Fintech is a continually evolving industry, making it exciting for businesses, consumers and investors. Discover the fintech stocks that are worth keeping an eye on in 2023.
What are fintech stocks?
Fintech stocks is a term used to describe any publicly-traded company involved in the technological side of financial services. There is a huge range of companies that this term can apply to, but these are the most common:
- Payment processing
- Online and mobile banking
- Peer-to-peer lending
- Buy-now-pay-later services
- Person-to-person payments
- Financial software
Fintech stocks experienced a boost during the coronavirus pandemic as the shift toward e-commerce saw a rise in online spending and buy-now-pay-later (BNPL) service use.
But following the recent stock market downturn and the cost-of-living crisis, many fintech stocks – which are typically classified as growth stocks – have seen their valuations take a tumble.
That doesn’t mean there’s not a lot of potential in the industry, with some exciting advancements coming as well as some long-anticipated initial public offerings (IPOs).
Still, traders need to do their research and understand that these companies may see volatility in their share prices in the short term.
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Blockchain and fintechs
We can’t forget the role that cryptocurrencies have played in advancing the fintech industry. The problems they seek to solve are very similar to those for fintech firms – namely to lower costs and facilitate secure transactions for users.
As we come to learn more and more about the blockchain, its uses in the financial services spaces are becoming more evident. It’s likely a lot of crypto platforms – especially Ethereum – could be used in areas such as clearing and settlement, digital identity and payments as soon as 2025.
Businesses are also exploring the possibility of using smart contracts to automate tasks in the blockchain – such as processing transactions and insurance claims. The likes of Goldman Sachs, JPMorgan Chase and Bank of America have already been investing in the technology.
Fintech stocks to watch
Traditionally, it took a large amount of capital and licencing to enter the financial services space, making it easier for a handful of large banks to dominate the industry. And we do still see these large players – such as PayPal, Visa and MasterCard – retaining the top spots.
But as technology has advanced, start-ups have been successfully offering services directly to consumers and disrupting the industry – such as Block, Sofi Technologies and MercadoLibre.
PayPal Holdings (PYPL) is one of the biggest success stories in fintech. It’s now the leading online payments platform (outside of China) – with over 400 million active users.
The company has continued to expand through investments and acquisitions. It owns the transfer service Xoom and P2P platform Venmo, and more recently bought a stake in Argentina-based company MercadoLibre and acquired the consumer shopping app Honey Science.
PayPal has also started accepting Bitcoin, making it one of the first major fintechs to do so. The company has a history of quickly adapting to new trends and monetising its users.
Visa (V) is one of the largest companies in the world by market capitalisation, so it’s understandably a popular fintech stock. The company is known throughout the world for facilitating payments via Visa-branded cards.
Most recently, the company has entered the crypto sphere by using Ethereum’s blockchain to allow users to convert cryptocurrencies into fiat currencies. Visa has entered into various partnerships to help speed this advancement up – such as Anchorage, a digital asset bank, which will give Visa users faster transactions.
The company had put in a bid to buy Plaid – a fintech start-up that recently listed – but this was blocked by regulators due to competition laws.
Mastercard, like Visa, is a huge payments brand which processes transactions between merchants’ and users’ banks.
However, it remains one of the biggest innovators in the fintech space and is even one of the top 10 holders of blockchain patents. In October 2022, Mastercard introduced Crypto Source, a program to allow secure crypto trading for financial institutions, and most recently, Mastercard partnered with the Ethereum scaling platform Polygon.
Block (SQ) – formally Square – has grown from a merchant payment service into a full financial ecosystem for individuals and small businesses. It not only processes card payments (totalling well over $200 billion) but has its own banking subsidiary and lending platform.
Square also acquired the buy-now-pay-later company Afterpay in a $13.9 billion deal in 2022. The move added to Block’s already successful Cash App by allowing users to see online retailers that use Block offerings.
Cash App has over 49 million active monthly users as of September 2022 – and with the increase in offerings, it’s expected to grow. The app now offers bitcoin trading and stock trading too.
Sofi Technologies (SOF) is a finance platform that offers products largely to a millennial audience. It started with a focus on student loans but has since expanded into a wider range of investment and trading services. SoFi was founded in 2011 and went public in 2021 via a SPAC deal.
The company also achieved its bank charter in February 2022, giving it a greater capacity to offer banking services to consumers. In the same month, the company announced it would be buying Technisys – a multi-product core banking platform – for $1.1 billion.
MercardoLibre (MELI), which translates to ‘free market’, is an Argentinian online commerce and payments system. It’s often called the ‘Amazon’ of Latin America, given its business is worth over $30 billion in annual merchandise sales volume, but the company also has a logistics platform and lending business.
But most interestingly from the fintech point of view is its payments platform Mercado Pago – which has been likened to PayPal, given its $120 billion in annual payment volume and fast-paced growth. In fact, in 2020, it earned 65% of its revenue from payments.
Tech giants moving to fintech space
As the shift toward online payments and mobile banking grows, even larger technology companies have started to enter the finance industry with offerings of their own.
Apple announced in June 2022 that it would be offering a buy-now-pay-later option for Apple customers, allowing them to split the cost of purchasing via Apple Pay into four equal instalments. This puts the tech firm in firm competition with the likes of Affirm and Block.
Amazon has started its ‘Buy with Prime’ option, which is being rolled out onto third-party websites. The service allows customers of smaller businesses to offer the full Prime experience to members. Previously, Buy with Prime was only for Amazon’s storefront, but now it can be used on Shopify sites and many more.
There are also several fintech firms expected to list their shares in the coming months and years. Here’s a rundown of some of the biggest and most anticipated listings.
Stripe is a payment processing platform that offers commercial services for businesses of a variety of different sizes.
It first filed to go public in July 2021 but has delayed its listing due to various events and market volatility. There’s still no set plan for Stripe’s IPO date, but it could happen in 2023.
Learn more about Stripe’s IPO
Chime is a fintech company that provides banking services, although it specifies it is not a bank. It was planning its IPO for March 2022, but that was put on hold amid market uncertainty.
The company was last valued at $25 billion during a private funding round, although it was aiming for up to $40 billion as a target IPO value as of November 2022.
Discover more about the Chime IPO
Revolut provides baking services – such as accounts, debit cards, and peer-to-peer payments – but technically doesn’t have a banking license in the UK or US.
The company was expected to list in 2022, but a spokesperson said it was waiting until ‘the time is right’. Revolut’s last known valuation was $33 billion and it has not publicly committed to an IPO plan.
Learn more about the Revolut IPO
Buy-now-pay-later firm Klarna has been heralded as the largest private fintech in Europe. But it is predicted to go public this year in what could be a $40 billion IPO.
Discover more about the Klarna IPO
Popular UK challenger bank Monzo was expected to go public last year, so it’s another to watch for 2023. When it does list, it’s expected the company would hit a valuation of $4.5 billion – which would be a big listing for the UK.
Learn more about the Monzo IPO
Another UK challenger bank, Starling Bank is expected to list in 2022 or early 2023. The listing would likely take place in London and could be one of the larger IPOs on the London Stock Exchange. Although it was last valued at £1.1 billion, so is still smaller than Monzo.
Find out more about the Starling IPO
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