Seeing what has happened to the Wise share price since announcing results on Nov 30th 2020 got me thinking about the merits of investing in fintech companies versus traditional banking stocks. By pretty much every measure, Wise is a company heading in the right direction: revenue is up, customers are up, and profits are up. Yet despite this, the Wise share price ended the week lower than it started.
Why hasn’t the Wise share price moved forward?
Wise is predominantly a money-transfer service at the moment, so it isn’t yet a fully-direct competitor for traditional banks, even if it is chipping away at traditional banking services. However, Wise does have its eye on the full banking market over the longer term, and for example launched a debit card in Canada this past week.
The markets get excited about fintech stocks such as Wise, but it is a company I am ambivalent about at the moment, especially with Revolut rumoured to be heading towards a listing in 2022. Revolut has a stellar product in my opinion that blows Wise out of the water, so let’s see how that potential listing progresses over the next six months or so.
Let’s not forget the banking sector
What Wise has shown me is that the traditional banking sector could well remain undervalued. The banking industry is a long way removed from the slow-moving beast it was before the 2008 financial crash.
We might infer positive sentiment from banking share price recoveries this year. Over the past 12 months, share prices for six of the eight banks in the FTSE 350 have climbed, suggesting the market considers banks stronger nowadays, too. The dual challenge brought by enforced regulation and the more recent threats posed by fintech firms seems to be spurring the banks on.
The Lloyds share price remains open to growth
I think there is still value in banking stocks as we head towards 2022, despite the sector’s double-digit growth this year. Lloyds Banking Group (LSE:LLOY) looks the pick of the bunch to me. The Lloyds share price has really benefited from job cuts announced in Q4 21, with management making it clear that streamlining operations is a key driver in moving the organisation towards the agility and innovation model associated with fintech.
Furthermore, as the Wise results have shown, share price growth requires more than only KPI growth. A company like Lloyds is big enough to say its vision is to ‘Help Britain Prosper’. It reminds you that Lloyds is a massive organisation, with huge resources, that is now getting its act together to fight the threat of new market entrants such as Wise and, maybe in 2022, Revolut.
There’s no certainty that Lloyds will grow its share price in 2021. There always remains the risk that size will still hold Lloyds back, despite all best intentions, with the ability to be agile and customer-centric not coming as easily as hoped. None of us know yet what the outcome of the Omicron variant of the Covid virus will be, either.
These issues aside, I’m bullish about Lloyds shares at the moment. They demand serious purchase consideration for my portfolio.