The term "fintech" is a portmanteau of "finance" and "technology," and it refers to a broad group of enterprises that employ modern technology in financial businesses. Fintech includes, for instance, organizations that create and operate person-to-person payment applications and develop and implement new digital payment processing solutions.
Technology stocks have been valued at a premium during the pandemic. In contrast, investors may no longer be prepared to pay the same premium for these enterprises due to the risk of rising interest rates and inflation. For this reason, higher-growth firms in the information technology industry have been selling off recently. Long-term investors may bet on the transformation that financial technology, or fintech, businesses are bringing about: the digitalization of money, online payments, online banking, nonbank services, and better access to credit. Here are the ten top fintech stocks to examine if you are interested in investing in these disruptive enterprises.
What is Fintech?
Financial technology, or fintech, is an acronym for businesses, websites, and software programs that use technology to offer financial services. Typically, technology is assumed to be used to cut costs or improve service.
Historically, regulatory systems have shielded the largest corporations in the financial services industry from competition. Establishing a bank, an insurance company, or a stock brokerage firm takes substantial funds and multiple licenses. This has hindered new businesses from competing in the market and reduced the motivation for institutions to innovate.
Over the past quarter-century, technological advancements and legislative modifications have allowed tech-focused startups to establish a foothold. With the debut of internet trading in the 1990s, the first financial industry to use technology was retail stock brokerage. The investment and payment industries followed, albeit with sluggish development. The insurance business has only recently begun to see disruption.
Cryptocurrencies play a significant role in the fintech revolution. Most bitcoin and blockchain initiatives strive to solve the same issues as conventional fintech companies. In addition, the tremendous influx of wealth into cryptocurrencies finances fintech innovation.
Additionally, open banking and mobile phones facilitate fintech innovation. Open banking legislation permits users to grant third-party service providers access to their bank account and investment information. This permits consumers to shop around for financial services instead of being compelled to utilize those offered by institutions. Smartphones, specifically fintech applications, have emerged as a powerful platform for delivering financial services.
Different Types of Fintech Companies
Fintech companies can be classified in numerous ways, and overlap will always be between the chosen categories. However, the majority of fintech stocks fall into one of the following five categories:
Payments and Digital Wallets
There are currently thousands of online services that provide essential banking services across the globe. Few payment networks have worldwide reach, although most nations currently have multiple local platforms. Like bank accounts, digital wallets can only be accessed via a website or mobile application. From these wallets, digital payments may be made effortlessly and frequently circumvent the banking system. In emerging market economies, where few individuals have access to traditional bank accounts, mobile payments and banking services have had a significant influence.
Blockchain Technology and Cryptocurrencies
The majority of issues in the financial industry, as well as those in other sectors of the economy, are being addressed by blockchain technology. In essence, cryptocurrencies are "programmable money" that enable the emergence of whole new financial services. Hundreds of decentralized finance (DEFI) applications operating on various blockchains are being developed. DEFI applications enable trading, investment, lending, and money market services for cryptocurrencies and physical assets. These applications run independently of any central authority. This list's crypto category overlaps with every other category.
Fundraising and Lending
P2P lending systems promote loans and fundraising for individuals, small enterprises, and organizations. P2P financing is advantageous for lenders and borrowers because intermediary margins are eliminated. These platforms can also make credit accessible to individuals who have difficulty borrowing from conventional lenders. Crowdfunding platforms assist individuals and nonprofits in acquiring tiny contributions from a broad audience. Additionally, small enterprises can raise funding using these networks.
Investment and the Financial Markets
Investing and trading is possibly the most dynamic sector for fintech startups. In the 1990s, online trading platforms were among the world's earliest fintech enterprises. Since then, fintech startups have revolutionized the majority of the investment sector. Some instances of these types of businesses include:
Robo-advisors aid individuals in saving for their financial objectives. These platforms use quantitative models to optimize a client's asset allocation before implementing the approach with passive investment funds: alternative financial data sets and algorithmic trading marketplaces.
Stock Trading Apps
Make investing in equities simple for regular investors, similar to Robinhood. These businesses prioritize streamlining the investment process and creating a seamless consumer experience.
Other Fintech Niches
Fintech companies are present in nearly every sector of the financial industry. By aggregating information from numerous institutions, many of the earliest fintech apps and websites helped individuals manage their budgets. Additionally, mortgage origination platforms have existed for some time. These websites enable customers to obtain mortgage quotations from various lenders through a single application. Insurance is the newest frontier for fintech. Sourcian is a dedicated platform for the recommendation of the best manufacturers. Your sourcing journey starts right here at sourcian. It has taken tech businesses a long time to disrupt the insurance market because a substantial critical mass is necessary. However, since competition in other fintech industries has intensified, more capital may be invested in insurance-focused fintech startups.
Top 10 Fintech Stocks to Consider Now
1. Block
Block's (NYSE: SQ) product portfolio has expanded from a method for retailers to accept credit cards using their mobile phones to a large-scale financial ecosystem for individuals and small businesses. The company processes card payments at an annual pace of well over $100 billion, it recently formed its banking subsidiary (Square Financial Services), and it has a flourishing small business financing platform. In addition, Square has just joined the buy-now, pay-later loan market by acquiring Afterpay.
Two significant components of Square's business are beautiful. First is its Cash App, which boasts 44 million active monthly users and nearly limitless expansion possibilities for Square's consumer financial services. The website already provides direct payments, debit cards, the option to purchase and sell Bitcoin (CRYPTOCURRENCY: BTC), and a user-friendly interface for trading stocks. Second is Square Online, the version of the business's merchant platform that enables sellers to have an omnichannel presence, which might be an excellent opportunity for the company to capitalize on the rise in e-commerce use.
2. Visa Inc. (V)
Visa is also a pioneer in digital payments, making it an ideal addition to the list of the best stocks to buy in fintech. According to the company's 2021 shareholder letter, Visa expanded its reach to over 80 million merchants in the fiscal year 2021, a 14% rise. David Trainer, CEO of New Constructs, a Nashville-based financial research firm, says, "We are bullish on Visa because of its robust business and wide moat, which makes it tough for competitors to match Visa's prowess." The credit card titan is investing extensively to continue its expansion in digital payments. For its consumers' digital spending confidence, the company has made over $9 billion in technology investments over the last five years. According to Trainer, Visa's forward price-to-earnings ratio is approximately 25, which is significantly lower than comparable fintech companies. Additionally, he highlights Visa's strong return on invested capital, or ROIC, measures the return on all cash in a business. "It is tough to identify stocks with a good ROIC in the fintech sector," adds Trainer.
3. Goldman Sachs
This one may initially sound peculiar. Many people associate Goldman Sachs (NYSE: GS) with traditional Wall Street business practices — the opposite of fintech innovation.
Goldman Sachs has, however, made it plain that consumer banking will play a significant role in the company's future objectives. It has taken significant measures to convert from an investment bank and wealth manager for the top one percent into a full-service consumer bank. The first component, the Marcus savings and personal loan platform has become tremendously successful in just a few years. The company entered the credit card sector in 2019 as the exclusive issuer of Apple's (NASDAQ: AAPL) credit card and has subsequently become a credit card partner for General Motors (NYSE: GM). Recently, the Marcus Invest platform with automated investing portfolios was introduced.
Goldman is expanding its consumer business in a highly fintech manner, with no expensive branch network to worry about and a tech-centric approach to optimizing efficiency and consumer value. Moreover, unlike most other fintech, Goldman's big investment banking division tends to do better in volatile markets, making its stock less cyclical.
4. Intuit Inc. (INTU)
Intuit, a tax and accounting software developer, is on the list of the best fintech stocks to purchase in 2022 due to its existing client base and ambitious growth. The company's revenue increased to $2 billion in its most recent quarter from $1.3 billion a year ago, and it anticipates sales of approximately $12 billion in 2022 or a 26% to 28% increase. The technological platform provides a suite of services, which includes TurboTax, QuickBooks, Mint, Credit Karma, and Mailchimp. Park asserts that Intuit's most recent acquisitions, such as Credit Karma and Mailchimp, have led to robust growth and a more comprehensive platform for small and medium-sized businesses. "That is a compelling market they are a part of, which should generate reasonably robust top-line growth in the coming years," he says.
5. PayPal
PayPal Holdings (NASDAQ: PYPL) is the undisputed leader in online payment processing, but it is much more. Its Venmo peer-to-peer payment program has emerged as an industry leader, and its vast user base continues to grow at a dizzying rate. PayPal has also acquired complementary firms, such as the e-commerce tool Honey, and invested in various other successful companies, including MercadoLibre (NASDAQ: MELI), Uber (NYSE: UBER), and others. PayPal has the financial flexibility to embrace opportunities as they occur due to its quarterly free cash flow generation of more than $1 billion.
There are 429 million active PayPal accounts in more than 200 countries. PayPal is doing an excellent job of determining how to improve the monetization of its user base, even though user growth has halted recently. In a word, this is the industry leader in terms of profitability, and there is no reason to expect that will change shortly.
6. Upstart Holdings Inc. (UPST)
Upstart is a lending platform powered by artificial intelligence that collaborates with banks to provide access to affordable loans. According to its most recent earnings report, the company has grown its revenues, income, and the number of banks and credit unions using its platform since its initial public offering (IPO) a year ago. Sales for the business surged by 250% year over year in the third quarter of 2021. Upstart has accelerated its agreements with automobile dealerships to expand its transaction volume. Even if the stock is well off its highs from 2021, UPST has gained more than 100 percent in the past year.
7. Adyen
Adyen (OTC: ADYY.Y) is not a household brand among most U.S. investors, yet it deserves to be mentioned alongside Block and PayPal.
Adyen, headquartered in the Netherlands, provides payment processing solutions to businesses and operates globally (including a significant U.S. presence). It provides payment options for offline, online, and mobile platforms. Unlike other big payment processing technology companies, however, Adyen concentrates nearly solely on serving large enterprises. Microsoft (NASDAQ: MSFT), Uber (NYSE: UBER), and McDonald's (NYSE: MCD) rely on Adyen for their payment needs, to mention a few. Several years ago, eBay no longer utilized PayPal as its preferred payment processor, which was to Adyen's advantage.
In 2021, Adyen will process more than $540 billion in payment volume (in U.S. dollars). Adyen's growth has been spectacular, and the company will handle more than $540 billion in payment volume (in U.S. dollars) in 2021. In addition, Adyen is highly profitable, with an EBITDA margin of 63% that might improve as the business grows.
8. Robinhood Markets Inc. (HOOD)
Robinhood, the brokerage that revolutionized retail investing, has more than 22 million funded accounts and more than 18 million monthly active users, placing it on the list of the top fintech stocks to purchase. Even though the brokerage has been criticized for its payment-for-order-flow model, Robinhood has much to look forward to, including retirement account offerings, expanding access to cryptocurrency, live customer support, a recurring investing option, and a feature allowing investors to transfer their outside accounts. These initiatives can potentially increase retail investor involvement in the stock market and expand Robinhood's user base.
9. MercadoLibre
MercadoLibre (NASDAQ: MELI) is frequently referred to as the Amazon.com (NASDAQ: AMZN) of Latin America, which is an apt comparison. The company's e-commerce sector has an annual retail sales volume of more than $30 billion, and it continues to expand at an exceptional rate. In recent years, the company's logistics platform (Mercado Envios) and financing business (Mercado Credito) has gained significant popularity.
From a fintech standpoint, the most exciting payment platform is Mercado Pago. The company processes more than $100 billion in annualized payment volume and is expanding at a far higher rate than the e-commerce market. Most encouraging is that Mercado Pago is expanding faster than MercadoLibre's e-commerce platform regarding payment processing. Consider Mercado Pago as an early-stage PayPal (remember when it was a part of eBay? ), which is beginning to blossom into an incredible firm in its own right.
10. Amazon.com Inc. (AMZN)
Amazon is not a pure-play fintech stock, but it is included on our list due to its partnerships with major firms in this industry. Amazon is the world's largest e-commerce company, where customers have become accustomed to digital and cashless transactions. AMZN partnered with Affirm Holdings Inc. (AFRM) to establish a foothold in the industry for buy-now, pay-later transactions. Customers that qualify will have additional freedom with this payment option. This was the e-commerce giant's first relationship with an installment program, indicating the continued growth of this payment method. Amazon is collaborating with other fintech stocks, such as Block and Intuit, developing buy-now, pay-later business models.
Final Thoughts
The Fintech Market is currently projected to be worth over $6.5 trillion, and investments in fintech are increasing exponentially. In reality, the World Bank highlighted the outstanding resilience of the Fintech business to COVID-19 and how the industry flourished despite a scenario of collapsing economies and a worsening global climate in the 2020 Global COVID-19 FinTech Market Rapid Assessment Study.
The financial sector is ripe for upheaval, and there is a strong possibility that some of the best-performing stocks over the next decade will be fintech stocks. This is an industry to monitor closely; nevertheless, as is typically the case with new industries, it is vital to exercise prudence and maintain minimal positions.
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