Fintech, or financial technology, has become a market buzzword as tech-driven upstarts have changed the landscape in the broader financial sector. Nearly everyone engages with it in some capacity, through mobile payments, online banking, and chip-based credit cards.
While every financial company has introduced new technology into their systems, including financial giants like Visa and Bank of America, many young companies offer investors the chance for high growth. Consider Nu Holdings (NU 0.57%) and SoFi Technologies (SOFI +1.82%). Both of these banks are small, all digital, and growing at fast rates.
Which one is the better fintech buy right now?
Image source: The Motley Fool.
The case for Nu: high growth and vast opportunities
Nu is based in Brazil, where it already has more than 60% of the adult population as customers. More recently, it also entered the Mexican and Colombian markets, where it's growing even faster.
It has huge opportunities in multiple ways. It's still adding millions of customers in Brazil, but even as the rate of customer add-ons slows down in this market, it still has a small portion of the gross profit. That means it's still viewed as a platform for certain financial activities, and the company has the chance to cross-sell more products and monetize its existing consumer base. It only recently received approval for a full bank charter, which will allow it to offer a more comprehensive assortment of products.
NYSE: NU
Key Data Points
It's following its Brazil playbook in Mexico and Colombia, where the market is still undertapped; it has 15% of the adult population in Mexico on the platform, and 11% of the population in Colombia.
Finally, it has ambitions to become a global financial powerhouse. It has already received approval for a banking charter in the U.S. and plans to open within the next 18 months, and in the meantime, it's building its brand presence with sponsorship deals.
Nu stock is up 42% over the past year, but it could skyrocket further as the company expands.
The case for SoFi: gunning for the top 10
SoFi operates a similar financial platform in the U.S. It's adding customers at a fast pace, with record additions each quarter over the past four. Customers love its easy-to-use interface and products that speak to its core audience of students and young professionals. Management has pointed out that 90% of SoFi Money deposits are direct deposit, implying a reliable and growing source of recurring revenue.
NASDAQ: SOFI
Key Data Points
The company has worked to expand the platform and diversify its product line, leading to a strong cross-selling strategy and high engagement. The low-cost, fee-based financial services segment continues to outpace lending growth, and the technology platform segment, which is a financial infrastructure business, adds value in diversification and growth while offering the ability to quickly develop its own new products.
Management has reiterated that it's aiming to become one of the top 10 financial institutions in the country, and if it can continue to keep up current growth rates, it could happen in the not-too-distant future.
I own and recommend both of these stocks. They both require some appetite for risk, but my take would be that if you have a higher risk tolerance, you might want to choose Nu, and if you're looking for a great buy on the dip, go for SoFi.
