During the COVID-19 pandemic, everyone had to buy goods and services in a contact-less, digital way for a year and a half, leading to greater adoption of newer digital fintech solutions.

Now that economies are opening back up and U.S. economic growth appears to be strong, look for accelerated spending activity to boost fintechs Marqeta (MQ -1.55%) and PagSeguro (PAGS -2.19%). Both companies are strong innovators with huge growth opportunities. At $14 billion and $12 billion market caps, respectively, each has massive upside legacy financial giants might not.

Person taps their tablet at coffeeshop table and a bitcoin icon comes out of it.

Image source: Getty Images.

Marqeta is making credit card issuing more modern and flexible

Marqeta went public this summer and has been an incredibly volatile stock. After falling 23.8% in September, the stock bounced back 38% in October, but the stock has sold off again recently on the back of a single analyst downgrade.

Marqeta is a new fintech on the card-issuing side of transactions. While a lot of innovation is occurring on the merchant processing side of the equation, Marqeta has spent years developing an API platform that allows card issuers to flexibly alter an issued card's characteristics. This goes for both physical cards and virtual cards.

Yes, Marqeta looks somewhat expensive, at about 40 times sales, which may have spurred the analyst downgrade. In addition, Square (SQ -0.96%), which uses Marqeta for its cash app and merchant cards, accounts for an outsize portion of Marqeta's revenue.

However, Marqeta's ability to win top customers shows its APIs have a competitive advantage. Marqeta landed Alphabet's Google Pay as a customer in July. In October, Marqeta was very busy. The company announced a deal with Uber to provide faster payments to carriers on its Uber Freight platform. October also saw a partnership with Bill.com to develop a new commercial card for small and medium sized businesses. Marqeta also jumped on the cryptocurrency wave with new partnerships with Coinbase (COIN -3.73%) for a new crypto-backed debit card, as well as products from other crypto players Fold, Shakepay and Bakkt.

The fact that Marqeta is landing customers across the spectrum, from major banks like Goldman Sachs to tech giants like Alphabet, rising fintech stars like Square, and leading crypto players like Coinbase means Marqeta's platform has a lot going for it. A $14 billion market cap seems too small for a company like that.

PagSeguro could become an emerging markets giant

Meanwhile, Brazilian fintech PagSeguro has had a rough couple months, but its discounted stock -- down nearly 50% from its highs -- could be an opportunity.

You can think of PagSeguro kind of like the Square of Brazil: It started out in payment processing for small and micro merchants, and since 2019 has been developing the digital PagBank for both its merchants and consumers. Brazil's banking system is highly concentrated among legacy banks, so the opportunity for disruption is big.

In September, the Brazilian government introduced a cap on prepaid card interchange fees, and PagSeguro sold off on the news. However, the interchange fee cap shouldn't affect PagSeguro's revenue or earnings much at all, since PagSeguro's main business is in merchant acquiring fees and working capital loans. Management even said the cap could be a benefit to margins, since it pays interchange fees on the merchant acquiring side of the business.

That bit of negativity was followed by macroeconomic concerns in Brazil, which is grappling with both high unemployment and high inflation. The government recently unveiled an increased social spending plan in October, which threatened to exceed the country's constitutional spending cap.

Finally, a short seller recently published a report against PagSeguro and rival StoneCo (STNE -1.84%). The report alleges that PAX technologies, a Chinese company that manufactures both companies' point-of-sale devices, was recently raided by the FBI. The report doesn't come out with a price target, however, or how that may affect operations.

While it's not something to be ignored, in my experience, short reports often make mountains out of molehills in an attempt to hurt a stock. I think a problem with one supplier is likely temporary and/or not a mortal threat. In addition, the Brazilian economy will go through ups and downs over time.

Investors can take heart that most of the aforementioned problems are company-specific, even though PagSeguro's stock has been nearly cut in half. Yet the company seems to be executing well. Management already pre-announced strong third quarter numbers, with total payments volume up 85%, and PagBank active users up one million in the third quarter alone, good for 8.9% quarterly growth, or roughly 40% annualized.

Buying a high-quality stock when it's down is usually a good long-term bet, and I like this emerging-market fintech at this discounted price.