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What Is Fintech? Intro to Financial Tech The Motley Fool

what is fintech stock

In a nutshell, this is a highly profitable industry leader, and there’s no reason to believe that will change anytime soon. Financial services company Block (SQ, $72.62) has two primary ecosystems – Square (used by merchants) and Cash App (a peer-to-peer payment solution). Earlier this year, Block acquired Afterpay to capture the demand for the Buy Now, Pay Later functionality. The majority of Wall Street pros think V is one of the best fintech stocks moving forward. All in all, Visa scores a Strong Buy rating with 19 Buy recommendations and three Hold ratings. Despite macro uncertainty, currency headwinds and the suspension of its business in Russia, Visa posted better-than-anticipated results for its fiscal third quarter, ended June 30, 2022.

What can incumbents do to prevent disruption from fintechs?

Banks use fintech for back-end processes—behind-the-scenes monitoring of account activity, for instance—and consumer-facing solutions, like the app you use to check your account balance. Individuals use fintech to access many bank services, including paying for purchases with a smartphone and receiving investing advice on their home computers. Fintech refers to software, algorithms and applications for both desktop and mobile. In some cases, it includes hardware, too—like internet-connected piggy banks. Fintech platforms enable run-of-the-mill tasks like depositing checks, moving money between accounts, paying bills or applying for financial aid. They also facilitate technically intricate concepts, including peer-to-peer lending and crypto exchanges.

Top Digital Payment Companies

Canada is also well known for its internationally respected banking sector, so it should come as no surprise that the country’s tech sector has quite a few fintech companies. In fact, many Canadian investors have exposure to fintech whether they know it or not, through index ETFs that hold shares of tech companies which are delving into the fintech industry, like Shopify Inc. Meanwhile, Block is focusing on boosting its international business and launched 44 products in the first half of the year under its Square ecosystem. In the second quarter, Square’s gross payment volume in international markets grew 45%, outpacing the 22% rise in the U.S. GPV, as well as the 25% growth seen in the overall Square ecosystem. In Q2, MercadoLibre’s commerce revenue grew 23% to $1.4 billion, while fintech revenue jumped 113% to $1.19 billion.

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McKinsey estimates that fintechs will grow at roughly three times the overall banking industry’s growth rate between 2022 and 2028. Emerging markets will fuel much of this growth, particularly in Africa, Asia–Pacific Pepperstone Forex Broker (excluding China), Latin America, and the Middle East. When it comes to businesses, before the adoption of fintech, a business owner or startup would have gone to a bank to secure financing or startup capital.

The continent is home to twice as many fintech companies as the APAC region. Natasha transitioned to venture capital after a career in banking built in prestigious firms such as JPMorgan and ESM. Now is the time to see which companies are here to stay and can become profitable – there will be some necessary consolidation and perhaps some high-profile failures. Whenever you have a high-growth and relatively young industry, it can seem intimidating for investors to try choosing one or two stocks. And that’s especially true in a volatile and unpredictable market environment like we saw in 2022. Adyen’s growth has been impressive, and the business had processed more than $700 billion in annualized payment volume as of mid-2022.

Famous disruptive tech investor Cathie Wood recommends an investment timeline of at least five years. Start by deciding how much of your portfolio you will devote to fintech. You can increase your exposure as you grow comfortable with the segment’s behavior and the workload required to monitor these stocks. Fortunately for Coinbase, the market downturn appears to be softening. The company has also taken steps to diversify its revenues so it’s less dependent on transaction fees.

2019 has reversed the trend somewhat, with a normalization of volumes but still showing strong historical growth. Collectively, Mogo’s apps help people with many of their personal finance needs. It also runs a tree-planting initiative, so users can contribute to a good cause. Nuvei is a payment company that lets people accept alternative payment options, including cryptocurrency. Not all payment systems currently allow people to accept crypto, so Nuvei is a big step up from, say, bank transfers.

The company generates revenue from transaction fees, subscription fees and service fees. According to leadership, the margin decline comes from the strategic decisions to add employees and invest in marketing. The consumer market is perhaps the most saturated, and also the easiest to conquer. Consumers, however, tend to have low loyalty, and be sensitive to design and experience initially, but then be swayed by price and convenience. In this section, we will cover the taxonomy of emerging categories, adding some insights and examples to each category and some fintech trends. This form of ledger technology is what’s behind cryptocurrencies and other tech trends.

As for recent financial performance, MA topped analysts’ expectations for the second quarter of 2022, as a strong rebound in travel helped drive a 58% rise in cross-border transaction volumes. Per the company’s earnings call, cross-border travel reached 118% of 2019 levels in the second quarter. While 2022 brought with it a global drop in fintech valuations, we believe the market in MENAP is likely to continue growing.

what is fintech stock

Huge investments by banks and a growing pile of cash being poured into fintech startups. And if you want to follow the money, follow the guys with the money. One notable group who is investing a lot into Fintech is Venture Capital firms.

With an extensive network spread across more than 210 countries, Mastercard (MA, $339.71) is the second-largest payment processing company in the world, behind rival Visa (V). The company doesn’t directly issue cards, extend credit and set or receive revenue from interest rates charged to the user. Instead, it earns a fee by enabling electronic payments between consumers, financial institutions, merchants and other entities, as well as offering other value-added services. Meanwhile, the fading of pandemic-induced tailwinds, macro challenges, geopolitical concerns and a potential economic slowdown could impact fintech stocks over the near term. Fintech apps can then leverage users’ data in different ways, depending on their purpose.

We define fintech technology as any technology that helps companies in financial services to operate or deliver their products and services, or that helps companies or individuals to manage their financial affairs. Under this definition, we include regulatory technology but not cryptocurrency strictly in the sector (the latter is in order to avoid excessive volatility). Some other reports may use a different breakdown and thus show slightly different total figures. Mercado Pago had over 38 million unique active users at the end of the second quarter, supported by higher engagement in wallet payments and a growing credit user base. Overall, MercadoLibre is well-positioned to boost its business by further penetrating the e-commerce and fintech markets in Latin America.

  1. In the wake of the Covid-19 pandemic, more and more businesses are turning to fintech to accept contactless payments or adopt other tech-fueled advancements.
  2. Per the company’s earnings call, cross-border travel reached 118% of 2019 levels in the second quarter.
  3. According to the company, 12,000 financial institutions are connected via Plaid.
  4. Things change quickly in the fintech space, so it’s important to manage your portfolio carefully.

For instance, PayPal must be licensed in every state and follow local payment transmission regulations. However, federal oversight overlaps state regulation, as PayPal is also under the purview of the federal Consumer Financial Protection Bureau. Some fintechs, in fact, exist largely outside or on the fringes of current regulatory oversight.

It is disrupting the financial industry by fostering competition and challenging established players, encouraging them to adapt and innovate. Customers can use the company’s APIs to accept payments through their website or app. Customers can also process payments directly through payment pages and links hosted by Its global reach means that it accepts processing payments in over 150 currencies. In addition, the platform provides fraud management and data insights on collected payments.

Cash App is wildly popular with consumers and generates most of the company’s revenue. Square, the payment solution sold to small and medium-sized businesses, owns a majority share in its market. Financially, Adyen has shown impressive revenue growth over the past five years, averaging more than 40% annually. The company’s customers appear to be happy, as churn is low and market share keeps rising.

The company also develops tools that block fraudulent transactions in order to provide businesses with a layer of security when handling payments. Stripe sometimes offers loans and credit cards to businesses as well. Financial technology is the driving force behind the rapid digitization of the world.

Fintech stocks can deliver great returns when the market conditions are favourable to technology companies, but they tend to be more volatile than conventional financials (e.g., banks and insurance companies). The solid demand for digital payments has attracted new as well as established players in the fintech space. A report by research firm CB Insights revealed that fintech funding surged 168% to nearly $132 billion in 2021. It’s worth noting that $1 out of every $5 of venture capital funding in 2021 was invested in a fintech startup.

There are countless companies around the world that could be described as fintech, and the number grows every day. Your robo-advisor or PayPal account are other examples of fintech services. Even if you’ve never heard the term “fintech” until today, there’s a good chance you’re using at least one or two fintech services. Togut is not alone in his bullish view toward one of Wall Street’s best fintech stocks, with 27 out of 35 analysts have a Buy rating for Block stock. “Overall, we believe investors should have little to quibble with given market share gains while also delivering strong profitability,” Fong said. “We view MELI as only getting stronger with each passing quarter.”

All rights are reserved, including those for text and data mining, AI training, and similar technologies. For all open access content, the Creative Commons licensing terms apply. And with the economic crisis due to the Covid-19 outbreak, many of these businesses will fail. The lucky few that have just raised funds or have a sustainable business model will prevail. And the fintech industry will likely emerge even stronger with a few dominant players.

More broadly, the term fintech also encompasses a rapidly growing industry that serves the interests of both consumers and businesses in multiple ways. From mobile banking and insurance to cryptocurrency and investment apps, fintech has a seemingly endless array of applications. Despite the current economic uncertainty, larger and long-term trends for the future of fintech remain relatively intact. Consolidation, partnerships and continued collaborations between legacy banks and fintechs seem imminent. Fintech, short for financial technology, is an umbrella term describing technology solutions that streamline money management, banking and investing. To help you better understand this enticing business, Forbes Advisor has profiled ten of the largest privately held fintech companies on earth.

But if last quarter’s results mark the start of a trend, subsequent growth could be enough to propel SQ stock (trading for around $64 per share) back to higher prices. For the September quarter, the company reported solid growth in areas like gross profit up 21% year over year (YOY) and adjusted EBITDA, up by near 45.9%. Add in a raising of guidance, and it’s clear the release resulted in a post-earnings rally for SQ stock. Also, Fiserv Inc. provides financial institutions with the back-end technology necessary to facilitate digital financial transactions. Currently, 14 out of 20 analysts covering FI stock rate it a buy.

Europe also has a number of very active VCs in the Fintech space such as NFT Ventures from Sweden, Speedinvest from Austria, or Seedcamp from the UK. Alongside these household names from both sides of the Atlantic, you have a number of smaller funds that are investing in the many of fintech startups that are flourishing. Sales cycles are much longer, the customers can be more demanding, require a lot of bespoke features, and they often expect a degree of professional services to be provided together with tech products. However, they are also very lucrative and can provide income over several years if they find a solution to a real business problem.

Fintech also works behind the scenes, creating operational efficiencies for financial institutions. They largely perform in correlation with consumer spending and business investment. For example, companies that develop technology for insurance companies aren’t inherently cyclical since insurance is a rather recession-resistant business. On the other hand, companies that develop payment technologies, which are more vulnerable to the effects of market forces, are more likely to experience significant slowdowns during recessions. MELI delivered stellar results in the second quarter, with revenue growing about 53% to $2.6 billion and earnings per share rising over 77% to $2.43.

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