Youth will be served. That’s how I would explain the speed and pervasiveness with which financial technology (fintech) has disrupted the financial sector. Millennial and Gen-Z investors have grown up with a screen in their faces and there’s no doubt it has changed their relationship with money.  

Cash is not king with this generation. At least not physical cash. They prefer and expect digital-first banking, peer-to-peer (P2P) payments, and personal finance management apps. All of which they can use to manage their finances without ever setting foot in a bank. 

And in the last 15 years, there has been no lack of financial technology companies that have come on the scene to apply digital-first solutions to everyday financial transactions. Of course, traditional banks aren’t going quietly. But fintech companies still have a chance to be disruptive.  

And after being battered in 2022, this is a sector where some companies are ready to make a comeback. Some that is, but not all. Here are two fintech companies that are presenting buying opportunities and one that will require some additional time.  

The One Thing Missing is Profit 

SoFi Technologies, Inc. (NASDAQ: SOFI) is a pioneer in the fintech space. The company burst on the scene as an online lending platform. One of its specialties, and still a large part of the company’s business, is as an alternative to traditional student loan financing.  

That turned out to be a double-edged sword when the company went public in late 2020. After an initial spike, SOFI stock lost approximately 80% of its value. In fact, as recently as May 2023, SoFi was trading as a penny stock.  

The negative sentiment was largely due to the longer-than-expected student loan moratorium. But as many SoFi observers are aware, the company received its banking license in 2022. This has become the company’s most rapidly growing sector. However, that part of the business is still operating at a loss.  

That lack of profitability is likely to be the only thing between SOFI stock and significant gains. But if analysts are correct, that may change in the second half of this year. At that time, analyst sentiment and institutional buying will be catalysts to move SOFI stock higher.  

This Fintech Pioneer is Oversold 

Speaking of earnings growth, PayPal Holdings, Inc. (NASDAQ: PYPL) trades at around $75 as of July 20, 2023. But that’s a far cry from reaching a price above $300 in July 2021.  

Some of the sell-off was understandable. Although the company continued to post gains in revenue, the gains were smaller as pandemic restrictions eased.  And the bottom line was posted results that were lower on a year-over-year basis in four consecutive quarters.  

Both of those situations are changing, and so is analyst sentiment. Year-over-year revenue and earnings growth are gaining momentum. That helps to draw attention to the company’s forward P/E ratio of 18x. Analysts project approximately 19% full-year earnings growth, which is forecast to drive a 31% increase in the PYPL stock price.  

Rising Interest Rates Are Cutting into This Company’s Edge 

Before AI became a must-use buzzword for every company, Upstart Holdings, Inc. (NASDAQ: UPST) was using artificial intelligence as the key component of its online lending platform. Nevertheless, it was the company’s AI platform that fueled the stock’s 340% rise since a May low of around $12.20. Plus, the company beat on earnings in May.  

However, a closer look at that earnings report shows that both revenue and earnings are down sharply from the same quarter in 2022. The company is projecting more of the same this quarter. And with the Federal Reserve likely to raise interest rates at least 25 basis points at the end of July, that trend is likely to last longer.  

The issue is that higher interest rates make it more difficult for the company to approve borrowers for loans. This is true even though the company’s models go beyond traditional metrics.  

This is reflected in the Upstart Holdings analyst ratings on MarketBeat. Of the 11 analysts that are being tracked, seven have a Sell rating for UPST stock. That’s an alarmingly high percentage when you consider that analysts rely on their relationships with company insiders to glean important information. And when you combine that with a consensus price target that’s down more than 65%, it’s easy to see why it’s best to pass on this fintech stock.