I don’t remember the last time I used my laptop to do my banking, let alone physically gone to the bank. These days it’s all about easily accessible, biometric-secure mobile apps. Having recently switched to an iPhone, I now no-longer even take my physical bank card out with me to a shop. I feel free and unburdened, particularly as my new pocketless dress no longer poses an issue when carrying a purse.
By 2026, the global digital payments market is expected to reach an astounding $10 trillion. This has been made possible largely by the rise of online banking, which has made the process easier for both companies and consumers alike. With the proliferation of smartphone subscriptions expected to reach 7.4 billion in 2025 as 5G and other advanced technologies are developed, the digital payment sector is definitely one to invest in. So, here are two innovative companies to consider: Square (NYSE: SQ) and StoneCo (NASDAQ: STNE).
Square: the bull and bear case
Things are going extremely well for Square at the moment, having rallied nearly 150% since its mid-March lows. Meanwhile, COVID-19 has seen many smaller businesses pushing into e-commerce, which presents a growth opportunity for Square’s cash app.
The fintech company currently operates its Cash App in the U.S. and the UK, and has continued to expand — on June 15, Square acquired the Spanish P2P payment app Verse, giving it a foothold on the European continent and within the Euro currency.
On the other hand, Square has had a profitable relationship with smaller retailers and restaurants in the past, but these industries and specifically the smaller businesses within them have been hit hard, and bearish investors might be spooked by this exposure. This is heightened as Square forked out $820 million in loans as part of the Paycheck Protection Program to small businesses to help them weather the pandemic.
Square also angered many of its clientele in 2019 with a fee change which effectively made it cheaper for merchants with higher ticket values whilst merchants with lower ticket values felt an increase in their service charges. This caused several businesses to look at competitors such as Paypal (NASDAQ: PYPL), Shopify (NYSE: SHOP), and start-up Stripe.
StoneCo: the bull and bear case
Berkshire Hathaway (NYSE: BRK.B) bought a whopping 14 million shares when StoneCo IPO’d back in 2018. When Warren Buffett spends $336 million on one company alone, investors should take notice. The Chinese fintech giant Ant Financial — owned by Alibaba (NYSE: BABA) co-founder Jack Ma — also invested heavily in StoneCo. Both investors saw the potential and I am sure the unicorn status of this company helped to attract attention too.
StoneCo benefitted from its strong Q1 results which saw a 33% revenue increase year-on-year as well as its dominance of 51% of all e-commerce transactions in Brazil. With the founders already having a decade of experience working within the electronic payments industry in Brazil, they know their market and its demands well.
The coronavirus has taken its toll on the Brazilian economy though and in May shares fell as the company was reported to have dismissed 1,300 of its staff. StoneCo maintained some of its good-guy image, however, as it gave these staff members a generous departure package and helped to re-staff them at other companies.
A new competitor in Brazil could bring a number of worries to StoneCo. Facebook (NASDAQ: FB) owned Whatsapp rolled out a P2P payment service across Brazil that connects easily and efficiently to the user’s own bank card. Brazil is still building up its digital payments market and as such competitors such as Mercado Libre (NASDAQ: MELI), PagSeguro Digital (NYSE: PAGS), and now Facebook could put a serious dent in the market share.
Are they worth it?
Each company represents an exciting investment. Square and StoneCo have made waves across the digital payments sector with their innovation, playbook expansion, and growth. Square is much more stable when it comes to knowing that your money will continue to grow. StoneCo has the potential to be more volatile particularly in the current climate but still manages to perform well. Both have shown their mettle and could be great long-term stocks to invest in for the future.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Financial Writer at MyWallSt
Poppy’s favorite stock is Nvidia as she loves innovation and this stock has bags of it. Nvidia invented the GPU in 1999 and even today its immersive graphics give life to the gaming world. Poppy is also inspired by Nvidia’s ability to imagine and create positive change for the world, with its AI technology fuelling new developments in the automotive industry, the medical industry, as well as powering data centers around the world.