It seems like no matter where you turn, it becomes harder and harder to find a safe place to invest your money, or even switch to cash altogether. But even that has its own issues: With crypto looking shadier, three brick-and-mortar banks failing and fintech stocks plunging dramatically—all recent occurrences—you could be forgiven for hesitating to invest in fintechs.
But you might also want to think again. True, financial technology companies lost more than half their market value in 2022. And some, like Block (SQ), which has seen its value plummet by 80 percent in two years, continue to falter.
But many analysts characterize this turmoil as a brief and necessary blip. In 2021, after all several fintechs that went the IPO route came out of the gate valued at over $5 billion, which feels a bit overheated, and some kind of correction was bound to follow.
Great fintech expectations
In any event, this sector is looking ready to mount a strong relaunch. Consider PayPal (PYPL), a stalwart and pioneer in the digital transactions arena. While its stock fell by 62 percent in 2022, some observers say earnings per share (EPS) in 2023 could hit $3.49, nearly 70 percent higher than the prior year.
What’s more, the digital payments market—PayPal’s bread and butter business—is expected to reach over $505 billion by 2032, with a compound annual growth rate (CAGR) of nearly 20 percent. And all told, the annual revenue of fintechs could amount to $1.5 trillion in just seven years—or a whopping one-quarter of all global banking valuations.
Branching out big time
Fueling the optimism in the field is what made these bank-like companies so successful in the first place: Innovations that are coming online. Many of these nimble firms got their start by specializing: Some made peer-to-peer (P2P) lending seamless, others focused on foreign exchange currency trading and so on, often partnering with traditional banks to extend their services to the advantage of both.
Today, however, fintechs are maturing, broadening their services to include features such as zero-interest point-of-sale loans or brand rewards, becoming one-stop efficiency shops that delight consumers. To make that happen, the best companies are incorporating new tools and approaches, like biometric authentication, blockchain ledgers and artificial intelligence—even nascent quantum computing.
The cogs that make fintechs work
Some will fail and some will succeed. But all will need experienced providers of a strong digital infrastructure to support their efforts and to mitigate risks, such as privacy breaches or fraud. So it’s likely that the consultancies offering that kind support will do well regardless of who ultimately wins and loses.
And there are some big players helping Fintechs find their way. For example, SAP (SAP) has a software platform called Fioneer that handles account, card and cloud management. It also provides teams of consultants with the expertise to implement these innovations. That may help explain why its stock has been on a pretty steady upward climb all year.
Another major name offering expertise and similar services is Genpact (G), which has its own suite of products to manage risk, onboard customers, make payments secure and so on. Over a five-year period, Genpact has increased its dividends by nearly 14 percent, making it a dividend challenger. That’s the name for any company that increase dividends for at least five years.
Meanwhile, BearingPoint, a management and technology offshoot of KPMG based in Europe, recently bought Levo Consultants in a bid to bolster its bench strength in insurance, banking and asset management. With its eye on a developing market that way, it may be no coincidence that the company’s revenues increased by 24 percent in its last reporting year.
Another contender is Jack Henry and Associates (JKHY) which provides a software banking ecosystem of tools to some 8,000 clients. Last week it announced a dividend payout of $0.52 per share—a good indication of a healthy financial position.
Getting with the program
At the end of the day, fintechs are making traditional banks sit up and take notice. These upstarts have read the tea leaves and can see the future. Consumers and businesses alike are demanding a world where financial services smoothly integrate into all their devices and every aspect of their lives.
They want their phones to automatically pay for parking when they drive into a lot. They want to get financing on the spot when they make a large purchase. They want to breeze out of supermarkets because they’ve paid for their goods electronically without waiting in line.
The message here? Companies that are making the new world of financing a reality have a lot to offer shareholders.
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