What is Fintech? It is one of the more popular growth sectors out there. But investors may be wondering what exactly does fintech mean? The term fintech is a combination of the words Financial Technology. It’s an industry that includes any company that is using technology to make financial tasks like banking or making digital payments more accessible and streamlined. It’s certainly a broad definition since basically any bank or financial institution has an online presence now that loosely falls into the fintech category.
Today, fintech can range from transferring money digitally, paying for goods and services with your mobile phone, or even buying, selling, and investing cryptocurrencies or altcoins. There are thousands of different fintech companies with hundreds more being created each year.
In fact, dozens of those hitting the public markets. There’s a reason why so many fintech stocks are among the most popular investments for growth investors. They have high margins, recurring revenues, and sticky ecosystems. Ark Invest even has a dedicated Fintech ETF (ARKF) with some pretty well-known names.
We think you’ll recognize them. Here are some fintech stocks that we think any investor can own in a well-diversified, long-term portfolio.
The Fintech Leaders
When it comes to Fintech companies, there are the ones you automatically think ok. Companies like Square and PayPal. Outside of the heavy hitters, we also have some up-and-coming stocks for you to keep an eye on. Fintech companies are really exciting right now. Especially with the way the world is going.
As we become more digitized, we could see more and more companies going this route. Which means an influx of companies in this sector. That could be a good thing or a bad thing.
Square (NYSE: $SQ)
It’s a stock that we’ve written about many times before, and for good reason. Square is now one of the leading fintech brands in the world. They’ve grown from a way for small businesses to swipe credit cards, to a $100 billion digital payments juggernaut.
The Cash App was the number one downloaded financial app from the Apple App Store in 2020, and the tenth most downloaded app overall, alongside names like Gmail, YouTube, Facebook, Instagram, and Zoom. It handily beat out digital payments rival Venmo; as well as the largest chatting service in the world in Whatsapp.
Square is the number one holding in Ark Invest’s Fintech Innovation ETF, and the fourth-highest holding in their Next Generation Internet ETF. The scary thing about Square? It’s still yet to do most of its growth. Currently, Square can only be used in Canada, the U.S., Japan, Australia, and the United Kingdom.
In 2020, Square jumped into the cryptocurrency market, allowing its Cash App users to buy and sell both traditional stocks and cryptos right from the app. As of March 2021, there were over 36 million Cash App users. The app is only available in the U.S. and the United Kingdom right now.
International expansion could push Square into the upper echelon of global companies, let alone fintech ones, especially if they’re able to enter markets such as China or India. Is Square a good investment? It’s an expensive one, trading at well over 100 times forward-looking price to earnings.
This can be a high valuation for some. But with Square, you’re baking in continued expansion for one of the strongest brands and ecosystems in all of fintech. So there’s a good chance this company still has many multiples of growth in the future.
PayPal (NASDAQ: $PYPL)
Many overlook PayPal as a fintech company. However, it’s actually one of the very first disruptors of the payment space. PayPal is a global company and is quite literally accepted in almost every country in the world, unlike Square which has a limited reach as of now.
Since spinning off from eBay back in 2015, PayPal has grown to become a $315 billion company and is currently the 21st largest publicly traded company in the United States.
Pretty impressive for a company that just used to allow payments through eBay. It’s also currently the fourth largest holding in Ark Invest’s Fintech Innovation ETF.
Like Square, PayPal has relied on its Venmo mobile app which has been a popular way for residents of the U.S. to send payments to each other or alternatively make payments via their mobile phone.
PayPal has also allowed users of its digital wallet to buy, sell, and pay with cryptocurrencies to over 39 million online merchants that accept PayPal for payments. They were truly the trailblazer for fintech companies everywhere and were actually founded by a couple of guys you may have heard of: Peter Thiel and Elon Musk.
Is PayPal a good investment? Unlike Square, PayPal has done a lot of its global expansion already. PayPal is also three times the size of Square, so investors who are looking for rapid growth may opt for Square or one of the smaller companies on this list over PayPal.
Coinbase (NASDAQ: $COIN)
Even though Coinbase has only been on the public markets since mid-April, it’s the leading cryptocurrency exchange in North America, In fact, it’s the second-largest exchange in the world by volume outside of Binance. As highly anticipated as its direct listing was, Coinbase has disappointed as a stock for the first two months.
It has traded lower, at nearly half of the all-time high price that was set on the first day of trading. That hasn’t stopped Ark Invest from making it one of its top holdings in both the Next Generation Internet ETF and the flagship Ark Innovation ETF.
So far, Coinbase has been trading alongside the benchmark cryptos like Bitcoin and Ethereum, which hasn’t been ideal for the stock given the volatility. How does Coinbase look for the future? It’s hard to say.
The crypto markets seem to be here to stay as alternative investment vehicles. So Coinbase has the name brand and user base to stay dominant. But like with any exchange, it’s hard to determine how big the industry moat really is. So for now we’re going to pass on investing in Coinbase.
What Are Examples of Fintech?
SoFi (NASDAQ: $SOFI): Social Finance is a brand new stock that came public via a SPAC IPO merger from Chamath Palihapitiya. They’re an all-in-one financial services company that deals with banking, investments, insurance, loans, and credit. If you want a great stock SoFi may be the best bet with a market cap of only $17 billion. We’d keep an eye on it for its first few quarters of trading as a public company before diving in.
Adyen (AMS: $ADYEN): They’re a Dutch fintech company that trades on the Euronext exchange in Europe. It specializes in point-of-sale payments, eCommerce, and digital payments through mobile devices. It’s the ninth-largest holding in the Ark Invest Fintech Innovation ETF. And a global leader in payment processing outside of the U.S. Just days ago, Adyen was officially granted U.S. branch licenses to have its payment processor operate in the U.S. Cash App and Venmo could have some competition soon!
Marqeta (NASDAQ: $MQ): Another company that’s fresh to the public markets is Marqeta. They’re one of the leading names in issuing credit cards to businesses without having to go through a major bank. Marqeta is its own kind of fintech category and works alongside companies like Square and PayPal to provide payment options for all businesses. They operate in over 35 countries worldwide and have issued nearly 300 million cards.
Affirm (NASDAQ: $AFRM): Like Marqeta, Affirm is in its own little bubble within the fintech industry. It’s like your modern-day layaway working with eCommerce sites to allow customers to pay in installments; rather than paying for the whole cost upfront. Affirm was founded by Max Levchin; an original co-founder of PayPal alongside Thiel and Musk. Affirm has some major partnerships already including Shopify and Walmart, and is widely considered the industry leader in payment installment loans.
Fintech Ones to Watch
Stripe: They’re widely considered one of the most valuable companies in the United States that’s not publicly traded. Stripe is rumored to be heading to Wall Street at some point in 2021. The company is primarily an eCommerce payment processor. They’re also in the business of providing its APIs to eCommerce stores as well as mobile apps for payment integration. Whenever Stripe makes its debut, it’s expected to fetch a valuation of around $100 billion. That makes it about the same size as Square.
Robinhood: This is a controversial company to be sure following the debacles during the Reddit short squeeze of GameStop and AMC back in January. Robinhood is also set to make its public debut sometime this year. Like Coinbase, Robinhood is one of the leading stock and equity trading platforms on the market. They’ve recently introduced cryptocurrency trading as well. In 2020, Robinhood already had over 13 million users and has added over 6 million users so far in 2021. Robinhood has been under fire for gamefying stock trading. This has attracted young investors to trade their money in a careless manner, with some even boasting massive losses on Reddit discussion boards. Robinhood is believed to be seeking a valuation of somewhere between $30 and $40 billion.
The Bottom Line
These are fintech companies you’ll want to keep an eye on or even invest in. Could we see banks become a thing of the past? It’s possible. Fintech could be the future. Credit cards could be coming through these companies for individuals and not just businesses. What could that do to the financial sector?
This is all speculation. But think about it. How could fintech change things even more?