By Jeff Reeves, MarketWatch
An earlier version of this article incorrectly said Square’s new services include mortgages.
MarketWatch photo illustration/Bloomberg
We’ve all read about the disruptive potential of fintech, and how millennials are trading traditional forms of payment for mobile solutions like Venmo and shunning old-school wealth management for platforms like Robinhood.
If you’re interested in the future of finance, it’s worth taking some time to play with these apps and experience their potential. However, the reality of fintech in 2019 — and the truth of its investment potential — goes far beyond what you see in smartphone apps.
Here are nine dynamic companies with solutions that are revolutionizing payment processing, accounting, investing and other financial services. All are long-term buys.
Since it’s tax time, let’s start with TurboTax and QuickBooks parent Intuit Inc. /zigman2/quotes/203136605/composite INTU +0.74% . This firm is a great example of how technological disruption can reduce costs and increase flexibility in a mobile age; about eight million people used TurboTax to file their returns via smartphone in 2018, and this year’s tally is sure to top that.
Intuit has also tried to demystify accounting in the age of the “gig economy,” allowing easy ways to log expenses and track mileage on mobile devices. It has more powerful cloud-based payroll solutions and business payments for lbusinesses of larger size.
Shares have roughly doubled in the last two years as investors have realized the big potential of this technology in a digital age. And unlike cash-burning startups, Intuit is soundly profitable — so much so that it deployed $1.2 billion on R&D in fiscal 2018 , up 20% from roughly $1 billion the prior year, to stay ahead of the fintech revolution.
The go-to for investors is PayPal Holdings Inc. /zigman2/quotes/208054269/composite PYPL +2.23% , a firm started by the likes of Peter Theil and Elon Musk that was one of the first viable alternatives to traditional banking options in the internet age. It also owns current mobile payments powerhouse Venmo through an incredibly well-timed acquisition of its parent Braintree for a mere $800 million a few years back.
Across its properties, PayPal boasts a staggering 267 million active accounts as of the end of 2018, up 17% from the prior year. Those accounts are increasingly active too, as PayPal processed 9.9 billion transactions in 2018 for a 27% growth rate. If you want to look to the future of cashless transactions, start here.
The adoption of new banking technology in Asia is far ahead of that in the West. One Brookings Institution report estimated that China’s mobile payments ecosystem hit roughly $23 trillion in 2016 .
At the center of that is Alibaba Holdings /zigman2/quotes/201948298/composite BABA +2.04% with its Alipay technology, which holds more than half of the market . Furthermore, thanks to the rather stodgy nature of state-owned banks in China, there is unlikely to be any native competition from the financial sector. Since China is perhaps the most important mobile payments marketplace in the world, that may make Alibaba the most important stock to buy if you want to ride this trend. TechCrunch has estimated that Alibaba’s Ant Financial unit could be cruising toward an IPO in the near future with a valuation of as much as $14 billion.
Another approach to consumer fintech is to look beyond payment processing and think bigger about the banking experience. That’s what Square Inc. /zigman2/quotes/205989440/composite SQ +3.97% is trying to do as it continues to pursue traditional banking designations, most recently with a December filing with regulators to open a traditional lending arm out of Utah .
By now, most investors know the potential of Square in the payments space. It was one of the first startups to offer credit-card readers you can plug into your smartphone, and its newer Terminal technology has moved its point-of-sales technology even further into a digital age . But per-transaction fees are tiny, and Square is now attacking more traditional services like small business loans.
Shares have been volatile, with the stock down about 25% from September highs. But it has soared sevenfold from its $9 offer price at the end of 2015 so it’s clearly doing something right.