There are several different fast-growing industries that investors can put their money behind. Streaming entertainment, artificial intelligence (AI), and e-commerce are some popular ones. A long expansionary runway can be a key ingredient for strong market returns.
Besides those three, fintech is an exciting area to focus a bit more on. The financial services industry is a vast and complex beast, but there are newer businesses attracting users with compelling products and services. And their growth potential is substantial.
The good news for investors looking to put some money to work in fintech is that they don't have to pick a single winner. Here's why.
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Disrupting the incumbents
When you're thinking about financial services, massive institutions like JPMorgan Chase, Visa, Charles Schwab, and MetLife, probably come to mind. This isn't surprising, given these companies are still major players in their respective niches. And they affect millions, if not billions, of customers daily.
But many executives, analysts, and consumers would likely agree that the financial services industry as a whole has long been ripe for disruption. We've seen how technology can completely upend other industries, yet because of the stickiness that big banks, for example, might have, their competitive position has been more challenging to poke at. This has resulted in slower progress toward digitization.
This industry is also burdened with more regulation than others, so upstarts must navigate complex rules and laws when introducing new products. However, the business of money has proven to be a wonderful place for some fintech companies to flourish.
Different specialties within fintech
Investors don't have to pick a single winner in fintech because there are so many interesting businesses focusing on different specialties. Owning shares in each of these might be a smart move.
PayPal (PYPL 2.90%) might be the first official fintech company, having been founded more than 20 years ago. The digital payments pioneer, now with 433 million active accounts, makes it easy for people to send and receive money. PayPal also allows businesses to accept electronic payments and customers to seamlessly check out online. It processed a whopping $1.36 trillion of total payment volume in 2022.
SoFi Technologies (SOFI 3.69%) is trying to change how banking is done. It's an online-only bank that offers student loans and personal loans, credit cards, savings and checking accounts, and a brokerage, all through its elegant mobile app. Its membership base is up more than five-fold in the last three years. And recently, SoFi has seen its deposit base increase quarter over quarter thanks to expanded FDIC insurance. Its customers, who are generally younger, give it a sizable opportunity to handle more of their financial lives in the future.
By being the first discount brokerage to offer zero-commission trading, Robinhood (HOOD 4.44%) has completely altered the industry. Now every other broker, including Charles Schwab, offers the same thing. Robinhood has basically democratized access to the stock market, which is helping to level the playing field. Its funded accounts of 23 million (as of Dec. 31, 2022) are up from 5.1 million at the end of 2019.
Insurance is one of the oldest industries around, and it has long relied on the brick-and-mortar model to sell policies. But by utilizing AI, Lemonade (LMND 1.64%) thinks it has a game-changing platform. Customers can be approved for a new policy in as little as 90 seconds, and claims can be paid out in as quickly as three minutes, according to the company's 2022 Investor Day meeting. Lemonade has seen in-force premiums skyrocket in recent years as it expands into different insurance verticals.
Patience is a virtue
Most of those businesses that I mentioned are tiny compared to their larger counterparts. So it could take a long time for them to achieve any sort of meaningful scale. But by owning a basket of these innovative and disruptive companies, with a long-term time horizon to let them continue attracting customers and gaining market share, investors are well-positioned to benefit from this powerful secular trend.
