What is Fintech? It is one of the more popular growth sectors out there. But investors may be wondering what exactly fintech means. Fintech is a combination of financial technology and industry, which includes any company using technology to make financial tasks like banking or digital payments more accessible and streamlined. It’s a broad definition since any bank or financial institution now has an online presence that loosely falls into the fintech category.
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What Exactly Is Fintech?
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.
Dozens of those are 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 well-known names.
We think you’ll recognize them. We think any investor can own some fintech stocks in a well-diversified, long-term portfolio.
What Are the Best Fintech Stocks?
When it comes to Fintech companies, there are the ones you automatically think are okay—companies like Square and PayPal. Outside the heavy hitters, we also have some up-and-coming stocks to watch. 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.
1. Square (NYSE: $SQ)
It’s a stock 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 beat out digital payment rivals Venmo and WhatsApp, the largest chatting service worldwide.
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. 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 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 now in the U.S. and the United Kingdom.
International expansion could push Square into the upper echelon of global companies, let alone fintech ones, especially if they can enter markets such as China or India. Is Square a good investment? It’s expensive, trading at well over 100 times the 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.
2. PayPal (NASDAQ: $PYPL)
Many overlook PayPal as a fintech company. However, it’s one of the first disruptors of the payment space. PayPal is a global company and is quite literally accepted in almost every country, unlike Square, which has a limited reach.
Since spinning off from eBay in 2015, PayPal has become a $315 billion company and is currently the 21st largest publicly traded company in the United States.
It’s 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, a popular way for residents of the U.S. to send payments to each other or make payments via their mobile phones.
PayPal phones allow 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 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.
3. 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 the all-time high price set on the first trading day. That hasn’t stopped Ark Invest from making it a top holdings in the Next Generation Internet ETF and the flagship Ark Innovation ETF.
So far, Coinbase has been trading alongside 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 is. So, for now, we will pass on investing in Coinbase.
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Examples of Fintech
1. 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. Before diving in, we’d keep an eye on it for its first few quarters of trading as a public company.
2. Adyen (AMS: $ADYEN)
They’re a Dutch fintech company that trades on the Euronext exchange in Europe. It specializes in point-of-sale, 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, Venmo could have some competition soon!
3. Marqeta (NASDAQ: $MQ)
Another company that’s fresh to the public markets is Marqeta. They’re among the leading names in issuing credit cards to businesses without going through a major bank. Marqeta is its 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.
4. Affirm (NASDAQ: $AFRM)
Like Marqeta, Affirm is in its 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. Max Levchin founded Affirm, an original co-founder of PayPal alongside Thiel and Musk. Affirm already has major partnerships, including Shopify and Walmart, and is widely considered the industry leader in installment loan payments.
Best Trading Companies
What Are Fintech Companies to Watch?
1. 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 sometime in 2021. The company is primarily an eCommerce payment processor. It also provides its APIs to eCommerce stores and 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.
2. Robinhood
This is a controversial company following the debacles during the Reddit short squeeze of GameStop and AMC in January. Robinhood is also set to make its public debut sometime this year. Like Coinbase, Robinhood is one of the market’s leading stock and equity trading platforms. They’ve recently introduced cryptocurrency trading as well. 2020 Robinhood already had over 13 million users and has added over 6 million users in 2021. Robinhood has been under fire for gasifying stock trading. This has attracted young investors to trade their money carelessly, with some even boasting massive losses on Reddit discussion boards. Robinhood is believed to be seeking a valuation of between $30 and $40 billion.
Final Thoughts
You’ll want to watch these fintech companies or even invest in them. 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, 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?
