Whilst relatively small in comparison to the United States, Australia boasts a very vibrant and exciting financial technology (fintech) sector. The sector has produced world class companies like Xero Limited (ASX: XRO) and buy now, pay later (BNPL) giant Afterpay Ltd (ASX: APT). However, it was not a good start to the week for ASX fintech shares, with many falling as much as high single digits during Monday's trade.
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Payments processing
Tyro Payments Ltd (ASX: TYR) was one of the few fintech companies to see its share price rise yesterday. Tyro is a payment processing company. Outside of the big four banks, it is Australia's largest EFTPOS provider of all the authorised deposit-taking institutions (ADIs). From 25 March, the company has been reporting its transactions weekly, for transparency purposes, during the pandemic.
On Monday, Tyro posted its 15th such update. This showed an increase in total transaction volume from the previous week. The Tyro share price rose by 1.2% on Monday and has continued climbing today.
In contrast, another payments processing company, Pushpay Holdings Ltd (ASX: PPH), saw its share price fall by 2.67% yesterday. Meanwhile giftcard company EML Payments Ltd (ASX: EML) also recorded a share price fall of 4.14% during Monday's trade.
Buy now, pay later
Afterpay had a relatively flat day yesterday, only falling by 0.18%. Its BNPL cohorts, however, fared much worse. Sezzle Inc (ASX: SZL) tumbled by 6.75%, Zip Co Ltd (ASX: Z1P) by 6.61% and Splitit Ltd (ASX: SPT) by a substantial 9.16%.
Among all the BNPL companies, I believe only Zip Co is what could be classified a mature organisation with other developed credit products. It also owns the free personal budgeting software Pocketbook. All the others are pure play, BNPL companies with, in my opinion, escalating valuations and no profits on the immediate horizon.
However, that is how growth shares work. At the moment, the BNPL sector is the wild west. Regulators are yet to catch up and companies are rapidly pushing into markets that are wide open. Share price volatility is part of the risk that comes with investing in these companies. Generally, the smaller the company, the greater the volatility.
Having said that, I think the BNPL fintech companies are likely to do very well over the medium term; say, 2 – 3 years. As our economies emerge from the pandemic, there will undoubtedly be extensive financial fallout. As such, access to short-term credit is going to be a welcome method for many consumers to buy what they want, but can't immediately afford.
Foolish takeaway
Volatility is a natural part of investing in any growth organisation and many of the companies mentioned above are growing rapidly in niche areas. Tyro, in particular, is actually helping to provide the market with a fully transparent view of the wider health of the retail sector. All three payments processing providers mentioned are mature companies with well developed revenue streams. I expect them all to do well during earnings season.
In the BNPL space, earnings season will definitely help to inform investors about the performance of the major players against key growth metrics. While many are not currently profitable, they are growing at a very rapid rate. They are also attracting a great deal of attention from the market with Splitit, for example, recently signing a partnership deal with Mastercard.
