Top 9 FinTech Stocks In 2023

Paytm is an innovative, high-growth FinTech company with investments from leading names like Alibaba, Ant Financial, Berkshire Hathaway, and SoftBank.

• The company is at the forefront of digital payment processing, and currently services 80 million users with a growing number of payment solutions. Paytm’s success can be measured by the gross merchandise value of US$38.9b they have processed, translating to US$189m in quarterly revenue and a take rate of 0.5%. The company estimates a target market of 500 million users in India.
• The company’s loan services have seen a 500% YoY growth to US$494m in the last quarter, making it one of their highest-growing verticals. On average, loans have a span of 12 to 14 months, with Paytm receiving a portion of the income. This led to US$43m in revenue for the last quarter, or 18.4% of the quarterly revenue.
• Paytm is now entering core banking services with its virtual cards, allowing users to have checking and savings accounts on their mobile devices. This sets the stage for future expansion as the company develops its existing verticals.
• The company’s stock is not widely known and not available through all brokers, giving investors an edge. The key KPI to watch is Paytm’s speed of execution and adoption of its low-cost financial products in the Indian market. If they move quickly while keeping user satisfaction high, they’ll be able to build up a large market share and monetize it through additional services like Paytm Invest and Insurance.
• Paytm’s market cap is ₹373.2b, which is roughly equivalent to $4.6bUSD. With its impressive investments, promising services, and innovative solutions, Paytm is poised to become a leader in India’s digital financial space.

The disruptive EU based payment provider, rivalling players like Stripe & Block.

• Adyen is a global payment provider enabling merchants to accept and process payments through online, mobile, and POS (point-of-sale) channels for over 250 different payment methods.
• Headquartered in Amsterdam, and present in over 150 countries, Adyen is well-positioned to take advantage of the growth in high-tech payment processing. The majority of net revenue comes from EMEA (57%), followed by North America (25%), APAC (11%), and LATAM (7%).
• Adyen is not popular but drives a large portion of global transactions with customers like Shopify, Uber, Booking.com, Etsy, Upwork etc.
• The company offers competitive pricing of $0.1 per transaction plus the payment method fee (card company fee), and is rivaling the likes of Stripe, Paypal and Square for the online processing and POS (Point of Sale) businesses.
• Adyen processed €345.8b in the first half of 2022, up 60% YoY, and made €608.5m in net revenue, up 37% over the same period. Adyen also had a high 59% EBITDA margin in H1 2022.
• The biggest risk for the stock is its high market valuation, which may make it unattractive to new investors, but is still worth keeping track of.

A cost-effective Western Union disruptor, increasingly taking on checking accounts and business payments.

• Initially started as a money transfer app, Wise is approaching core banking services at low 0.64% average take rates. The offerings include multi-currency consumer checking accounts, debit cards, and business accounts.
• Consumers can hold and transfer funds in their Wise account at a very cost-effective rate. This has allowed the company global adoption of its services, and in Q2 2023 had 5.5 million active customers, a 40% increase since Q2 2022.
• Wise is currently in the market expansion phase. The company intends to continuously add premium monetization services, with the goal of increasing profitability. Its core features are expected to continue being low-cost in order to capture a wide audience, while the add-ons create value for investors.
• The company primarily targets a market of cross border migrants estimated at 300 million, but is also seeing traction with business payments and the use of personal checking accounts.

Automating low-cost securities trading for professionals.

• Interactive Brokers (IBKR) is one of the world’s largest online brokers, offering direct access trading for securities in over 150 markets across 33 countries. The company caters to institutional and individual investors with their highly automated technology.
• Their value proposition comes from maximizing automation in trading, allowing the company to rely on technology instead of employees for providing a large portion of their service.
• IBKR also allows clients to set up algorithmic trading, which makes the service appealing to institutional investors and financial modellers.
• The company has over 2 million client accounts and executes around 3 million trades per day. On the downside, the service has a learning curve and a harder time onboarding individual investors, allowing competitors to take up that portion of clients.
• The company makes money with a range of competitive fees and commissions, as well as routing their trades to market makers which pay for them (Payment For Order Flow). IBKR also generates interest on idle cash and shares a portion of the interest with clients.
• IBKR has been consistently profitable in the last seven years and managed to increase its profit margin from around 5% in 2017 to 11% in 2022. This has made it attractive to investors who seem to be paying a high premium for the stock.
• The company’s primary asset is the 24.5% ownership of its parent IBG LLC which is why there is a discrepancy between the 66%+ pre-tax margins and the 11% net margin attributable to common stockholders. Investors in IBKR have a claim on the 24.5% of the business that is in control of IBG Inc.
• The company is set to benefit from the growth of individual investors’ accounts and the increased global access to investing. As IBKR fulfils its verticals for professionals, it turns to catering to the needs of novice and intermediate investors.

Slowly offering more core financial services to a massive user base.

• With 27% of the global mobile device market share, Apple keeps building complementary services for its users, including cashless payments, buy-now-pay-later services, point of sale substitutes, etc. This gives the company a foothold in the financial services industry with the potential to sweep out small players and traditional businesses.
• A new service like Tap to Pay allows retailers to accept payments on iPhones without the need for extra hardware. This eliminates the need for physical POS terminals for companies that are willing to work with Apple hardware. While brick & mortar shops may retain POS terminals, we can see how iPhones can be more appealing for delivery, restaurants, and small businesses.
• Another example is their Pay Later service, which allows people to spread payment in 4 installments for 6 weeks, with zero interest and no fees.
• Apple Pay is the digital wallet that comes with most Apple devices, and eliminates the need for a physical card.
• The financial services are still a complementary part of Apple’s business, but some investors may be better off entering the FinTech space via a stable mega cap instead of young and arguably risky stocks.
• Investors may want to make sure they are entering at an attractive valuation, since the company already has a large business and can face antitrust expansion limitations.

Block is a fintech company focused on payments and banking, with its two key services: Square and the Cash App.

• Square provides payment processing, point-of-sale (POS) solutions, e-commerce solutions, etc. This segment specializes in verticals with physical interaction between merchants and customers, such as restaurants, shops, health and wellness centers.
• The Cash App provides financial tools such as transfers, payments, banking, investing. Additionally, the company is pushing its tax filing service, which aims to maximize returns to customers.
• As essential financial services become cheaper for consumers, Block is focusing on additional services to increase monetization, such as Cash App Investing and Cash App Bitcoin.
• The company has had success with its bitcoin service in the last two years, and bitcoin revenue (p. 56) contributed 39% of Q3 revenue; however, it’s a low-margin service, contributing about 2% to the quarterly gross profit.
• Square and the Cash App are responsible for close to 50% of the gross profit each, making them the largest gross profit contributors to Block. Both segments are still experiencing high growth rates, and have recently grown gross profit year-over-year (YoY) by 29% and 51%, respectively.
• As part of its expansion strategy, Block has made two notable acquisitions: Afterpay at the end of 2022, and Weebly in 2018. Afterpay allows clients to use Square’s payment services over multiple instalments, and Weebly is a website construction and hosting service that helps clients establish their web presence while integrating with Square.
• Apple is rivalling Square’s terminals by using iPhones as POS terminals. In response, Block is developing its own Square Point-of-Sale, allowing merchants to process payments via smartphones for free. The tug-of-war between rivals may lead to a better service for customers, but the companies may end up capturing less value.

The High-Tech Latin American neo-bank became the fifth-largest financial institution in Brazil.

• Nu is a digital financial services platform that operates primarily in Brazil, Mexico, and Colombia – giving customers access to convenient and cost-competitive banking solutions.
• With over 70 million customers already served (up from 48 million in 2022), Nu provides the full suite of payment options – cards, loans, payments, and bank account services.
• The company is currently in a high-growth stage, where it’s using its low pricing to capture a large portion of the Latin American market – Nu has more than 12% market share in Brazil. This also brings-in tricky implications as the company will need to onboard and retain a large chunk of new clients. The activity can bring attention from competitors and regulators alike, and the company will have to simultaneously push on the tech, customer care, compliance, and competition fronts.
• By conducting its business in emerging markets, Nu gives investors the option for geographic diversification of their assets. However, this also implies a higher cost of capital that matches the increased risks of doing business in these regions.
• In the past, we noted the risks and opportunities of Nu Holdings, and emphasized a possible overvaluation of the company. Investors may now be able to enter the FinTech at a more appealing valuation with improved fundamental projections because the share price has declined considerably since then.
• Nu executed ahead of projections and is now profitable, with US$7.8m in earnings for Q3 2022. Key metrics include: US$14b deposits, US$9.7b credit portfolio, US$21b of processed transactions (values converted to USD).
• If Nu can keep expanding its market share in these regions, and manage the challenges mentioned above, it could be a promising Fintech stock going forward.

One of the largest banks in Australia and New Zealand is increasing its digital offering.

• While most FinTech companies build an attractive product and start their high-growth phase, ANZ is one of the 4 largest banks in Australia & New Zealand and has the advantage of rolling out their digital services onto more than 8.5 million clients. ANZ operates in 32 markets across Asia Pacific, USA, Europe, but primarily focuses on the Australian and New Zealand.
• Their digital banking product is ANZ Plus and includes core services like accounts, credit cards, loans, investing etc. The app is early in its deployment, and a successful adoption can provide large cost-cutting benefits both for the company and clients.
• ANZ Plus is seeing faster deposit growth (exceeding AU$1.2b) than any other new digital bank in Australia. They are also piloting a digital home loan, initially focused on the refinancing market, set for late 2023.
• The company is entering the payments market with the ANZ Worldline partnership that will provide business customers POS and online payment technology.
• ANZ is de-risking and removing some inefficient segments like the sale of its margin lending business, formal separation of Wealth business and exiting of Financial Planning and Advice.
• At the same time as it sells some segments, ANZ is also attempting growth via M&A and has agreed to buy the banking arm of Suncorp, speculated to be worth around AU$4.5b. If the deal goes through, it will be the largest acquisition in Australian banking in the last decade, and is expected to add more than 1 million new retail clients.
• The company has a history of solid fundamentals and offers FinTech investors a diversification option with a dividend yield of around 6%.

Innovative global card issuing platform for enterprise and banking clients.

• A modern card issuing platform that allows companies to create their own custom cards and payment systems. Marqeta also provides security protections for customer data and transaction analytics.
• The company has a usage-based model, and makes money from each transaction from their cards. This means that their success depends on transaction volumes and the number of companies using their service.
• Marqeta had a Q3 processing volume of US$42b(up 54% YoY), recording a net revenue of US$192m, implying a take rate around 0.46%. Marqeta shares the gross revenue with their customers, card networks (Visa/Mastercard) and pays a portion to their issuing bank Sutton.
• The company works with clients like J.P. Morgan, Goldman Sachs, Uber, DoorDash, Affirm, Klarna. But currently around 70% of the revenue comes from Square.
• Marqeta may be appealing because it’s technologically advanced for their business case. However, the main risk factors are their low-implied profitability, a concentrated client portfolio, and a high management turnover.
• The most recent expansion move is the announcement of Marqeta for Banking, giving clients options to tailor their cards for banking services.
• Marqeta is set to benefit from its technological advancement, global expansion, and diversification to industry specific services such as banking.