Ever hear that joke about a Starbucks on every corner? It starts to make sense when you realize that there are over 15,000 locations across the United States.
But that pales in comparison to the over 80,000 full-service bank branches. Add in ATMs, and now you are at almost half a million locations where you can get cash.
The funny part about that is even though there are so many locations to get cash, I can't remember the last time I walked into a bank, and I can imagine you are thinking the same thing.
That's more than a simple shift in consumer preferences. It's a massive trend in fintech that could push the best financial stocks even higher...
Why FinTech Companies Are Rapidly Changing
The pandemic has really changed the way we think about banking. No longer are you going to the bank to meet with a banker or heading to the ATM to take out cash. In fact, it almost seems like people are not using cash at all. That was even before the pandemic pushed the cashless movement to new heights.
Visa Inc. (NYSE: V) has echoed this sentiment. At a recent investor conference, management discussed contactless payments displacing cash and the expectation for there to be 300 million contactless cards by the end of the year. That is roughly one for every person in the United States.
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With bank branches closed across the country and many stores declining to take cash, digital first companies like PayPal Holdings Inc. (NASDAQ: PYPL) and Square Inc. (NYSE: SQ) have seen a huge influx of users. PayPal added 40 million new customers in the first six months of year, and Square added 25% more users to its Cash App. PayPal and Square already offer small business loans in their product suite, and now Square is testing a $200 loan feature to help people who may be short on cash until their next paycheck. They have also been very involved in PPP loans facilitating over $800 million worth in only a few short months.
Banking has begun to unbundle, customer behavior is adapting quickly to the new normal, and technological changes have created a new class of fintech competitors. Just like moving away from cash, people have started to move away from traditional bank lending. If you search for a loan online, you don't get a traditional bank, but sites like LendingTree Inc. (Nasdaq: TREE) or Upstart, a company providing personal loans from $1,000-$50,000.
My Top Financial Stock to Buy Now
When I think about Fintech, I go to one of my favorite investments, ARKs Fintech Innovations ETF (NYSE: ARKF). With so many companies innovating in banking and payments, I want to invest with the best. ARK's active management has done a great job of picking some of the best-performing fintech companies, and that shows in its performance. Its Fintech Innovations ETF is up over 50% this year and 100% since the bottom in March, making it one of the top-performing ETFs.
It holds well-known payment innovators like Square and Paypal, and Lending Club Corp. (NYSE: LC) a peer-to-peer lending platform. ARK takes a global view with Mercadolibre Inc. (NASDAQ: MELI) as its third largest holding, which is an e-commerce and payments company in South America. It also holds Sea Ltd. (NYSE: SE), which does payments in Southeast Asia and Adyen (OTCMKTS: ADYEY), a Dutch company offering merchants online services for accepting electronic payments. It even holds forward-thinking companies like SBI Holdings Inc. (OTCMKTS: SBHGF), a major partner with Ripple, one of the top cryptocurrencies for cross-border transaction.
The pandemic has created a digital transformation across the globe and the environment for banking is changing quickly. This means that PayPal and Square are not the only companies innovating.
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