Our financial system is evolving at an accelerating rate, with technology being at the foreground of its progression. Cash is slowly becoming obsolete, as every financial need is now able to be managed digitally. Finance is becoming so computerized that a category of digital currencies called cryptocurrency has run ramped with the markets total value hitting the same market cap as Google’s (GOOGL) at the peak of its run (January 2018).
Fintech leaders like PayPal (PYPL) and Square (SQ) are leading the charge in this digital era, with payment transfer being the core offering.
Tech behemoths like Facebook (FB) and Apple (AAPL) are even dipping their toes into the financial markets. As the system evolves, the opportunities for tech companies expand.
As tech takes a position in the financial markets the big banks are taking a defensive strategy to maintain control.
Apple’s Fintech Play
Everyone with an iPhone is familiar with Apple Pay, which allows you to use your debit/credit card by just tapping your phone on the credit card machine. Apple Pay allows you to make payments in person and send money through your phone, making the need for physical cards seem antiquated. Apple’s digital wallet may soon replace our physical one.
Apple has recently teamed up with Goldman Sachs to create the Apple Card. The card takes less than a minute to sign up for and immediately links with your Apple Pay. The titanium card gives you an immediate feeling of satisfaction when you pull it out of the packaging a couple days later and whenever you pull it out from there on out.
The Apple Card offers you 3% back on Apple purchases, 2% back when you use Apple Pay, and 1% on everything else. This is play for Apple to entrench its consumers into its products further. 2% back on Apple Pay means you have to be using an Apple product to utilize this.
Cryptocurrencies & Facebook’s Play
Cryptocurrencies gained popularity with the revolutionary blockchain technology. Bitcoin was the first cryptocurrency that started back in 2009 by an unknown individual or group of individuals. The market for cryptos took off in 2017 and peaked in January of 2018 at a total market valuation of almost $850 billion.
This is amazing to me considering that these crypto are not only backed by nothing, but have no revenue drivers or profits to be made at any point. This market is now worth around $225 billion today, with this value being driven entirely by the bet on blockchain technology.
Facebook is presently attempting to enter the crypto market with its stable-currency Libra. Libra is still in the development phase and is going to be different than other cryptos because it will be backed by a basket of Treasury bonds and currencies. This is an attempt to create a universal currency that could be used around the globe.
Unfortunately, Libra has faced significant regulatory and policy push back, and Facebook as a whole has been under regulatory scrutiny over privacy issues. Due to these concerns, major partners like MasterCard (MA), Visa (V), and PayPal all backed out of the project. This is a devastating blow, not only to the legitimacy of the currency but also to the eventual deployment.
The fintech sector has found yet another way to bypass cash with peer-to-peer digital payments. This all started with PayPal and eBay back in 2002 when buyers and sellers needed a way to transfer funds from one account to the other safely and cheaply. This has since taken off as fewer millennials and gen Zs carry cash, the need for this type of technology has proliferated.
Venmo is becoming a necessity for millennials and gen Zs to function in society today. Venmo embraces social media in its platform, which has drawn the attention of seemingly every individual under the age of 30. Venmo is owned by PayPal but is yet to turn a profit. I expect this peer-to-peer transaction app expands into international markets.
Now the big banks, including have entered this market as was expected. Zelle is big banks big bet on peer-to-peer transactions, and it has gained enormous traction. Zelle is now the largest player in this market. Zelle can be utilized on every major banks’ app and is backed by the big banks giving it the legitimacy to be universally trusted.
Attractive Stock In The Space
Despite Square’s accelerating topline and turn into profitability, its valuation has been dropping. This nibble company has always been a buy in my book, and with lowered valuations, this only strengthens my opinion. Analysts have been increasingly optimistic as well, pushing SQ into a Zacks Rank #2 (Buy).
SQ has been trading down due to concerns about a delayed offloading of its subsidiary Caviar to Doordash, and its most recent purchase of Weebly, an ecom web hosting firm. SQ has a proven track record and a bright future ahead with its agile management team that has created both strong organic and inorganic growth.
Fintech is a very convoluted and complicated segment that is accelerating quickly. I am here to help you navigate this market and put you into the stocks that will provide you with the most robust portfolio for the future.
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Visa Inc. (V) : Free Stock Analysis Report
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