Financial technology, or fintech, has been growing explosively over the past few years and is showing no signs of slowing down. Here's why three of our contributors think Green Dot (NYSE:GDOT), Interactive Brokers (NYSEMKT:IBKR), and Visa (NYSE:V) are worth a look right now.
Targeting an underserved niche in fintech
Matt Frankel, CFP (Green Dot): One fintech stock on my radar is Green Dot.
Green Dot is known primarily as the market leader in prepaid debit cards, pioneering that space almost two decades ago, but there's a lot more to the company. In addition to prepaid Visa cards, which are prominently found at many major retailers such as Walmart, the company has several other products and services that are geared toward the unbanked/underbanked segment of the population.
In addition to issuing its own products, such as MoneyPak and GObank-branded products, Green Dot is also a technology platform through which other companies can offer their own financial products and services; the company refers to itself as Banking as a Service, or BaaS. For example, Uber issues its Uber Debit Card through the Green Dot platform, and Walmart's Money Card is another product that utilizes Green Dot's technology.
In a nutshell, I love Green Dot as a play on the war on cash, especially because the company's focus is on the group of Americans who are most likely to still use cash for purchases (those without traditional bank accounts). Cash is becoming less and less convenient to use, even for everyday purchases, and with its focus on an underserved niche, Green Dot is a great way to play the accelerating shift toward a cashless society.
This company is quietly powering the brokerage industry
Jordan Wathen (Interactive Brokers): Is it fair to call a discount brokerage company a fintech? In the case of Interactive Brokers, I certainly think so.
This broker's edge is its ability to automate processes and attract highly profitable clientele who trade frequently. Whereas the average customer of household name brokerages might trade 10 or 20 times a year, the average Interactive Brokers accountholder will make 300 to 400 trades per year. High levels of automation and high trading volumes enable Interactive Brokers to operate profitably at commission prices substantially lower than those of other brokers.
In addition to servicing accounts on its own, Interactive Brokers also white-labels its services to other brokers. Other companies known as "introducing brokers" effectively pay Interactive Brokers a wholesale rate to place trades on their customers' behalves and charge their clients a retail price.
Interactive Brokers has many levers for profit growth. Rising volatility would lead to higher trading volumes and commissions. Likewise, each quarter-point increase in interest rates leads to higher earnings from margin loans and interest income earned on client accounts.
For now, though, calm and rising markets are a boon, helping Interactive Brokers grow at a healthy double-digit clip year after year, laying the groundwork for a harvest of profits as interest rates rise and volatility occasionally spikes.
Charge ahead with this stock
Dan Caplinger (Visa): In a world of rapidly evolving payment processing systems, Visa might seem like it's too old-school to retain its leadership position in the industry. The world's leading credit card processor has roughly 3.3 billion cards in circulation, giving it a huge incentive to try to fight change in order to perpetuate its highly successful business model.
Yet Visa hasn't stopped making moves to keep up with the rise in adoption of mobile-powered payment processing systems. The company has come out with open-source resources that merchants can use to let them keep up with the latest fintech trends, and features like its Visa Checkout e-commerce option let customers finish their transactions with a single click while keeping them squarely within Visa's financial network. Meanwhile, Visa Direct gives merchant customers greater opportunities to get access to their funds more quickly, matching similar services that Visa's smaller but more nimble upstart competitors have offered recently.
Some fintech investors prefer the stronger growth opportunities that smaller up-and-comers in the space offer. But for investors who like the foundation that its payment processing business provides, Visa has an attractive combination of stability and innovation that could keep powering further share-price gains well into the future.