We’ve all read about the disruptive potential of fintech, and how millennials are trading traditional forms of payment for mobile solutions like Venmo and shunning old-school wealth management for platforms like Robinhood.
If you’re interested in the future of finance, it’s worth taking some time to play with these apps and experience their potential. However, the reality of fintech in 2019 — and the truth of its investment potential — goes far beyond what you see in smartphone apps.
Here are nine dynamic companies with solutions that are revolutionizing payment processing, accounting, investing and other financial services. All are long-term buys.
Since it’s tax time, let’s start with TurboTax and QuickBooks parent Intuit Inc.
This firm is a great example of how technological disruption can reduce costs and increase flexibility in a mobile age; about eight million people used TurboTax to file their returns via smartphone in 2018, and this year’s tally is sure to top that.
Intuit has also tried to demystify accounting in the age of the “gig economy,” allowing easy ways to log expenses and track mileage on mobile devices. It has more powerful cloud-based payroll solutions and business payments for lbusinesses of larger size.
Shares have roughly doubled in the last two years as investors have realized the big potential of this technology in a digital age. And unlike cash-burning startups, Intuit is soundly profitable — so much so that it deployed $1.2 billion on R&D in fiscal 2018, up 20% from roughly $1 billion the prior year, to stay ahead of the fintech revolution.
The go-to for investors is PayPal Holdings Inc.
a firm started by the likes of Peter Theil and Elon Musk that was one of the first viable alternatives to traditional banking options in the internet age. It also owns current mobile payments powerhouse Venmo through an incredibly well-timed acquisition of its parent Braintree for a mere $800 million a few years back.
Across its properties, PayPal boasts a staggering 267 million active accounts as of the end of 2018, up 17% from the prior year. Those accounts are increasingly active too, as PayPal processed 9.9 billion transactions in 2018 for a 27% growth rate. If you want to look to the future of cashless transactions, start here.
The adoption of new banking technology in Asia is far ahead of that in the West. One Brookings Institution report estimated that China’s mobile payments ecosystem hit roughly $23 trillion in 2016.
At the center of that is Alibaba Holdings
with its Alipay technology, which holds more than half of the market. Furthermore, thanks to the rather stodgy nature of state-owned banks in China, there is unlikely to be any native competition from the financial sector. Since China is perhaps the most important mobile payments marketplace in the world, that may make Alibaba the most important stock to buy if you want to ride this trend. TechCrunch has estimated that Alibaba’s Ant Financial unit could be cruising toward an IPO in the near future with a valuation of as much as $14 billion.
Another approach to consumer fintech is to look beyond payment processing and think bigger about the banking experience. That’s what Square Inc.
is trying to do as it continues to pursue traditional banking designations, most recently with a December filing with regulators to open a traditional lending arm out of Utah.
By now, most investors know the potential of Square in the payments space. It was one of the first startups to offer credit-card readers you can plug into your smartphone, and its newer Terminal technology has moved its point-of-sales technology even further into a digital age. But per-transaction fees are tiny, and Square is now attacking more traditional services like mortgages and small business loans.
Shares have been volatile, with the stock down about 25% from September highs. But it has soared sevenfold from its $9 offer price at the end of 2015 so it’s clearly doing something right.
Another fintech company that is looking beyond the low-margin universe of payments processing is Green Dot Corp.
The company specializes in serving “underbanked” populations that don’t have (or can’t qualify for) checking accounts or credit cards. It may sound counterintuitive to focus on customers with low income and poor credit, but these folks have been pushed out of traditional banking and rely largely on cash to transact, creating a massive pool of potential customers.
Green Dot has developed alternatives that include direct deposit to linked accounts. In addition, its GoBank mobile checking technology has partnered with Uber to allow drivers easier access to cash while they wait on transactions to clear, and Green Dot technology was chosen by Apple Inc.
to power its person-to-person Apply Pay Cash transfers.
Shares have been soft in the last few months, but have nearly tripled since the start of 2017.
is a midcap software company that you may not have heard of, but is ranked as a leader in Garnter’s vaunted magic quadrant for “financial close solutions” — neck and neck with enterprise heavyweight Oracle Corp.
In layman’s terms, BlackLine allows firms to accurately monitor ongoing operations instead of batching all accounting once a week or once a month as humans in accounts payable get around to their inboxes.
You can understand the appeal, as BlackLine has disrupted a process prone to human error and delays. It’s akin to the way you don’t have to balance your personal checkbook anymore and instead just bring up your balance in a smartphone app and spot-check transactions.
The potential is tremendous, particularly at small businesses that can’t afford to suffer delays or inefficiencies in accounting. BlackLine is growing fast as a result, plotting 28% revenue growth for fiscal 2018 and another 23% projected in FY2019.
Some may not think of Visa Inc.
as a cutting-edge fintech company. The company was founded in the 1950s, is a Dow Jones Industrial Average (DJIA) component and boasts a market capitalization of over $300 billion. However, Visa is the gold standard of “cashless” payments in the U.S., with more than half of all credit-card processing happening under its brand.
Visa’s investments in mobile payments technology is the natural evolution of its business. That involves in-house efforts, but also big investments financed by the firm’s deep pockets. In 2018, Visa extended a global partnership with aforementioned PayPal on digital and mobile payments. It also has previously invested in mobile payment technology firms Square and Stripe, and more recently acquired British payments firm Earthport, which has been involved with cryptocurrencies and blockchain since at least 2015. You may say Visa is just hedging its bets, but it’s undeniable it is deeply involved in fintech.
One way to approach payments and services fintech is through consumers, but serving businesses can be perhaps even more lucrative. That’s what Global Payments Inc.
is doing. This company started as a simple point-of-sale business for credit cards and has grown to a $19 billion global organization through acquisitions and targeted solutions based on specific merchant needs.
For starters, Global Payments snapped up Heartland Payment System in 2016 for about $3.9 billion. This platform allows small consumer-oriented businesses like retailers or auto shops to manage payroll, process payments and even access capital to grow. More recently, it bought AdvancedMD to help manage doctor’s office financials, payments solutions firm SICOM to serve restaurants, and the communities and sports divisions of ACTIVE Networks to tap into spending on youth athletics and summer camps.
The company is currently valued at over $19 billion, and has seen its shares surge and impressive 250% in the last five years as it has grown aggressively.
is another under-the-radar fintech and serves financial advisers. It is the understatement of the decade to say that a digital age has disrupted the way advisers interact with clients, with many more products available with tons more data to digest — all with savvy customers who can access a lot of the same info on their smartphones, and demand a higher level of service.
Envestnet has been part of this revolution, including one of the first web-based wealth management platforms for fee-based advisers that launched almost two decades ago. In the early 2000s, that idea was way ahead of its time. The company has grown since then, both organically and through deal making such as the acquisition of analytics and AI firm Wheelhouse and a high-profile partnership with BlackRock unveiled at the end of 2018. Envestnet should see earnings jump by over 40% in FY2018 on roughly 19% revenue growth, showing the potential of this model.
Global X FinTech ETF
If you can’t choose between these stocks or you simply want to cast a wider net, then consider the Global X FinTech ETF
that invests in companies “on the leading edge of the emerging financial technology sector,” according to its prospectus. Square, PayPal and Intuit are among its five largest holdings. Overall, it has about 40 holdings, including smaller and much more speculative fintech companies such as the $100 million HIVE Blockchain Technologies
which trades over the counter.
The fund isn’t as cheap as your typical index fund. But at a reasonable expense ratio of 0.68% or $68 annually on every $10,000 invested, it’s still a relatively simple and cost-effective way to make a tactical investment in the long-term potential of fintech. The returns are decent too, with this Global X ETF up about 15% in the last year compared with roughly 4% for the broader S&P 500 index
As companies fall away (as Hive certainly seems to be doing after a roughly 80% crash in the last 12 months) you can expect this ETF to rotate into other emerging fintech players to give you a constantly evolving look at the industry.