Financial technology (FinTech) looks set to have a huge disruptive impact on the financial industry in the years ahead. Digital wallets, blockchain, open banking… we’re likely to see an enormous amount of innovation.
For investors, there appears to be a real opportunity here. With that in mind, here’s a look at four top FinTech stocks I’d buy for 2021 and beyond.
400m accounts worldwide
My top pick in the sector is PayPal. It offers a digital wallet for individuals as well as a commerce platform for merchants. Globally, it now has around 400m users.
Source: Sifted
PayPal is growing at an impressive rate right now. In the first quarter of 2021, total payment volume was up 50% while revenue increased 31%. On the back of these results, the company raised its full-year guidance.
PayPal has a high valuation. This adds risk to the investment case. It also faces competition from the likes of Square, which owns Cash App.
Overall however, I think the long-term risk/reward proposition here is very attractive.
The largest payments system globallyÂ
Another FinTech stock I like is Visa. It operates the largest payments system in the world. For every $1 spent in physical locations, about 15 cents goes through Visa’s network. Over the next decade, trillions of transactions are set to move from cash to cards and electronic payments. Visa looks well-placed to benefit.
Visa has also been acquiring smaller FinTech companies. Recently, it announced the acquisition of open banking platform Tink for €1.8bn. These acquisitions should help it prosper going forward. One risk to consider however, is competition from the likes of Mastercard.
Moving into cryptoÂ
Speaking of Mastercard, I see it as a top FinTech stock too. Like Visa, it operates a payment system that connects consumers, businesses, and financial institutions.
Mastercard has also been acquiring smaller FinTechs recently in an effort to future-proof itself. Last year, it announced the acquisition of Finicity, a provider of financial data and insights.
Recently, Mastercard has been moving into the crypto space. In February, it announced it will start supporting crypto on its network in the near future.
One thing to note about Mastercard is that it generates a large chunk of revenues from travel spending. If the travel industry experiences more Covid-19 setbacks, Mastercard’s profits could be impacted.
Changing the game for banksÂ
Finally, I think Upstart has a lot of potential. It’s an artificial intelligence-based platform that partners with banks to help them lend more efficiently. In the past, banks have made loans based on just a handful of data points on borrowers. With Upstart however, they can analyse over 1,000 data points, which translates to more loans and less defaults.
Upstart is growing rapidly. Last year, revenue jumped 42%. And unlike many other young FinTech companies, it’s profitable.
This stock is far more speculative (ie higher risk) than the other three FinTech stocks I mentioned. This is a company that’s still in its infancy and its share price can be highly volatile at times.
But I think it looks very interesting. The company’s growth suggests it has a great product.