2 No-Brainer Fintech Stocks to Own in 2023

With the year coming to a close and many stocks struggling, it’s time to look ahead to 2023 and think about where the opportunities might lie.

Fintech is a sector that was hit hard this year, as rising interest rates and fears of a recession resulted in some investors turning their backs on the sector.

While many fintech companies were incredibly overvalued last year, I think there are some companies that have excellent products and services that may be more resilient through the cycle and do well in the long term. Here are two good fintech stocks to own in 2023.

1. Fair Isaac

Despite the carnage in the fintech space, Fair Isaac (FICO 1.87%), a decades-old company that many refer to as the original fintech, has had an outstanding year. The share traded up almost 38%.

Fair Isaac is largely known for developing the three-digit FICO score that banks and other lenders rely on to make important decisions about whether to grant a variety of loans. This scoring business generates just over half of the company’s revenue and is mainly driven by originations.

I like the score not because of its strong track record, but because the FICO score is used by lenders for many different types of loans, making it resilient through different types of environments.

For example, the rapidly rising interest rate environment resulted in much lower mortgages, but much more credit cards and personal loans, as consumers take on debt and consolidate debt. Scoring revenue in Fair Isaac’s latest quarter was up 3% year over year.

Fair Isaac also has a software-as-a-service division that helps businesses operate more efficiently. It does this with productivity tools, machine learning capabilities, data mining, real-time data and preconfigured services like fraud prevention. Fair Isaac puts most of these solutions on its multi-product analytics and decision-making FICO platform, which can be deployed in the cloud and aggregate data from multiple sources and significantly improve decision-making.

The platform appears to have found a good place in the product market, with the FICO platform’s annual revenue run rate more than doubling between the end of 2020 and the end of the most recent quarter. Additionally, on the company’s most recent earnings call, management guided for double-digit percentage earnings growth in the next fiscal year.

2. nCino

Although a much newer company than Fair Isaac, nCino (NCNO 3.80%) is also a fintech company that seems to have really found products that suit the target customer. The company provides cloud-based technology platforms and solutions for financial institutions, which help them operate more efficiently.

These solutions include loan origination systems, which allow banks to more efficiently manage the loan origination process from start to finish and automate many manual processes. For example, nCino’s automated dissemination function helps banks find and plug important financial information from a borrower’s accounts into loan applications. nCino also previously acquired end-to-end mortgage origination platform SimpleNexus, which is used by at least 35 of the top 100 borrowers.

nCino’s solutions are now used by some of the largest banks in the world, including Wells Fargo, Toronto-Dominion Bankand Santanderand the company continues to sign major deals such as the one it recently announced with the Bank of New Zealand in the last quarter.

The company can also build a good moat because it has customers sign multi-year contracts, and it operates a land-and-expand model, which means nCino has the ability to increase the size of the contract with customers as they use more products and services.

nCino is still losing money, but subscription revenue continues to grow each quarter, despite headwinds from a potential looming recession and banks starting to monitor spending more closely. In the long term, I believe that the company’s products will become more widely used by many large banks and mortgage companies.