With less than five days left before we turn the page on 2022, it's safe to say this year hasn't gone the way most investors planned. Unless you're a short-seller or invested heavily in energy stocks, you're probably sitting on some unsightly unrealized losses for the year.

Thankfully, bad years beget opportunity for investors with a long-term mindset. Since 1950, the S&P 500 has undergone 39 separate double-digit percentage declines. With the exception of the current bear market, all 38 previous drops were eventually recouped by a bull market rally. In other words, big declines are the perfect time to look for game-changing investment ideas.

A person holding their smartphone above a portable point-of-sale device to make a contactless payment at a cafe.

Image source: Getty Images.

One such growth trend that has the potential to deliver phenomenal returns this decade is financial technology, which is more commonly known as "fintech." Fintech companies are using technology to improve various aspects of the financial services landscape. Based on a recent report from Adroit Market Research, the global fintech market is expected to deliver a 20.5% compound annual growth rate this decade to reach $700 billion by 2030. 

But while there's plenty of opportunity for long-term investors to snag game-changing companies in the fintech space, not every stock is necessarily going to be a winner. What follows are two fintech stocks to confidently buy hand over fist in 2023, as well as one investors can avoid like the plague.

Fintech stock No. 1 to buy hand over fist in 2023: PayPal Holdings

As we spring forward into a new year, the best value in the fintech space just might be digital payments behemoth PayPal Holdings (PYPL 0.33%).

To be clear, PayPal hasn't had the best year. Shares of the company are down 63% year to date, with high inflation hurting the discretionary spending power of low-earning workers, and rapidly rising interest rates threatening to plunge the U.S. economy into a recession in 2023. While neither of these two points is positive for PayPal, the most important growth metrics for the company are still headed in the right direction.

Even with inflationary pressure weighing on the lowest decile of earners, the total payment volume traversing its digital payment networks jumped 14% on a constant-currency basis in the September-ended quarter, and is expected to climb by 12.5% (excluding currency movements) for 2022.  This demonstrates a steady shift in digital payment adoption, a stronger-than-anticipated consumer who's willing to absorb higher price points, and a slow but steady rise in net new active accounts for PayPal.

As I've touched on previously, what's been even more impressive is the user engagement on PayPal's digital platforms. In less than two years, the average number of digital transactions completed by active accounts over the trailing 12 months has grown by 25% to 50.1, as of Sept. 30, 2022. It's a very simple formula for payment facilitators like PayPal: More transactions lead to higher gross profit for the company.

Another catalyst for PayPal in 2023 is its cost-cutting measures. Over the summer, CEO Dan Schulman outlined a target of at least $1.3 billion in cost savings for the upcoming year.  Although cost-cutting is a temporary needle-moving action, it comes at a time when PayPal is cheaper than it's ever been as a publicly traded company.

At a multiple of just 14 times Wall Street's forecast earnings for 2023, PayPal appears poised for a bounce-back year.

Fintech stock No. 2 to buy hand over fist in 2023: Upstart Holdings

The second fintech stock that investors can buy hand over fist in the new year is cloud-based lending platform Upstart Holdings (UPST 2.21%).

If you think PayPal had a bad year, let me introduce you to Upstart. Shares of the company are nearly 97% below their all-time high of $401.49 that was set just 14 months ago. With the Federal Reserve increasing interest rates at the fastest pace in decades, we're witnessing a sizable drop-off in loan demand. That's certainly not great news for a lending platform. But in spite of this headwind, Upstart brings industry-disrupting potential to the lending space.

The differentiating factor with Upstart is its artificial intelligence (AI)-powered lending platform. Instead of utilizing age-old impersonal metrics, such as a loan applicants' credit score, Upstart relies on AI and previously vetted loans to make automated determinations. According to the company, three-quarters of its processed loans in the third quarter were approved and completely automated. This means quick answers for applicants and reduced expenses for the company's nearly seven dozen bank and credit union partners. 

But Upstart isn't just saving lending institutions money -- it's also broadening their addressable market through the use of AI. You see, Upstart approvals have a lower average credit score than those approved with the traditional loan-vetting process. However, the loan delinquency rates between Upstart and the traditional process have been similar. This suggests Upstart's platform can bring financial institutions new customers without worsening their credit-risk profile.

Something else worth adding to the above is that the bulk of the Fed's interest rate hikes is likely over. While higher rates discourage lending, the pace of borrowing cost increases should lessen significantly after the first quarter of 2023. That's a probable tailwind for Upstart.

Finally, consider where Upstart has been and where it's going. For years, it's primarily focused on vetting personal loans, which has an estimated loan origination value of $146 billion. In 2022, it began vetting auto loans and small business loans, which combine for a greater than $1.4 trillion addressable loan origination market.  The Upstart story is just getting started.

A small pyramid of miniature boxes and a mini orange handbasket set atop a tablet and open laptop.

Image source: Getty Images.

The fintech stock that should be avoided in the new year: Shopify

On the other side of the aisle is an exceptionally popular fintech stock that should be avoided like the plague in 2023. I'm talking about cloud-based e-commerce platform Shopify (SHOP 0.29%), which provides an assortment of marketing and financial solutions for merchants, which is why it qualifies as a fintech stock.

To be upfront, Shopify isn't your traditional "avoid like the plague" stock. It's not a poorly run company and does have a potentially exciting future as a key player in e-commerce. As consumer shopping habits continue to favor the convenience of direct-to-consumer models, Shopify should have no trouble building its subscriber base, which is currently dominated by small businesses.

Earlier this year, Shopify estimated that its total addressable market just for small businesses was $160 billion.  For context, the company is pacing $5.5 billion in sales for 2022. In other words, there's ample room for sustained sales growth.

However, 2023 doesn't look as if it'll be a banner year for Shopify for a variety of reasons. Historically high inflation has hurt the discretionary buying power of consumers, which adversely impacts the small merchants that Shopify's platform is reliant on. 

Furthermore, Shopify's focus on cost-cutting is a concern for a company that's been aggressively valued by investors as a supercharged growth stock for years. In July, the company announced that it would reduce its staff by 10% after making an incorrect assumption that e-commerce growth would continue to accelerate due to the pandemic.  Even though cost-cutting is the right move in the current environment, it's a glaring admission that the company's supercharged growth heyday is over (at least for now).

Don't overlook growing competition from Amazon (AMZN 0.83%), either. In April, Amazon introduced the world to "Buy with Prime." This brand-new service extends the benefits of Prime beyond the borders of Amazon's leading e-commerce marketplace.  In short, it's a direct threat to the e-commerce payment model that helps Shopify generate a significant chunk of its revenue. In Shopify's defense, it's not a mom-and-pop shop that Amazon can simply waltz over. Nevertheless, Amazon has an army of more than 200 million Prime subscribers that could inadvertently eat into Shopify's pie.

Lastly, Shopify's valuation is still troublesome. Even after plummeting 80% from its all-time high set just 13 months ago, Shopify is still valued at 6.4 times Wall Street's estimated sales for the company in 2023. Worse yet, it's sporting a $43 billion market cap and may not be profitable in 2022 or 2023. This makes Shopify a no-brainer avoid for the new year.