U.S. Proposes FinTech Charter: Can It Save the Tech Bull Market?

Investors are well aware by now that big tech companies have been going through a rough patch lately that could continue for the near future. Most notably, social media behemoth Facebook FB has plummeted after its latest earnings report missed expectations on revenue, revealed slowing user growth, and contained weak guidance.

Twitter TWTR and Netflix NFLX have also experienced issues after reporting misses on earnings. Although these companies have provided remarkable returns in the past, and this may just be a small bump in the road, these firms certainly don’t look like the risk-free investments they might have appeared to be recently.

Amid all of this uncertainty in the technology sector, financial payments technology, or FinTech, may be a beacon of hope.

Analysts at Morgan Stanley MS recently upgraded the payments and processing industry to an investment rating of attractive, with growth expected in future quarters, despite the bank cooling on the tech sector as a whole.

In a research report, executive director James Faucette stated that payment companies are, “some of the best businesses there are.”

Faucette specifically pointed to Visa V and MasterCard MA as two companies that can sustain any economic slowdowns. While traditionally thought of as card companies, both Visa and MasterCard are now being labeled as players in the FinTech space due to their increasingly robust electronic payment solutions.

Clearly the shift to digitalization has paid off, as shares of MasterCard have grown more than 50% the last 12 months and Visa shares have increased around 37% over the same time period. 

More purely technology-focused payment companies, like Paypal PYPL and Square SQ, have benefitted even more from the growth of electronic transactions and FinTech.

In its second-quarter earnings report, PayPal reported revenue of $3.86 billion, up 23% year over year. Paypal’s EPS of $0.58 increased 26% year over year and beat Zacks Consensus Estimates. Square stock has been on an astounding rise, more than doubling over the past year. The company has a strong presence in the digital payment space and has a wide range of online payment products.

Square is set to report its earnings tomorrow, Aug 1. If the company can meet or outperform its expectations, it will be a huge testament to the strength of the FinTech space, especially in a time of turmoil for the broader tech sector.

As another good sign for FinTech, on Tuesday the US treasury supported the creation of a federal charter that would advance the industry. In the 222 page report, Treasury Secretary Steven T. Mnuchin said that, “Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector.”

The proposed changes would help current FinTech companies operate more efficiently, while also pushing the digitalization in other financial fields, such as mortgage lending.

Bottom Line                                                                                                                                     FinTech will keep prospering from society’s transition away from cash and towards digital payment options. Companies involved in digital payments appear to be safer bets than big tech giants as concerns about the sector rise.

Investors should also pay close attention to which other companies providing financial services are gravitating towards digitalization. Goldman Sachs GS CEO Lloyd Blankfien has said that his bank is a “technology firm” and Morgan Stanley just created a new tech “Head of Transformation” role in the company. These tech-focused changes should be valued highly and might drive growth on Wall Street.   

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Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Square, Inc. (SQ) : Free Stock Analysis Report
 
PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
 
Twitter, Inc. (TWTR) : Free Stock Analysis Report
 
Morgan Stanley (MS) : Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
Mastercard Incorporated (MA) : Free Stock Analysis Report
 
Visa Inc. (V) : Free Stock Analysis Report
 
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