I still remember the first time I used Venmo. It’s 2010, and I’m out to dinner with some friends. The bill comes, and because it’s 2010, nobody has cash, and we don’t want to go through the hassle of writing a check at the dinner table.
Then someone suggested Venmo. I’d heard of it before but never used it myself. My friend explained we could use the app to send and receive money to each other.
Several of us downloaded the app, linked our bank accounts, and by the time the waiter came back for the check, we split the bill perfectly—no cash or check necessary.
From start to finish, the process took only a few minutes. I was blown away. Gone are the days of writing a check, exchanging loose cash, or asking the waiter to split the bill every which way. And the best part—it’s free!
When I think about how technology can improve our financial services, I think about the first time I used Venmo. And still, it’s only a sliver of the global finance market—but that’s about to change.
According to Boston Consulting Group, fintech makes up only 2% of the $12.5 trillion in global financial services revenue. By 2030, that figure will climb up to 7%–that’s a $1.25 trillion market. Much of this growth will come from innovative fintech companies using new technology like blockchain, artificial intelligence, and machine learning to overcome some of the industry’s longest-standing obstacles.
I believe that fintech is the future of finance, and I’m excited to see what the industry will look like in the years to come. If you’re looking for a way to get involved in the future of finance, I highly recommend investing in fintech.
That’s why I mentioned Venmo. Its parent company PayPal Holdings Inc. (PYPL), is one of the most essential companies in fintech, with more than 435 million customers. PayPal ended 2022 with 435 million customers, a 42% boost in revenue from 2019, and 22% more cash flow with $5.1 billion.
Since revenue growth has slowed materially since the pandemic, PayPal has traded more like a value stock. This is good news as the company aims to return free cash flow to shareholders through stock buybacks. With PayPal trading at levels not seen since 2017, its valuation is much better at roughly half its average P/E and almost a third of its historical P/S (NTM) numbers.
With its business at scale, PayPal has become a margin story, and last quarter they continued improvement, driving 200 bps of growth in operating margins.
PayPal has several initiatives to improve its business, including recently selling off $44 billion of buy now, pay later (BNPL) loans in Europe. This will be a massive influx of cash to the company, and they expect $5 billion will go to stock buybacks.
The company adds value for its e-commerce merchant, with its most recent earnings demonstrating 20% more repeat buyers, 60% more purchases, and 33% more checkouts.
Venmo is also upgrading its features, including cryptocurrency services, teen accounts, Amazon and Starbucks checkouts, integrating with Microsoft’s Xbox store, and more. The company aims to generate more than $2 billion in revenue in 2023, doubling its 2022 revenue of $935 million.
I’m not the only one optimistic about PayPal—63% of analysts have given the stock a “buy” rating and zero sell ratings, with an avg. The 12-month price target of $89.99, with some as high as $160.
As we look towards the future of finance, fintech companies like PayPal are poised to lead the charge, transforming the way we handle money and making financial transactions more seamless and accessible than ever before.
With its impressive growth, innovative features, and promising market potential, investing in PayPal could be a strategic move for those wanting to be part of this exciting new phase of financial innovation.
Director of Technology Investing Research, Money Map Press