Nasdaq launches Fintech stock price index, including Visa, LendingClub, etc.

According to the Wall Street Journal, investment bank Keefe, Bruyette & Woods (hereinafter referred to as "KBW") and Nasdaq recently released the Fintech Index KBW Nasdaq Financial Technology Index (hereinafter referred to as "KFTX"), which is the first index focusing on listed companies in the US financial technology field.

The index includes 49 companies, ranging from giants like Visa to startups like LendingClub. KBW said the companies included in the index account for 18% of U.S. financial companies and have a total market value of $785 billion.

“Some people think that Fintech is a disruptor of big banks, and some people think that Fintech refers only to startups. We think this is not the case. Many large companies are doing more to promote the digitization of payment and loan processes. In fact, many Fintech companies are seeking cooperation with banks,” said Fred Cannon, global research director of KBW.

KBW and Nasdaq define Fintech companies based on the following three dimensions:

First, Fintech companies primarily sell financial services. This dimension excludes companies such as Microsoft because, although they sell products to banks, they are not focused on serving banks.

Second, Fintech companies are not brick-and-mortar oriented, but that doesn’t mean they don’t have physical operations. For example, although the listed company Intercontinental Exchange owns the New York Stock Exchange, this is only a small part of its massive electronic trading and data business.

Third, the main income of Fintech companies is transaction fees rather than the interest rate spread between deposits and loans. This has been controversial before. Some online lending platforms invested by venture capital believe that they are high-tech Internet companies, while some stock analysts believe that they should be regarded as non-bank lenders. This standard may exclude some future listed companies, such as Avant, which does not have a wealth management terminal.

Cannon said these startups invested by venture capital firms take more risks than traditional financial institutions, which he believes is underestimated.

The expansion of Fintech beyond startups is exciting for the big companies involved, as they previously had to fight back against Silicon Valley startups that were grabbing the Fintech banner and disrupting and replacing them.

The launch of the KFTX index is also good news for investors, as the stock prices of many Fintech companies performed better than many Internet startups in 2016.

If investors believe that the companies included in KFTX represent the industry standard, then being included is obviously good for small companies. In addition, building an index is usually the first step in building an ETF (Exchange Traded Funds), which is also good for small companies.

For Visa, MasterCard, American Express and PayPal, being included in KFTX will not harm their market value.

In addition, the KFTX index treats all included companies equally, and the changes in the stock prices of small companies have the same impact on the KFTX index as large companies. If large ETF funds start tracking the index and buying stocks, it will also be good for small companies.