Savvy Trades and Investments

[Bobwins]

Fintech is a growing field worldwide as well as in the US. As an old banker, I have been watching with interest. Fintechs are in an old huge market. Money drives the world economy and Fintech can do almost everything the old line banks and brokers can do but much cheaper because they don't have to pay for branch buildings and staff. In addition they are at the forefront of using technology to do the work better, faster, cheaper.

So I consider Fintech a high growth industry because the Total Addressable Market (TAM) is huge and the Fintechs have huge growth ahead of them. The legacy banks are trying to react by closing branch offices as fast as they can but the difference in cost structure is too great. The new generation of workers is going to embrace FINTECH.

I hold SOFI and NU in banks. SOFI advertises like crazy and is profitable and growing fast. They are selling at a high p/e but I can accept that because their market potential is so big. SOFI wants to become a top ten bank in the US. I think they will get there in the next decade. CEO is very focused on specific goals. They are expanding services and innovating. For example, one big limitation to fast growth for banks is the capital ratios. Banks are highly leveraged and so if they take on too many assets(typically thru loan growth), they can exceed existing capital and have to slow down growth. Sofi has worked around this by making loans but developing a market for investors to buy the loans from them. Sofi still services the loan but takes no loan chargeoff risks and just takes a fee for servicing the loan and a fee for the loan origination. They just started this program last year and are already in the multi billion dollar category of usage. Sofi also has a technology division that creates software to handle the backend duties of a bank. They sell software to other financial institutions for credit card processing as an example but also have checking, savings, etc PLUS a comprehensive program to handle all the regulatory backend work that is a huge problem for companies. The legacy institutions have legacy programs that are patched together and could benefit from this service. SOFI is a high p/e presently but that will decline as they grow into a top ten bank.

My other bank is NU. This is a bank that originated in Brazil, where big banks are very particular and only serve upper middle class individuals. NU was founded by ex Capital ONe technical guys with software backgrounds. They are a digital bank with no offices. They have grown from zero to serving half of the households in Brazil in about 10 years! They went IPO a few years ago and Warren Buffet was an original investor. Super high growth and extremely low operating costs. One of the biggest costs for a startup bank is advertising. A US bank typically spends hundreds of dollars per new account. NU has grown by word of mouth. Addressing the huge unbanked population in Brazil, their customers were so happy with their services that they recommended them to friends and family. Instead of spending hundreds per new account, NU spends a dollar or two. Massive operating leverage. They have loyal customers and NU has figured out how to lend to this unbanked population. Brazil typically didn't have large numbers of consumers with credit histories. So NU started with debit cards and used programming to predict credit behavior. They have successfully introduced credit cards to a large number of their customers with acceptable chargeoff ratios. After high growth in Brazil, NU has expanded to Mexico. They are first opening savings accounts and paying competitive rates to attract large numbers of new accts. They have just started offering credit cards. Mexico also has a huge unbanked population. NU is profitable and growing very fast. Unlike any US bank. The extremely low operating expenses are amazing combined with the high growth. I don't think they will move into the US but they have huge markets in South and Central America so the high growth will continue and they could also advance in other parts of the world with large unbanked populations.

My last Fintech is Robinhood Markets, HOOD. Taking off like a bandit recently due to innovations. They had a bad rep as a broker for new investors but have continued to innovate to increase penetration with bigger investors. They have a Gold program will millions of their customers. The Gold program charges a monthly fee of $5 and in return members get a good program of benefits. Like costco or amazon, this is good income that continues whether the markets are good or bad. Recently HOOD introduced a way for foreign investors to participate in the US stocks markets by tokenizing stocks and allowing customers to buy these tokens. Should open up a huge overseas market. HOOD is also a big player in the crypto markets. I am not a believer in crypto but it's coming whether I like it or not. HOOD is in the forefront. They are not a bank but are going to offer checking services. Less regulated than banks, they will be able to capture a bigger portion of their customer's financial assets.

I have avoided displaying financials here but think these three are worth a look. I am up more than double on SOFI and HOOD and 70% on NU. All three have a bright future because of the size of the market.