Fintech

Claim and Lock: Goldman Sachs Selects the Best Fintech Stocks to Buy

Published

12 months ago

27 June, 2024

In recent years, the financial industry has evolved significantly, driven by the emergence of fintech applications. These platforms, such as digital payment systems and peer-to-peer lending, have introduced more transparent and secure methods of transactions. As a result, consumer trust in these technologies has increased significantly, and companies are reaping the benefits of increased convenience and improved customer connectivity.

The fintech sector is large and continues to expand rapidly. Last year, the global fintech market was valued at nearly $295 billion, with projections indicating it will rise to $340 billion this year. According to Fortune Business Insights, the industry could reach $1.15 trillion by 2032, reflecting a compound annual growth rate (CAGR) of 16.5%.

In this dynamic environment, Goldman Sachs analyst Michael Ng has been closely monitoring the fintech sector and has identified two stocks, Affirm (NASDAQ:AFRM) and Block (NYSE:SQ), as major investment opportunities. Let’s see what these names have that sets them apart from the crowd.

Affirm holdings

At the top is Affirm Holdings, a customer-facing fintech dedicated to providing honest financial products to make your life easier. The company specializes in digital payments, providing a platform for digital and e-commerce use. Affirm offers several options for making payments in physical locations, including smartphone apps or the Affirm debit card. While the service works like a credit card, and can be used like one, there is a difference: Affirm users agree to their debt limit upfront, ensuring spending stays within affordable limits.

Affirm doesn’t charge users fees for the service, a move that helps keep the account transparent. The majority of Affirm’s revenue comes from commissions charged to sellers. This creates a win-win situation, as sellers benefit from guaranteed payment clearing through Affirm.

The result is that Affirm has long been at the forefront of “buy now, pay later” online apps. This positioning helped the company immensely during the pandemic period, when lockdown policies had the unintended ripple effect of boosting e-commerce and online payment systems.

However, as the pandemic has subsided, Affirm shares have taken a hit, falling sharply from their 2021 peak of nearly $170. Year-to-date, Affirm shares are down 31%.

In a major development announced this month, Affirm has partnered with Apple. As part of the partnership between the two companies, Apple will discontinue its “buy now, pay later” service later this year and use Affirm as a third-party app for installment loan purchases.

The company’s overall strength can be seen in its latest earnings report. Affirm reported fiscal 3Q24 revenue of $576 million, up more than 51% year-over-year and beating estimates by more than $26 million. Ultimately, the company reports a net loss, but in this latest report, the EPS net loss of 43 cents wasn’t as deep as expected, beating estimates of 28 cents per share.

Affirm’s combination of strong performance and smart management caught the attention of Goldman’s Ng, who wrote of the company: “We are particularly impressed by AFRM’s underwriting sophistication compared to other fintechs and the company’s strong track record of achieving well-managed credit results despite faster growth than peers… We believe this, combined with the secular tailwinds favoring BNPL and Pay-in-4 offerings and AFRM’s impressive distribution with major credit platforms e-com, should lead to strong market share gains and provide a path towards AFRM becoming one of the first new closed-loop platforms in the payments ecosystem.”

Looking ahead, Ng is also impressed by the potential of Affirm’s various partnerships, writing, “AFRM is still small in the grand scheme of unsecured lending in the U.S., and we see the company’s partnerships with Shopify, Amazon, Walmart, and most recently Apple Pay as important unlocks that should allow the company to maintain high growth rates.”

Quantifying this position, Ng rates AFRM shares a Buy and his price target, set at $42, implies a one-year upside of ~34%. (To see Ng’s resume, Click here)

While Goldman’s view is quite bullish, Wall Street’s overall view of AFRM is more cautious. The stock’s consensus rating is Hold, based on 14 recent analyst reviews that break down into 4 Buys, 7 Holds, and 3 Sells. The shares are currently trading at $30.46 and the average price target of $37.44 suggests an upside of ~23% over the next year. (See AFRM Stock Forecast)

To block

Next up is Block, one of the biggest names in fintech. The company started out as Square, the merchant-facing payment processor, but as it expanded, it transformed into a holding company. Under the Block name, the company continues to own and operate Square; its other major subsidiary is Cash App, the popular digital payment app.

Between them, Block’s two largest subsidiaries lend a helping hand to the company on both sides of the digital transaction landscape. Merchants use Square for efficient process automation, revenue stream organization, and payment acceptance flexibility, all to smooth and increase their revenue stream. Square’s app includes software that can be accessed via smartphones and tablets, as well as hardware that can turn handheld devices into cash registers and card readers. Cash App lets its users quickly streamline their cash account, for fast, easy, and most importantly, universally accessible online payment options.

Even though shares are down 18% this year, sales are up. Block’s 1Q24 revenue was $5.96 billion, up more than 19% year-over-year, beating expectations by $140 million. These solid revenues supported earnings, by non-GAAP measures, of 85 cents per share, 12 cents per share ahead of forecast. The company’s gross profit was $2.09 billion, up 22% from the prior-year quarter. Subscriptions and services were among the main drivers of this successful quarterly report; S&S’s revenue increased 23% y/y to $1.68 billion, while its gross profit grew 28% y/y to $1.41 billion.

Analyzing Block for Goldman, analyst Ng sees a solid fintech with great potential. He writes in his recent note: “We view SQ as one of the leaders in SME payments and consumer fintech, capitalizing on its long history of product-led innovation. Excluding COVID years, shares remained range-bound for 6 effective years, despite a 44%/22%/41% CAGR on Gross Profit/Seller GPV/Cash App Assets. Additionally, the company has also begun increasing free cash flow and valuation support, introducing a Rule of 40 framework, moving to GAAP-based targets (including SBC), and still expects mid-teens GP growth.

Ng goes on to outline the future path of this company, painting a picture that should interest investors: “By our estimates, the shares are trading at approximately 18 times our GSe adjusted EPS estimate for 2025, which we think is attractive for a company that will continue to grow its market. double-digit top-line and with several “moon shot” levers to accelerate growth.”

Overall, Ng rates SQ shares a “Buy,” while his $80 price target implies a 26% upside over the one-year horizon.

This view from Goldman is not unusual, and Block’s Strong Buy consensus rating is based on 32 recent reviews that include 25 Buys, 6 Holds, and just 1 Sell. The company’s shares are selling for $63.39 and have an average price target of $89.63, which is significantly more bullish than Goldman’s and indicates a one-year earnings potential of 41%. (See SQ Stock Forecast)

To find good ideas for trading fintech stocks at attractive valuations, visit TipRanks Best stocks to buya tool that unites all of TipRanks’ stock information.

Disclaimer: The views expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

10 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

10 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

10 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

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Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

10 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”