry, IPAY “capitalizes on the transition taking place from cash/physical credit card payments to a mobile/digital system,” according to its issuer.

Year to date, IPAY is up 18.25 percent, beating the S&P 500 Financials Index by more than 660 basis points. Industry consolidation is among the themes boosting IPAY. That includes Fiserv, Inc.'s (NASDAQ: FISV) $22 billion deal to acquire rival First Data Corp. (NYSE: FDC). Both stocks are top 10 holdings in IPAY.

Why It's Important

“Recent M&A in the payments industry and growing retailer adoption of cashless transactions further confirms the US payment industry's growth prospects,” said Fitch Ratings in a recent note. “Strong demand for electronic payments capabilities and related technology should support industry fundamentals for merchant acquirers, card processors, network operators, and technology and gateway providers, but large-scale acquisitions may have credit implications.”

At least five deals in the mobile payments were announced in 2018, underscoring IPAY's status as a way for investors to play increased consolidation in the mobile payments arena.

“Strong cash flow generation supports modestly higher leverage for the industry but credit risk could rise given the occurrence of larger deals,” said Fitch. “We expect M&A activity to persist due to attractive growth opportunities, strong cash generation, private capital interest and historically low interest rates.”

What Happened

Data confirm investors are waking up to the IPAY story. Just last year, the fund took in over $100 million in new assets, or about 25 percent of current assets under management tally.

Other data points confirm the fund's long-term promise. In the U.S. in 2017, 31 percent of transactions were conducted in cash, but that number is expected to fall to 25 percent by 2022.

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