Across most industries, digital technologies are disrupting the long-held business model. As a result, corporations’ degree of success mastering and leveraging these new technologies will determine their success or failure. Provided the type of end-user a company is addressing it can perform well during challenging economic environment. This is particularly true when it comes to digital payments which is on the rise and potential scale of business is almost unlimited.
Digital technologies enlarge the boundaries of a business and provide new perspectives and opportunities for both existing and new providers. However, because new entrants can often see business opportunities more clearly than entrenched providers, these challengers have a substantial edge. They will capture significant market share by offering valuable information through inexpensive channels – information which has previously been withheld from customers.
Digital natives and Millennials tend to be much less loyal than traditional customers – they simply want their financial needs meet in a new way – online and in an interactive and multichannel environment. It seems so easy!
In an ideal world, customers could interact with a company’s database 24 hours a day, 7 days a week. Yet, setting up an ultra-convenient digital experience is highly complex: it requires both a sound comprehension of the business environment, and (more importantly) the building of sophisticated big-data capabilities that are able to interact with external providers, social media, and location. This second requirement is critical to providing each customer with individual, tailored attention. Remember that the benchmarks in creating excellent customer experiences are set by such e-commerce leaders as Amazon, Apple, amongst others.
In the space of FinTech, we see the following opportunities:
- Paypal: With more than 260 million users worldwide, Paypal is the largest of the companies and can look back on considerable growth. Since its IPO in 2015, the company has increased its market capitalization by around 240%. And the potential has not yet been exhausted. PayPal has sustained low double-digit total payment-volume growth, excluding currency movements, throughout 2022. More importantly, PayPal’s active accounts completed an average of 50.1 transactions over the trailing-12-month period as of Sept. 30, 2022. That’s a 25% increase from where things finished at the end of 2020. While there were some management issue in the past, we believe that they were addressed now and given this, PayPal stock is cheap given the broad market outlook.
- FIS : The more than 50,000 employees in over 130 countries and a turnover of 8.4 billion US dollars are not enough. At least for the American financial services provider FIS. In order to strengthen its own position, the company intends to take over the British payment processor Worldpay and exploit economies of scale.
- Fiserv: Fiserv also relies on the advantages that a certain size of the group brings with it. By purchasing Firstdata, the company intends to leverage economies of scale and increase cost efficiency. Fiserv also has a buy rating from numerous analysts. (Source: VT)
- UpStart: Upstart Holdings (UPST) is a more dynamic opportunity. Rather than using credit scores to vet loan applications, Upstart is relying on artificial intelligence (AI), Blockchain technology, and machine-learning to automate the process. This saves time and money for Upstart’s nearly seven dozen bank and credit union partners.
- Additionally, Upstart’s applications have broadened the prospective client base. The main advantage for the onboarded institution is that the credit-risk profile does not increase, but rather decreases given the highly efficient process.