Who are the winners in the payments wars? | ETF Securities

HOSTS Alec Renehan & Bryce Leske|18 October, 2021

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

ETF Securities have recently released a new ETF tracking the global FinTech industry with significant exposure to blockchain technology, decentralised finance, digital payments and peer-to-peer lending – ETFS Fintech & Blockchain ETF (Exchange Code: FTEC). Alec and Bryce talk to Chris Titley, who’s a stockbroker at Morgans Financial, and has a passion for this industry of emerging fintechs, digital banks and payments companies. Then they talk to Kanish Chugh, the Head of Distribution at ETF Securities Australia, about the rationale for creating an ETF that tracks this space, and the importance for retail investors to be exposed to this new disruptive technology.

This episode contains sponsored content by ETF Securities.

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Bryce: [00:00:14] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce, and as always, I'm joined by my equity buddy Ren. How's it going? 

Alec: [00:00:29] I'm very good. Bryce very pumped for this episode. We are speaking about an area of the stock market that has captured our attention and our imagination. Fintech. 

Bryce: [00:00:40] That's right. We've got we've got an expert on the line and we've got a topic that we're ready to get stuck into in celebration of ETF Securities, recent fintech ETF, which we'll touch on in a bit. But look, we shouldn't leave him hanging. We're absolutely pumped to have Chris Titley from Morgans Financial joining us on the show. Chris, welcome. 

Chris Titley: [00:01:02] Thanks Bryce and Alec or Ren. I don't know which one of our colleagues, 

Alec: [00:01:06] whichever one you want, maybe change it off. 

Chris Titley: [00:01:09] Right? Big fan of the series, particularly the ex cricketers who have come on Eddie Callan and who's been closer. I can safely say that I'm not as good about as they were, but certainly an amateur cricketer in my time. 

Bryce: [00:01:20] Great to have them on the show as well, and I can also say that I'm nowhere near as good as the 

Alec: [00:01:26] way we play a game of cricket once a year with all of our mates, and I can guarantee you that Bryce isn't as good a batsman as some of those 

Bryce: [00:01:34] guys. So, Chris, you're a stockbroker at Morgans Financial, but you have a real passion for emerging fintechs, digital banks, payments companies, you know, all those subsectors of fintech. And so today we've got you on to really help us have a discussion at that sort of high level around what's going on in the space, a bit of a chat around digital payments and some of the trends and companies that are emerging, some of the big acquisitions that are going on. As I said, it's all in celebration for ETF Securities Fintech ETF. They've released a new ETF tracking the global fintech industry with significant exposure to blockchain technology, decentralised finance, digital payments and peer to peer lending. It's called ETFs, Fintech and Blockchain ETF, and the exchange code is f t, a c, and we're going to be joined by Kennish later in this episode to talk about that specifically. But Chris, let's start at the top. There's a lot of sort of buzzwords when it comes to fintech, there's a few definitions that we need to get our head around. So let's set the scene. But can you explain it like Ren and Ie5? Because there's a few tricky things in here. And so let's start at the top. How do you define fintech? 

Chris Titley: [00:02:45] Fintech will look for a five year old. It's anything to do, any technology to do with money, and I'm going to sort of talk it in layman's terms. Do you guys know the TV show Bluey? 

Alec: [00:02:56] We don't. 

Chris Titley: [00:02:58] it's a pretty well-known TV show for kids based out of Brisbane, but they've done enormously well. They sold their rights to Disney, so it's a bit of a global phenomenon. But they have a five year old language of what is it, dollar box. So anything to do with dollar bucks and technology? 

Alec: [00:03:13] Okay, so if fintech is dollar box digital technology and what digital banks and I guess, how are they different to the regular banks that we've grown up with? 

Chris Titley: [00:03:25] Well, if you think about a piggy bank being a physical bank and stores dollar bucks, then a digital bank is a bank, which is a piggy bank in your phone. So it's a digital bank is a bank that does not have any branches. 

Bryce: [00:03:36] Interesting. OK? And then let's go a bit further. What is blockchain? Tough to explain to us. 

Chris Titley: [00:03:47] Okay, first I hear a language. How about an ongoing story that never ends and you can't cheat and buy that? 

Alec: [00:03:54] Oh, wow, okay. And then finally, what is decentralised finance? Maybe explain

Chris Titley: [00:04:06] yeah, decentralised finance. Is it really a financial system that's based and used on blockchain rather than traditional methods as a bank? So I send you money. It's done through a and sort of an institution right now. The decentralised finance is used, the blockchain, which at the moment is sort of a non-government, government based style platforms. But maybe in the future this government regulated finance, which would probably be decentralised, centralised finance, potentially. 

Bryce: [00:04:34] Chris, there are several fintech sub semantics that are, you know, super interesting, causing a lot of disruption to traditional business models, including, as you've just mentioned, decentralised finance. There's digital payments, peer to peer lending, and there's plenty also going on when it comes to data providers and financial enterprise solutions. But I think sort of top of mind for a lot of people is digital payments and what's going on there. Huge industry expected to hit 6.6 trillion in value by the end of this year, and it's growing at 22 per cent year on year. So what are some of the key trends that we're seeing in this space that's driving that growth? 

Chris Titley: [00:05:09] Well, I think last year through the. Global health pandemic really sort of identified some new structural changes within payments, I mean, traditionally you'd have people holding cash and transferring cash, and that was actually, you know, the probably the most normalised method dating back a decade or so ago. They needed the introduction of cards and then smartphones on top of that. But last year, I suppose, with some government saying a lot of retailers saying don't touch cards because it's actually carrying germs and other people. People really change their methods and you saw a huge uptick. So I think that the general, broadly thematic, broad thematic is come from the smartphones and certainly come from new methods of payments, particularly in the US, things like Venmo and PayPal and then locally also. And then it's also come from the vendors regarding tap and go and then digital debit cards and large big tech companies like Apple. So I think, you know, there's a big structural change when it comes to payments and as you mentioned that it's growing rapidly. And then you also companies that on the income side, which again had a terrific year last year, but are powering things like the stripe and square, for instance. Yeah, it 

Alec: [00:06:13] is an incredible disruption in the space. You know, we're seeing a war on cash. I guess both Visa and the Indian government have separately declared war on cash. You wouldn't think Visa and India would be allies in a war, but there you go. And we are like, we're living in and feeling this disruption as everyday consumers. You know, our I guess our money habits are changing how we pay for things, how we where we keep our money, where we spend, where we save all of that is changing. If you look at it from a company lens, what are some of the big winners in this space in the middle of this disruption? 

Chris Titley: [00:06:49] Yeah, it's a good question. I think the answer is probably those companies that have really been technology forward thinkers or even technology first, all companies that comes to mind. I mean, PayPal is a classic example that sort of came out of eBay, and they saw a need for online payments. And then you've got companies out of the US like Stripe that I mentioned that are probably one of the most valuable fintechs in the world privately, that sits at the back end of a lot of payments online. Locally, you've probably got companies that are coming out the big four banks like like the digital banks like Asia, which is the upper brand which you recently merged with Bendigo, but you've got companies like Tyro and CBA. So there's a lot of competition coming at the traditional form of payments. And then you've got the, you know, the giants, the elephant in the room, you know, Visa and MasterCard and how they adapt and how they look for partnerships and and where they're investing and how they're acquiring businesses to stay on top of things. So it's all panning out. But I think the big winners generally are, broadly speaking, have been the the global payments companies like PayPal and Stripe. And you're saying here locally, even even someone like Commonwealth Bank is quite innovative that that seems to be on top of things and merging and partnering with various fintechs. 

Bryce: [00:07:58] So when there are winners, there must be losers. Are there any that you're saying that are sort of struggling to keep up with this disruption? You mentioned Visa, MasterCard, CBA, like, are they truly keeping pace with what's going on or are they just trying to make acquisitions to keep up? 

Chris Titley: [00:08:14] Yeah, I think there's a bit of a losing, a sporting analogy, a bit of an offence and defence going on with some of these large incumbents, you know, so they get on the front foot and try and create new ways of doing things and mimic the sort of smart, nimble, faster fintechs or or is their defence of protecting their turf by acquiring businesses and getting getting the competition out of the way and putting them in their stable. So it's a bit of an ongoing battle, but in regards to the, you know, the losers, I think probably and this will be spoken from a consumer point of view is probably the large legacy systems and the banks just can't keep up to pace with the new system. So I mean, you know, Apple Pie took a long time for the Big Apple companies big four banks in Australia to adopt. And then you've got the regional banks that some, you know, some banks still in Australia don't have also an instant payment, some still don't have live statements. And, you know, push notifications, all the things that consumers are demanding. Now, as you mentioned, Visa and MasterCard, again, probably the card payments side of things you would think is slowing down. But again, there's new and innovative ways. I mean, the emergence of the buy now, pay later phenomena over the last five years. Broadly speaking, Australia's been a world leader in that sector. That's a sector that banks wouldn't have thought of, you know, five or six years ago. This whole thing is emerging in front of their eyes. 

Alec: [00:09:25] When we speak about losers and we speak about buy now, pay later. The credit market subsection of the digital payment market has been a phenomenal thing to watch, and Australia has really led the way with Afterpay and Zip and that long tail of buy now, pay later. I feel like a loser that we have to touch on other credit card companies. It feels like this disruption has really sort of hit them for six.

Chris Titley: [00:09:48] Yeah, it's a good point. And I think like a lot of people say, change happens a bit slower than people think. But the narrative is that buy now, pay later is a digital innovator or a disruptive to credit cards. And that's argued a lot in the press because you see the buy now, pay later numbers going up and you see the credit card numbers going down. So you would assume that is the case, whether that replaces the credit card market, I what I do. He has probably played out in the background that not many people talk about is the the low interest rate environment that we live in at the moment. So if you're getting charged 20 per cent and you know that the interest rates are at half a per cent or 10 basis points, you know, like you're consuming pretty smart, you're going, I'm getting ripped off. So you've seen some innovative, quasi innovative credit cards that come out and say, well, it's now only 10 percent compared to buy now, pay later that there is no interest rate. If the interest rates were seven or eight per cent, maybe there's a different narrative. But I think in this environment, you are seeing new issuance probably diminishing, but I still think there is probably a longer tail than you think. It's probably like an analogy that I use a credit card is probably like the fixed, the fixed telephone line like it's still survive for many, many years after mobile phones came in, it had a bit of a long tail debt, but I think that's probably going to be the case with credit cards that are still fixed lines out there. Still, people have home loans and business loans, et cetera, but it's nowhere near as popular as it was used to be a decade ago. 

Bryce: [00:11:10] I can't remember the last time I used a fixed line on this 

Chris Titley: [00:11:14] showing my age here. 

Bryce: [00:11:15] It's going to be like when we're older and you know, kids are watching movies and someone picks up a fixed line and they just like, What is that? Yeah. Anyway, we're not here to talk about that. So, Chris, there have been a number of sort of big acquisitions in this space. You mentioned Bendigo and NAB, and obviously we can't go past the Afterpay Square. So what's the trend here? But maybe if you can talk through each of those examples as well as, I'm sure, other than the Afterpay Square, the other two might not be as familiar to the audience. 

Chris Titley: [00:11:47] No. Yeah, well, I'll start with the less familiar ones because the story has been spoken about with the Afterpay Square merger, but some going back to the probably the first biggest one that we saw in the last six months or so, dating back probably nine months or so was NAB's acquisition of 86 400, now 86 400. If you don't know the number of seconds in a day that they were a digital bank that operated here in Australia, solely trying to get consumers to be educated on digital bank and provide a nifty funky user interface and had some decent traction early on. NAB ended up coming in and acquiring that business for north of $200 million, which is a good sound result for the founders of those businesses. But that was the first one that sort of fell by the wayside and now that integrated that into you, bank. So that's now ongoing at NAB. So the results are sort of yet to yet to come out on the success of that acquisition. But that was one that sort of took people by surprise at a big four bank is buying a sort of a quicker digital bank. The second one again on that digital bank thing was Bendigo acquiring for Rochelle, which is the the platform that most people know is up bank. I think sort of had probably was one of the fastest or is the fastest growing digital bank in the world, based here in Australia, based in South Melbourne. Know sort of going straight to 400, 400, 500000 users in the last couple of years just by doing again a little banking functions that people don't think banks normally do. But, you know, improve customer service, think you know, it takes three or four minutes for people to get back to you and do all the funky things like Apple Pay and also go straight off the bat and create savings and manage your money in upcoming bills, etc. All the things that people sort of wanted for years for a bank. So Bendigo acquired that in all an old scrip acquisition, which is the same as Afterpay and Square. So it's about $100 million of Bendigo shares that the founders got in that business, and now they're going to continue that up brand and move forward. So yeah, very fascinating to see where some of the regional banks, big banks and also some of the bigger players like PayPal, Stripe and Square. Now playing that, obviously Square's the the most well-known one coming in and merging with the Aussie behemoth that is Afterpay. That's sort of number 12 company in Australia. 

Alec: [00:13:57] If we broaden the scope, I guess, from digital payments, we're seeing other innovations from the from the financial space as technology sort of enables new business models and one that I believe Westpac pioneered. Correct me, if I'm wrong, is open banking. Oh, sorry, sorry. Banking as a service? Yeah. Can you tell us, you know, we've heard software as a service. We start to hear other companies try and use that as a service sort of label for some of their product offerings. But banking as a service like what is it and what can we learn about the industry from it? 

Chris Titley: [00:14:33] Yeah, well, that's that's another another buzzword that's floating around in fintech. I mean, as a service generally, if a stock price goes up, people say, what do they do? And they say they make up something and say, Oh, it's as a service 

Alec: [00:14:43] morning and says, Hey, Chris, later I've waited podcasting as a service. 

Chris Titley: [00:14:49] That's right. I mean, you know, Jim's with a classic. I like fitness as a service like gym membership. That's that's a that's a far model, isn't it? I like what he's talking about 30 bucks a month. It's, you know, a subscription. So, yeah, look, I mean, banking is a service again is is where I suppose the the banks can white label or other people can. Banking, banking, technology to really capture loyalty in the brand through, like Wal-Mart, for instance, launched their bank. So if you think about locally someone like Woolworths launching a bank or I don't know someone you know, electricity provider, whatever it might be that thinks they can into financial services and provide a decent experience. But you know, probably the most common banking as a service platform or most well known is yet to be launched, but it's sort of soft launched, which is which is Afterpay's Bank, which is using Westpac's now back in an infrastructure. So the Afterpay bank or money by Afterpay is about to be imminently launch, which is a, you know, obviously a trusted brand amongst their users. They've got a lot of users and now they're looking to enter into savings and spending and other peripheral areas of finance outside of buy now, pay later, which is again using Westpac's banking licence because it's not easy to get a banking licence, probably near $100 million. Tier one capital to start off with It's not easy to set up banking infrastructure and systems, so they're using Westpac's Westpac partnership for that. So, you know, it's probably a good deal for both of them, but it's yet to be launched and and there was a fair bit of press around whether that was going to be a launch because of the merger with Square or not. But the Afterpay reassured investors that it that it's due imminently to come out. And it'll be interesting to see whether you know, the people that have downloaded Afterpay debit card, whether they convert to a bank or not, or whether they're just happy to stay with CBA or bank, for instance. 

Bryce: [00:16:36] So Chris, another buzzword that is obviously floating around in this space is the blockchain. And so we'd love to get your thoughts on the innovations around the blockchain. And how do you sort of think that the blockchain is influencing the fintech space at the moment? I know that this ETF by ETF Securities is really designed to help give exposure to blockchain technology. So yeah, if you could chat to some of the the trends that you're seeing in this space. 

Chris Titley: [00:17:04] Yeah, I mean, the most obvious one is cryptocurrency. And whether that ends up inevitably being a normalised common person test crypto currency, which you know, you've seen rockets the price of some of these prices, particularly with bitcoin, which is the most popular one. So yeah, that's an application which is very exciting. Again, it's probably got its positives and negatives to the common person, but the exchanges that have been set up around trading cryptocurrencies have been insanely popular. Coinbase listed on the on the US market. I think with a market cap bigger than most of the exchanges or equity exchanges around the world. Now, for instance, like I think it's sort of four or five times bigger than the ASX here locally. So there's this huge demand on the on the infrastructure side and people being able to trade currency. But then you've got, you know, the NFT market, which the non-fungible token market. I'm not too sure when you've spoken about that. But again, I really can't really explain it to a five year old. But it's for me that again is a digital asset in regards to ownership change, and that is probably a pretty exciting market. You've seen some companies like OpenSea, which is seeing huge transactional volumes of some people calling it the sort of the eBay 2.0 where you can buy and sell NFTs and artworks. And then you've got for me, something which again is probably close to my heart is sporting organisations. You've got companies that are leading the way by creating digital moments within sport, which you can buy and sell. I mean, it sounds silly, but the market has seen a huge number of transactions. It's sort of an open open menu, I suppose, on on where things land with blockchain. I mean, the applications are coming fast, thick and fast, but it would be tricky to kind of see where to make extraordinary amounts of money early on. Because if you if you go back to the internet and say, Look, what could you invested in the internet back in nineteen ninety five, you'd probably say, Oh, Amazon or eBay, but you know, those businesses weren't created then. So you know, it's an entrepreneur that created them and drove those businesses. I mean, you probably could have hacked a few domain names and skimmed a few bucks of McDonald's or something if you owned their domain name back in 96. But you know, I don't think at this stage, for me, the application use of the blockchain is yet to be seen from what I call a common person test. 

Alec: [00:19:19] If we use the internet analogy, we're in the early days of the internet when it comes to blockchain, and there's, I guess, a lot of hope. There's a lot of venture capital flowing into the space. I was reading an article that this year, 129 start-ups, blockchain related start-ups were funded and they together raised $2.6 billion. So, you know, there's there's a lot of, I guess, hope and aspiration in the space at the moment. If you think about how the bigger end of town, you know, the squares, the PayPal's, the visas are reacting to blockchain, you know, is there anything that they're they're all doing or any, any way that they're positioning their business for? I guess the more mainstream adoption of blockchain? 

Chris Titley: [00:20:00] Yeah, I think that's a really good question. And I can't speak for the strategies of some of these companies. But at the same time, I think it's like anything and potential imminent threat or an imminent or. Opportunity, and they really need to obsess about testing out the various ways of payments, testing out the various security levels of infrastructure and testing otherwise doing because I mean, for example, at the local level, the ASX are looking to potentially change their their their chess system, the clearing system using blockchain technology. And I think it was sort of due to being around now to be launched, but it's been delayed again. So there's there's lots of users and lots of people are testing things and trying to test things and throwing money at teams to testing things. But again, it's like you just have to wait and see. I think the the future is and some of the the best names in the blockchain are yet to be created. For me, I think it's hard to kind of pick the winners. There might be one or two that exist now, but you probably do need to invest and you do need a partner and you do need to learn about it because again, it could be an imminent threat to some of these companies or at the same time, a massive opportunity. 

Bryce: [00:21:03] So, Chris, I guess that begs the question then as retail investors looking to get access to this space and invest in blockchain, are there any ways in which we can do that 

Chris Titley: [00:21:13] as it pans out? There'll be lots of different ways to invest right here or through listed equities again or through through start ups that are appearing using some of those funding numbers are huge, so there's lots of entrepreneurs out there starting businesses and ideas again using the blockchain, which will come to prominence and they'll raise series A, B, C, D rounds and potentially float, etc. So yeah, there'll be plenty of opportunities. I note in the the press recently, I think be back to immutable, a gaming blockchain business based out of Sydney. I don't know too much about that, but it was a big raise. I think the raised over $100 million. And there's a company locally here in Brisbane called Swift X, which is sort of growing under the radar. I think the 30 plus people again on the Eckstine side of things when it comes to cryptocurrency. So there's plenty plenty to look out for. And it's sort of a bit of an open play in terms of where the investment opportunities are. But certainly there will be ones 

Alec: [00:22:03] you spend a lot of time looking at fintech, and we should say you're a good follow on LinkedIn. You share a lot of news from the world of Aussie fintech. So if people want to hear more from Chris, jump on LinkedIn and follow in there. If you think generally about the fintech landscape, both here in Australia and globally, what gets you most excited? What are you most excited? What companies or themes are you most excited to see play out in the coming years? 

Chris Titley: [00:22:29] Yeah, about five or six years ago, I started following the emerging technology or Start-Up scene here in Australia, and it was really exciting. There's only a couple of funds and certainly not a huge amount of companies that sort of were start-ups. I think it was a bit of a, you know, a bit of a misconception about, Oh, if you're a start-up, it's sort of like it's very high risk. And now it's five years later. It's a buzz word. And I think fintechs at that early stage, I think in the next five years or so, you'll see people talk a lot more about fintech. There'll be a lot more funds investing, a lot more success stories as we've already seen a couple here in Australia. So I do think anything to do with money, broadly speaking, is, in my view, is fintech, whether it's property or or insurance or whether it's savings or spending and it relates to the everyday person. So there's a total addressable market is is a massive market within this sub segment. So I'm just excited about this segment. Broadly speaking, whether it is payments or DeFi or that or the different forms of credit or all the different forms of white wine, people's, the way people save or budgeting, etcetera, and there's exciting opportunities. Again, some of these opportunities haven't been created yet, but I'm really excited to see what is what can be created with open banking and DeFi and other sub segments of fintech. So, you know, I can't wait.

Bryce: [00:23:42] It is super exciting, Chris. Plenty going on. We've got decentralised finance, digital payments, peer to peer lending, data providers and financial enterprise solutions. A lot of things to keep up with, but you've done a really good job in helping us to understand it, like with five, which has been which has been good and we very much appreciate you coming on and sharing your expertise. As I said, a lot going on in that space, so we appreciate your time. 

Chris Titley: [00:24:08] Thanks, Bryce and Alex and Ren. Thanks, Chris. 

Bryce: [00:24:15] And ETF securities have recently released a new ETF tracking the global fintech industry with significant exposure to blockchain technology, decentralised finance, digital payments and peer to peer lending. All the hot stuff, hot and sexy stuff in fintech at the moment. It's called ETFs, Securities, Fintech and Blockchain ETF. The exchange code is FTEC. 

Alec: [00:24:39] Yeah, that's right. It's a fascinating space, a space that we're all very exposed to. A lot of us have used these new fintech platforms, the Square's The PayPal's, the Afterpay is the ZIP's of the world, and a lot of us have invested in them as well. But we can sort of see and feel that this disruption is happening before our very eyes, and it's pretty exciting that there's now a way to just invest in that overall disruption. 

Bryce: [00:25:05] So we have head of distribution from ETF securities Kanish Chugh here with us. Kanish, Welcome. So we're going to just discuss a little bit about the fintech ETF, some of the major holdings and a little bit of an interesting fact as well. So stay around for that. But let's start at the top. Why create a fintech ETF?

Kanish Chugh: [00:25:24] So I guess the reason for creating a fintech ETF as an ETF manager here in Australia, you know, we were the first to the market in the world for a physical gold ETF. You know, we're often looking at the range of ETFs that Australian investors have access to and how we can innovate and how we can provide solutions that they that they want to build into their portfolios. And for us, the fintech and blockchain space, it was a gap in the market that we felt an ETF was a solution that gave investors an ability to go well, yes, I believe in this disruptive mega trend. I believe in this idea of blockchain and decentralised finance. I think the cashless economy is going to grow. I think we're going to see continued disruption in terms of point of sale systems or data vendors and trading platforms, for example, Robinhood as an example. But how do I get exposure to it? Do I go direct? Do I buy an active manager that maybe has some exposure? Do I buy a broad index that maybe has some of those names? Well, there wasn't a solution that goes well. This is just a one ETF that gives you 75 of the biggest names in those in that the metric and that's what we really wanted to bring out there. So that's why we launched the sort of the fintech and blockchain ETF. And if tokens as the code so quite quite straightforward, it basically looks at this industry and this industry is all about disruption. It's all about companies disrupting what is a very traditional, very, potentially stale. Companies and industry, you talk about some of the incumbent banks or, you know, wealth managers and ETFs in itself are a disruptor in this space. You can you can call us a winner, maybe not a fintech anymore because we've been around for nearly 20 years. But, you know, it's a little while ago, I consider a type of fintech a disruptor to the wealth management space. 

Alec: [00:27:19] Yeah, it is such a disruptive part of the market at the moment. Some of the companies that are just stealing market share from the incumbents, you know, Afterpay created 30 $40 billion worth of value, while the banks traded sideways in about six or seven years. It's pretty phenomenal to say, and you know, I think these passive ETFs gives you a great opportunity to just be exposed to that disruption generally rather than trying to pick specific winners because it can be tough in a space like this where there's just, you know, so much changing all the time. If we look under the hood in this ETF, what are some of the major holdings that investors will have access to? 

Kanish Chugh: [00:27:58] So just to take a step back, in terms of the the index itself that we're tracking for this particular ETF, it's run by the guys at Indxx and it's the index developed markets, fintech and DeFi index. So essentially it gives you exposure to 75 companies from developed markets, countries like Japan, the US, Australia, Europe and within those 75 companies. It's broadly across nine different sub themes, and this is, I think we sometimes forget, you know, we all know of Afterpay will zip or square or paper, but fintech, as a thematic and blockchain in itself as a theme, is broader than that. So some of those themes are companies like and the themes are digital payments. So that's where Afterpay would feature point of sales. So that's where Square could feature in, for example, trading in capital markets. So if anyone knows about the market makers and things like that that run the ETF market, it's companies like virtue or flow traders. And even potentially Robinhood could feature in this in this portfolio. And then when you look at things like blockchain, so decentralised finance at Coinbase is an example. So you've got your traditional names such as Visa, PayPal, etc. Again, these are. Companies that the people may look and say, well, why Visa? Well, these are still disruptive. They're still working on that fintech space. We don't have a Commonwealth Bank in here. We don't have, you know, some of those traditional banks, JP Morgan, etc. Yes. At some point, could they feature in maybe. But this index also has a revenue purity screen. So when you look at these subthemes, if the stock features as part of that something, it can only feature within the index is 50 percent of its revenue is associated to that thing. So if we think about, say, Afterpay, it currently is in the portfolio. So there's two Australian names in the portfolio zero and Afterpay. Both of those feature, because Afterpay is 50 percent of its revenue, is from that digital payments thing. And you can probably say 100 percent of its revenues from that digital payments thing. But it features in that portfolio because it passes that revenue threshold. So it's more than just an off the shelf index, you know, because you can't find classifications for a lot of these companies, their companies across sectors and across countries. And I think that's when you're looking at the medicks that's really important at the medicks sometimes needs to be agnostic to sectors agnostic to countries, which is what we're trying to do. 

Bryce: [00:30:25] What subcategory do Xero fall under? 

Kanish Chugh: [00:30:28] So Xero falls under the financial enterprise solutions. Something. And again, that when you think about fintech as well, the drivers of the fintech thing, people may say, well, isn't it Don does in financial services. You know, it's been around for hundreds of years. The ability to, you know, the idea of payments or whatever. But this particular area, it's growing and will continue to grow because you're going to have why are we seeing the drivers of growth? It's regulation. So the fact that you've got regulation on some of those traditional institutions, like the banks unable to lend to certain consumers and businesses credit opportunity for buy now, pay later companies, you have high bureaucracy or layers within certain companies, traditional financial institutions, a credit inertia and even some of these companies have come out and said we saw an opportunity to do, you know, a point of sale systems like Square, but we never did it. And so therefore, we're happy for Square to do something. And then this idea of technological adoption and innovation, so more cloud computing infrastructure, better software, better hardware, better data, all of that combined means that you have access and ability for companies like Xero to give you businesses an ability to basically just, you know, run their business in real time, how their business is going versus the traditional way of using spreadsheets or whatever may have been back in the day and blockchain. And that is in itself probably the biggest theme within, you know, something within this thematic or fintech. 

Alec: [00:31:57] I'd be surprised if anyone said that innovation in finance and payments was done if that was actually something that you've heard. Tell them to send us a day because I'd love to have that debate with them. And I think there is nowhere where that is clearer than what blockchain has done in terms of what it is doing. And I think, you know, obviously a lot of the conversation around cryptocurrencies centres around the price of crypto, but the underlying technology is really disrupting payments. Cross-border international trade like there's so much disruption happening. But I imagine some people have asked you why you would include blockchain in a fintech ETFs. So why was it important to include some of these blockchain names in this data? 

Kanish Chugh: [00:32:42] Well, it's important because for us, blockchain is probably the most impactful of the fintech themes. When we think about, it's especially relevant from a financial services basis. You know, TWC did some research and I found that the finance industry, it's widely regarded as the most advanced in blockchain adoption. And so when you think about decentralised finance, that's blockchain. Everyone thinks that cryptocurrencies, it's bitcoin. The theory, essentially, and that's why everyone looks up. But as you mentioned, you know that blockchain technology, that's what's going to be the real winner out of all of this and that distributed ledger technology. It's not just only in the financial services space that blockchain technology is going to be relevant. Think about the idea of smart contracts. So this is where, for example, an agreement between companies or two parties are automatically executed by a blockchain without the need for lawyers. So you have this ability now to create innovation and disruption in the legal industry. And that in itself is a massive growth potential. And then you go beyond that. So I think this idea of blockchain, it's extremely important as a fintech thing. For that reason, in particular, within this ETF, there's 75 names and I mentioned those nine subthemes. The maximum number of stocks that anyone think can have is 10. But for the decentralised finance team, it's 20. Now, as it stands, is only six companies that are associated to that thematic to that subtheme. Sorry. Decentralised finance and as the industry of blockchain and as blockchain companies grow, as they list, as they pass those liquidity hurdles that we have, you know, you have to. The company has to have a minimum of 500 million market cap U.S. dollars. So we're not looking at small companies here. We're looking at big companies, but a company like Coinbase will be featured in this ETF, for example. 

Bryce: [00:34:37] So Kanish, as I said at the top, there was an interesting fact about this ETF, and that is that its listing on the Chi-X. We've just come off a great interview with Vick, who runs Chi-X so our listeners would be very aware of of the exchange now. Why decide to list this on the Chi-X? 

Kanish Chugh: [00:34:59] The decision and the reason to list with Chi X was as a way to draw from our perspective to support a secondary platform in Australia in terms of the exchange they are growing in their presence and their footprint. I think, you know, I did listen to that interview in a podcast you guys did with Vic, and I think he was saying that close to 90 percent of brokers now have access or use the platform. It is. The idea in talks in itself could be classified as a fintech in some way. You know, from an exchange perspective, that is something that we are considerate of. And, you know, we want to ensure that we support and listed this particular fund with them. I believe this will be the first passive ETF listed with Chi X the great mark. I think in sort of the development of the the Australian financial services industry and from an exchange perspective as well. In terms of access, I believe as I think they've got close to 90 percent of broker access and for the people that need to to come across, I think going onto the Chi-X website, I believe that they should be able to help you out there. 

Alec: [00:36:03] It is fitting Kanish that you're listing a ETF that tracks fintech disruption on a company's exchange that is trying to disrupt an incumbent. It's it seems very fitting for this ETF and I feel you're amongst good company there, with Magellan also listing some of their products exclusively on Chi-X. So for most investors, it shouldn't affect how they access this ETF. Check with your broker and see if they have tricks. If they don't, maybe send them an email and ask them to include it. Kanish If people are interested in finding out more about this ETF, where should they go? 

Kanish Chugh: [00:36:42] So the best place to go is on our website. It's ETF securities dot com dot au. You'll know the product tab at the at the top there. If you click that, you'll see a list of all the funds that we have that we offer and the tech product is listed there as well. And you'll find the product disclosure statement, you know, product flyers, investment cases and other collateral and content on that.

Bryce: [00:37:07] We love what you guys are doing at ETF securities at the moment, providing plenty of access to innovative industries and industries that are exciting to be a part of, as you know, the young generation of investors come through. So, you know, congrats on the launch of EV tech. We also had semiconductors as well. So for those listening at home and want to check it out, the exchange code is FTEC or head to the website for more info. But it's been a pleasure, as always, and we'll chat soon. 

Kanish Chugh: [00:37:36] Cheers. Thanks to us. 

Bryce: [00:37:38] Hey, thanks for listening to this episode of Equity Mates. We love hearing from you, so drop us a line at contact@equitymates.com. Or even better, go to your podcast player and leave a five star review. Also, a reminder that the Equity Mates content train doesn't stop when you've run out of episodes to binge. We've got a brand new website, a Facebook discussion group where on Instagram, YouTube and slowly making our way as an influencer on Tik-tok. Well, that's Ren. So come and say hello and join the community. We'd love to welcome you. Until next time.

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