Financial technology, or fintech, describes the transformation of legacy industries like consumer credit and insurance by innovative technology companies.
New advanced tools using artificial intelligence and machine learning eliminate the need for large amounts of manual human effort, thanks to the ability of these technologies to ingest large amounts of data and quickly make decisions based on that data . These are game-changing technologies for the financial industry that benefit both consumers and businesses. Other innovations such as cloud computing and blockchains have had just as much impact.
Here are five stocks you can buy to get broad exposure to this fintech revolution.
Assets received ( UPST 0.30% ) is on a mission to change the way banks assess potential borrowers, providing a better tool than Just Isaacof the FICO credit score system that the industry has relied on for decades. The company’s AI-based system analyzes more than 1,600 metrics to determine consumer creditworthiness and makes almost instantaneous decisions most of the time.
Upstart’s growth has been staggering, and at least one of its banking customers has moved away from FICO altogether, using the company’s artificial intelligence algorithm as its primary tool for making lending decisions. Upstart first worked in creating unsecured loans; now it’s expanding into original auto loans — a market that, at $727 billion a year, is seven times larger. Going forward, it could turn to origination of business loans, or even mortgages, a $4.6 trillion market.
Upstart collects commissions from its banking partners when its algorithm originates a loan, but it takes no credit risk itself. It generated $849 million in revenue in 2021, a 264% increase from 2020, and far exceeding the $500 million estimate it originally gave to investors. The company is also profitable, with adjusted earnings per share of $2.37 in 2021, representing growth of 930%.
Simply put, Upstart is a top fintech stock, and with its share price down 68% amid the broader tech sell-off, it’s a great buy for those with an investment horizon ahead. long term.
Buy Now, Pay Later (BNPL) is a new twist on an old consumer credit model that leverages technology to improve on traditional installment loans. The real innovation lies in the way BNPL targets young consumers who shop primarily online. Affirm Assets ( AFRM 3.07% ) integrates with the online stores of its 168,000 partner merchants, allowing shoppers to instantly finance their purchases during the checkout process.
This means that Affirm does not necessarily need to market its credit products to consumers, as merchants do the heavy lifting. Evidence suggests that by offering a BNPL option at checkout, merchants get a customer who spends more money and is less likely to abandon their purchase. It is a victory for all parties.
In August, Affirm signed a blockbuster deal with Amazon, the world’s largest e-commerce company, to integrate BNPL into its shopping experience. This is in addition to an existing agreement with Shopify. Together, these partnerships have increased Affirm’s annual merchant gross volume opportunity by 3,940%.
The company expects to generate up to $1.3 billion in revenue in its 2022 fiscal year, which ends June 30. This would represent 50% growth from its 2021 financial year. Although not yet profitable, it is on track to expand to an unprecedented scale, and now that Australia After-payment was acquired by To block ( BECAUSE -4.14% )it is the largest independent BNPL player in the world.
Dealing with insurance companies can be quite unpleasant for consumers, especially when trying to file a claim. There is a lot of room for improvement from a customer satisfaction perspective, and Lemonade (LMND -3.67% ) aims to compete against industry giants by leveraging AI to deliver superior customer experience.
The company’s AI bot, Maya, can give a potential new customer a quote on a policy in as little as 90 seconds and pay claims in just three minutes. Consumers vote with their feet, and many of the 1.4 million people who have joined Lemonade are from traditional insurers. And the experience should only improve over time, especially on the price, because Lemonade collects 100 times more data than its competitors, which allows it to improve its subscription calculation algorithms more quickly.
Lemonade built its business on core segments such as renters, homeowners and pet insurance, but has since added auto insurance to its portfolio, a market opportunity valued at $316 billion in 2022.
The company lost $246 million in 2021, mostly because it’s still trying to grow and because it takes time to train AI models for new segments like auto insurance. But it’s accelerating that process with its acquisition of MetroMile, which gives Lemonade a decade worth of data to use in its calculations.
The lemonade stock is down 83% from its all-time high, but if you think AI has the power to transform the insurance industry, then that’s a bet you might want to make .
Block, formerly known as Square, is a fintech company in every sense of the word. Its various businesses cover payment hardware for merchants, consumer banking, investment, and even cryptocurrency.
It recently bought Afterpay for $29 billion, and its BNPL offering will be woven into both Block’s vendor ecosystem, where it will allow merchants to offer it to customers, and through its consumer-facing CashApp, where it will facilitate the financing of purchases. This gigantic integration should benefit both brands.
At this point, 44 million monthly active users use CashApp, which essentially functions as a modern alternative to a bank account. But CashApp is also the engine of Block’s Bitcoin revenue, which totaled $10 billion in 2021. The company earns only a small commission on Bitcoin transactions, so although it represents 56% of total revenue, it was only 5% of Block’s overall gross profit .
But Block’s total revenue of $17.6 billion in 2021 represented a whopping 86% growth, and the company was profitable for the year, with earnings of $0.33 per share – and l The average analyst expects earnings could quadruple to $1.39 per share this year.
Innovative fintech Bill.com ( INVOICE -1.29% ) leverages cloud computing to provide a variety of solutions for small and medium-sized businesses. It has a huge growth streak ahead of it, pursuing an addressable market that could reach 32 million customers and $25 trillion in annual payment volume in the United States alone.
The accounts payable workflow tends to get messy for small businesses, with invoices often lost, forgotten, or misdirected. With Bill.com’s flagship cloud-based digital inbox, businesses can consolidate all their bills in one place and pay them with just one click. Plus, thanks to integrations with leading accounting software, these transactions are automatically recorded in the books.
But the company launched a wave of acquisitions in 2021, expanding into new verticals to solve more than the debt problem. With the addition of Invoice2go, Bill.com now offers customers the ability to create invoices and manage their customer accounts. And when she bought Divvy, she added a comprehensive budgeting and expense management platform.
Bill.com now serves more than 373,000 businesses across all solutions. The company expects to generate up to $600 million in revenue in its 2022 fiscal year, which ends June 30. That would represent 152% growth from its 2021 fiscal year. And while it’s not yet profitable, Bill.com’s addressable market size suggests it has plenty of room to scale and focus on profits. later.
This is a great stock to buy if you’re looking to bet on the small business engine of the US economy. But in the long term, as the company expands globally, Bill.com’s market opportunity could reach $125 trillion in payment volume for 70 million customers.
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