The pandemic created a shift from storefront to e-commerce, which is a trend that bodes well for fintech stocks.
With global saving rates topping $5.4 trillion, we are likely to see an increase in consumer spending as we approach the new normal. With the digital payments expected to be the norm in the future, all arrows point towards greater upside in the coming months.
There has been a broader shift from the use of credit cards to debit cards. Debit transactions have been on the rise this past year as people received their stimulus checks in their checking accounts. Many have parked this money in digital wallets which have served as a major source of income for fintech companies. The rise of “buy now pay later” platforms that allow customers to pay in installments has added to its allure.
Secondly, the coronavirus pandemic has ushered in a touchless society leading many people to use digital payment apps for their purchases. For many fintech companies, what started out as offering a more efficient way to pay for things has now transformed into a traditional financial services stack. With brokerage and lending options, these platforms stand to upend traditional banking.
Here’s a look at three fintech stocks to buy with plenty of growth opportunities ahead.
Fintech Stocks: Square (SQ)
Square’s most attractive feature is its incredibly diverse offering. The company’s core platform caters to merchants with a POS system and cloud-based services like payroll and management.
On the flip side, Square’s subsidiary Cash App is created for consumers. In addition to peer-to-peer payments, the app also allows users to trade stocks and hold bitcoin. Cash App is widely considered to be one of the fastest-growing digital platforms in the U.S. as its users more than tripled in the last three years.
In 2020, the fintech giant’s net revenue soared 101% to $9.5 billion as more people made the shift to digital payments. A decline in activity on Square’s core app as a result of business closures was offset by Cash App’s consumer usage.
As businesses continue to reopen, Square is poised to recoup its pandemic losses quicker than most. Its broad ecosystem of financial services gives the company a major upside opportunity to disrupt the digital payment space.
One of Square’s biggest competitors is PayPal. Like its fintech peer, PayPal experienced a massive surge in user activity during the pandemic. But despite a stellar 2020 and 2021, the fintech giant shows signs of even greater growth ahead. Shares of the company are up 112% in the last year with revenue also rising 23%.
PayPal added 73 million new accounts during the pandemic and introduced a number of new features to increase the versatility of its platform. Among these was its big push into cryptocurrency. PayPal users can now buy, hold and trade Bitcoin (CCC:BTC-USD) on the platform.
Looking ahead, the company’s pandemic tailwinds are here to stay. PayPal expects to add 50 million new accounts in 2021 and increase its total user base to 750 million by 2025. Total free-cash-flow (FCF) for the year is expected to top $40 billion in the next five years. Moreover, as physical stores re-open, PayPal is looking to streamline its in-store payment solutions. The goal is to further the reach of Venmo and blur the lines between offline and online payments.
PYPL stock isn’t exactly cheap, trading at 59 times forward earnings but with numerous opportunities for growth, it’s definitely worth adding to your portfolio.
Fintech Stocks: Paysafe (PSFE)
London-based payment platform Paysafe recently made its U.S. market debut via a SPAC merger. The company owns a number of subsidiaries under its brand name including Paysafe Card, Skrill and Income Access. These platforms enable digital transactions and offer prepaid and digital wallet services.
But Paysafe’s most successful endeavor is its iGaming e-cash network which facilitates online gaming payments. With a presence in over 50 markets, the platform can help Paysafe make its mark in the lucrative sports betting industry in the U.S.
In terms of growth opportunities, there no doubt that Paysafe will face stiff competition from PayPal and Square in the U.S. But the company’s large global footprint which includes 3,400 employees across 12 locations will serve as a major tailwind.
Moreover, as iGaming picks up across the nation, Paysafe’s online gaming payments platform will see a lot of activity. The company saw $92 billion in payment volume last year and counts DraftKings (NASDAQ:DKNG) as a customer.
As sports betting is legalized in more states, the U.S. gaming market will be a tremendous opportunity for the company.
On the date of publication, Divya Premkumar held a long position in SQ stock and PYPL stock. She did not hold (either directly or indirectly) any positions in the other securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020.