2023 investing inspo: 4 reasons you should care about fintech | Global X

Maddy: [00:00:22] Hello and welcome to Your new company Summer series. I'm Maddy Guest and as always, I'm in some very good company with my co-host, Sophie Dicker. 

Sophie: [00:00:30] Mads, it's fair to say that 2022 was a volatile year for markets and we learned a lot of investing lessons this year. 

Maddy: [00:00:38] If only we had had a crystal ball at the start of the, it really would have helped in some of our investing decisions. 

Sophie: [00:00:45] So we thought, what a better way to start the new Year than to create a little crystal ball of our own. 

Maddy: [00:00:50] We are bringing you industries to watch in 2023 as voted by you for episodes of a full weeks of Aussie Summer.

Sophie: [00:00:59] Or Winter series. If you're joining us from the Northern Hemisphere. Welcome if you are. 

Maddy: [00:01:03] Hello. We are going to be exploring some of the most talked about industries that just might have their moment on the ASX this year. 

Sophie: [00:01:10] This series is brought to you by Global X, a powerhouse ETF provider in the local and international markets, offering investors best in breed products backed by industry leading research. 

Maddy: [00:01:21] Soph, I'm pretty excited about today's topic. Today we're going to be talking about fintech. 

Sophie: [00:01:28] Can you give me a little rundown? What's your best explanation of fintechs? I feel like I hear this word all the time. 

Maddy: [00:01:33] It is very like it's very topical. It seems to be talked about. 

Sophie: [00:01:37] And it seems a bit like what? What is it? Give me an explanation. 

Maddy: [00:01:40] So fintech is a combination of threads, finance and technology. 

Sophie: [00:01:45] I wouldn't have wouldn't have guessed that one. Hey, no, no, no, no. 

Maddy: [00:01:50] I feel like sometimes you these things, you hear it so often that you just think it's somewhat. 

Sophie: [00:01:54] Yeah, true. And you're right.

Maddy: [00:01:56] FinTech companies are basically the companies that are bringing together, you know, new tech into the financial services space. And that what's happening in the moment is that they're really putting a lot of pressure on the traditional existing banks, insurers, wealth managers to sort of really transform what they are doing and how they go about things. 

Sophie: [00:02:16] So it's like companies that want to work in financial services like banking, wealth management insurance, but they're putting a tech spin on it. 

Maddy: [00:02:25] Yeah, I think in simple terms, it's really sort of bringing innovation to the finance space.

Sophie: [00:02:31] Okay, gotcha. Traditional banking, get rid of it. 

Maddy: [00:02:34] I want to test you out. 

Sophie: [00:02:35] Okay. 

Maddy: [00:02:36] Do you currently, like, use or interact with any fintech companies? 

Sophie: [00:02:44] Well, on online banking, yeah. Is that fintech? 

Maddy: [00:02:48] I mean, it's not a fintech company, but I would say it like that's classified as fintech. 

Sophie: [00:02:53] Okay, Ooh, what about when I like, use my QR code and pay through my phone? 

Maddy: [00:02:58] Yeah, that's. 

Sophie: [00:02:58] Like double click and it pays and all for me. 

Maddy: [00:03:01] That would be that. I feel like that's exactly what it is, that sort of integrated finance into different apps and things like that. 

Sophie: [00:03:07] Okay. But other than that, I don't really thinks so. 

Maddy: [00:03:12] Do you use payment. 

Sophie: [00:03:13] Yes, I do. 

Maddy: [00:03:14] That's a good one. That's when I first. 

Sophie: [00:03:16] Right? I feel like there's probably a lot more companies than what we Realised using Fintech. 

Maddy: [00:03:23] Yeah, I think the reality is that because of how prominent, like how prominently we use our iPhones these days, we're pretty much in a cashless society now, like fintech companies are everywhere and we're actually interacting with them like literally every day. 

Sophie: [00:03:36] So why have fintech companies come about? I feel like I've heard a lot about a kind of an argument of, you know, the traditional finance and banking system is a little bit backwards, and that's why people are bringing fintech to the, you know, to the space at the moment. 

Maddy: [00:03:54] Yeah, I think if we take a step back, I was actually writing recently a really interesting blog called FinTech Brain Food, and it really sort of laid out why the traditional finance or Defi is what they call us, is failing us. So I guess if you think about when, like banks were built, when insurance companies were built, this was so many years ago and it was sort of you know, it was pre-internet, the world was a very different space. And I think as technology has evolved, all of these existing institutions have sort of tried to transform with it. But the reality is, is that they weren't built and set up in a time that, you know, technology is how it is today. 

Sophie: [00:04:35] Yeah, it's interesting. So think of like, say your local bank down on the corner or whatever. They're open from 10 a.m. to 4 p.m.. Yeah. And I always think in my mind who is using a bank and why. Yeah. And then the other thing that comes to mind is when we tried to set up a joint credit card for our podcast adventures we had. To book an appointment and go in. I thought it was the weirdest thing in the world that we had to go do that. And then that makes me think, Wow, that system is pretty outdated. It's getting pretty old.

Maddy: [00:05:07] I think the traditional system, you know, there's limited access. There's also high fees associated like we spoke about this when we did our crypto series, you know, just transfer money overseas. You spend a ridiculous amount of money on face, which is just such a bizarre thing, like when it's old, when it's old, digital already. Why isn't that instantaneous already? It's a slow process. And there's also just a very sort of limited product offering. 

Sophie: [00:05:31] So I think that the sentiment then is that the traditional banking system is kind of failing some people and therefore fintech has kind of really emerged over the past couple of years. 

Maddy: [00:05:42] Yeah. So I sent you an article that I think we should chat through now. It's all about sort of what are the major trends in fintech that we can expect to see in the next year? 

Sophie: [00:05:52] I did my research, I read the article. I really enjoyed. 

Maddy: [00:05:55] It. I'm glad. So the first one is this idea, which is embedded finance. So simply put, that is basically just the integration of financial tools or services into offerings that are sort of non-financial institutions. So I think even back to what you were saying before, when you're at a restaurant, you scan a QR code and within that system you are able to pay, you're able to transfer the money in order to pay for your food and drinks. 

Sophie: [00:06:20] Another example is like Aruba, for example. So like you pay before you even get in the car. But that's linked to a completely different service, to anything to do with like money or banking or finance. 

Maddy: [00:06:34] And even like, if we think about the lending space traditionally, you know, you had to go to your bank, you had to apply, you had to go through a really lengthy process where you disclosed lots and lots of information and now buy, now pay later exists. And that is a much more frictionless, easy, fast experience user experience. Everyone, obviously there are some downsides as well to that. But I think if we take a step back and just appreciate the technology from like a pure tech format that is like quite amazing, limited to what the traditional banks previously offered. 

Sophie: [00:07:05] So the first trend that the article saw was embedded finance kind of payment systems that are embedding themselves or technologies embedding themselves in more traditional industries. What's the second trend? 

Maddy: [00:07:17] Number two is alternative financing, otherwise known as Alpha Phi. 

Sophie: [00:07:21] In the code. I love this like. Trad Phi Phi Phi, like what's the like I get the files finance, but like, guys, it's fine. We just that's cool. But I wanted to say. 

Maddy: [00:07:33] I have this constant issue because I studied finance at uni. When people ask me what I started, I say the word finance and I think I'm saying fine arts. Oh. 

Sophie: [00:07:42] And I'm like, It could not be farther from the truth. 

Sophie: [00:07:44] Yeah, but if you, if I saw you on the street and I was like, what do you look radiant about the moment? And you said, I'm reading about Trad Phi, I'd have to ask what that is. Whereas if you said traditional finance, I'd be like. 

Sophie: [00:07:54] You get so weird there. It's. Yeah, you read. 

Maddy: [00:07:57] What did you study at uni, I imagine. 

Sophie: [00:08:03] So alternative financing, what is It? 

Maddy: [00:08:04] It's essentially a form of financing or I guess providing loans, raising capital, pooling money together by a means other than the traditional banking system. 

Sophie: [00:08:14] I feel like I've seen a lot about of this when we were talking about like the Start-Up Space in a couple of episodes that we've done where people can, you know, you and me, for example, who get ten friends together, put in $1,000 each and like invest in a business which you wouldn't have been able to otherwise do because of access and lack of knowledge without the Internet. 

Maddy: [00:08:34] Yeah, there are also websites where people can pitch their business ideas and like you and I can go on and invest money in those businesses. Like, I think it's quite cool because alt fi is really like democratising the space in many ways. It's sort of allowing people to access things that previously they never would have been able to do. [00:08:52][18.4]

Sophie: [00:08:53] I think linking this also to like the buy now pay later space, there's also platforms that do like small business lending, but they're not actually the traditional banks. So they've come in and there's kind of less regulatory like issues around it. But you can go and get like, I don't know, a quick $5,000 you might need for some supply chain issues rather than having to go to a bank and go through, such as you said before, lengthy and regulatory processes. 

Maddy: [00:09:16] Number three is environmental, social and governance initiatives.

Sophie: [00:09:20] Love a bit of ESG. 

Maddy: [00:09:21] Tell us about this one. What is It? 

Sophie: [00:09:23] So I think the really cool thing about the fintech space is that because it's not the traditional like brick and mortar and like needing lots of people and labour and electricity and whatever else, a lot of fintech companies can come through and kind of like change the game. So for example, there's this ESG fintech list, the ESG FinTech 100. You can look it up and see a list of 100 companies that are doing stuff in this space. One of them was called Deep Ki, and they pretty much create like ESG strategies around like companies that finance buildings and houses and commercial real estate and kind of taking out that layer of, you know, maybe environmental things that they. Don't need or require. Another one was called Green Asset's Wallet, which is a platform where you and I can go on there and direct our capital money that we want to invest to net zero economies loss. So I think the ESG space in fintech is a huge emerging area because there's all these cool Start-Up ideas that are coming out and being like, Well, how can we change the traditional industries that exist at the moment? 

Maddy: [00:10:24] Yeah, I was reading an article the other day about how the monetary authority of Singapore has joined with Google Cloud to launch like it's called Point Carbon zero program. And basically the goal is to support Start-ups or support climate fintech sort of companies in Asia and really try and sort of direct more money and more capital to those sort of companies, which I also thought was very cool. [

Sophie: [00:10:49] Oh. Wouldn't happen without the internet. Seriously, combining finance and technology. 

Maddy: [00:10:54] The fourth one is one that we have covered a little bit off on the podcast before. Decentralised finance, otherwise known as Defi. 

Sophie: [00:11:05] Why? 

Maddy: [00:11:05] Sorry, I just it's like it's important jargon to get your head around. 

Sophie: [00:11:09] That's true. So decentralised finance is something that was, is often referred to as like blockchain. Yeah. And in the simplest of terms it is a record of transactions that you can not change. Yeah. So if Matty pays $5 to Sofi, it'll come up on the blockchain. We can all say it and you can't ever erase that. I can't say no. She paid me $10. 

Maddy: [00:11:34] Or you can say you still owe me $5. [00:11:35][1.5]

Sophie: [00:11:36] Exactly. So it's kind of like democratising and making transfers of money and other things quite open and transparent. 

Maddy: [00:11:45] Yeah, sure. I think we should talk through maybe some of the other, like innovations that are coming through as well. So yeah, within sort of that blockchain technology, you gave one example around money which I guess is linked to crypto in particular, probably Bitcoin, but there's a lot of other uses as well. 

Sophie: [00:11:59] Yeah, one example is like smart contracts. So like have you ever come across like DocuSign for example? Like smart contracts is a similar kind of technology behind it that like it you can create a contract, get it signed, you know, between lawyers and accountants. And I can say when you've opened it, when you've signed it, and you can't ever change like the date or the time or whatever that someone's viewed or signed. So you always know that it's like the number one truth or the source of truth. 

Maddy: [00:12:26] I like smart contracts because it's something that can make it makes so much sense in like the practical sense of why it would be useful. Yeah, another one that I was reading about the other day, Don't quiz me too much on it because I think I'm still getting my head around it. But it's this idea of tokenization. And so the idea is that you can tokenise real estate cars and trade them in the same way that you tokenised or that we trade, say, companies. So for example, like if I own ten shares in Macquarie Group, I own whatever percentage of that is Macquarie. And I think the idea behind tokenization is that the same thing can happen with sort of private assets, cars, real estate, things like that. 

Sophie: [00:13:09] That's so interesting. So like you could buy 10% of a house and be like, that's mine.

Maddy: [00:13:13] Which is like a whole new way of thinking about assets, I guess like things. 

Sophie: [00:13:18] Are. It's interesting because when we first started thinking about fintech as something to speak about, I was like, Yeah, it's kind of around, but like, don't really, like, know about it. Honestly, we already use a lot of it and there's so much cool technology that's coming out of this space. 

Maddy: [00:13:32] Yeah, and I think it's the kind of stuff that is very directly going to improve our lives. 

Sophie: [00:13:35] But I've got to ask with like an investing lens on like what would be then some of like the main disadvantages of investing in fintech. 

Maddy: [00:13:45] I think probably the first one that comes to mind and this is from personal experience, is that some of these investments can be quite high risk. Like often these companies are in the Start-Up space. They're still very new or similar to what we talked about with robotics and AI a couple of weeks ago. You know, this is technology that is sort of rapidly changing and developing quite quickly. So I guess things that developed today might have newer and better technology in six months time. Yeah. So I think when you are investing in this space, you know, you want to make sure that you're really sort of aware of what you're buying and what the company is and how they're tracking, because I guess it could be very easy for other companies to develop new technology and sort of overtake. 

Sophie: [00:14:27] Yeah, And I think with that is like comes the volatility of it all. Yeah, I think in the past have maybe the past year we've seen a lot of fintech companies fail and it's for the reason of they have to, number one, put a lot of money into investing in new technology themselves to build them up as a company. But number two, as you said, they might be a bit of a fad and they might go away. A great example is like buy now, pay later that had its heyday and then all of a sudden it had people talking about regulatory approvals. And then the fact that it's actually a debt like item and that, you know, people shouldn't be using it had a lot of. Negative talk around it, and it's so easily turned from like the greatest investment to the worst investment. Are you hurt by it? 

Maddy: [00:15:10] I think the other one that applies that exact example is intense competition. Like there are so many different companies doing very similar things. You know, there were so many or there are. 

Sophie: [00:15:21] There are still around. 

Maddy: [00:15:23] There are so many different buy now pay later companies sort of offering very similar products. Yeah. And I think that whilst this space is developing so rapidly, there is a lot of competition because you've got your big companies like huge traditional banks who are trying to sort of innovate and shift into this space. But the start-ups that are coming through, you know, they haven't been around for a long time. They don't have that history. Yeah. So I think whilst this sort of technology really comes about, there's a lot of like playing out, say how it goes in terms of who wins. 

Sophie: [00:15:55] Yeah, I think with that there's a lot of copycat. Like someone does something and someone replicates it. And to be honest, it's just whatever company gets adopted and people like a really good example I would say with that is like IQ split wise. It's a very, you know, people use it all the time. Pretty simple concept, boom, it came along and all of a sudden it's got instant transfer. So of course I move to Obama. 

Maddy: [00:16:15] Definitely. I think all of this talk around, you know, which company or which technology is going to be the best when I put an investing lens on that really makes me think maybe given I'm not an expert in this space and I probably don't have the time to invest in learning enough about it, ETFs is the way to go because it gives me exposure to that industry without having to pick one or two companies. 

Sophie: [00:16:37] Well, on that note, maybe we'll chat a little bit about how you can actually invest in the fintech space. But first, let's take a quick break for our sponsors. So you and I love an ETF, and that's what we are investing in in 2023 in the industries we are watching. 

Maddy: [00:16:56] Want less risk. 

Sophie: [00:16:58] Less risk, both. 

Maddy: [00:17:00] Diversification. 

Sophie: [00:17:02] So there's in ETF, I think the fintech space which has an acronym which unfortunately many isn't, you're going to find it at bat, but it's f tech. So you we can call it fintech if you want.

Maddy: [00:17:12] All right. Let's call it not luego. That will go. That's real name. This one is global is fintech and blockchain ETF, which seeks to invest in companies on the leading edge of the emerging finance and technology sector. 

Sophie: [00:17:26] What was really interesting about this one, when I look at ETFs and we can get into some details, but a lot of it's obviously in the U.S., because I know that lack a lot of innovation does come out of the U.S., Start-ups, etc. But the second piece country was Sweden. MM Which was cool because its main holding is a Swedish bank. And then it got me thinking when I say to a lot of my friends in like the U.K. and stuff, they find that the banking system over there is a lot better. Like there's a lot of like, what's that one called the pink one? 

Maddy: [00:17:59] Yeah, Monzo. 

Sophie: [00:18:01] Monzo. And that's all offline. And like, we don't have a lot of like, there's some in Australia that I've seen, but I feel like overseas it's taken off a lot more. 

Maddy: [00:18:11] Yeah, I've actually often thought that if we were to start a company, it could be in this space because I yeah, I completely agree. Like when my, whenever I've travelled, I mean whenever friends live overseas they seem to have such a good experience and we just don't have the equivalent. 

Sophie: [00:18:26] I know. And I think it's also because that like translating between currencies like pound and euro and whatever else, but this encompasses a lot of countries, but it's listed on the ASX, so you can still invest in our little cute hometown. 

Maddy: [00:18:40] Which we love,. 

Sophie: [00:18:40] Which We love. 

Maddy: [00:18:41] So one, I had a browse through the main holdings. One of them is BLOCK, formerly known as Square. Jack Dorsey is the CEO who used to be the CEO of Twitter. 

Sophie: [00:18:52] God, I wonder like what his phone calls are like at the my fridge? 

Maddy: [00:18:56] I'm sitting. I mean, he got out. Interesting question. I wonder if Elon Musk would have acquired Twitter if Jack was still there. Because I feel like they're friends. 

Sophie: [00:19:05] Maybe we should send them a text asks.

Maddy: [00:19:08] BLOCK is also well known for acquiring Afterpay last year, one of the biggest deals in Australian history. But I think the reason why this one is interesting, and I've spoken to a couple of my friends about this is BLOCK has this thing called Cash App. It currently exists in the US and the UK and I believe it's launching in Australia soon. But basically it's everything that you need in one app. So it allows you to quickly send and receive money. You can also purchase stocks and crypto and the best one in my mind is you can also do your Tax.

Sophie: [00:19:40] That's really useful.

Maddy: [00:19:41] Like a one stop shop for all your time.

Sophie: [00:19:44] Everything. Yeah. 

Maddy: [00:19:45] Makes so much sense. 

Sophie: [00:19:45] I actually just got I'm no joke. Got a text from my sister tonight. She got like this thing being like, how do I do my tax? And I was like. But secondly, like, it's so true. She was like, Do I? How do I collect all my payslips? Blah, blah. Like, that's really handy. 

Maddy: [00:20:02] I was going to say, for starters, it was due a little while ago.

Sophie: [00:20:05] Yeah, For starters, she's too late. Another one I found in the ETF was one called Toast Ink. I love when I'm looking at the ETFs. I always just get drawn to certain names. So obviously I'm drawn to Toast Inc, but it was actually interesting because it's a like restaurant point of sales management system, so it like helps restaurants, like track orders, check, cash, check, all that kind of stuff. So it kind of consolidates the traditional writing on a pattern paper and collecting cash all into like one app that they can use.

Maddy: [00:20:34] Very interesting. I hope these apps also I don't know if this so much as what toasting does, but I remember when I used to be a waitress and work in a restaurant, the whole cashless thing really killed tips. So hopefully they think about a way to think of the staff in these apps. 

Sophie: [00:20:51] Yeah, I'm sure they were. 

Maddy: [00:20:53] Another one that I found quite interesting is called Northern Data. It's a financial analytics platform and they basically have data centres that are all over the globe and they build everything from sort of hardware for electricity, visualisation, cloud technology, software. So all with sort of a finance lens, right? So you've really getting a lot of diversification in this ETF. 

Sophie: [00:21:16] And then it would be remiss not to mention that they also do have like Coinbase in there. Yes. So obviously Coinbase is very much associated with cryptocurrency given it's an exchange, but they do a lot of work in like that blockchain space. So it does give you that little bit of exposure to the upside of crypto if there ever is any CERN, but it's like a well-rounded ETF because it's obviously got like more traditional kind of platforms of the fun in the finance space. 

Maddy: [00:21:43] Definitely want to get you thinking. I always love browsing through the holdings and just getting some inspire around what the. Different things are that you can actually invest in. 

Sophie: [00:21:51] Maybe you should create an ETF in a fintech space and call it hi fi. 

Maddy: [00:21:58] I like it. Thank you very much, I'm afraid. 

Sophie: [00:22:01] Speaking of summer or winter. Well, then, have a Speaking of all the seasons. 

Maddy: [00:22:08] Spring and autumn. 

Sophie: [00:22:12] What is your recommendation for our final episode of our summer? Winter? Autumn Spring series. 

Maddy: [00:22:18] Have you watched Starts on Netflix?

Sophie: [00:22:27] What is it? Love it. Oh, my.

Maddy: [00:22:30] Gosh. It's so good. So, do you know Jonah Hill? Yeah. So it's a documentary. Do you know what it is now? 

Sophie: [00:22:37] I've seen it with the whole guy.

Maddy: [00:22:39] Yeah. Yeah. So he created this documentary. It's in black and white. Yeah, it's very cool. And it's all about his psychologist. So he has been saying his psychologist for, like, I think, maybe five, six years now. And he psychologist has all these sort of isms like, you know, when people say their own theories around things. So he's psychologist Phil starts hence the starts has all these awesome like theories about life that he is taught Jonah and Jonah wants to like, share them with the world. And that's so good. To give you some context, I watched it with my housemate. And we loved it. And we ended up having, like, it was like one of those things they like, step out. It was just like talking about all of it. I mean, literally the next night I got home and my, like, another housemate was watching a movie and he was like, Oh gosh, we watch something. And I was like, Yes, let's our and I watched it next night back to back, because it's just one of those things that every time you watch it, you're going to get more. 

Sophie: [00:23:34] Out of it. 

Maddy: [00:23:35] It was so good. I can't recommend it more. 

Sophie: [00:23:37] So I gather the people you love in your life this summer and watch stuffs. 

Maddy: [00:23:40] Love it. What have you got for me? 

Sophie: [00:23:42] Did you know that Dua LIPA had a podcast? 

Audio clip: [00:23:45] I've always enjoyed listening to podcasts. That's such an incredible way for people to share that or express themselves and build a community in an increasingly chaotic world. 

Maddy: [00:23:54] No. 

Sophie: [00:23:55] I know. Neither did I, but I am recommending she has a podcast called Dua LIPA at Your service. At first I was going to be sceptical and I'm like, Is it actually going to be her that speaking or my running into some trouble here? It was Her. So the podcast episode I'm going to recommend is the one with Trevor Noah, who was the previous host of The Daily Show in the U.S. He has just recently resigned, I think. But on the back of that recommendation, my second man recommendation is Trevor Noah's book, Born a Crime, which is about his experience growing up in South Africa during the apartheid. Wow. So, number one, right? I can read the book first. A-Z rate. So interesting. Like sad and hilarious at the same time, which I think is an incredible skill. And then listen to the podcast because they speak a little bit more about it and then it's like freakin Dua LIPA. Ending the summer with a bang. 

Maddy: [00:24:52] I love it. Well done. 

Sophie: [00:24:53] Guys. Thanks so much for listening this summer to our summer series. We hope you've enjoyed. And if you want to join us throughout the rest of the year, find us on Instagram @YIGCPodcast 

Maddy: [00:25:05] Jump into our Facebook group and ask your questions. Connect with other people YIGC Investing Podcast Discussion Group. 

Sophie: [00:25:12] And it's the beginning of the year. So if you have friends, family, whoever wanting to set money goals, please share our podcasts. Word of mouth is our best friend. 

Maddy: [00:25:23] Otherwise, thank you so much and you'll hear from us soon.