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Wall Street can’t get enough of fintech, and neither can we. Let’s jump right in. This article will examine the best fintech stocks to buy in 2022 and beyond.
Best Fintech Stocks: Background
Financial technology or “fintech” are new products or services that can change the way the financial sector works.
The companies leading this innovation are focused on improving:
- Blockchain Technology
- Customer Facing Platforms
- Funding Platforms
- New Intermediaries
- Loan Origination
Companies like Block and PayPal are accelerating the adoption of digital wallets (smartphone-enabled financial instruments) across the globe.
Many believe that the digitization of money is inevitable and that regulators will turn to the banks (who will turn to Silicon Valley) to launch a digital dollar.
According to ARK’s research, digital wallets are valued between $250 and $1,900 per user today but could scale to $20,000 per user, representing a $4.6 trillion opportunity in the U.S. by 2025.
While many of these stocks are running hot, we are still in the early innings of digital wallets and payment innovation. Let’s review some of the best fintech stocks.
At a Glance: Best Fintech Stocks
- Block (SQ)
- PayPal (PYPL)
- MercadoLibre (MELI)
- Visa (V)
- MasterCard (MA)
Best Fintech Stocks
#1. Block (SQ)
Block (formely Square) is an American financial service, merchant aggregator, and mobile payment company founded in 2009 by Jack Dorsey, Jim McKelvey, and the late Tristian O’Tierney.
The company is famous for changing the way that small businesses operate and their popular Cash App that has more than 55 million users in the U.S. alone.
Block is Wall Street’s favorite fintech because it is positioned on both sides of the transaction.
Millions of merchants use its Point-of-Sale (POS) hardware and software, and tens of millions of consumers use its Cash App.
ARK analyst Maximilian Friedrich suggests that Block could be aiming for the “holy grail of payments,” by creating a closed-loop payment system that cuts out intermediaries, giving it a larger share of the economics and the ability to cross-sell services between and among consumers and merchants without the friction associated with more traditional payments ecosystems.
Unlike a bank that may only see end-of-month or end-of-quarter income statements from a merchant, Block sees every transaction that occurs in real-time.
Block can see when the business is good or bad, its cadence of sales, and its growth prospects.
This kind of business intelligence allows Block to offer working capital loans to growing businesses that qualify, further embedding Block into the fabric of the company. Block can then offer the merchant’s payroll services to accommodate the new employees they hire.
ARK’s founder Cathie Wood believes that Block has the potential to destroy banks and turn them into a commoditized utility.
Wood adds that Block’s adoption started in the Southern, more “unbanked” areas of the U.S., and has quickly spread across the country.
This brings us to the trip that Block’s founder, Jack Dorsey, who also founded Twitter (TWTR), took to Africa in 2020 to meet with local entrepreneurs.
Jack realized that all of their problems had to do with payments. In an interview with Lex Fridman, he said, “We are lucky in the U.S. to not even have to think about payments.”
Jack believes that money is a foundational layer that solves so much more and that digital assets can increase the speed of innovation for the world. Enter, Cash App.
Cash App was born out of a Block hackathon and is now one of its most important assets.
The Cash App allows users to request and transfer money to another Cash account via the app or email.
It is the second-largest peer-to-peer payment application and digital wallet in the U.S.
Additionally, users can choose to withdraw the money to Block’s “Cash Card,” a Visa debit card, or transfer it to any local bank account. The Cash Card is sleek and customizable with the user’s own signature presented on the front of the card.
Starting in November 2017, users could begin buying and selling bitcoin on the Cash App. Jack has been an advocate for Bitcoin, and Bitcoin only, when it comes to cryptocurrencies.
“Bitcoin has the potential to solve [regulation stalling innovation] because it potentially allows [Block] to launch a product in every single market around the world.
They’re all using the same cryptocurrency, so there’s a constant understanding of regulation around that type of asset,” he stated in his interview with Lex Fridman.
On October 8, 2020, Block announced that it purchased approximately 4,709 bitcoin at an aggregate purchase price of $50 million.
In the company’s press release, it added, “[Block] believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose.”
This investment represented approximately one percent of Block’s total assets at the time and added them to the shortlist of public companies who put bitcoin on their balance sheet.
#2. PayPal (PYPL)
PayPal Holdings, Inc. is a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants.
It was founded in 1998 by a group of people who have achieved great things in the technology and business world.
This group of founders is often referred to as the “PayPal Mafia.” It includes the likes of Peter Thiel, Elon Musk, Reid Hoffman, Steve Cohen, Keith Rabois, David Sacks, and many others.
PayPal’s version of the Cash App is “Venmo,” which is the largest peer-to-peer payment application and digital wallet in the U.S.
It has reached “verb status,” which puts it alongside other Silicon Valley companies like Google (GOOG), Airbnb (ABNB), and Zoom (ZM).
Venmo launched in 2009, giving it a first-mover advantage over Block’s Cash App.
While Cash App has been eating away at some of Venmo’s market share, the app’s engagement metrics and YoY growth indicate Venmo is still thriving.
However, PayPal is more than just Venmo. It made significant upgrades to the PayPal app over the previous year.
PayPal’s CEO, Dan Schulman, recently said, “A digital-first world is no longer our future. It’s our current reality & it will forever change the way we interact across almost all elements of our lives … The pandemic has accelerated a digital wave of change across almost every industry by 3-5 years.”
Schulman added that today’s digital reality is rapidly accelerating the need for a digital wallet that encompasses payments, financial services, and shopping.
The company will continue to expand the functionality of PayPal and Venmo wallets to facilitate and benefit from this transformation.
As you can see, Schulman’s plan for PayPal extends well beyond just payments.
The company is active in the startup space as well, investing in new fintech innovation through its PayPal Ventures division.
PayPal Ventures made Q4-20 strategic investments in the following:
- Extend: Extended Warranty Startup
- Divvy: Corporate Card and Expense Management Software
- TAXbit: Cryptocurrency Tax Software
- Modulr: Payment-as-a-Service Platform
- Tink: European Open Banking Platform
- Paxos: Blockchain Infrastructure Platform and Buy, Hold, Sell Crypto Partner
#3. MercadoLibreInc (MELI)
MercadoLibre is an Argentine company incorporated in the U.S. that operates online marketplaces dedicated to e-commerce and online auctions.
It was founded in 1999 by Stanford Student Marcos Galperin and has grown into a $70 billion company with more than 320 million users.
MercadoLibre’s main focus is to deliver technological and commercial solutions to the distinctive cultural and geographic challenges of operating an online commerce and payments platform in Latin America.
The company’s main market is Brazil (which generated 68.7% of net revenues for 2019) but has operations in 18 countries.
MercadoLibre is contributing to and benefitting from Latin America’s growing e-commerce community, a region with more than 635 million people and one of the fastest-growing internet penetration rates globally.
Like the other fintech companies, MercadoLibre experienced immense growth over the last two years.
In 2019, PayPal made a strategic investment in MercadoLibre with an equity stake worth $750 million.
#4. Visa (V)
Visa is a mix of legacy financial services and exciting financial technology that we’re seeing from Square and PayPal. While Visa is more of the former, they’re making strategic acquisitions and partnerships with companies that are innovating for the future.
Visa is pretty much at every electronic transaction made around the globe. So much so, that some go as far as calling Visa a monopoly.
Visa was planning on acquiring fintech startup Plaid for $5.3 billion (which was more than double Plaid’s valuation), until the US Justice Department filed a civil antitrust lawsuit to stop the merger on November 5, 2020.
The department alleged that Visa’s intentions were to eliminate a competitive threat to enhance and maintain its monopoly.
Visa is aware that their plastic cards may become obsolete in the future, so they’re teaming up with the competition, and have been for some time.
Visa made an investment in Square back in 2011, four years before the disruptor went public. Years later, Square partnered with Visa to launch their Cash Card, a debit card that connects to the Cash App balance and offers Boosts to help users save money.
Amazon (AMZN) partnered with Visa to launch its Amazon Prime Rewards Visa Signature Card.
While the card can be used anywhere, users get 5% cashback when they use it for Amazon purchases. Amazon has become the U.S.’s largest marketplace, and it’s giving its customers another reason to choose Visa.
Visa is also integrated with PayPal. In an interview with the New York Times, Visa CEO Al Kelly said, “We work closely with PayPal, and we compete with PayPal. It’s an industry that is full of frenemies.” This suggests that Visa is open to doing business with any company that adds value.
Visa recently launched “Visa Partner” to help fintech startups “unleash their potential.”
According to Visa, “we’re all in this together” when creating the digital payment solutions of tomorrow. So far, Visa Partner has worked with Chime, Airwallex, Finaxar, Nium, and many others.
Visa is even championingcrypto.
After partnering with 35 various bitcoin and crypto platforms in recent years, the company announced its plans to help banks launch crypto trading services with a Visa crypto software program that will launch later in 2021.
Additionally, Visa partnered with crypto company BlockFi to launch the first bitcoin rewards credit card.
As you can see, Visa is embracing the wave of financial technology and will remain the king of payments for years to come.
Its values relationships with the young companies sparking change and puts its cash war chest to work.
#5. Mastercard (MA)
Mastercard is in the same boat as Visa when it comes to fintech. The company is taking financial disruption in stride and adopting an “if you can’t beat them, join them” strategy.
A Mastercard-sponsored study surveyed 300 senior executives at financial services companies to gauge their views on the opportunities and threats presented by up-and-coming fintech competitors.
The results may be surprising – nearly 80% do not feel an immediate threat from fintech but are learning from their efforts.
Mastercard is certainly learning, and it’s applying today’s cutting-edge technology to its payments.
For example, it recently revealed that it is applying the latest quantum-resistant technologies to develop the next generation of contactless payments.
The new Enhanced Contactless (Ecos) specifications will help ensure that contactless payments can remain convenient and secure even with the advancements made in quantum computing (for malicious use).
Remember, contactless payments won’t require a plastic credit card, yet Mastercard is facilitating this transformation. This suggests that Mastercard is accepting the changes that are coming to the financial payments sector.
Mastercard partnered with Apple (AAPL) and Goldman Sachs to launch the Apple Card in August 2019. Mastercard will provide the infrastructure to support Apple’s growth into the payment’s ecosystem.
Many believe that Apple Pay can reinvent the company and capture much of the digital wallet market share, given its 1.5 billion install base.
Goldman Sachs continues to choose Mastercard’s network time and time again when it pursues consumer banking opportunities.
Goldman recently bought General Motors’s credit card business and chose Mastercard’s network to support the endeavor.
#6. Coinbase (COIN)
Coinbase is the largest cryptocurrency exchange in the U.S., recently disclosing that it has more than 73 million users and $90 billion in platform assets.
Coinbase makes money by charging users fees and commissions when they buy and cryptocurrency.
While Coinbase offers some of the lowest fees amongst crypto exchanges, it still pockets 0.50% for purchases and sales, plus a commission that depends on the location and the total amount of the user’s transaction.
There’s no shortage of exchanges in crypto, but we expect newcomers to continue to download Coinbase as their first exchange.
#7. Robinhood (HOOD)
Robinhood set the industry on a new path when it first offered no-fee trading in 2014.
Like Coinbase is to crypto, Robinhood is the default choice for the new class of retail investors.
It has a great user interface, no-fees, and it’s the platform that their friends use.
Robinhood went public at an interesting time. It was during the Game Stop fiasco, when everyone was locked in their homes, and in the midst of a raging bull market.
Concerns over the loyalty of its customer base are valid. The platform does not currently offer tax-advantaged accounts, like a Roth IRA, for example.
Will people invest their wealth at places like Vanguard or Fidelity, and just use Robinhood as a casino?
Fintech IPOs to Watch in 2022
Stripe is a financial service and software as a service (SaaS) that primarily offers payment processing software and application programming interfaces for e-commerce websites and mobile applications.
A recent Bloomberg report valued Stripe at $100 billion, but early auction trading at its IPO could rocket the valuation much higher.
Stripe pretty much powers every company you know, and will likely be the largest IPO ever.
Let’s look at Stripe’s biggest clients:
Stripe has been called the internet’s “toll collector” – the company charges a swipe fee of 2.9%, plus 30 cents for every transaction it processes. CNBC ranked Stripe #1 on their 2020 Disruptor 50 list.
Plans for an IPO are yet to be announced.
Earlier, we mentioned that the US Justice Department blocked Visa’s acquisition of Plaid – but what is Plaid? Plaid helps companies build fintech solutions by making it easy, safe, and reliable for people to connect their financial data to apps and services.
Plaid connects to 11,000 financial institutions across the US, Canada, and Europe to power thousands of the apps that people rely on to manage their financial lives, such as Venmo, Betterment, Chime, and Square Cash.
Plaid puts users in control of their data by allowing them to choose whom their data is shared with, for what purpose, and how long. So how does Plaid make money?
When users connect their financial data to an app or service, they pay Plaid. It’s that simple, which is why Plaid is free for everyone who uses a Plaid-powered app.
Plaid raised $425 million in its last round of funding, likely putting an IPO on the backburner for some time.
Alternatives to the Best Fintech Stocks
You better believe the FAAMG stocks are keeping an eye on the rise of fintech companies. From Apple Pay to Meta’s Novi, Big Tech will leverage the work being done by these new innovative companies and continue to grow with them.
We believe that Apple specifically has a unique opportunity to benefit from the rise of digital wallets. Apple already has more than 1.5 billion potential digital wallets in the pockets of its users.
Additionally, Apple prioritizes privacy and security more than the other tech titans. Its users recognize this and may contribute to them trusting Apple with their finances.
- ARKF Fintech Innovation ETF (ARKF)
- Global X FinTech ETF (FINX)
- ETFMG Prime Mobile Payments (IPAY)
- Tortoise Digital Payments Infrastructure Fund (TPAY)
Many crypto enthusiasts believe that blockchain has the potential to disrupt, well… pretty much everything. But one of blockchain’s main, and probably first, mainstream applications will impact the financial sector.
Since competition in the blockchain space is fierce, we recommend buying a blockchain ETF to diversify into the sector.
Best Fintech Stocks: FAQs
What is the number 1 FinTech company?
Many consider Block to be the most innovative fintech company on the market. It offers several products from point-of-sale software and hardware to the ability to buy and sell bitcoin on their famous Cash App.
What is the best financial stock to buy right now?
PayPal is one of the best financial stocks to buy right now because of their strong, yet growing user base, and their exciting streak of innovation in the last year.
In addition to Block, PayPal will be one of the biggest financial winners from the rise of digital wallet adoption.
Is Robinhood a Fintech?
Yes, Robinhood is a fintech because it is disrupting the way that retail investors trade stocks. The company was the first to offer commission-free trading, which forced the rest of the exchanges to follow suit.
Is PayPal a FinTech?
Yes, PayPal is a fintech and one of the leading companies in the space. It offers a suite of financial products, including Venmo, PayPal Credit, Buy Now Pay Later, and the ability to buy, hold, and sell crypto.
Bottom Line: Best Fintech Stocks
Financial disruption is happening, and the companies in this article are leading the charge. While many of these stocks are pricey, their thirst for innovation is unmatched.
Fintech appears to be one of the hottest trends of the next decade.
This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched the best stock fintech stocks.
This article was updated on May 5th, 2022 to reflect the changes in performance and characteristics of each stock.