Fintech stocks have strong potential thanks to the ever-growing digital world
Financial technology, or more simply fintech, is one of the hottest new sectors on Wall Street. A fintech company is one that simply applies technology to the financial world. Examples of fintech services include: online banking, payment processing, peer-to-peer lending, and "buy now, pay later" (BNPL) services.
Many investors believe that the fintech sector has a strong future due to the speedy rise of the digital world. It has never been easier to get a loan or open a checking account right from the palm of your hands. Investors looking to gain portfolio exposure in fintech stocks should consider buying fundamentally strong companies that are growing rapidly and, ideally, are already generating profits.
Block: New Name, Same Stock
Block Inc (NYSE:SQ), formerly known as Square, is a fintech company that allows businesses to set up payment processing systems using a mobile phone or tablet. Block provides an easy way to accept credit cards for businesses that don't necessarily want to spend the money on their own payment systems.
In addition to this service, SQ owns Cash App -- a popular peer-to-peer payment -- and recently acquired BNPL company Afterpay. SQ has done an amazing job of acquiring companies with strong futures and plenty of room for growth. While the companies Block owns may not be as big as its competitors, this just leaves more room for growth and the potential to steal more market share from competitors.
PayPal Holdings: Revisiting the Original
The proverbial fintech company, PayPal Holdings Inc (NASDAQ:PYPL), is the largest of its kind for online payments and much more. PYPL also owns Venmo, which is an industry-leading peer-to-peer service and the main competitor of Block's Cash App. As of 2021, PayPal has over 426 million users, and that number continues to grow every single year.
In 2010, PayPal’s annual revenue was $3.5 billion, and by 2021 this number grew over 622% to $25.3 billion. This proves that PayPal is growing at a rapid rate and not showing signs of stagnation. An uncanny period of underperformance may spook investors despite PayPal's proven growth; however, it's one of the largest fintech companies with a rapidly growing market cap that is currently around $133 billion, which makes PayPal stock a rather safe investment.
SoFi Technologies: The New Kid on the Block
Founded in 2011, SoFi Technologies Inc (NASDAQ:SOFI) was recently taken public by special purpose acquisition company (SPAC) guru Chamath Palihapitiya. SOFI is essentially an online-only banking platform that allows its customers to do everything a traditional bank can do. Sofi Technologies' business model is convenient because one will never have to worry about driving to the bank to take care of anything. Instead, users anywhere in the world can easily take care of their financial needs via the mobile app.
SOFI was recently approved for a bank charter as well, which can improve profit margins as it allows them to borrow money at an even cheaper rate. SoFi has made some big acquisitions recently, and just bought Galileo -- a company that works with many of SoFi’s competitors including: Robinhood (HOOD), Chime, Monzo, Revolut, Varo, and TransferWise.
Affirm Holdings: Leader of Online Lenders
Affirm Holdings Inc. (NASDAQ:AFRM) is a BNPL fintech company that allows its customers to essentially take out a loan to buy things online without paying in full upfront. The amazing part about Affirm is that they are partnered with over 168,000 merchant partners. This is great because it means Affirm does not have to market its service as the merchant partners selling the products are already doing that for them.
Affirm is partnered with some large companies such as Amazon, the largest e-commerce company in the world. Additionally, the company is also partnered with Shopify, another giant in the e-commerce space. Ever since Afterpay was acquired by Block, AFRM has been the largest BNPL player in the world