The year 2020 was not the greatest for many industries due to COVID-19. But interestingly, the likes of fintech reported rapid growth during the pandemic. And this is why we’d love to dive into the industry and spread some knowledge so that you can do you own research based on our tips and dip your toes into a very promising industry. Here is a quick and easy to read article on types of Fintech and companies to watch.
So lets start with the basics and then move into the juicy part featuring which stocks (and crypto actually too), we are invested in and have our eye on.
What is Fintech?
Fintech is a term used to describe “financial technology”, an industry encompassing any kind of financial services technology. In both the B2B world and B2C world… also peer to peer.
Fintech describes any company that provides financial services through software or other technology and includes anything from mobile payment apps to cryptocurrency to new innovative insurance models.
Types of Fintech stocks
Fintech is a broad term that refers to any company that applies technology to the world of finance. Many types of companies are under the fintech umbrella. And it seems like everyday there is a new innovative model surfacing. Especially in the blockchain world.
But it makes sense, right? Time for a very old and archaic world to get a facelift through innovation. After all, if Elon Musk is trying to make humans a multi-planetary species… it makes sense that insurance and lending get a facelift too.
Here are some of the products and services that Fintech offers:
1 – Crowdfunding platforms
2 – Blockchain and crypto
3 – Mobile payments
4 – Insurance
5 – Stock trading apps
First lets chat about the big players in the Fintech space:
In our eyes, these are all a buy for steady gains over a long period of time. Capital preservation is very key to a well balanced porfolio.
1. Square
Over the past several years, Square’s (NYSE: SQ) product has evolved from a way for merchants to accept credit cards using their mobile phones into a large-scale small-business and individual financial ecosystem. The company now processes over $100 billion in credit card payments and it has a thriving small-business lending platform (Square Capital).
Two big parts of Square’s business are especially exciting. First is its Cash App, with an active user base that has doubled year over year and virtually unlimited potential to build out its consumer financial service offerings. Second is Square Online Store, the new but rapidly growing platform that helps Square’s merchants build out an omnichannel presence. It also facilitates curbside pickup, which could be a major growth catalyst in the post-COVID world.
2. PayPal
PayPal Holdings (NASDAQ: PYPL) is the undisputed leader in online payments, but it is so much more than that. For one thing, its Venmo peer-to-peer payment platform has emerged as an industry leader and continues to grow its massive user base at a breathtaking pace.
PayPal has also been acquiring complementary businesses, such as eCommerce tool Honey, and has been building up partnerships that could greatly expand its addressable market. It is gaining large traction as an eCommerce payment option. Which is incredible convenient because they work with all credit card companies and you can link your banking to it. Have you ever had an experience where you try and buy something online but the merchant doesn’t accept your American Express? No more of this!
PayPal has over 361 million active accounts and growing exponentially year over year.
3. MercadoLibre
MercadoLibre (NASDAQ: MELI) is often referred to as the Amazon.com (NASDAQ: AMZN) of Latin America, and the nickname certainly makes sense as the company has a massive eCommerce business that continues to grow at an impressive pace.
However, it’s the Mercado Pago payments platform that is most exciting from a fintech perspective. The business processes billions of dollars in payment volume every quarter, and it’s growing rapidly.
Most encouraging is that Mercado Pago is growing faster when it comes to processing payments outside MercadoLibre’s eCommerce platform. The author of this post currently resides in Mexico City, and speaking from first hand experience about 50% of businesses currently use the Mercado Pay terminal for payment processing. A partnership with PayPal and lots of runway in the Latin American payments space mean Mercado Pago’s growth could be just getting started.
eCommerce’s growth rate in Latin America is huge. I mean, you’re talking about 700 million people and growing. In comparison, the USA’s population is 300 million.
And now let’s chat about one of our favourite Fintech sectors, Fintech Insurance:
Insurance stocks can make a great addition to any investor’s stock folio. Not only does the insurance business have the potential to produce excellent long-term returns, but it’s also a business that works in strong economies as well as during recessions, and anytime in between.
Now bring on Fintech Insurance… a new age of insurance.
It’s such a neat topic because of the future potential. The insurance industry is incredible outdated and doesn’t really cater to the consumer at all. When was the last time you had a positive experience with your insurance company?
Why is Fintech Insurance so needed (our favourite types of Fintech)?
1 – Current cost levels are much too high
2 – Customer engagement leaves much to be desired
3 – Internet of things just entered the radar screen
4 – Speed of innovation has been limited so far
But the area of insurance that we are most interested in is car insurance. And our winning pick here is Metromile Inc (NASDAQ: MILE).
Metromile is the pay-per-mile auto insurer. Metromile is credited for being the market leader in disrupting some of the inefficiencies of the auto insurance business model, notably how consumers are charged.
Instead of a standard monthly, quarterly, or yearly flat fee, Metromile charges customers based on their mileage, which it is able to measure via a device plugged into the vehicle.
Some two-thirds of U.S. drivers are considered low-mileage, according to Metromile. By charging per mile, Metromile says its customers save 47% on average compared to their previous insurer.
So, instead of say paying $1000/month in car insurance you would now only be paying $470/month. The savings are huge and thus, the business is extremely attractive to all drivers. And today, the Metromile stock is trading at $8 which which is a 60% discount from the all time high. We’re buying the blood friends, buy the blood.
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