The fintech industry has become one of the hottest sectors for both venture capital and pubic markets given the dramatic growth of online payments, crowdsourcing and software-as-a-service. Participating in this trend just became much easier for investors. Keefe Bruyette & Woods will launch the KBW Nasdaq Financial Technology Index (KFTX). The index, launched this week, has a market capitalization of about  $785 million, will focus on companies that leverage technology to deliver financial products and services.

Big and Small Players

The KBW Nasdaq Financial Technology Index is a diverse collection of 49 companies that share several characteristics across their business models. Distribution is nearly exclusively electronic, their revenue mix is predominantly fee-based, and most of the firms leverage big data and innovative technologies. Major players PayPal Holdings Inc. (PYPL), Visa Inc. (V), and LendingClub Corp. are all included in the index. The index also includes some companies that you might not expect such as Envestnet Inc. (ENV), the SaaS-based platform for financial advisors, Blackhawk Network Holdings Inc. (HAWK), the prepaid gift card business, and Cardtronics Plc (CATM), the ATM machine company. 

Shadow Fintech

The index may not fully represent the breadth of the industry for a simple reason. Many large players remain private and thus aren't eligible for the index. They include Avant, SoFi, Credit Karma and Zenefits. Though these four companies have raised over $1 billion combined in the last year, indexes cannot invest until they go public. Given the significant venture capital funding of fintech, it's likely that many more companies will go public an join the KBW Nasdaq Financial Technology Index.

 

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