New finance is ‘a platform of growth,’ portfolio manager says

New finance — which comprises areas such as digital payments, cryptocurrency and blockchain technology — is being deemed a “platform of growth” that should be watched over the coming decade, according to an institutional portfolio manager.

During a Thursday webinar, George Russell of Franklin Equity Group in California laid out the five areas of growth that he and the company identified a few years ago, in the midst of increased economic disruption and innovation.

Those platforms were: disruptive commerce or general e-commerce; genomic advancements, including gene sequencing, testing and diagnostics; intelligent machines, such as healthcare robotics and automated driving; exponential data, which refers to the cleaning, storing and transmitting of data so professionals can make better decisions; and new finance.

“We’ve been talking about this fourth industrial revolution for the last few years. But, we really feel as though innovation is accelerating,” Russell said at the Investing with Innovation in Mind webinar that was hosted by Franklin Equity Group.

One area of new finance that’s growing “very rapidly” is the payments industry, Russell noted. More specifically, digital and contactless payments were already expanding pre-pandemic, and that has only accelerated since March 2020.

“This has been driven by the more convenient usage of cards-based payments, growth in e-commerce that necessitate[s] the usage of cards, and rewards,” Russell said in an emailed response following the event.

Other research also points to this accelerated trend.

According to a global digital payments market report that was published in May 2021, the transaction value for the global digital payments market was US$5.44 trillion in 2020 and is estimated to be worth US$11.29 trillion by 2026 — growing at a compound annual growth rate of 11.21%.

In Canada specifically, and according to a September report from Payments Canada, the vast majority (79%) of the more than 20 billion payment transactions made in 2020 were electronic payments. They accounted for 15.8 billion transactions and represented 66% of total payments value for the year.

Contactless payments grew as well in 2020, growing 13% in volume and 10% in value compared with 2019, that report noted.

Another area of new finance that Russell pointed to as innovative was cryptocurrency and blockchain technology. He noted that Franklin Equity Group can’t invest in cryptocurrencies directly, but that doing so is possible via indirect exposure through payment and large technology companies.

Cryptocurrencies have surged both in terms of their value and popularity, with their total value reaching nearly $2.5 trillion as of this month.

And, financial services companies are trying to get in on the action. Firms like Horizons ETFs Management (Canada) Inc. have launched funds this year, and Purpose Investments Inc. just filed a preliminary prospectus for three actively managed crypto ETFs on Wednesday.

For advisors looking to capitalize on growth in the digital and card-based payments space, Russell listed off some companies that are exposed.

“Innovative payments companies like SQ [California-based financial services provider Square] and PYPL [PayPal Holdings, Inc., also based in California] are also gaining traction, and there are many merchant acquirers and payment processors that can provide exposure to more specific trends,” he suggested.