Signals: Public fintechs gear up for 2025

Hello, Fintech Friends!

The fourth-quarter earnings season is special because it's when most public companies provide guidance for the year ahead. Some fintech companies have already reported their results and shared their outlook. So far, the market response has been clear: single-digit earnings growth is disappointing (PayPal), growth in the low teens is acceptable (Visa), and growth in the high teens is rewarded (Fiserv).

In the meantime, Capital One prepares for the shareholder vote that will seal its acquisition of Discover, and Visa prepares for its Investor Day. The merger of Capital One and Discover will create the latest credit card lender in the U.S., one of the largest retail banking franchises, and, most importantly, a network that is comparable to American Express in scale.

Visa is expected to dedicate a meaningful part of its investor day to the "new flows", or growth opportunities in payments that go beyond consumer-to-business transactions. Think commercial cards, business-to-business payments, and payouts. Both Visa and Capital One will need partners to achieve their ambitions. It wouldn’t be surprising if they find these partners among publicly traded fintech companies.

Jevgenijsp.s. Have feedback? Ping me on X/TwitterHappy to hear how we can improve this column!

The best-performing fintech stocks in 2023 were Affirm (+408%), Coinbase (+392%), and MoneyLion (+236%). The best-performing stocks in 2024 were Sezzle (+1,146%), Dave (+936%,) and Zip (+366%). Do you see a pattern here?

These companies were left for dead at some point. Coinbase traded at $33 a share at the beginning of 2023 (now $274), Affirm was trading at $9 a share in the spring of 2023 (now $75), MoneyLion and Dave had to do reverse splits to maintain their listing as their stocks dropped below $1 a share.

Will 2025 be different? Could Better (down 97% since going public), Pagaya (down 89%), or Oportun (down 66%) top this year's list?

This year we decided to introduce new sections: stock performance and valuation multiples by category. Putting fintech companies into "buckets" is no trivial task, so please treat these sections as "work in progress". We're also happy to hear feedback!

As always, Visa and Mastercard kicked off the Q4 2024 earnings season and set the benchmark for growth. Visa reported 9.0% YoY growth in payment volume, 10% YoY growth in revenue, and 14% YoY growth in adjusted EPS. Mastercard reported 12.6% YoY growth in payment volume, 14% YoY growth in revenue, and 18% YoY growth in adjusted EPS. Any payments company that grows slower than Visa and Mastercard, should not expect much love from investors.

Latin America continues to be a bright spot for both companies, with Visa reporting 22% YoY and Mastercard reporting 21.6% YoY growth in payment volume. Interestingly, for the fourth consecutive quarter, Mastercard's payment volume has grown faster than Visa's in both Europe and the United States. When it comes to Europe, it might be about different definitions of Europe (Visa reports the CEMEA region, which includes Central Europe, separately). However, Mastercard's outperformance in the U.S. is undeniable.

Visa will hold an Investor Day on February 20. While I wanted to hear why Visa is trailing Mastercard's growth in the U.S., I expect the Investor Day to focus mainly on the "new flows." Visa has identified a $200 trillion opportunity in payment flows beyond traditional "consumer-to-business" transactions, including commercial cards, cross-border B2B payments, and business-to-consumer payouts. These flows are expected to unlock new growth frontiers for both, Visa and Mastercard. Can't wait for the event!

Read more: Visa FY Q1 2025 earnings presentation and Mastercard Q4 2024 earnings presentation

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Visa stock performance: +10% YTD, +24% 1Y

Mastercard stock performance: +6% YTD, +21% 1Y

Capital One is about to complete the acquisition of Discover. The companies have received regulatory approvals and scheduled the shareholder vote for February 18, 2024. This merger will create the largest credit card lender in the U.S., the 6th largest deposit franchise, and the second-largest retail bank based on retail banking revenue (second only to Chase).

However, more importantly, it will create a payment network similar in size to American Express. Capital One plans to migrate its debit card portfolio to the Discover network soon after the acquisition, with plans to eventually migrate its credit card portfolio too. Richard Fairbank, Capital One co-founder and CEO, named the Discover Network as one of the primary reasons for the acquisition. Capital One plans to invest in the network to expand global acceptance and enhance brand recognition.

This made me think...can Capital One lure Fintech companies to the Discover Network? Cash App, PayPal / Venmo, Chime, and other fintech debit card issuers would definitely boost the network’s brand recognition. The acceptance in the U.S. is good, and Capital One might be willing to offer lucrative terms (and write it off as an investment). With this approach, they might finally create some competition to the Visa / Mastercard duopoly.

Read more: Acquisition announcement

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Capital One stock performance: +13% YTD, +51% 1Y

PayPal reported its Q4 and full-year 2024 results and the picture is not great. Braintree payment volume growth decelerated to 2% YoY (down from 29% a year ago), and international volume decelerated to 7% YoY (down from 17% a year ago). PayPal's new management prioritized "profitable growth", and it turned out that Braintree struggles to grow profitably.

PayPal guided for a lackluster 4-5% YoY increase in gross profit and 6-10% growth in non-GAAP EPS for 2025, which caused the stock to drop 13%. PayPal needs to find growth and the company's management expects to find this growth by going beyond online and P2P payments. PayPal is once again looking to offer loans to consumers and small businesses, while also expanding into in-store payments through PayPal and Venmo debit cards.

The company will hold an Investor Day on February 25. PayPal's merchant business is slowing down, but the company still services almost 230 million customers monthly. Thus, it has many opportunities to find pockets of growth, such as debit cards. However, we have seen a lack of focus at PayPal before and it didn't end well. "PayPal everywhere" might not be the best strategy.

Read more: PayPal Q4 2024 earnings presentation

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PayPal stock performance: -9% YTD, +22% 1Y

Affirm delivered a stellar quarter. Gross Merchandise Volume increased 35% YoY to $10.1 billion and revenue for the quarter increased 47% YoY to $866 million. Active consumers using Affirm services increased 23% YoY to 21 million, and the number of merchants offering Affirm loans increased 21% YoY to 337 thousand. Funding partners cannot get enough of Affirm's loans.

As a reminder, Affirm's management committed to reaching GAAP profitability in fiscal year 2025 (year ending June 30, 2025). This quarter they showed that they are not that far away from this goal. Affirm has successfully proven that its business model works in a high interest rate environment too. Using Max Levchin's quote from the Shareholder Letter: "Affirm is in the strongest shape it’s ever been."

Affirm also made progress with new growth dimensions. The Affirm Card reached 1.7 million cardholders and the company is preparing to extend its partnership with Shopify (Shop Pay Installment powered by Affirm) to the UK market. In the UK, Affirm faces competition from Klarna and Block's Afterpay ("Clearpay"), but the company's execs are confident that Affirm's product range gives it a competitive edge.

Read more: Affirm FY Q2 2025 Shareholder Letter

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Affirm stock performance: +23% YTD, +68% 1Y

Two incumbents have figured out how to successfully compete with fintech companies, JPMorgan and Fiserv. JPMorgan is the last bank that can compete with Stripe in Adyen in online payments, and (I hate to say it, but..) Fiserv has left Block's Square in the dust with Clover. In Q4 2024, Clover delivered a 14% YoY growth in payment volume and a 29% YoY growth in revenue. Fiserv doesn't shy using its distribution muscle and that seems to work.

In 2024, Clover generated $2.7 billion in revenue on $302 billion in Gross Payment Volume. Clover contributed only 42% of Fiserv's Merchant Solutions "Small Business" segment ($2.7 billion out of $6.4 billion), so there is still plenty of room to grow. During the Investor Day 2023, Fiserv management set a $4.5 billion revenue target for 2026, which requires Clover to deliver 30% revenue growth in 2025 and 2026.

Fiserv now wants to replicate Clover's success in the accounts payable and accounts receivable space. Thus, in 2023 Fiserv partnered with Melio to launch CashFlow Cental, an AR/AP platform for small businesses. A year later, Fiserv led Melio's Series E funding round. Fiserv is (again) using its distribution network to sell the solution to financial institutions and has already signed 39 clients (the product launched only in the fall of 2024). I guess we all understand what happens next to Melio?

Read more: Fiserv Q4 2024 earnings presentation

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Fiserv stock performance: +11% YTD, +61% 1Y