FinTechs, short for Financial Technology, have emerged in the past several years, disrupting the traditional financial industry with innovation like AI and blockchain. If you are seeking to learn more about Fintechs and the players that are out there, here's what you need to know, as well as the ones to watch this year.
What is Fintech?
FinTechs leverage technology that is relatively new to compete with financial institutions to deliver services. Venture capitalist funding has made heavy investments into this new industry. The market transaction value has been rising steadily in these years, with an estimated value of $7 trillion in 2021. This makes them an appealing investment for anyone seeking to grow their portfolio.
There are several different categories of Fintechs that are separated by the type of service they provide.
- Digital payments are the largest of the categories in FinTech. This includes cryptocurrency and digital cash methods. You have probably heard of Blockchain technology that maintains a distributed ledger technology, which keeps records via a computer network.
- Opening banking focuses on this blockchain that allows third parties to access bank data in order to build applications. These apps connect a network of financial institutions to the third party provider. One such app is Mint, which is a money management tool.
- Unbanked or underbanked services. These serve the needs to low-income or otherwise underserved populations who can't typically find work with traditional banks.
- Cybersecurity has risen with the rise of technology and cybercrime. They offer protections from hacks and other fraudulent activity that originates from the internet.
- Robo advisors use algorithms to make investment choices and provide advice. This service is automated and tends to be more cost effective to investments.
- Insurtech uses technology in order to make the insurance industry more streamlined.
- Regtech has risen from the increasing regulation in the financial service industry. It helps financial institutions meet industry compliance rules.
- Smart contracts leverage computer programs to automate the execution of contracts with buyers and sellers.
Green Dot for Innovating the Underserved
Green Dot is largely known for its prepaid debit cards, where it holds the position of a market leader. You will find their prepaid Visa cards at Walmart and other major retailers.
The company also offers a number of other products and services that serve the unbanked or underbanked populations. Their products include the GObank-branded MoneyPak and the Green Dot Platinum Visa Secured card.
Green Dot has its own technology platform that other companies can use to offer their own financial products and services. The Walmart Money Card is an example of a product that uses its technology. They call their technology platform as Banking as a Service, or BaaS.
With cash becoming a smaller part of everyday purchases, Green Dot has focused its attention on the group of people who are most likely to still use it.
Interactive Brokers for Disrupting the Robo-Brokers
Brokerage services can rack up fees on your investments. Interactive Brokers uses its automated processes to make hundreds of trades per year. This can be particularly attractive for the customer who is investing later in life and needs strong returns. A typical brokerage might make 10 to 20 trades, for a reference point.
This has attracted a profitable clientele which pays lower commission prices than competitors. Through the use of this automation and trading volume, Interactive Brokers is able to make a healthy profit margin.
Interactive Brokers also offers a white-label service to other brokers. With it, other companies pay the company a wholesale rate to place trades on their customers. These companies will charge their client the full price, which enables them to earn additional income.
The rise in profits for Interactive Brokers has come in many forms. Higher trading volumes and commissions are the result of the rising volatility in the marketplace. In addition, the increases in the interest rates have also led to more earnings from interest income on customer accounts, as well as an increase in earnings from marginal loans.
Visa for its Ability to Adapt
You might not immediately think of Visa as a Fintech. Visa, the pioneer in credit cards, has been around for several decades and continually evolved its business. To keep up with the adoption of mobile-powered payment processing systems, they have created new features like Visa Checkout.
With this service, customers can finish their transactions at merchants who choose to take advantage of their service, with a single click. For Visa's merchant customers, they offer Visa Direct, which enables access to their funds quicker.
The world's largest credit card processor shows no sign of slowing down. Their strong foundation in its payment processing gives Visa a stability that is hard to find with most Fintechs. With its continued focus on innovation, the company will continue to be a large player in the future.
PayPal Holding for Peer to Peer Funding
They have really come a long way since the late ‘90s. After separating from eBay back in 2015, PayPal has expanded its online/mobile services significantly. Their transaction volume for both online and mobile platforms have sharply risen.
Part of their success is PayPal's ability to grow its customer base and keep them coming back. It's successful Venmo service allows individuals to make person to person money transfers. PayPal has also been making strategic partnerships to help drive this customer growth. For instance, its new partnership with Google allows PayPal users to utilize their payment platform or Google services like Google Pay.
The company understands the importance of putting their customers first when they have expanded and growth their services. They focus on delivering an exceptional experience to their customers to keep them loyal to their brand.
Euronet Worldwide for Payment Processing
With the rise of digital technology payments, Euronet Worldwide is using older fintech to be successful. It operates worldwide automated teller machines for when you need cash, point of sale services, currency exchange, and credit/debit card services, as well as other electronic financial services.
It is one of the largest global money transfer companies in the world and the largest payment network for prepaid mobile top-up. In addition, Euronet provides Walmart's domestic money transfer product, Walmart-2-Walmart. Their secure electronic payment solutions are used by retailers, service providers, individual consumers, and financial institutions.
Euronet Worldwide is a coveted member of the IBD 50 stock list. The companies on this list are considered growth stocks to watch.
Investing in FinTechs can help to diversify your current portfolio. While some FinTechs may seem risky, the companies outlined here have been largely successful in their categories and show a promising future. Innovation has always been the backbone to a company's growth in the future.