The term fintech comes from the words “finance” and “technology” and is used to describe companies that apply new technologies to traditional banking and financial services. Fintech stocks are becoming a hot commodity.
Types of fintech services include online banking, digital payments and cryptocurrencies. Fintech is growing fast and outpacing traditional banking and financial services.
And the potential of the market is huge. According to the firm Markets and Research, the worldwide fintech market was worth $5.50 trillion in 2019 and is expected to grow at compound annual growth rate (CAGR) of 23.58% through 2025.
In this article we look at the stocks of seven fintech stocks to buy. These companies are leaders in the fintech space and investors should hold onto these fintech stocks for the long term.
- PayPal (NASDAQ:PYPL)
- Square (NYSE:SQ)
- StoneCo (NASDAQ:STNE)
- Goldman Sachs (NYSE:GS)
- Fiserv (NASDAQ:FISV)
- Green Dot (NYSE:GDOT)
- Visa (NYSE:V)
Fintech Stocks to Buy: PayPal (PYPL)
PayPal has transformed itself from a tool that was mostly used by small businesses into the Godzilla of fintech companies. Today, there is no part of online payments and digital currencies that PayPal is not involved with – from transferring money between bank accounts to trading Bitcoin (CCC:BTC-USD).
The company, which was founded in Silicon Valley in 1998 and helped popularize the term “digital wallet,” has gained market share and accelerated its evolution to a full-service fintech company during the global pandemic. This was on full view in PayPal’s most recent earnings.
PayPal reported that total payments on its network climbed 39% to $277 billion U.S. in the fourth quarter of 2020, more than the $267 billion U.S. expected by analysts. Venmo, the company’s popular person-to-person service, processed $47 billion U.S. in payments, up 60% from a year earlier.
One of the fastest growing segments of PayPal’s business is cryptocurrencies such as Bitcoin. People are now able to buy, hold and sell a range of cryptocurrencies using PayPal wallets and that is attracting a lot of new users.
PYPL stock has been on the fast track so far in 2021, rising nearly 22% year-to-date and now stands at $284 a share.
Close on the heels of PayPal is fintech stock Square. In fact, when PYPL stock jumped 8% after its recent earnings report, SQ stock also rose 4%.
Based in San Francisco, Square’s mobile payment app caught fire during the pandemic, especially among small business owners and consumers who use it to quickly transfer money electronically. Consumers seem to love the peer-to-peer payments that the Square Cash App facilitates.
Square’s Cash App also helps trading in Bitcoin, which has helped drive revenue higher for the company.
The exciting thing about Square moving forward is the massive market opportunity. The company estimates that the small business and peer-to-peer market in which it operates is worth $100 billion annually, of which it currently controls less than 3%. Square also expects cryptocurrencies to continue driving growth for the foreseeable future.
SQ stock continues to perform strongly, rising 70% since the start of last September and up 18% since the end of January this year. Shares of Square are now trading at $259.
The only fintech company in Warren Buffett’s portfolio is this Brazilian concern. While the Oracle of Omaha favors bank stocks (he owns many of the major U.S. commercial banks), he has been less inclined to buy fintech companies. And he has been skeptical of cryptocurrency.
So, it is a real vote of confidence that Buffett is a shareholder of this foreign fintech company. And Buffett is not the only successful investor who is bullish on STNE stock. Citibank resumed coverage of StoneCo in January and gave the company a “buy” rating and a price target of $86.
What has people excited about StoneCo is the sizable market opportunity for electronic payments in emerging market economies such as Brazil, where cash is still largely king. StoneCo is targeting small and medium-sized businesses with its cloud-based technology platform that helps merchants get paid and grow their businesses. StoneCo has also been aggressive about using cutting-edge technology and in growing its operations.
StoneCo is also now finalizing a $1.28 billion acquisition of Linx, a Brazilian management software company that operates the biggest retail management system in all of Latin America. Once completed, the Linx acquisition should boost StoneCo’s revenue and improve its margins. STNE stock has been breaking out recently, rising more than 10% so far in February to nearly $88.
Goldman Sachs (GS)
Goldman Sachs is not the type of investment bank to sit still. The New York-based firm, which has offices around the world, is constantly looking for new opportunities and investment strategies.
So, it should not come as a surprise to learn that Goldman Sachs is getting into fintech in a big way. The bank is making a big push into consumer banking and focusing its efforts on online transactions and digital payments in the process with the Marcus online banking platform, its Apple (NASDAQ:AAPL) credit card, and by offering daily banking services to corporations and financial institutions.
Additionally, Goldman Sachs inked a deal with payment processor Stripe to form “Stripe Treasury,” a banking payment and deposit solutions platform aimed at small businesses.
The push into consumer banking and fintech appears to be paying off as it was the fastest-growing segment of Goldman Sachs’ business in the fourth quarter of 2020, up 52% to $347 million. It all bodes well for investors who own GS stock. The company’s share price has climbed 55% since the end of October.
Fiserv is different than the other companies on this list in that it does not offer fintech services directly to consumers. Rather, it provides the technology that banks and other financial institutions use to provide fintech services to their customers.
Fiserv’s customers are banks and various financial institutions. And with Fiserv’s technology, those banks would not be able to move money, process payments and effectively work their digital banking operations. Fiserv literally puts the “tech” in “fintech.” The company’s technology produces 12,000 financial transactions per second.
Also unlike the other fintech stocks on this list, Fiserv has suffered during the global pandemic as the banks and financial institutions it serves scaled back their spending on technology infrastructure and conserved cash. The company has signaled that 2020 will be its first year of negative returns since the financial crisis of 2008.
FISV stock has struggled over the past year, too. It remains 12% below its 52-week high of $124.61. However, given the growth of fintech services, demand for the company’s technology should remain high and financial institutions should start spending again as the economy improves.
Green Dot (GDOT)
Green Dot is a small fintech company with big ambitions. The Pasadena, California-based company offers traditional consumer banking services and has the distinction of being the world’s largest prepaid debit card company.
However, where this small cap company (market capitalization of less than $3 billion) is growing is with its fintech applications, notably its banking-as-a-service (BaaS) platform. Green Dot allows other companies to use its infrastructure to provide banking solutions. Green Dot’s technology, for example, is used by Uber (NYSE:UBER) drivers so that they can get paid instantly for the rides they give.
Because of its small-cap stature, GDOT stock does not get as much attention from Wall Street as its larger peers PayPal and Square. However, the stock has risen steadily over the past year, from $14.20 a share in March to a peak of $64.97. That’s an increase of 357% in less than a year.
The stock has since pulled back a bit and is now trading at $53.60 a share. But there’s every reason to believe that Green Dot will continue rewarding shareholders into the future. The recent roll-out of the company’s mobile banking solution should help drive future growth.
Credit card provider Visa may not be the first company that comes to mind when people think of fintech, but the traditional company and household brand is moving aggressively into the fintech space with a host of innovative products.
Sure, Visa was forced to abandon its $5.3 billion merger with financial data company Plaid due to an antitrust probe by the U.S. Department of Justice. But Visa has more irons in the fire when it comes to fintech. The company has launched several partnership programs designed to provide access to its ultra-fast payments network and is even helping to fund fintech start-up companies.
While people might think of Visa as a stodgy old financial company. The reality is that Visa has always been quick to adapt its payment products to the latest changes and trends in the industry, moving quickly to add “tap and go” and bio-metric identifiers to its credit cards.
With fintech opening up a new frontier in finance, Visa is racing to be at the forefront of the industry. If anything, the aborted Plaid deal shows that Visa is serious about competing in the fintech space.
V stock has been on the move since the end of October, up 16% in the past three months to just under $210 a share today.
On the date of publication, Joel Baglole held long positions in SQ and GS.