2021 has been a wild year for stocks making initial public offerings (IPOs). Several big-name fintechs made their public debuts in 2021, including Coinbase Global, Robinhood markets, Marqeta, and others.
This past year was the strongest year of IPO listings on record, with over 2,388 deals made this year totaling $453 billion, according to the accounting firm Ernst & Young.
While experts think IPO markets will cool down next year, several private unicorns still haven't made their public debut. Three huge fintechs I'm watching going into 2022 are Stripe, Plaid, and Chime. Each sports a private valuation exceeding $10 billion.
Stripe is a fintech that brings payments into the digital age. The company helps process payments and credit card transactions for businesses on the internet.
Stripe is used globally by millions of companies across 120 countries. Companies using its payments technology include Amazon, Alphabet's Google, Shopify, and Spotify, to name a few. It calls itself the "payments infrastructure of the internet," using an application programming interface (API) to accomplish this.
Bringing payments into the digital age means businesses can process funds quickly and securely. For example, Stripe can protect companies from fraudulent transactions by verifying customers' account balances before completing a transaction. That's just one of many reasons companies turn to Stripe for its payment solution. Stripe makes money in a number of ways, but most of its revenue comes from payment processing fees -- which come out to about 3% on average.
In March 2021, Stripe raised over $600 million in funding, which it invested to expand its European reach. The round of fundraising also gave it a $95 billion valuation, making it the largest privately owned fintech globally.
Investors eagerly await Stripe's public debut. Bloomberg reported in September that the payments company was in talks with investment banks about going public in early 2022. However, co-founder John Collison told CNBC in November that "we're very happy as a private company." Either way, investors are eagerly awaiting the Stripe IPO -- which will likely be one of the largest IPOs ever completed.
Plaid is another fintech bringing payments into the modern age. While Stripe focuses on helping facilitate transactions for businesses, Plaid makes it easier for customers to connect their bank account to different financial apps. For example, when you connect your bank account to PayPal's Venmo, Chime Financial, or Robinhood to quickly transfer funds, you likely use Plaid's technology.
Plaid makes it seamless for users to make transfers by simply logging into their bank account through the app they're using. In the past, customers would input info like their bank account number and routing number and then wait days before transferring funds.
Plaid is free for those who use it, so how does it make money? Plaid makes money from the companies it connects customers to. For example, if you connected your bank account to Coinbase, Coinbase would pay a fee to Plaid since it helped facilitate that transfer.
Plaid's most recent round of funding was completed in April 2021, totaling $600 million. This round of funding gave Plaid a valuation in the ballpark of $10 billion to $15 billion.
Like Stripe, Plaid isn't in a rush to go public. A failed acquisition in 2020 by Visa due to antitrust concerns suggests there is a lot of interest in the company. One spokesperson for the company told Barron's back in April that "with $600 million, [Plaid] can be independent for a long time." However, it may not be bad for the company to strike while the iron is hot, and 2022 may be that time.
3. Chime Financial
Chime Financial is a company that looks to bring banking services to all types of customers, focusing on those underserved by traditional banks. Chime partners with regional banks to design financial products for customers, creating a competitive market with low-cost options for everyday Americans.
The company focuses on underserved markets and pushes "fee-free" banking for its customers. It doesn't charge overdraft fees, monthly service fees, or minimum account balance requirements. Chime believes that "everyday banking and payment services should be helpful, easy, and free," and in addition to its fee-free banking model, it also offers 60,000 fee-free ATMs across the country.
Every time customers swipe a Visa or other card, businesses must pay those companies a transaction fee ranging from 0.5% to 5%. It's from these fees that Chime makes its money. The company is partnered with Visa and makes money from a portion of the transaction fees Visa charges merchants when customers use their Chime debit card.
In August 2021, Chime raised $750 million in funding, giving the fintech a $25 billion valuation. At this valuation, Chime is the third-most valuable private fintech globally, trailing only Stripe and the Swedish buy now, pay later firm Klarna.