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Sofi technologies (WKN: A2QPMG) and upstart holdings (WKN: A2QJL7) are part of the unstoppable fintech industry and both stocks have the potential to increase their value tenfold over the next ten years. Here's what you need to know.
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1. Sofi technologies
Sofi is a fintech company that relies on mobile devices. Its platform includes credit products such as student loans and mortgages, as well as financial services such as money management accounts (sofi money), brokerage accounts (sofi invest), credit cards (sofi credit card) and access to third-party insurance products (sofi protect).
In 2020, sofi also acquired galileo, a technology platform that enables companies to offer digital banking services. With galileo, for example, it is possible to issue physical or digital debit cards, set up deposit accounts and process payments. Several well-known fintechs are betting on galileo, including chime, moneylion and robinhood markets (WKN: A3CVQC).
The scale and simplicity of the sofi platform gives it an advantage over many other competitors, which has helped the company grow rapidly. In this context, the number of sofi members has grown for eight consecutive quarters, and the number of products used by these members has grown even faster. Overall, this tremendous engagement has resulted in $231 million in revenue, up 101 percent.
Going forward, sofi estimates its market opportunity at $2 billion, which means the company has plenty of room to grow its business. To that end, in march 2021, the company filed its application to convert to a bank holding company and reached an agreement to acquire golden pacific bank. Once sofi has a national banking license, the resulting synergies should boost business.
Currently, the company relies on banking partners to provide money management services to sofi money account holders. But with a banking concession, sofi could offer these services directly. This in turn would allow the company to fund loans with customer deposits, which would mean lower interest rates for borrowers and higher interest rates for sofi money account holders. This would not only add value to members, but also improve the economics of sofi. Therefore, this stock (with a market cap of 18 billion. U.S. Dollar) to grow tenfold in the next ten years and become a company worth 180 billion… Become a us dollar.
2. Upstart holdings
Upstart is a fintech company that is transforming the consumer lending industry. Until now, banks have used credit models that take into account (at most) 30 variables to determine who is eligible for financing and at what interest rate. However, upstart believes that these models deprive many credit-worthy people of a loan, and that many people who do get approved end up paying too much. For example: 80% of americans have never defaulted on a loan, but only 48% have access to prime credit.
Upstart is therefore looking to artificial intelligence to make consumer finance more comprehensive and efficient. The platform collects over 1.600 data per applicant and compares these variables with 10.5 million repayment transactions. This allows upstart to quantify risk more accurately than alternative methods. In this context, the company believes its AI models are four to eight times more effective than traditional credit models.
Who benefits? Allen. Consumers benefit from higher approval rates and lower interest rates, while upstart's banking partners benefit from higher approval rates (more business) and lower loss rates. And the network effect created by upstart's AI models is likely to amplify these benefits over time. In other words, the more loans are made through the platform, the more data upstart collects and the smarter its forecasting models become.
Not surprisingly, upstart is growing at a rapid pace. In the second quarter, bank partners made loans worth 2.8 billion euros with the help of the upstart technology. US dollars forgiven, 1.605 % more than the year before. As a result, revenues increased by 1.018 % to 194 mio. US-dollar strongly and the company achieved a profit according to GAAP (generally accepted accounting principles) of 37 mio. US dollars.
There are many reasons for shareholders to be excited about this company. Upstart recently entered the auto loan space, bringing its market opportunity to 719 billion. U.S. Dollar increased, but the company plans to expand into other markets in the future, including credit cards, student loans and mortgages. That would increase its total addressable market (TAM) to 4.2 billion U.S. Dollars. By comparison, upstart has just 4.5 billion in the first half of 2021. US dollars in loans brokered (resp. 9 billion. U.S. Dollars on an annual basis), representing 1.2% of its current TAM and 0.2% of its potential TAM.
Here's why I believe this $26 billion fintech stock can grow tenfold in the next decade.
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This article reflects the opinion of the author, which may differ from the "official" recommended position of a premium consulting service from the motley fool. Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier and richer.
This article was written by trevor jennewine in english and published on 10.11.2021 on fool.Com published. It has been translated so that our german readers can participate in the discussion. Does not own any of the stocks mentioned. The motley fool owns and recommends shares of sofi technologies, inc. And upstart holdings, inc.
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