There’s no doubt the fintechs are making headway as a viable market sector to invest in.
The Hayne Royal Commission caused a shake-up in our traditional banking system, and it was fintechs that answered the call to take on the Big Four and initiate the change to ‘open banking’.
And they seem to be doing a decent job at it.
Afterpay Touch Group Ltd [ASX:APT], the ‘buy now, pay later’ (BNPL) giant, lead the way into a tech-driven turnaround in finance.
Since their IPO on 30 June 2017, APT’s share price has climbed over 1000%, and with a beachhead established in the US, could climb even higher.
It’s little wonder why they are one of our three favourite fintech stocks here at Money Morning.
You’ve likely never even heard of the other two. But we believe they are standouts in the fintech sector. We won’t talk about them in this update, but you can check them out for yourself here.
Today, we’re going to look at three other fintech stocks that have caught our attention recently.
Sezzle’s flying start
The success of Afterpay has brought on a bunch of fresh contenders to the ASX-listed fintech world, to the point where it’s getting to be an oversaturated sector.
Sezzle is one of these hungry newbies — A US-based BNPL provider aimed at ‘financially empowering the next generation’ by allowing purchases to be split into four interest-free payments.
Having only publicly listed in July this year, the company kicked off with a bang, with their share price climbing 124% in the first two days of trading.
Investors no doubt saw similarities between Sezzle and Afterpay, expecting a similar story of exponential growth.
After the initial burst, the share price began to slide, only to spike again on the release of Sezzle’s half-year results.
The update revealed significant growth in underlying merchant sales from $4.5 million to $70.2 million for the 12 months leading to June 2019.
This resulted in a total income of $4.3 million over the same period, compared to just $300,000 in the 12 months prior.
Net transaction losses also dropped to just 1.5%, compared to 2.1% in the prior corresponding period.
In the final FY19 quarter, Sezzle completed their Canada launch and saw month-over-month growth in underlying merchant sales for that region.
Analysts at Ord Minnett maintained their buy rating on the company with these results, solely impressed by the strong North American customer growth.
Indeed, having a foothold in this market is certainly part of Sezzle’s appeal.
But $4.3 million in revenue against today’s market cap of $165.8 million could be a concern.
Splitit’s slight edge
Next up is Splitit, another BNPL competitor who offer their customers the ability to pay for their purchases in interest-free monthly instalments.
They first listed on the ASX in January this year at 20 cents a share and managed to hit $1.62 by March.
Other than this temporary spike, however, the stock got locked in a slide and has been trading sideways since June:
That said, Splitit are showing signs of growth.
The company’s half-year FY19 results showed a 121% increase in active merchants compared to the prior corresponding period.
Revenue from continuing operations was also up 193%, driven by increased merchant fees.
In comparison to Sezzle (net loss of US$4.7 million), Splitit managed to lose a bit less (US$3.8 million).
And Splitit also have a small point of difference in the fintech market.
Splitit CEO, Gil Don, noted in the most recent half-yearly report that the company isn’t subject to the same responsible lending requirements as other BNPL providers because customers are using credit already available to them through their existing banking card accounts.
This means established financial services players can use the product, which Splitit are trying to target.
And the company is definitely looking to ‘rapidly scale merchant numbers’ via new commercial partnerships.
Splitit intend to break into the Asian market by partnering with e-Commerce platforms EFTpay and GHL.
Perhaps further news on the success of these partnerships will help bump up investor interest.
QuickFee’s winning design
QuickFee may prove to be the most successful down the track however.
Another newbie to the fintech space, QuickFee have been on a significant uptrend in the past month, shooting past their previous high of 50 cents achieved on the first day of trading.
The company’s FY19 results triggered the surge, with combined AU and US revenue growing 288% in the year.
The company is also on sitting cash and cash equivalents of more than $11 million, meaning they are ‘now well funded for their aggressive growth strategy’.
Their strategy aims to capitalise on QuickFee’s first-mover advantage in the US as a finance provider to professional service firms.
Established in 2009 in Australia, QuickFee allows firms to accept monthly payment plans, EFTPOS plans or credit card plans from their clients.
There are now a recorded 600 Australian firms signed to QuickFee, including two of the Big Four accounting firms.
QuickFee aims to match this reach in the US, where they currently have 252 firms using the platform.
By targeting businesses rather than consumers, QuickFee do not need to directly compete side-by-side with other fintechs going after retail customers.
So while Splitit and Sezzle are trying to reach the same clientele, QuickFee are targeting a relatively untapped pocket of the market.
The estimated combined revenue of the Aussie and US accounting sectors in 2018 was $45 billion — and that’s where QuickFee’s merchants lie.
Afterpay could be hard to topple — look for unique business models
It remains to be seen how many of these recently IPO’d companies will still be around in five years.
QuickFee may prove to be the most sustainable of the three as they aren’t competing with Afterpay directly. Afterpay is a behemoth (bigger than AMP we note) and could force competitors out eventually.
So the takeaway is to look for points of difference in business models among fintechs, as opposed to solely focusing on growth figures.
For Money Morning