In this article, we will take a look at the global fintech industry and then discuss the 10 best fintech stocks to buy in 2024.
A Breakdown of the Global Fintech Industry
Based on a collaboration between the World Economic Forum and the Cambridge Centre for Alternative Finance, a report revealed that the global fintech industry has been strong post-pandemic with the average global customer growth rates above 50% from 2021 to 2022. In this growing market, fintechs are bringing tailored financial services and products to underserved segments of the population. These segments make up a sizeable portion of the consumer base of fintech firms operating in both advanced economies and in emerging markets and developing economies.
For the second year in a row as reported by CNBC, payments serve as the largest individual industry segment with a 24% share, although it is really fragmented with many firms moving money across the globe. Alternate finance which encompasses crowd-funding apps and online lenders follows with a 16% share. Other segments and their relative shares include 14% of neo-banking, 12% of wealth technology, 10% of business process solutions, 10% of banking solutions, 8% of financial planning, and 6% of digital assets. Country-wise, the US serves as the single biggest fintech market which hosts 46% of the top 250 fintech companies. Meanwhile, the UK hosts 12% while India is home to 4% of these companies. India has replaced both Germany and France due to its rapidly increasing digital adoption.
Current Landscape for Fintechs
In the prevailing industry landscape, fintech companies that are on the lower end appear to be better off. Previously, Bank of America’s CEO mentioned the consumer to be very stable and not getting worse. On the contrary, JP Morgan Chase COO Daniel Pinto warned that net interest income is going to be challenging next year with the expected Fed rate cuts just on the horizon. Ally Financial CFO talked about worse conditions as its borrowers are facing job market weakness as an increasing concern other than inflation.
In an interview with CNBC, Dan Dolev, senior analyst in fintech equity research at Mizuho, emphasized the rising consumer credit concerns. In his opinion, the fintech players with more exposure to the lower income consumers are doing better. He mentioned that low-end consumers had a lot of steamy money that they spent beyond their means. These consumers have pulled back on their spending to pay back their loans after depleting their savings 6 or 12 months ago. Meanwhile, the prime consumers are now facing the same pressure subprime consumers faced several months ago.
With that being said, let’s move to the 10 best fintech stocks to buy in 2024.
Our Methodology:
In order to compile a list of the 10 best fintech stocks to buy in 2024, we first used stock screeners and relevant ETFs to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best fintech stocks to buy in 2024 have been arranged in ascending order of their hedge fund holders, as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Fintech Stocks To Buy in 2024
10. Nu Holdings Ltd. (NYSE:NU)
Number of Hedge Fund Holders: 59
The Brazilian fintech company Nu Holdings Ltd. (NYSE:NU) works as the world’s biggest digital banking platform outside of Asia. The company serves more than 105 million customers across Brazil, Mexico, and Colombia. By number of customers, Nu serves as the fourth-largest financial institution in Latin America. The firm promotes financial access and caters to the complete financial journey of customers.
With its pace of customer growth exceeding expectations, Nu Holdings Ltd. (NYSE:NU) continues to be a rapidly expanding platform. For the fiscal second quarter of the year, Nu added 5.2 million new customers, 20.8 million year-over-year, while the activity rate climbed to a new record high of 83.4%. The firm has successfully become the institution with the largest number of active customers in credit operations. Simultaneously, revenues climbed 65% year-over-year to a record high of $2.8 billion. The regional footprint also remains strong with Nu being the primary banking account for 60% of monthly active customers in Brazil, growing deposit yields in Mexico, and crossing the 1 million customer mark in Colombia.
Other than driving strong customer acquisition, Nu’s business model fuels its multi-product growth. The core products including credit cards, digital accounts, and unsecured lending have almost 42 million, 78 million, and 9 million active customers respectively. Investments are used by over 18 million users while the company’s insurance product has 2 million active policies.
With the position of one of the best-capitalized players in the region, expanding customer base, success in introducing relevant new products, and robust top-line growth, Nu Holdings Ltd. (NYSE:NU) ranks among the 10 best fintech stocks to buy in 2024. As of Q2, the stock is held by 59 hedge funds while Berkshire Hathaway is the most prominent shareholder in the company.
9. Block, Inc. (NYSE:SQ)
Number of Hedge Fund Holders: 59
Block, Inc. (NYSE:SQ) is a technology company focused on financial services. It is made up of Square, Cash App, Spiral, TIDAL, and TBD, all of which help people navigate the barriers to accessing the economy. Square offers an integrated ecosystem of commerce solutions, business software, and banking services for sellers to grow their business while Cash App allows sending, spending, or investing money in stocks or crypto. Spiral advances the use of Bitcoin by building and funding free, open-source projects whereas TIDAL is a platform for musicians and their fans. TBD eases access to Bitcoin and other blockchain technologies.
The growth of Block, Inc. (NYSE:SQ) remains at scale with the expansion of the firm’s addressable market over time. While Square represents an approximately $130 billion gross profit opportunity, Cash App represents a nearly $75 billion gross profit opportunity in the United States. Thus, the key businesses are strong. Backed up by the strength of software and banking products, Square cohorts in aggregate had positive gross profit retention in 2023 as compared to 2022 thereby representing recurring revenue streams. Furthermore, the gross profit from international markets is rising in the overall Square gross profit. With Cash App, the company has shown growth across diverse product areas including Bitcoin, financial services, instant deposit, and the BNPL platform.
The firm delivered a strong second quarter with its gross profit going up 20% year-over-year. Square gross profit increased 15% year-over-year while Cash App’s gross profit climbed 23% year-over-year thereby depicting the strength of these key businesses. Adjusted operating income was up 16 folds year-over-year. Recently, Block decided to reorganize its reporting structure by function for improved collaboration across the different ecosystems. For the 12 months ending in June 2024, Block had $1.43 billion in adjusted free cash flow, almost doubling from the preceding year.
The company’s potential for continued growth and profitability as mentioned above, its ability to generate substantial free cash flow, and its strategic shift to a functional organizational structure make it attractive for investors. Block, Inc. (NYSE:SQ) has 59 hedge fund holders, as of Q2 2024. Catherine D. Wood’s ARK Investment Management was the leading shareholder among these hedge funds.
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