FinTech is Eating the World

JayPAYPAL Morgan & SQUAREman Sachs.

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Seven or eight years ago, when I was professionally managing money, I remember being wildly bullish following a meeting with a FinTech analyst.

I couldn’t wait to get back to the office and share my findings with the rest of the team — specifically with the older portfolio manager who oversaw our bank holdings.

I don’t remember the exact words exchanged, so I will paraphrase to drive the point home and make you laugh:

ME: “FinTech is going to crush the banks. No one wants to wait in line at an ugly, over air-conditioned bank branch to talk to boomers who still use printers.”

HIM: “Hmmm… banks have monopolies, almost infinite capital and will just buy any FinTech they see as a threat. Oh and boomers still control +50% of the wealth and prefer to bank in-person.”

Fast forward to TODAY.

Turns out, we were both right.

Bank stocks went up +140%, they strategically acquired many Fintech competitors and even incubated their own technology.


Quietly, the FinTech industry was CHIPPING AWAY. Gradually, then suddenly, this happened…

They took a meaningful +30% bite of the finance pie. And the size of that bite continues to grow at an accelerating pace.


The important lesson I learned through BOTH the conversation with the portfolio manager that day and subsequent years of investing is:

Technological change is always slower than we think. BUT it’s always more profound than we could have ever imagined.

So, on the back of a RECORD quarter for FinTech with:

  • +$100MM MEGA ROUNDS hitting all-time highs

  • STRIPE now the most valuable U.S startup


Let’s breakdown DIGITAL WALLETS — which have now become the most POPULAR payment method in the world — in <5 mins:

  1. DIGITAL WALLETS 👉 What are they?

  2. COMPETITIVE LANDSCAPE 👉 How will the banks compete?

  3. FUTURE 👉 One wallet to rule them all !

  4. GRIT’S TAKE 👉 How Are We Playing It?

Let’s get started!

Finance is one of the most regulated and complex markets in the world.

No wonder it scares 99% of technology entrepreneurs who have great ideas about innovating it.

But, those who dare disrupt it and succeed tend to reap outsized returns. Like one of my favourite mentors says:

“Where there is Mystery there is Margin”

In the DIGITAL WALLET sector specifically, innovators have cracked the code and the growth has been incredible.

In the US, digital wallet users are surpassing the number of deposit account holders at the largest financial institutions.

“PayPal’s Venmo and Square’s Cash App have amassed roughly 60MM users organically in the last 10 and 7 years, respectively, a milestone that took J.P. Morgan more than 30 years and five acquisitions to reach.” -Ark Investments

If you didn’t do a double take there…Wake up and read it again!

Digital wallets are eating the world… or at least traditional bank accounts ; )

1. DIGITAL WALLETS 👉 What are they?

The worse pickup line in history:

“You think I am TALL now, wait until I stand on my WALLET.”

Thank the lord this boomer joke doesn’t translate well to Digital Wallets.

So what are they exactly?

Digital wallets are a digital version of your physical wallet.

A DIGITAL WALLET is a service that allows you to pay for things, usually through a mobile phone app connected to a credit card, debit card or even a bank account. It stores a number of other items, such as a driver's license, gift/loyalty cards, tickets for entertainment events, and transportation passes. It can also contain private keys for cryptocurrencies and some even let you hold stocks.

Why have they become so popular?

Because we’ve been spoiled by online shopping and social media. We are now demanding the same delightful user experience from our financial services.

How did they start?

Back in the late 90s we started sending money on the internet - the birth of Digital Payments which evolved into a Digital Wallet bonanza.

Let’s take a quick peak back — because it didn’t happen overnight!

This is the best chart I could find highlighting the main milestones.

But it’s missing a key innovation — Square’s Cash App — which together with PayPal’s Venmo are the two most POPULAR consumer digital wallets in the U.S.

Before we get into a comparison of the two, let’s look at the competitive landscape and how banks are going to compete?


The global digital wallet market is now an over +$1 TRILLION sector.

To put that in perspective, it’s basically equivalent to the Top 10 largest banks in the US.

And the sector is expected to grow at nearly 30% a year to reach over $7 trillion by 2027.

How are banks going to compete?

It’s going to be hard and expensive for them. Ark Investments wrote a great research piece outlining the “Customer Acquisition Cost” of banks versus Digital Wallets.

In nutshell, banks are using old & tired ways of landing customers.

“Advertising and promotion, postage, stationery and supplies”

One of the top perks they offer is a “FREE” iPad if you switch banks. With fine print explaining it’s not really free, eye roll. Never mind mobile dominates over tablet!

Contrast this to what Digital Wallet companies are doing.

They use edgy social media marketing & influencers as well as unique “branded” identifiers like $CASHTAG to instantly send money from promotions.

This creates instant gratification, shareable content that goes viral online creating a “FOMO FLYWHEEL” effect, pulling in new customers cheaply.

These tactics are working so well the numbers speak for themselves.

What’s the customer acquisition cost (CAC) difference between a bank & digital apps?

The CAC for Digital Wallets is $20 versus Banks at $925 !

So why don’t banks just copy the strategies of Digital Wallet companies?

They’ve tried but it hasn’t worked well for them.

Also, Cathie Wood — who manages one of the biggest active ETF’s in the world — has this to say about it…

Now, let’s check in with our Outrageous Chartered FinMEME Analyst Dr. Patel on what he thinks of banks vs FinTech.


How can we make money investing in Digital Wallets?

Unfortunately, the only easy way to play this theme is through PayPal (Venmo) or Square (Cash App). Most of the other companies are either private, too small and speculative or too big you don’t get the proper exposure. For example, you could play it through Apple (I own the stock) but Apple Pay is only $1B on +$274B last year.

So let’s do a comparison of PayPal (Venmo) vs Square (Cash App) and figure out which stock we should buy?

Cash App vs Venmo

I have to admit I haven’t used either of these apps. My analysis is purely based on numbers. In Canada, we don’t need these apps because we are spoiled with e-transfer and Interac.

Which Digital Wallet is bigger and has more growth?

Both companies have had a strong history of revenue growth.

But Cash App wins on both an absolute and annual growth basis.

Which company is generating more REVENUE per USER?

From this simple analysis it’s clear Cash App is generating significantly more revenue per user.

Last year, an RBC analyst noted this AND clearly the trend has only accelerated.

“PayPal's Venmo garners an average of $12 from each active user annually while the Square Cash App brings in $54.” — RBC analyst

Why is Cash App generating more revenue per user than Venmo?

This diagram does a great job of illustrating it. I think it comes down to the type of user and the virality within their networks.

Cash App appears to have a younger and significantly more active FAN base of users who themselves have big networks of active users. Like attracts like.

It also comes down to the number of services offered. Cash App introduced crypto on their platform last year ahead of Venmo. In Q4/2020 alone they generated $1.7B in bitcoin revenue.

They say it’s still early days as only 10% of their customers have used a bitcoin product. They also disclosed that 5% of Square’s balance sheet is now in bitcoin!

Cash App also allows you to buy & sell stocks. So it’s like having Robinhood in your wallet!

Oh and Venmo is only available in the U.S whereas Cash App is available in the US and the U.K.

How much exposure will I get to Cash App by buying Square stock?

Cash App generates +50% of Square’s revenue compared to Venmo at less than 5% of PayPal’s revenue. So, you get more DIRECT Digital Wallet exposure by owning Square stock.

How have these stocks done?

Both Square (blue line) & PayPal (orange line) have outperformed the S&P (turquoise line) over the last few years. But Square has significantly ourperformed.

So am I buying Square?

NO! I took a look at the PE ratio on it and it scared the hell out of me at 535x.

And although the company just turned profitable…

…I need this stock to come back down to the 100-200x PE ratio level to even consider owning it.

So why did you just explain all of this to me?

Now you’re probably upset at me because I didn’t give you a stock tip.

But, here’s one of the most valuable things I can teach you — which I constantly remind myself of — most of your time analyzing industries and companies shouldn’t lead to buying.

A big part of successfully investing is doing NOTHING. Inaction is action in itself and it could save you from a lot of badly timed investments.

Make it a point to read and learn as much as possible but also make it a point to not act on every impulse, breaking theme, tip & insight.

Because you can…

“Love the company, but hate the stock.”

4. Future: One Digital Wallet to Rule them All!

“If you can dream it you can do it.” — Walt Disney

I imagine a future where holding, sending, realizing & borrowing value whether in the form of fiat, crypto, NFT’s, stocks, real estate etc — is possible from ONE digital wallet.

Then, a push of a button would enable powerful transactions like these:

  • SEND stocks or crypto as gifts to my friends’ kids for Christmas

  • INVEST in new start-ups in real time after falling in love with their product

  • RECEIVE loyalty points or coins from all my favourite merchants or games

  • TRADE those points to pay for anything from AirBnB rental to buying Stocks

  • BUY/SELL a house instantaneously

  • BORROW from my home equity to invest in stocks

  • LIST & SELL content I have created instantly via NFT (Non-Fungible Tokens)

  • DONATE to charity using any method in my wallet

All settlements and accounting would be built in. No fuss or headaches at tax time!

To make this all possible you would have to API all the different platforms (brokerage, bank, crypto, lending etc) into one platform.

How cool would it be to pay for lunch with your friends using an NFT you just created?

I bet within 10 years this is a reality. I can feel it and so can Elon Musk!

How Grit’s Playing it?

Back in December I wrote a newsletter titled The World's Largest Cocktail Party.” I told you I was playing one of the best (private) FinTech companies — Plaid — through owning VISA.

Plaid is known as FinTech’s Happy Plumbers. They connect your old school bank accounts like JP Morgan or RBC to cool new age apps like Robinhood, Coinbase, Acorn & Venmo.

They connect 200MM accounts at 11K banks to +2k FinTech apps.

“25% of Americans have connected their accounts to a FinTech app through Plaid.”

Visa was supposed to acquire Plaid for $5B but they ended up calling off the deal as the DoJ was investigating whether the combo would hold too much power.

Following this announcement, Plaid has done a new funding round at $15B, almost 3x what VISA was going to pay for it.

Since the deal was called off, family offices and private equity funds have been flooding investors and even FORMER employees on Linkedin with requests to buy their shares!

“Every single person who has Plaid on their LinkedIn who is no longer there has gotten messages.”

Long story short, it’s a super hot company I most likely won’t get to invest in.

If anyone reading this knows a way in please contact me.

Because as it stands now I don’t have any REAL Digital Wallet exposure!

Until next time. Always Yours. Incessantly Chasing ROI,

-Genevieve Roch-Decter, CFA

P.S This week, Jim Cramer suggested Exxon start using their flare gas to mine bitcoin. Smart way to turn waste into wealth ; )


FOX NEWS. I will be on tomorrow between 2-3pm ET on “Making Money with Charles Payne” on Fox Business — TUNE IN!

MARK CUBAN. Is now following me on Twitter — pretty much fainted when I found out ; )

YouTube. Check out my newest YOUTUBE video on THE FED!

What else we Grittin’ On?

CLOG. Massive ship blocking the Suez Canal and 12% of Seaborne trade. Costing the global economy $400MM per hour.

BIDEN TAX. Goldman Sachs expects tax hike to hit S&P earnings by 9%.

SHORT SELLERS. Have been decimated even worse than the 2000 tech bubble. Unless you’re short the VIX ; )

Retail Trading Frenzy. No surge in call option volumes associated with the stimmy cheques arriving. Instead, people are spending money on revenge shopping, dining-out etc!

REVENGE SPENDING. I called this 2 weeks ago… looks like I was right!

Sources: CB Insights, Allied Market Research, Statista, Yahoo Finance, (Cowan Report)

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