There’s a broad selection of financial technology, or fintech, companies to watch and buy as the coronavirus pandemic accelerates the growth of e-commerce and digital technology.
Fintech stocks have grabbed the spotlight as digital technology roils e-commerce, payment networks, online lending and money transfers. Also, business-to-business payments, personal finance and banking.
The initial public offering of Marqeta (MQ), a global card issuing and payment processing platform, has floundered. Oakland, Calif.-based Marqeta creates branded debit cards and prepaid cards for corporate customers.
There are big expectations for a Stripe IPO.
The bad news is that Stripe in March raised $600 million in a new funding round that gave it a $95 billion valuation. That’s up from $36 billion in April 2020. The new funding round will likely delay a Stripe IPO.
Stripe Competes With Broad Range Of Fintech Companies
“As an eCommerce-focused payment facilitator and merchant acquirer, Stripe competes with companies including Adyen, PayPal Holdings (PYPL), Square (SQ), Fidelity National Information Services (FIS), Fiserv (FISV), Global Payments (GPN), and Chase,” MoffettNathanson analyst Lisa Ellis said in a recent note to clients.
“Stripe is best known for its relationships with eComm darlings Shopify (SHOP) and Amazon.com (AMZN), as well as its developer-centric model that has made it a favorite payment processor among Silicon Valley startups.”
Stripe has not made any public disclosures on revenue, payment volume or earnings before interest, taxes, depreciation and amortization. Its investors include Shopify.
Not many fintech stocks hold stellar technical ratings currently. Only Square and PayPal own a Composite Rating of 90 or above, according to IBD Stock Checkup. SQ stock has traded in sync with the price of cryptocurrency Bitcoin, thanks to its investments and Cash App crypto trading features.
The IBD Composite Rating is a blend of five other IBD stock ratings: the EPS Rating for earnings per share, Relative Strength Rating, Accumulation/Distribution Rating, SMR Rating for sales, profit margins and return on equity, and the industry group rating. The Composite Rating helps investors easily measure the quality of a stock’s fundamental and technical metrics.
Fintech Stocks: Investors Rotate Out Of Growth
Amid the coronavirus pandemic, digital fintech companies such as PayPal and Square outperformed legacy payment stocks.
Investors have been rotating out of growth stocks amid high valuations. Square reported first-quarter earnings that topped expectations. But Square cautioned that government stimulus payments to consumers will wind down, slowing Square Cash App growth.
Meanwhile, PayPal stock still belongs to the IBD Leaderboard. The Leaderboard is IBD’s curated list of leading stocks that stand out on technical and fundamental metrics. PayPal reported first-quarter earnings that topped estimates.
The fintech group ranks No. 182 out of 197 industry groups tracked by IBD.
Venture capital funding has been strong for startups in payments, e-commerce, online lending and cloud software.
In Europe, Klarna’s valuation jumped to $45.6 billion after a SoftBank-led funding round. Klarna competes in the “buy now, pay later” consumer loan market versus PayPal, Affirm Holdings (AFRM), Sezzle and others. Affirm recently partnered with Shopify.
U.S. users of BNPL installment-plan services will grow 81% this year to 45 million, forecasts eMarketer.
Among other fintech startups, there’s Chime, which delivers banking services through mobile phones.
Credit Card Networks Down On Their Luck
Meanwhile, credit card networks Visa (V) and Mastercard (MA) continue to struggle with the impact of the coronavirus pandemic. Travel could rebound in the back half of 2021, giving them a lift. Both Visa stock and Mastercard delivered first-quarter earnings beats but Mastercard slipped out of a buy zone just the same.
In addition, the coronavirus crisis is driving a massive shift to “contactless” digital payments. That’s opening up opportunities for Square, PayPal and other payment stocks.
Amid the coronavirus pandemic, merchant acquirers lagged other fintech companies.
Global Payments, Fidelity National Information Services, and Fiserv are among the biggest merchant acquirers. They serve as middlemen between banks and retailers. They have contracts with retailers to handle the processing of credit cards and other transactions.
Fintech Stocks: Use The Right Investing Tools
If you think the time is right to move into fintech stocks, learn more about using technical charts in assessing payment stocks to buy.
The big picture is that industry incumbents face a challenge as big technology companies expand their role in payments.
A wave of fintech startups also aims to push aside the traditional banks and credit card companies. As consumer spending shifts to online and mobile platforms, there’s less of a role for cash and checks.
A battle is raging among fintech companies to draw in merchants to payment ecosystems, along with billions of dollars in transaction fees. For some fintech companies, there’s pressure to build out two-sided platforms serving both merchants and consumers.
Look for fintech companies with intellectual property that creates barriers for rivals. Also, target fintech stocks that are growing their total addressable market by expanding products and services.
Other financial metrics to watch include total payment volume and gross merchandise volume.
Technology Giants Push Into Financial Technology
Then, there’s Facebook Pay. The payment system works across Facebook (FB), Messenger, Instagram and WhatsApp. Analysts say there could be upside for PayPal stock as Facebook pushes into payments.
Meanwhile, Amazon.com (AMZN) is getting traction with a digital payment system. Amazon Payments allows third-party merchants to improve checkout rates by letting shoppers pay with their Amazon account.
Payment Stocks: Mergers And Acquisitions
Before the coronavirus outbreak, a consolidation wave boosted some payment stocks and private companies.
PayPal in November, 2019, acquired consumer shopping app Honey Science for $4 billion.
However, federal regulators recently blocked Visa’s acquisition of startup Plaid for $5.3 billion.
Fiserv in July 2019 completed the purchase of First Data (FDC) for $22 billion in stock. Fiserv sells information and commerce-related services to banks, credit unions and investment managers.
Global Payments and Total System Services in May 2019 agreed to merge in a $21.5 billion all-stock deal. The merger created a stronger competitor in the merchant acquirer market.
In addition, Fidelity National in March 2019 agreed to buy Worldpay (WP) for $35 billion in cash and stock.
Blockchain May Figure In Fintech Future
The business-to-business payment industry is shifting from paper checks to automated software tools and digital platforms. Incumbents in the B2B payments market include Worldpay, First Data and Total System Services.
In banking, artificial intelligence is playing a role in detecting fraud. Cloud computing software is replacing paper-based systems in the business-to-business payment
In addition, Blockchain technology could have a long-term impact on fintech stocks.
The technology could play a role in securities clearing and settlement, digital identity and payments as soon as 2025, say the most bullish observers. Blockchain is the software technology behind Bitcoin and other cryptocurrencies. It’s a shared public ledger, which tracks transactions and ensures that the record of those transactions remains transparent and tamper-proof.
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Further, smart contracts are programmed into blockchains to automate tasks. One example would be processing insurance claims. Goldman Sachs (GS), JPMorgan Chase (JPM) and Bank of America (BAC) have been investing in blockchain technology.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.