In April 2021, JPMorgan Chase CEO Jamie Dimon described fintech companies as one of the “enormous competitive threats” to traditional banking. And with good reason. Fintech (short for financial technology) is not just “digital banking.” It’s a different approach to banking that traditional banks will not be able to replicate by outspending their competitors.
You see, cryptocurrency is getting a lot of attention for the way it’s disrupting the monetary system. But before there was bitcoin (CCC: BTC-USD), there was fintech.
What started out as a way to send money from one person to another without the need for a bank (i.e. peer-to-peer lending) has morphed into much more. Today, individuals and businesses can get loans, invest, and pay bills conveniently and securely. And they can do so without ever having to set foot into a bank.
Financial technology is democratizing finance for many individuals who have been left behind by the traditional banking system. The “unbanked” is a huge target audience. But whereas fintech started as reaching those that were unbanked out of necessity; it is cultivating a new audience among those who are going unbanked by choice.
In this special presentation, we’ll look at seven fintech companies that are leading in this space today and will do so well into the future.
Quick Links
- SoFi Technologies
- PayPal
- Square
- Mastercard
- Visa
- Fiserv
- Zuora
#1 - SoFi Technologies (NASDAQ:SOFI)
SoFi Technologies (NASDAQ: SOFI) has been in business since 2011 but it only recently began publicly trading under the ticker symbol SOFI. Of all the companies on this list, SoFi looks the most like a traditional bank.
Digital banking is about convenience. Fintech companies are about connection. Members access SoFi’s suite of tools through its mobile app. Through the app, SoFi gives users information that can help them make wiser personal financial decisions. They can also pay down student debt, obtain a mortgage, and invest in stocks and bonds. The company also uses a points-based reward system that members can redeem in a variety of ways including converting them into cryptocurrency.
Since going public, SOFI stock has been trading in a wide but defined range. Investors don’t question the company’s revenue. Unlike some companies that go public via a SPAC, SoFi has significant revenue largely due to continued growth in its user basis which now numbers over 1.9 million unique members. However, it’s not profitable yet. But it claims that it will be this year. If that happens, buying shares at their current level will look like a bargain.
About SoFi Technologies
SoFi Technologies, Inc provides various financial services in the United States, Latin America, and Canada. It operates through three segments: Lending, Technology Platform, and Financial Services. The company offers lending and financial services and products that allows its members to borrow, save, spend, invest, and protect money.
Read More - Current Price
- $14.67
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 6 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $9.80 (33.2% Downside)
#2 - PayPal (NASDAQ:PYPL)
A common theme among these fintech companies is growth. And PayPal (NASDAQ: PYPL) demonstrates this better than most. The company reported earnings on July 28 and beat expectations for both revenue and earnings. Net revenue hit $6.24 billion which was a 17% year-over-year increase.
PayPal is one of the biggest automatic payment companies in the world. It currently has over 300 million merchants that use its platform. And customers may also engage with PayPal through its Venmo, Xoom, and Braintree brands. The company offers business debit and credit cards.
And through its Working Capital program gives many small businesses the opportunity to obtain a small business loan without having to go through a bank and without a credit check. The program’s algorithm calculates the ability to pay based on the volume of sales.
PYPL stock is up over 54% in the last 12 months. However, since the company reported earnings, the stock is dropping on weaker than expected guidance. The simple advice is to use this as a time to buy the dip.
About PayPal
PayPal Holdings, Inc operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. It operates a two-sided network at scale that connects merchants and consumers that enables its customers to connect, transact, and send and receive payments through online and in person, as well as transfer and withdraw funds using various funding sources, such as bank accounts, PayPal or Venmo account balance, PayPal and Venmo branded credit products comprising its installment products, credit and debit cards, and cryptocurrencies, as well as other stored value products, including gift cards and eligible rewards.
Read More - Current Price
- $84.74
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 15 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $83.45 (1.5% Downside)
#3 - Square (NYSE:SQ)
Square (NYSE: SQ) and PayPal are sometimes viewed as two sides of a coin. That’s not entirely accurate. And it probably undersells Square’s capabilities. Square is known for its cutting-edge payment and point-of-sale solutions that allow merchants to use their mobile devices to collect digital payments via a credit or debit card.
However, like PayPal, Square gives its customers so much more than just a way to process payments. It does offer the ability for peer-to-peer lending through its CashApp. And it is getting ready to launch Square Banking which will allow it to offer its customers checking accounts, savings accounts, debit cards, and loans. By keeping their customer’s money within the Square ecosystem, they will have little need for a traditional bank.
SQ stock is up nearly 100% in the last 12 months. And while the stock price is currently at the upper end of analysts’ estimates, the stock still carries an Overweight rating from the analysts that cover the stock.
About Block
Square, Inc provides payment and point-of-sale solutions in the United States and internationally. The company's commerce ecosystem includes point-of-sale software and hardware that enables sellers to turn mobile and computing devices into payment and point-of-sale solutions. It offers hardware products, including Magstripe reader, which enables swiped transactions of magnetic stripe cards; Contactless and chip reader that accepts EMV® chip cards and Near Field Communication payments; Chip card reader, which accepts EMV® chip cards and enables swiped transactions of magnetic stripe cards; Square Stand, which enables an iPad to be used as a payment terminal or full point of sale solution; and Square Register that combines its hardware, point-of-sale software, and payments technology, as well as managed payments solutions.
Read More - Current Price
- $89.69
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $91.18 (1.7% Upside)
#4 - Mastercard (NYSE:MA)
Mastercard (NYSE: MA), the world’s second-largest payment processor, has been an ideal recovery stock. Millions of Americans paid down their credit card debt during the pandemic. Now the reopening gives them a reason to start putting their credit to use.
And the headline numbers of the company’s latest earnings report support the company’s growth. Mastercard reported $2.08 in earnings per share on $4.5 billion in revenues giving the company on both the top and bottom lines.
International transactions make up two-thirds of Mastercard’s $1.9 trillion value. This shows both the risk and reward for MA stock in the short term. On the one hand, there is a tremendous upside to the stock since the international market still lags behind the United States. However, with the Delta variant causing shutdowns in some international markets, it could slow Mastercard’s growth in the second half of the year.
MA stock is up 25% in the last 12 months, but with a gain of 10%, it is lagging the S&P 500 in 2021.
About Mastercard
Mastercard Incorporated, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally. The company offers integrated products and value-added services for account holders, merchants, financial institutions, digital partners, businesses, governments, and other organizations, such as programs that enable issuers to provide consumers with credits to defer payments; payment products and solutions that allow its customers to access funds in deposit and other accounts; prepaid programs services; and commercial credit, debit, and prepaid payment products and solutions.
Read More - Current Price
- $512.54
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $549.16 (7.1% Upside)
#5 - Visa (NYSE:V)
For much of the last 12 months, Visa (NYSE: V) stock was treading water. But analysts and investors now appear to be giving the stock the attention it deserves. After the company reported strong earnings, nine analysts boosted their price targets for the company’s stock. And while the consensus estimate only suggests the stock will gain about 8.5%, the recent price targets suggest there is more growth ahead.
I see two short-term catalysts for Visa. The first is its acquisition of Tink, a European-based open banking platform. The second is the company’s embrace of cryptocurrency. Visa allows consumers to make transactions in USD Coin (CCC: USDC), a stable coin that is powered by the Ethereum (CCC: ETH-USD) blockchain. Using a stable coin means users don’t have to convert cryptocurrency into fiat money.
By itself, the acceptance of cryptocurrency is intriguing. However, traditional banks are already exploring their own digital currencies including stable coins. This puts Visa in the driver’s seat for getting this business.
About Visa
Visa Inc operates as a payment technology company in the United States and internationally. The company operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions. It also offers credit, debit, and prepaid card products; tap to pay, tokenization, and click to pay services; Visa Direct, a solution that facilitates the delivery of funds to eligible cards, deposit accounts, and digital wallets; Visa B2B Connect, a multilateral business-to-business cross-border payments network; Visa Cross-Border Solution, a cross-border consumer payments solution; and Visa DPS that provides a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions, and contact center services.
Read More - Current Price
- $307.39
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 25 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $321.74 (4.7% Upside)
#6 - Fiserv (NYSE:FI)
Fiserv (NASDAQ: FISV) is one of the oldest fintech stocks. For over 35 years, the company has been providing solutions that facilitate digital payments and account processing services in all forms. The company has 1.4 billion global accounts that include 10,000 financial institutions. Fiserv processes 12,000 financial transactions every second.
Since falling to an all-time low at the onset of the pandemic, FISV stock has rallied by over 40%. And in the company’s most recent earnings report on July 27, they scored a beat on both the top and bottom lines. The $4.05 billion in revenue was the most the company had recorded since the fourth quarter of 2019.
One reason for the optimism is the company’s acquisition of Ondot Systems which allows Fiserv to expand the solutions that it can offer its existing and potentially future clients.
FISV stock is up 12.9% in the last 12 months. Analysts are bullish on the stock and give it a 15% upside from its current level.
About Fiserv
Fiserv, Inc, together with its subsidiaries, provides payments and financial services technology services in the United States, Europe, the Middle East and Africa, Latin America, the Asia-Pacific, and internationally. It operates through Merchant Acceptance, Financial Technology, and Payments and Network segments.
Read More - Current Price
- $217.94
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 22 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $214.29 (1.7% Downside)
#7 - Zuora (NYSE:ZUO)
Last, but not least, is Zuora (NYSE:ZUO). This company is not a pure-play on fintech. Rather they provide the tools that companies need to operate in what Zuora brands as the Subscription Economy.
The company recently closed out its fiscal year for 2021. The company posted a year-over-year revenue increase of 6%. However, what should interest investors is the growth in earnings which improved from a negative 52 cents per share to a negative 25 cents per share. While still not profitable, the company is trending in the right direction and investors are taking notice. Institutional buying has outweighed selling in the last four quarters. And in the last quarter, institutions scooped up more of ZUO stock than at any time in nearly two years.
ZUO stock has not been heavily covered by analysts in the last year. However of the three analysts that have provided a rating, the stock is forecast to have a 6% upside. And with a market cap of just over $2 billion, the stock looks attractively priced.
About Zuora
Zuora, Inc provides a monetization suite for modern businesses to help companies launch and scale new services and operate dynamic customer-centric business models. The company offers Zuora Billing that allows customers to deploy various pricing and packaging strategies to monetize their recurring revenue streams, bill customers, calculate prorations when subscriptions change, and automate billing and payment operations; Zuora Revenue, a revenue recognition and automation solution that accounting teams use to manage their complex revenue streams; Zuora Payments to provide payment orchestration services for companies looking to operate globally; and Zephr, a digital subscriber experience platform that helps companies orchestrate dynamic experiences that increase conversion, reduce churn, and nurture ongoing subscriber relationships.
Read More - Current Price
- $9.90
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $11.43 (15.4% Upside)
For fintech stocks to truly take over the banking world, they will have to be able to do some things that they currently cannot. For example, one limitation to fintech companies is their inability to assist in transactions that require verification of a credit score (i.e. mortgage lending).
This, more than the technology itself, is what steers some older consumers away from fintech. As homeowners and with other commitments, fintech may not speak to their financial needs. Fintech companies targeted millennial and Gen-Z consumers because of the sheer size of the potential market. And before the recent housing boom, this wasn’t much of an issue.
However, an important benefit of fintech companies is that they can more easily integrate with cryptocurrency. In fact, cryptocurrency is one of the main areas that fintech companies are trying to cultivate along with other leading-edge technologies such as blockchain, smart contracts, and open banking.
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