It isn’t every day that Wall Street fails so publicly.
And no, I’m not talking about a big investment firm or commercial bank going under.
Here’s the thing. You and I have been talking about financial technology for several years now. I like to think you have a real inside edge here.
This is a field I literally got involved with in the late 1980s, and have managed to get a piece of every new wave of innovation. Then again, it’s well worth it – global payments total some $100 trillion.
So, for J.P. Morgan Chase &Co. (NYSE:JPM) to tell clients it was shutting down a new app for young people, the offering, called Finn, must have been a train wreck.
Young people are some of the most coveted consumers on Earth because you can keep them for decades. For its part, JP Morgan has built a good digital franchise.
But its future now rides heavily on traditional banking… and physical branches, which most young people hate.
That’s why today, I am going to tell you about a terrific fintech leader that is crushing the broad market by 1,000%…
Going All the Way into Fintech
Now then, lest you think I’ve just bashing on JP Morgan for coming up short in fintech, let me give the Wall Street legend a shout out.
Fact is, the company is moving aggressively into blockchain technology. It recently became the first bank of its size to offer its own digital token, dubbed “JPM Coin.”
I totally applaud that effort and believe that a bank that moves $6 trillion in wholesale payments a year faces a lot of upside.
But its decision to pull the plug on Finn shows just how difficult it is to build a great product for mobile-centric young people.
Finn tried to have it both ways. It was a digital offering, but with some branch access. It just didn’t fit in at a time when the big bank is in the midst of building 400 new branches over the next five years.
Ironically, the firm has some 50.7 million digital users, more than any other bank. But for reasons of internal bureaucracy and failure to build an exciting product, JP Morgan decided to throw in the towel.
A Fintech Play for the Next Generations
And that’s just fine with us. Then again, there is a fintech firm with a formidable moat and a strong offering for Millennials. Ditto for those in Generation Z – mobile-centric young people like my daughters born around the turn of this century.
That’s why I want to tell you about an aggressive, fast-moving fintech leader whose stock is crushing Wall Street and who has a massive following among young consumers.
Paypal Holdings Inc. (Nasdaq:PYPL) is the fintech play we want to own here. The firm has been one step ahead of the banking industry, ever since it was launched in 1998.
The firm has its roots as a money transfer service and is the brainchild of such tech legends as Peter Thiel and Elon Musk.
Though just a few years old, PayPal’s reputation for innovation caught the eye of eBay Inc. (Nasdaq:EBAY), which bought the company for $1.5 billion in 2002.
Roughly a decade later, eBay spun out its stake. The move enabled PayPal to once again have the kind of bold and decisive growth strategies you’ll often find in tech upstarts.
Since then, PayPal has made more sharp moves to establish fintech dominance.
Making the Right Moves
As just one example, the firm acquired iZettle in 2018 for $2.2 billion. The deal was aimed at helping PayPal have a much greater presence in retail, as iZettle offered stores payment hardware and software solutions.
Simply put, PayPal is now a one-stop shop for cutting-edge commerce tools, offering clients a range of payment and commerce solutions that used to be reserved for big players.
We’re talking things like lightning-fast mobile card readers, intuitive point-of-sale systems, invoicing software, business funding and smart analytics.
To further build out the platform, PayPal went on to shell out $400 million to buy Hyperwallet, which helps individuals and small firms receive payments for goods and services they sell on online.
And you should know that PayPal has a smart history of other growth-inducing deals. In just the past few years, the firm has bought:
- Simility for fraud prevention.
- TIO Networks, which helps clients pay their utility and cable bills at kiosks.
- Swift Financial, a small business lender.
More recently, PayPal made its first-ever investment in a blockchain tech firm, buying a stake in privately-held Cambridge Blockchain. This startup helps firms manage sensitive data using shared ledgers.
Yet the crown jewel of PayPal’s buying spree is surely Venmo, which was bought for $800 million in 2013. Today, Venmo is a billion-dollar business for PayPal, thanks to its popular peer-to-peer payment app.
For today’s youth, Venmo is the new coin of the realm. In fact, in the most recent quarter, the volume of transactions on Venmo surged 73% to $21 billion. Little wonder that JP Morgan threw in the towel here.
PayPal has long known that the future of fintech is mobile, which ranks as the fastest growing part of the business. In the second quarter, mobile payment volumes shot up 50%, to around $34 billion, and now represent around one-third of all transactions.
Back in 2015, the firm launched One Touch, which lets clients send funds with just one click, once their log-in info has been stored.
One Touch and Venmo have been helping PayPal to build a massive and fast-growing customer base. Nearly 10 million accounts were opened up this past quarter, pushing the total client base to 277 million.
Innovation brings a clear payoff for PayPal. Its shares have risen 38% over the past year. That means it beat the S&P 500’s 3.8% growth by a stunning 1,000%.
But don’t worry, I still see plenty of upside ahead.
At its current growth rate, PayPal could double earnings in less than 3.5 years. Since stock trade at a multiple of earnings, it’s a good bet the stock will double over that period as well.
Some of the gains will be the fruit of more smart purchases. Right now, PayPal has around $9.5 billion in cash on hand, ready to be deployed for the next smart buys. The firm is also buying back millions of its own shares each quarter.
Here’s the key takeaway. Firms like PayPal are able to grow far faster than their end markets, while pulling all the right levers.
Whether it’s tuck-in deals, key partnerships, or smart R&D, PayPal is the kind of firm you can count on for repeated gains, year after year.
Another Incredible Investing Opportunity
Before I go, I want to let you know that Money Morning has recruited two of the world’s most successful “Sharks” for an unprecedented online summit.
On Tuesday, June 25th, they’re going to reveal how you can invest in business deals that can be 100 times more exciting that you see on Robert Herjavec’s hit TV show.
The best part? You don’t have to be rich. You can get started with as little as $50. And you can get in on “Shark”-like opportunities right alongside Robert and Neil Patel.
You’ll even get access to two deals during the event. Attendance is free, but you’ll need to click here to RSVP, while there are still open slots. Hurry though, there’s already about 68,000 people signed up.
Cheers and good investing,
Michael A. Robinson