While many have been looking the other way, a handful of ASX fintechs have been building the foundations of great companies. Payment processing is one area where consumer behaviour is changing and the trend has only been accelerated by COVID-19. Many places I shop at today are already cashless. Others have a stated preference for contactless payments.
This is an area already crowded by the big banks. The Commonwealth Bank of Australia (ASX: CBA) prides itself on being the nation's largest digital payments processor. Nonetheless, small Aussie fintech startups are carving out niches in these markets.
Why take on the banks?
Tyro Payments Ltd (ASX: TYR) is a very impressive payment processing fintech. It entered a market dominated by the banks and has become Australia's largest EFTPOS provider of all authorised deposit-takings (ADI) outside of the big 4 banks.
From 25 March the company has reported their transactions weekly for transparency during the pandemic. Tyro's Trading Update 7 showed April transactions were down by 38% against the prior comparable period (PCP), while Trading Update 11 showed May down by 18%.
However, for the financial year to date, the company is up by 16% on the PCP. In addition, the company reported a compound annual growth rate (CAGR) of transactions of 27% in its H1 FY20 presentation.
Alternate revenue streams
As a fintech, Tyro provides a business banking service including fee-free, interest-paying accounts. Moreover, the company provides merchant financing in the form of small business loans with a simple fee structure. Although it has yet to report full-year earnings, its H1 FY20 earnings report was very impressive.
I think this fintech is undervalued on the market today and could be one of the 10 baggers of the next decade.
Profitable charity
Pushpay Holdings Ltd (ASX: PPH) saw its share price rise by around 18% last week. The company provides simplified digital payment processing for non-profit organisations, faith-based communities and education providers. Its software-as-a-service (SaaS) donor management system includes donor tools, finance tools and a custom community app.
Approximately 98% of its customers are in the USA. Which means it is an integral player in one of the world's biggest faith-based markets. Although only listed since 2016 the company has already shown significant growth. Its gross sales have increased by 41.8% per year, on average, over the past 4 years. In addition, it has produced a return on equity of over 30% for the past 2 years.
I think this is a great niche fintech addressing the problem of taking donations digitally. While this company has a significant price-to-earnings (P/E) ratio I believe it is a great company at a reasonable price.
Foolish takeaway
The ASX fintech sector is one of the most vibrant in the world. I think these 2 companies are likely to enjoy share price growth in the near to medium term. They also lack the level of inflation that we see in the buy now pay later market.
