Financial technology, or fintech, is one of the most exciting growth opportunities in the market, as payments and banking have evolved rapidly in recent years. We asked three Fool.com contributors to share some of their favorite fintech opportunities, and here's why they think Green Dot (GDOT 1.65%), Mastercard (MA 1.17%), and Worldpay (WP) are worth a closer look right now.
A high-potential fintech specialist on sale
Matt Frankel, CFP (Green Dot): While it isn't the best-known fintech company, I've said before that Green Dot could end up being one of the biggest winners of the trend toward a cashless society. With the stock down sharply after its first-quarter earnings, now is a great time to take a closer look.
Green Dot has two main businesses. First, it offers prepaid debit card products, alternative checking accounts, and other products aimed at the unbanked and underbanked segment of the population -- that is, people who don't have checking accounts and credit cards of their own.
In addition to this, Green Dot offers a banking as a service (BaaS) platform to other businesses. Essentially, Green Dot lets other companies use its existing banking infrastructure to offer certain features to their customers. To name a couple of examples, Green Dot's technology is behind the Apple Pay Cash person-to-person payment platform, and also allows Uber drivers to get paid immediately after rides.
So there are two different long-term growth drivers. I can see Green Dot's BaaS platform getting much bigger, especially with its recently announced investments because it's becoming increasingly useful for companies to offer banking-type services, but it's generally undesirable for these companies to actually become banks themselves. And, Green Dot's own products are geared toward the segment of the population that is most likely to still be using cash to pay for purchases. As it continues to become less and less convenient to pay with cash, Green Dot's products could be adopted at an accelerated rate.
The fintech company hiding in plain sight
Matthew Cochrane (Mastercard): It might seem odd to consider a giant credit card network a fintech company, but investors should know that Mastercard is anything but stodgy and old-fashioned. The company makes the vast majority of its money through its payments network, collecting a tiny fee for each purchase made using a Mastercard product. This business is immensely profitable, allowing Mastercard to post a mouth-watering 56.9% adjusted operating margin in its first quarter results.
Mastercard also benefits from the war on cash, naturally growing its business as consumers shift to electronic and digital forms of payments. In Q1, revenue rose to $3.89 billion, a 13% year-over-year increase, while adjusted earnings per share (EPS) grew to $1.78, jumping 24% from the year-ago period (on a currency neutral basis). This strong revenue and earnings growth was driven by a 12% uptick in gross dollar volume to $1.48 trillion and a 17% increase in switched transactions to 19.2 billion.
Mastercard makes this list, however, for its growing "other revenues" business segment, which rose 14% in the first quarter to $842 million. This segment collectively accounts for the growing number of supplemental services Mastercard offers its clients, including artificial intelligence-powered fraud prevention services, data analytics, and loyalty program management. In recent years, it has used a number of acquisitions to augment these services, including Oltio, a South African mobile payments start-up, and Transfast, a company specializing in cross-border payments.
The way the world pays
Dan Caplinger (Worldpay): No matter what payment method someone uses to do business, financial transactions always have two sides. When it comes to most card-based electronic payment systems these days, those two sides are the selling merchant that receives the payment and the issuer that pays the money on behalf of its client, the cardholder who's making the purchase. Worldpay has long been one of the most important payment processors for merchants, and it's made every effort to keep growing.
Last year, Worldpay and Vantiv joined forces to create the world's largest payment processing company. The combination allowed Worldpay to claim truly global scope, giving itself a major competitive advantage over most of its primary competitors. Rather than having to enlist multiple payment processing companies to handle transactions in different locations, clients can instead just go to Worldpay and allow it to coordinate logistics in dealing with global payments.
Now, Worldpay is poised to become even bigger. Fidelity National Information Services (NYSE: FIS) made an offer to acquire Worldpay. FIS concentrates largely on the other side of payment transactions, giving its services to help issuing financial institutions with their half of the payment process. Under the terms of the $33.5 billion deal, Worldpay shareholders would control about 43% of the combined company.
The merger isn't yet complete, but it would open up new doors for Worldpay, because FIS does business in areas like Brazil and India where Worldpay hasn't yet taken full advantage. Optimism about payment processing is at high levels, and Worldpay investors have a reason to think their company will emerge as one of the big winners in fintech in the long run.