The financial services industry is wide open with opportunity. Global consumers make over 1.3 trillion non-cash transactions annually, and that's estimated to grow to 2.3 trillion by 2027.
If you're looking for long-term investment growth, payments and banking are the place to be. However, it's a crowded field of new, disruptive competitors and entrenched leaders trying to remain on top. Not all will thrive.
I've handpicked three financial growth stocks poised to excel over the long term. You can buy a share of all three for under $1,000. Consider digging further into these names:
1. SoFi Technologies
SoFi Technologies (SOFI 3.69%) has grown remarkably since the pandemic, with 7.5 million members, up from just one million in early 2020. The company's super-app, a one-stop digital shop with all SoFi's products and services, replaces physical branches, letting members bank from anywhere. SoFi started in student loans, giving it brand recognition with rising generations like Millennials and Gen Z.
The company obtained a bank charter in 2022, leading to surging net interest income (where banks tend to make their profits). This is the spread between the interest it earns on lending and what it pays on deposits. These profits have grown enough to offset all the company's overhead, making the business profitable in Q4. Net income should rise rapidly as SoFi's banking operations grow.
SOFI Revenue (TTM) data by YCharts.
Such strong user growth, including a 44% year-over-year bump in Q4, shows SoFi's momentum isn't slowing much. Add in cross-selling, where users start using other products and services within the app, and SoFi is a high-growth stock that could generate hefty long-term returns. SoFi seems like an excellent play on younger consumers maturing into the driver's seat in the economy.
2. Visa
Payment networks like Visa (V -0.23%) make the financial world go round. It's how information flows between merchants where you swipe your payment card and the financial institutions where the funds are kept. The payment network charges the merchant a small fee for its services, a percentage of the transaction value. Visa is the world's leading payment network, with an estimated 57% of global cards in circulation today.
Today, there are only a small handful of relevant payment networks because the existing players are already accepted virtually everywhere. This wide moat has made Visa a remarkably profitable company. Visa's biggest weakness is the occasional recession, where lower consumer spending means fewer fees. However, these have turned into small bumps over time. Cash flow has also grown by leaps and bounds, helping fuel dividends and enough share repurchases that Visa has lowered its share count by 19% over the past decade. That helps supercharge earnings growth and drives share price appreciation.
V Revenue (TTM) data by YCharts.
Visa's massive presence means it will directly benefit from a global economy gradually moving away from cash payments. Innovation is always a threat to market leaders. Still, Visa is so ingrained in how money flows through the economy that it's almost certain that new technologies will at least have to work with Visa's network. Overnight disruption to Visa's profitable business model seems almost impossible.
3. Mastercard
Payment network Mastercard (MA 0.07%) plays Robin to Visa's Batman. It's the second-largest payment network but is no slouch in its own right. Mastercard stock has outperformed Visa's over the past decade. Mastercard's business model looks like Visa's, but it has different partnerships in getting Mastercard-branded payment cards to market.
Mastercard also does fine financially, converting an impressive 43% of revenue into cash flow. These cash profits go toward a dividend that's grown by an average of 34% over the past decade and still has a dividend payout ratio of just 20%. Mastercard also repurchases chunks of stock, lowering its share count by 20% over the same period. What's the theme? A growing, very profitable business financially engineers stellar investment returns with share repurchases and sharp dividend increases.
MA Revenue (TTM) data by YCharts.
Deciding a winner between Mastercard and Visa is complex, and owning both is the most straightforward way to ensure your portfolio benefits from these payment networks' deep roots in the economy. Mastercard has achieved a superior return on invested capital compared to Visa over the years, which could be why the stock has done better. Investors shouldn't hesitate to tuck Mastercard into their portfolio and let the company continue compounding for decades.
