Normally, a big recession like the one we experienced in early 2020 is bad news for financial stocks. However, the peculiar nature of the pandemic has actually been something of a boon to disruptive fintech stocks.

Because people have had to stay home, retailers and banks have had to reach their customers digitally. That shift has accelerated the use of cashless payments for consumers and cloud-based solutions for financial companies.

Several different next-gen fintech stocks have thus done very well in 2020. One such intriguing name posting impressive growth metrics heading into 2021 is Chinese fintech OneConnect Financial Technology (OCFT 0.56%).

A digital rendering of a bank surrounding by glowing charts and symbols.

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OneConnect is growing fast in a tough environment

OneConnect is a "technology-as-a-service" company that offers a number of software modules to help financial firms with marketing, underwriting, operations, and cloud infrastructure. The digitization for financial services is still in its early stages in Asia, and OneConnect's leading solution is posting some impressive growth numbers, despite declines in overall loan volume amid the pandemic.

In the third quarter, OneConnect grew revenue 50.7%. Gross margins expanded from 38.6% a year ago to 42.7% last quarter, enabling gross profits to grow 66.7%. OneConnect is still losing money, but its operating margin improved from a loss of 52% to a loss of 28% over the past year.

That growth is pretty impressive, especially when you consider that retail loans were down about 40% from last year due to the novel coronavirus outbreak and new lending regulations in China. However, small and medium-sized enterprise loans were up, showing that OneConnect's technology can underwrite small businesses that may have a hard time getting a loan from a traditional bank.

Also, OneConnect recently retooled its product offerings. It has actually moved away from lower-margin business origination tools in favor of bringing its new cloud services platform to market. Just introduced at the end of the second quarter, cloud services have already grown to 11% of revenue in the third quarter.

One thing to consider

OneConnect was started underneath insurance giant Ping An (PNGA.Y 0.97%), which still retains a large minority stake in the company and is also OneConnect's biggest customer, at 56% of revenue. Newly public Lufax (LU), a loan and wealth management platform also begun under Ping An, accounts for another 10% of revenue. That's two-thirds of OneConenct's business coming from Ping An or its subsidiaries.

That may turn some investors off, as it could mean Ping An is merely propping up one of its own prominent businesses. After all, last quarter, revenue from Ping An surged 105.3%, revenue from Lufax grew 61.2%, and revenue from third-party customers grew only 3.9%.

However, it's a bit more complicated than that. OneConnect, after all, brings new products to market first with Ping An, a financial giant that can take the time to use OneConenct's tools and perfect them, before marketing them to third-party customers. That's what's going on right now as OneConnect ramps up its back-office operations tools and the new cloud solution. Given the importance of big data and cloud-based AI tools, that product has huge potential, but it's new, and hasn't been rolled out to third-party customers yet. 

Since new products were not yet sold to third parties, that segment also simultaneously felt the slowdown from OneConnect's de-emphasizing legacy business origination services. As CFO Jacky Ro said on the conference call with analysts:

So if you look at the first nine months, overall third-party customers grew by over 24%. But if we adjust the impact on these business originations, the products that we phase out, the growth rate will be, actually, more than double that rate and also it will be higher than the total revenue growth rate of 44% in the first nine months.

The current macroeconomic environment has also made financial institutions pull back from origination in general. As the global economy recovers from the pandemic, third-party growth should likewise improve. In addition, the new products being developed with Ping An will eventually make their way to OneConenct's hundreds of third-party customers across China, Southeast Asia, and even Europe.

OCFT Year to Date Total Returns (Daily) Chart

OCFT Year to Date Total Returns (Daily) data by YCharts

An under-the-radar fintech

Despite its 105% gains on the year, OneConnect is not as well known to U.S. investors since it's a Chinese fintech that just had its IPO in the U.S. exactly one year ago. Still, for those looking for high-growth stocks with big potential, that 50.7% revenue growth in a usage-based business during a pandemic is nothing to sneeze at. As such, OneConnect may be worth a look as a fintech to scoop up heading into 2021.