Buy Now, Sell Later? The Jury’s Out on Payment-Themed ETFs
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What’s all the Stripe hype?
The payment processing platform Stripe has generated a lot of IPO excitement since it was reportedly valued at $159 billion earlier this year, even if the company’s executives haven’t indicated they plan on going public anytime soon. Several ETFs give investors access to major payment processing companies like PayPal and their buy-now, pay-later cousins, like Affirm and Klarna. But whether these investments are worthwhile depends on your view of the risks, sources said, as well as the ever-changing ways in which people buy things.
“Buy now, pay later [is] becoming a little bit more popular as a way to fund smaller purchases for younger consumers,” said Christian Magoon, CEO of Amplify ETFs, which has a fund dedicated to online payment companies. “It’s having a moment similar to what credit cards had 20 or 30 years ago.”
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Square Dance
Given the Stripe excitement, it makes sense that ETF investors might want access to the companies behind these transactions, which, at least for PayPal, amounted to 25 billion last year. Still, the performance of such funds hasn’t been great this year: Global X’s Fintech ETF (FINX) and Amplify’s Digital Payments ETF (IPAY) are down 18% and 6% year to date, respectively. PayPal’s stock, as well as those of similar companies like Wise and Adyen, is down year to date. “Investors have had access to PayPal for a very long time now, and look how that has turned out,” said Michael Walstedt, CFP at Reliant Wealth Advisory. “The company is down 80% from 2021 highs.”
Stripe is an outlier — its current valuation is higher than its previous peak, in 2021. But that may have more to do with the trend of companies staying private longer, Walstedt said. And companies like Klarna, whose stock is down 51% this year, reflect the reality that despite BNPL’s popularity, it can create stress for its users, who tend to be more financially vulnerable.
Block It Off: One positive vision for the future of BNPL stems from its proximity to online transaction infrastructure. These companies are primed to take advantage of the next generation’s spending habits, Magoon said. “Whereas Visa, Mastercard [and] American Express were the disruptors and the up-and-comers 25 to 30 years ago, could this next revolution be the Stripes, the PayPals, the Blocks, the Affirms?” he said. “That’s the bet you’re making when investing in those types of companies.”
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