Fintech Companies To Buy And Watch In 2020 Amid Coronavirus Impact

There's a broad selection of financial technology, or fintech companies, to watch and buy. Fintech stocks have grabbed the spotlight as digital technology changes the competitive landscape in e-commerce, payment networks, online lending, money transfers, business-to-business payments, personal finance and banking.

However, worries that the China coronavirus could become a pandemic and significantly slow the global economy have rocked stock markets. Mastercard (MA), Visa (V) and PayPal Holdings (PYPL) have warned that the China coronavirus, also called Covid-19, will impact financial results.

Fintech stocks with more transactions tied to cross-border travel and tourism will likely be impact more by Covid-19 than e-commerce focused companies, analysts say.

Fidelity National Information Services (FIS), Fiserv (FISV) and Global Payments (GPN) currently have higher Relative Strength Ratings than Visa, Mastercard or PayPal.

"We see relatively greater revenue and EPS risk at the payments networks vs. the merchant acquirers/processors based on the networks' relatively greater sensitivity to economic conditions broadly and to travel-related spending more narrowly," said UBS analyst Eric Wasserstrom in a report. He added: "We expect the three large merchant acquirers to mitigate top-line pressures with revenue and cost synergies from recent large acquisitions."

Merchant acquirers serve as middlemen between banks and retailers. They have contracts with retailers to handle the processing of credit cards and other transactions.

Meanwhile, the large group of fintech stocks ranks No. 21 out of 197 industry groups tracked by IBD, improving from No. 40 a week ago.

Fintech Companies: Worries Over China Coronavirus

Mastercard stock remains a member of the IBD Leaderboard of top-performing stocks. Square (SQ) has been taken off the IBD 50 roster of fast-growing companies.

In addition, VisaFiserv, Global Payments and Brazil-based StoneCo (STNE) have been removed from the IBD 50.

Square stock outperformed fintech stocks such as PayPal and Visa in early 2020. Square stock popped following its fourth-quarter earnings report on Feb. 26. It holds an investor day on March 18. Square's relative strength line has weakened amid the coronavirus fears, while those of PayPal, Mastercard and Visa have been stable.

A consolidation wave also has boosted some payment stocks and valuations of private companies.

Visa on Jan. 13 agreed to buy startup Plaid for $5.3 billion, continuing a wave of fintech acquisitions. Plaid's data network enables consumers to securely connect their bank accounts to financial services apps such as Venmo, Robinhood, Acorns Grow, Betterment and Chime.

Global Payments holds the fintech group's highest Composite Rating, according to IBD Stock Checkup. Global Payments, meanwhile, recently earned a close look as the IBD Stock of the Day.

Some analysts view Global Payments and PayPal as possible buyers of Square as fintech consolidation continues.

Fintech Stocks: Use The Right Investing Tools

If you think the time is right to move into fintech stocks, learn more about using technical charts in assessing payment stocks to buy.

The big picture is that industry incumbents face a challenge as big technology companies expand their role in payments.

A wave of fintech startups also aims to push aside the traditional banks and credit card companies. As consumer spending shifts to online and mobile platforms, there's less of a role for cash and checks.

A battle is raging among fintech companies to draw in merchants to payment ecosystems, along with billions of dollars in transaction fees. For some fintech companies, there's pressure to build out two-sided platforms serving both merchants and consumers.

Technology Giants Push Into Financial Technology

Apple (AAPL) and Goldman Sachs (GS) in August jointly launched a new consumer credit card. The new Apple credit card works with the iPhone's digital wallet app.

Then, there's Facebook Pay. The payment system works across Facebook (FB), Messenger, Instagram and WhatsApp. Analysts say there could be upside for PayPal stock as Facebook pushes into payments. Facebook's Libra digital currency, though, has struggled. E-commerce firm Shopify (SHOP), though, recently joined the Libra project.

Meanwhile, (AMZN) is getting traction with a digital payment system. Amazon Payments allows third-party merchants to improve checkout rates by letting shoppers pay with their Amazon account.

In addition, Amazon and Synchrony Financial (SYF) have partnered for a credit card for Prime program members. Alphabet's (GOOGL) Google also is mulling a move into providing checking accounts.

Payment Stocks To Watch And Buy

Amid growing competition, Mastercard is moving into new markets, such as business-to-business payments. Mastercard stock recently was featured as an IBD Stock of the Day after announcing a new share repurchase program.

Fiserv in July 2019 completed the purchase of First Data (FDC) for $22 billion in stock. Fiserv sells information and commerce-related services to banks, credit unions and investment managers.

Valuations of some fintech companies have climbed as analysts speculate on who's next to be acquired.

Global Payments and Total System Services in May 2019 agreed to merge in a $21.5 billion all-stock deal. The merger created a stronger competitor in the merchant acquirer market.

Fidelity National in March 2019 agreed to buy Worldpay (WP) for $35 billion in cash and stock.

PayPal in November pushed into e-commerce with the $4 billion purchase of consumer shopping app Honey Science. PayPal earlier bought a stake in Latin America-based e-commerce firm MercadoLibre (MELI).

Analysts expect more tie-ups between fintech and e-commerce companies, such as Shopify.

Since its spinoff from eBay (EBAY) in 2015, PayPal has expanded from online checkout to mobile payments to person-to-person money transfers. Its Venmo service now has 52 million active users. Former parent eBay, though, is phasing out its business ties to PayPal.

Fintech Stocks: What Financial Metrics To Look At

Look for fintech companies with intellectual property that creates barriers for rivals. Also, target fintech stocks that are growing their total addressable market by expanding products and services.

Other financial metrics to watch include total payment volume and gross merchandise volume.

Venture capital funding of fintech startups continues to go up, says CB Insights. Funding has been strong for startups in payments, e-commerce, online lending, and cloud software. Both Visa and American Express (AXP) are investors in Stripe.

Stripe's latest $250 million funding round gives it a valuation of $35 billion. Stripe's customers build its payment tools into their own smartphone apps and websites. Stripe also is a payment processor for Facebook Pay.

Among possible fintech IPOs to look for in 2020 is AvidXchange. Financial software maker Intuit (INTU) in February acquired Credit Karma for $7.1 billion. Further, Credit Karma had been viewed as a likely IPO.

B2B Among Fintech Companies To Invest In

Other well-funded startups include Kabbage and Symphony.

The business-to-business payment industry is shifting from paper checks to automated software tools and digital platforms. Incumbents in the B2B payments market include Worldpay, First Data and Total System Services.

The B2B market also includes merchant acquirers such as Global Payments.

In banking, artificial intelligence is playing a role in detecting fraud. Cloud computing software is replacing paper-based systems in the business-to-business payment market.

Blockchain May Figure In Fintech Future

Blockchain technology could have a long-term impact on fintech stocks.

The technology could play a role in securities clearing and settlement, digital identity and payments as soon as 2025, say the most bullish observers. Blockchain is the software technology behind Bitcoin and other cryptocurrencies. It's a shared public ledger, which tracks transactions and ensures that the record of those transactions remains transparent and tamper-proof.

Smart contracts are programmed into blockchains to automate tasks. One example would be processing insurance claims. Goldman Sachs (GS), JPMorgan Chase (JPM) and Bank of America (BAC) have been investing in blockchain technology.


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