A Helpful Guide to Fintech Investing
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In the wake of the Covid-19 pandemic, the digital transformation already underway in our society has accelerated at an unprecedented pace. Our lives, work, and social interactions have all shifted into the digital realm, and as a result, digital financial solutions have emerged as indispensable tools for individuals and businesses alike. The landscape of fintech in 2024 reflects these profound changes. Gone are the days when cash payments were the norm; today, we find ourselves in a world where digital payments reign supreme.
Accenture's latest report, "Growth in digital payments: A cross-industry view," sheds light on this seismic shift, revealing the decline in cash usage and the rising prominence of tokenized payments. As we delve into the ever-evolving fintech landscape of 2024, we'll explore how these digital innovations reshape how we manage our finances, conduct transactions, and envision the future of money.
In this article
What is Fintech, anyway?
Given today’s digital economy, financial technology – also known as fintech – has become one of the world’s most important industries. While Ernst & Young’s Global Fintech Adoption Index 2019 found that 64% of global users use Fintech.
For those unfamiliar with the fintech industry, it’s important to mention that fintech companies leverage technology, such as artificial intelligence, machine learning, and blockchain, to improve traditional financial services.
For instance, the payments app Venmo is an early example of a fintech company, as it allows users to make peer-to-peer payments via a mobile app easily. Statistics show that Venmo processed over $298 billion in total payment volume in 2023.
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Fintech in 2024
While Venmo is a great example of a successful fintech company created in 2009, the financial services industry has greatly changed over the years.
There are currently several innovative startups and companies applying technology to expand financial inclusion, cut down on operational costs, enable digital payments, and more. Many of these companies are also developing solutions to combat issues created by the pandemic, such as handling physical cash.
With this in mind, the various traditional financial services listed below are being impacted by the fintech sector:
Banking
The trillion-dollar banking industry is transforming greatly due to today’s fintech services industry. Recent findings from big four firm PwC show that 73% of financial sector executives surveyed perceive consumer banking to be one of the most likely sectors disrupted by fintech this year. The report notes that the simplistic nature underlying banking products and processes for savings, lending, and business services are now ripe for disruption.
Further findings from PwC’s survey show that over 90% of banks expect growth in mobile application usage, which is much higher than any other financial sector. Web-based platforms and customer engagement via mobile devices are also expected to increase within the banking sector.
In addition, neobanks are also on the rise. are online-only financial institutions that typically provide users with lower costs, quick processing time, and convenience compared to traditional banks. Statistics show that there are over 250 neobanks worldwide.
Related: Best Neobanks
Payments
The billion-dollar payments industry is also being disrupted by fintech innovation. Much of this is due to the public health crisis triggered by COVID-19. The 2020 McKinsey Global Payments Report noted that the pandemic and its consequences had accelerated new trends in consumer and business behaviors. As such, shifts toward e-commerce, digital payments, instant payments, and cash displacement have been boosted.
Cryptocurrency and blockchain technology
Bitcoin and other cryptocurrencies are also gaining traction as the world moves toward digital payments. While Bitcoin is primarily viewed as an investment vehicle, some large companies like PayPal enable crypto payments by allowing online merchants to accept cryptocurrency as a form of payment eventually. In addition, new findings from Elements Global Services show that 37% of Americans would accept a portion of their compensation in Bitcoin if offered. Other innovative crypto startups, like Coinbase, are already paying employees in Bitcoin and have allowed retailers using their Coinbase Commerce platform to be paid in crypto.
Related: A Beginner's Guide to Cryptocurrency
Blockchain, the underlying technology powering cryptocurrencies, also disrupts traditional financial services. Blockchain is best known for providing trust between multiple parties, which is key for today’s increasingly digital environments. Enterprises are applying blockchain in several ways, such as enabling more efficient cross-border payments; banking the unbanked; creating tokenized business processes like invoices; and much more.
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Lending
Fintech innovation is also bridging the gap between lenders and borrowers while ensuring that people without bank accounts can apply for loans. Fintech lending platforms allow lending to occur online and via mobile phone devices, providing access to many individuals. Fintech lending extends to consumer, small business, and specialty finance loans.
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Machine learning and trading
It shouldn’t be surprising that machine learning has a major impact on financial services. Machine learning algorithms enable financial technology to predict patterns and make intelligent decisions. For instance, retailers leverage machine learning algorithms to understand consumer behavior better. As a result, retailers and e-commerce platforms can ensure that products are tailored to their customer base.
Machine learning is also used for trading and investment purposes. These algorithms help individuals predict markets and execute trades at optimal times. “Robo-advisors” are financial advisers using algorithms to buy and sell stocks automatically. Robo-advisors can also monitor and predict the health of global financial markets by leveraging machine learning.
Related: Best Robo-Advisors
Insurance
Finally, the insurance industry is being disrupted by fintech innovation. As with many other industries, the COVID-19 pandemic has resulted in customers seeking mobile insurance solutions incorporated within a single platform. Fintech is making the insurance industry automatic, seamless, and accessible. As such, “Insurtech” has become a familiar term, which refers to using technology designed to enable savings and efficiency from traditional insurance models.
Innovative fintech companies today
While fintech extends to many different industries, the sectors listed above are being heavily impacted by technology advancements. To further demonstrate this innovation, it’s important to give examples of companies that are using specific technologies to transform traditional financial services using different fintech products:
Block Inc.
Financial services and digital payments company Square was created in 2009 by Twitter founder Jack Dorsey and entrepreneur Jim McKelvey to make payments faster and easier. In 2021, it changed its name to Block. Today, Block is used by millions of businesses to accept payments from customers. It offers business software, including point-of-sale systems, payment hardware products, and small business services. Block is unique from other payment providers in that it’s available to organizations of all sizes and offers the most comprehensive free point-of-sale systems.
Block’s product line also includes Cash App, which lets users send and receive money for free via a mobile application. More importantly, in November 2017, Cash App announced a trial program that offered bitcoin trading to certain users. Cash App allows users to send and receive bitcoin, demonstrating ongoing innovation to meet today’s digital economy.
Credit Karma
Founded in 2007, is a personal finance company that offers users free credit monitoring services. Credit Karma lets users receive alerts from two credit bureau reports – TransUnion and Equifax. Based on these credit reports, Credit Karma creates its own VantageScore 3.0 that provides a number and range to help users determine if their score is “good,” “very good,” or somewhere in between.
Credit Karma allows users to track credit scores that easily change over time. This is important for several reasons, including generating awareness of identity theft. Credit Karma users no longer have to wait once a year to check reports for credit scores, as these are generated instantly. The website also breaks down a user’s credit report to pinpoint certain problems while offering advice on fixing certain issues.
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Coinbase
The cryptocurrency exchange platform Coinbase is one of today’s most innovative fintech startups. Founded in 2012, Coinbase launched services to buy and sell Bitcoin through bank transfers. Today, Coinbase has grown into one of the largest crypto exchanges in the world, operating a digital wallet service that allows U.S.-based users to trade more than 250 different cryptocurrencies. Coinbase went public at an evaluation of nearly $100 billion, demonstrating a major milestone for cryptocurrency growth.
Related: Coinbase Review 2023
PayPal
The online payments provider PayPal caters to over 400 million customers, allowing users worldwide to make online and in-person payments easily. Users can easily pay merchants or send money to friends, family, or businesses. In a nutshell, PayPal makes payments faster, easier, and more efficient. Recent statistics show that PayPal’s annual revenue increased by 8% year-on-year in 2023, earning $29.13 billion in a 12-month span.
Like many fintech companies in the payments space, PayPal has also offered support for cryptocurrencies, allowing users to buy, sell and hold Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. PayPal will soon enable merchants to accept crypto payments.
Related: How to Invest in Crypto in 2023
MercadoLibre
Often referred to as the Amazon of Latin America, MercadoLibre is a successful Argentinian e-commerce business. But from a fintech perspective, Mercado Pago is the real innovation behind MercadoLibre, as this is the payments platform that powers MercadoLibre. Mercado Pago has seen impressive revenue growth of 97% year-over-year. Moreover, a big investment from PayPal in 2020 ensured future growth and innovation for Mercado Pago.
Lufax
Based in Shanghai, Lufax is an online peer-to-peer lending service that provides loans to small-to-medium enterprises and individuals. The company was founded in 2011 and is currently the second-largest in China. Lufax partners with financial institutions to offer small business loans and wealth management products. The company is reportedly planning for international expansion.
Related:
Chime
The American neobank company Chime provides fee-free financial services through a mobile application. As a neobank, Chime has no physical branches but has seen impressive growth over the past years with over 12 million account holders. Chime offers several personal banking options, including a checking and savings accounts, while providing users with a secured credit card. Everything can be accessed via Chime’s mobile app. Chime makes it easy for unbanked or underbanked individuals to access capital.
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Popular fintech stocks
Given fintech’s impact on traditional financial services and today’s digital economy, many fintech ETFs (FINX) should be considered. Yet determining which fintech stocks make for good investments can be tricky given the amount of innovation.
Fortunately, a few fintech stocks stand out from the rest:
Block Inc.
As mentioned above, Block (NYSE: SQ) has been listed multiple times by numerous sources as one of the best fintech companies and stocks in 2023. With a market cap of over $34 billion, the shares of the financial services firm have been on the rise as the digital economy increases.
PayPal
Payments giant PayPal (NASDAQ: PYPL) is also one of the top-performing fintech stocks this year. With a market cap of over $68 billion, PayPal’s growth will continue, especially as its crypto services advance.
MercadoLibre
MercadoLibre (NASDAQ: MELI) is another fintech stock to watch. The company has a market cap of over $66 billion, and it’s been reported that Wall Street will be looking for positivity from MELI as it approaches its next earnings report.
Pros and cons of investing in fintech
Knowing that the COVID-19 pandemic has accelerated today’s digital economy, investing in technology has shown to be an excellent option. The benefit of fintech ETFs is that they enable investors to access high growth potential through innovative companies that improve financial services. However, there are also risks involved when it comes to fintech stocks.
For instance, many fintech companies are not yet profitable or may lose profit over time. Block’s stock exposure to small businesses and restaurants was in danger at the beginning of the pandemic. Fortunately, Block’s Cash App has been key to its ongoing growth. The company’s gross profits soared to more than $21.5 billion in 2023, expecting a gross profit of $7.46 billion.
Competitive risk should also be considered when adding stocks to your investment portfolio. It’s always best to think about whether or not a few companies dominate the market or if it's large and fragmented.
Similarly, a competitive advantage can help out the playing field when it comes to small, disruptive fintech startups competing against large companies. While PayPal has become synonymous with online payments, many innovative startups like Block’s Cash App are entering the scene with a ton of potential. When it comes to the fintech space, technology, patents, and intellectual property also make for competitive advantages. Coinbase, for example, was one of the first startups to offer crypto payments. Now, payment giants like PayPal are following in their footsteps.
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The bottom line
As we step into 2024, the landscape of fintech investments continues to evolve with the ever-accelerating digitization of the financial industry. For savvy investors, this ongoing transformation presents a compelling opportunity for wealth creation. Nevertheless, it's crucial to acknowledge that while the Covid-19 pandemic ignited the need for fintech innovation, global investments in fintech experienced a noteworthy dip in 2020 following the previous year's high, as reported by KPMG. However, amidst these fluctuations, 2023 witnessed a resurgence in fintech investments, and the trend is poised to ascend further.
Venture capitalists are increasingly drawn to fintech platforms, underscoring the sector's growth potential. Yet, as always, prudent investors are advised to conduct thorough assessments of each stock, weighing the associated risks and rewards before making investment decisions. In this dynamic landscape, informed choices remain the linchpin of financial success.
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Writer
Lissa Poirot is an award-winning journalist and editor with a focus on finance, travel and health. Her work has appeared online and in print, and she has often been cited as a source on both. She currently resides in Pennsylvania.
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