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1 Big Fintech With Room to Grow

By Matthew Frankel, CFP® - Updated Jun 24, 2021 at 8:06AM

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This has been one of the best-performing fintechs in recent years, but could still multiply in size several times over.

Square (SQ -3.21%) has been one of the most impressive growth stories in the financial technology, or fintech, space. However, even with a market cap of more than $90 billion, Square could still multiply in size from here, as Fool.com contributor Matt Frankel, CFP, explains in this Fool Live video clip, recorded on May 14.

Matt Frankel: Square, their core business is payment processing. I had co-founder Jim McKelvey on Industry Focus right before the pandemic hit, probably the most fun I've ever had doing an interview. How he founded the company because he was an art dealer and couldn't take Amex in a cost-effective way. It was founded to help small businesses accept payments, period. They've built that up to where their payment processing is seeing volume at a rate of over $130 billion a year. They've added adjacent services such as Square Capital, which is business lending, that including PPP loans, did almost $1 billion of loans last quarter. The Cash App is by far the highest growth part of the business. Gross profit from Cash App was up 171% year over year in the first quarter. That's pretty crazy, and fun fact, the Cash App delivered a higher gross profit than the seller part of Square's business for the first time ever this past quarter. That's actually the biggest part of their business. Everyone thinks it's payment processing, that's changed. A big reason for the high revenue in the Cash App business is Bitcoin, Square did about $3.5 billion of Bitcoin sales in the first quarter. That is 11X what it was a year ago. That's enormous. I've heard stats that Square is responsible for almost one-fourth of U.S. Bitcoin volume these days on its own. Considering big competitors like Coinbase and Gemini for just a person-to-person payment to have that share is pretty impressive. The growth thesis is the Cash App has a ton of adjacent possibilities. They've said before that they want Cash App to do pretty much whenever you make those. Think of things like a high-yield savings platform, personal loans, mortgage loans, auto loans, insurance products. We could list 100 different things. Square just got a banking charter so that'll make some of that a whole lot easier. The company's profitable, not consistently yet, but it is profitable and over $4 billion in cash on the balance sheet, well rounded, creating a great financial service ecosystem. I always say that I bought Square before it was cool to buy Square and I've held on ever since I bought a three days after the IPO, I think it was.

American Express is an advertising partner of The Ascent, a Motley Fool company. Matthew Frankel, CFP owns shares of American Express and Square. The Motley Fool owns shares of and recommends Bitcoin and Square. The Motley Fool has a disclosure policy.

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