The global fintech industry is a booming one with incredible potential investment opportunities. As smartphone and other mobile device use skyrockets, more and more consumers are demanding technology-driven options for the management of their finances. As a result, some experts expect that the fintech industry could grow to be worth more than $300 billion over the next few years.
While the industry holds tremendous potential value, tapping into that value is going to take making the right investments in the space. Here are the fintech plays that I’m watching most closely.
Square (SQ, Financial): embracing the underserved banking customer
Square is a company that made its name on serving the underserved. The company’s claim to fame is a small white square credit card reader that attaches to the headphone jack on smartphones.
With this reader, small businesses that were shunned by banks when asking for a merchant account could switch to accepting plastic, rather than being stuck dealing in cash. The idea quickly took off, propelling the company’s market cap into the tens of billions. Now, many are asking what the company will do next.
In a move to serve the underserved yet again, Square recently announced that it will allow its Cash App users to deposit bitcoin. This is a big play that comes with perfect timing.
At the end of the day, the big banks of the world have been reluctant to deal in cryptocurrency. This has led the average consumer to having to work with a name that they don’t know when they want to get into the industry. That’s no longer the case.
With bitcoin seeing incredible growth as of late, more and more consumers are looking to get their hands on the cryptocurrency. Now, they can do so with a trusted brand, Square. It is expected that this will greatly improve user growth on the cash app while allowing Square to collect fees when users deposit and use bitcoin and potentially gain from exchange rates when users buy and sell them.
The company has also announced a beta program in the cannabis sector, yet another industry that has largely been shunned by big banks. In fact, in May, Square announced that it would had begun a beta program that supports payment processing for CBD products.
All in all, as Square continues to focus its efforts on the underserved members of the financial community, the company has the potential to see incredible growth and host blockbuster products and services. This is a stock that is worth keeping an eye on.
Mogo Inc. (TSX:MOGO)(MOGO, Financial): A Canadian fintech play with plenty of value
Mogo is a Canadian fintech stock with an incredible value proposition and is part of the wave of digital banking challenger models that is attracting some of the largest and smartest investors in the world. For example, Monzo recently announced financing at a $2.5 billion valuation.
Interestingly, Canada is one of the most profitable consumer banking markets in the world, dominated by only a handful of banks. But it has lagged other developed nations when it comes to fintech adoption. Yet as more and more millenials develop a thirst for technology-driven solutions to their financial needs, demand for options is rapidly growing, and Mogo is in the leading position to capitalize on this demand.
The company’s intuitive mobile app helps consumers control their spending with the Mogo Visa debit card and digital spending account, invest their money, monitor and protect their credit and ID from fraud and get access to smart credit solutions through their digital options. The platform even gives its users secure access to the cryptocurrency market, which is gaining quite a bit of attention as of late due to a rise in bitcoin that’s expected to continue.
As one of the earlier players in the Canadian fintech space, Mogo has already locked in a leadership position. In fact, the company boasts more than 800,000 members. Moreover, analysts expect that Mogo will reach more than a million and a half members throughout the next few years.
It’s also worth mentioning that Mogo is one of the largest players on the field with very little by way of competition. Considering that there are thousands of fintech companies in the U.S., but less than 100 in Canada, gives a good picture of just how big of an opportunity this is for Mogo. Moreover, there are less than half a dozen fintech players that operate at a scale anywhere close to what Mogo operates at.
Finally, Mogo recently announced that it has completed a merger with Difference Capital, which significantly strengthens its balance sheet with the addition of over $20 million of cash and investments that it plans to use to continue to drive growth (the company grew its core revenue 57% in the first quarter of 2019).
With the company’s leadership position already notched out of the Canadian fintech space, expectations of incredible growth ahead, and a strong financial position following the completion of the Difference Capital merger, Mogo stock represents a strong potential opportunity in the making.
Afterpay (ASX:APT): Recent weakness may be an opportunity
Afterpay is a new type of digital payment platform that offers unique capabilities over other options. Unlike other digital payment platforms, the company does far more than allow consumers to make online payments to purchase goods and services.
In fact, like its name suggests, its product allows consumers to delay the payment of its products. Essentially, consumers with an Afterpay account have the ability to purchase goods now and make monthly payments later, without the worry of interest and account fees. Instead, the company makes a large portion of its income by leveraging late fees.
Recently, the stock has traded on weakness after the company revealed to the Australian Stock Exchange that it gained the attention of AUSTRAC, Australia’s financial intelligence agency. Stories have surfaced that the company is not in AML/CTF compliance (Australia’s move to fight money laundering).
Of course, this led to concern among investors. After all, if the company is not compliant with these anti-money laundering rules, it could face penalties. Nonetheless, the company is openly and willingly working with AUSTRAC and has launched an independent investigation to see if compliance is truly an issue and how to fix it.
While this has led to declines, the declines could become an opportunity. After all, the company has seen incredible growth in users, which is likely to be compounded by recent partnership news.
In fact, Afterpay recently announced that it has partnered with big brands like Levi’s, Ray-Ban, O’Neill and Tarte Cosmetics. This will give it the ability to offer these branded customers to its more than 1.5 million U.S. customers and validates the expansion work the company is doing to become a global fintech leader.
While recent news is creating a discount, the AUSTRAC news may have no impact on the long-run potential of the company. Nonetheless, with strong global growth and the company’s continued work to partner with new brands that is quickly paying off, this stock is one of the top picks in FinTech today.
LexinFintech (LX, Financial): a strong growth history suggests more of the same ahead
LexinFintech is a financial platform that addresses the needs of young, educated adults in China. In fact, the company’s platform is specifically tailored to the needs of young adults between 18 and 36 years of age.
The company’s decision to target this population was a smart one. Its target audience is one with high income potential, high educational background, high consumption needs and a strong desire to build their credit profiles. By tailoring credit services to this particular audience, the company is opening the door to opportunity for itself and its investors.
The company’s claim to fame is its platform known as Fenqile. Using the platform, consumers can get access to personal installment loans, installment purchase loans and other loan products.
Moreover, the company is harnessing the power of community to keep costs down and profitability up. Jumping on the peer-to-peer lending bandwagon, the company opened a product known as Juzi Licai. Juzi Licai is an online investing platform that allows investors to fund the loans of peers, much like Prosper or Lending Club.
However, peer-to-peer lending isn’t the only way that the company funds its loans to its users. In fact, the company also takes advantage of sources like institutional funding, direct lending programs and asset-backed securities for its loan funding needs.
While the company is relatively young, being formed in 2013, it has hit the market with a splash and seen incredible growth. In fact, it was the source of loans to more than 7.2 million users by the end of 2018. About 3 million loans were originated in the last three years. Moreover, the company has held onto its users, with around 80% of its business coming from repeat borrowers.
All in all, with strong growth since inception that has shown no signs of slowing, this is a stock that’s well worth keeping an eye on.
BlackLine (BL, Financial): new-age accounting technology with tremendous value
BlackLine is an accounting software company, focused on the software as a service (SaaS) business model. The company’s core focus is on making accounting an easier process for enterprise-level customers.
The BlackLine platform gives enterprise companies the ability to perform continuous accounting. In general, the accounting process for these companies is cumbersome. It involves a large amount of work to close and reconcile books around the end of a per-determined period, like a month or a quarter. However, BlackLine’s platform gives companies the ability to reconcile in real time as sales data becomes available.
Essentially, the average way that large companies handle accounting is the same way consumers used to handle balancing their checkbooks: ;ooking at monthly or quarterly statements and looking at the checkbook to make sure that everything lines up. With BlackLine, companies don’t need to operate using these archaic accounting practices.
Nonetheless, BlackLine isn’t a one-trick pony. In recent years, the company has been working to expand its line of products to include other accounting tools. The company has recently rolled out tools that simplify several labor-intensive accounting tasks, including financial closes, bank statement reconciliations and credit card matching.
There is one statistic that, in itself, shows the power of the BlackLine platform. In 2018, the company had a customer renewal rate of 98%. Once a customer signs up, there’s a strong chance that they will remain a customer for years ahead.
As BlackLine continues to innovate, it will likely continue to see strong growth in sales. Considering that the vast majority of customers stick around for the long haul, this means that investors can look forward to compounding revenue and increasing profit potential. All in all, this is a stock that’s hard to ignore.
The bottom line
The bottom line here is that the fintech sector is a massive one, and it is growing at an incredible rate. The key is making the right investment decisions to tap into this growth. I believe that the stocks listed above represent the largest potential opportunities in the space.
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