There is a lot of talk about tech disruptors; the startups that bring innovative products to market, completely upending entire industries along the way. Once upon a time, electricity, television, and personal vehicles were considered disruptive technology. More recently, e-commerce sites like Amazon (AMZN), digital news and media, and gig economy apps have transformed how business is done.
Retail, entertainment, and transportation aren’t the only industries experiencing disruption. Every aspect of the financial services industry is being put to the test. New technology has made trading stocks available to the masses, and options for borrowing money have expanded dramatically.
Two financial technology or FinTech companies that are making waves in the world of finance include SoFi and Square. Both are demonstrating their ability to grow and expand. However, too much exposure to the financial sector can be risky. If it comes down to one or the other, the question is, SoFi stock vs. Square: which is best?
Is SoFi Amazon for Financial Services?
SoFi (SOFI), or Social Finance, started off in 2011 as an alternative method for students to secure funding for their education. Instead of taking on an unmanageable amount of high-rate debt, students had the opportunity to borrow from or refinance with SoFi.
The program was financed by SoFi’s investors and initially Stanford alum, so borrowing was more affordable for students. However, the low interest rate still offered investors enough of a return to keep the cash flowing in.
The student loan program was so popular, SoFi was able to raise hundreds of millions in additional capital. By September 2013, SoFi reported facilitating approximately $200 million worth of student loans to a total of 2500 borrowers. It seemed that connecting borrowers and lenders directly and omitting private student loan companies or government agencies was a win/win.
Its success in the student loan space inspired SoFi to expand its model to include additional financial services. Today, SoFi offers:
- personal loans,
- commission-free brokerage services,
- credit monitoring,
- basic banking, and
- cryptocurrency trading.
In other words, it’s fair to say that SoFi is increasingly becoming the Amazon for financial services – all of the products you need from a single company.
SoFi Backed By Chamath Palihapitiya
When Chamath Palihapitiya left Facebook (FB) to start his own venture capital firm Social Capital in 2011, it would be an understatement to say he shocked the tech world. However, his skill at identifying and promoting innovative startups was unmatched, and it was quickly made clear that Palihapitiya’s new direction was the right move.
In 2018, Palihapitiya changed direction again, stepping out of the VC space and into special-purpose acquisition companies or SPACs. He said he wanted to be more hands-on with the companies he supported, and the SPAC model would give him that opportunity.
By January 2021, three of Palihapitiya’s SPAC projects started trading publicly:
- Virgin Galactic,
- Opendoor, and
- Clover Health.
As of June 1, 2021, the fourth launch was complete: SoFi – a debut made stronger for being backed by Chamath Palihapitiya.
Is SEC Scrutiny A Risk Factor For SoFi?
Of course, there are risks to investing in SoFi – especially so soon after easing into public trading. The early days are nearly always volatile, and SoFi stock is likely to experience a roller coaster of ups and downs before settling into a more consistent pattern or trend.
Other than that, the only real concern that market analysts and industry experts have identified is an apparent risk is the SEC’s increased scrutiny of SPAC mergers. It is looking more closely at how SPACs’ financial data is reported, and in some cases, it has required changes to comply with standard accounting guidelines.
For the moment, it doesn’t appear that SoFi is worried about additional attention from the SEC. While it made the adjustments mandated by the SEC, there was no impact to forecasts for future revenue and earnings.
That means SoFi’s leadership remains confident in the company’s growth potential – and that has inspired many investors to get onboard.
SoFi Vs Square Stock: Investing Options
Square stock has been the go-to for FinTech investors, because it has transformed merchant services and payment processing. Through Square technology, businesses of all sizes can join the digital economy, which expands their addressable market exponentially.
In addition to its original payment services products, Square has expanded into checking accounts and no-fee stock trades through its Square Cash App. While Cash App Investing is a solid choice for those new to investing, the limited selection of investments makes it less-than-ideal for a majority of more experienced investors.
Cash App Investing can be used to trade stocks, ETFs, and Bitcoin, but users cannot buy or sell mutual funds, bonds, or stock options.
SoFi works a bit differently, and it isn’t right for investors looking to buy and sell assets directly. However, members who wish to invest can choose from managed accounts that have exposure to 13 distinct asset classes.
When coupled with SoFi’s exceptional education tools and resources, as well as unlimited access to certified financial planners at no additional cost, it is easy to see why many are choosing SoFi over Square.
Will that mean impressive returns for SoFi shareholders? It’s hard to say quite yet – but those that are monitoring SoFi’s progress have indicated there are lots of reasons to be optimistic.
How Square Beats SoFi
While SoFi has piqued the interest of investors, many are still putting their money on Square. After all, Square has already demonstrated its ability to deliver strong growth, and it seems that growth is unstoppable. E-commerce was already gaining on brick-and-mortar businesses before the pandemic.
Once COVID sent people home, the trend towards buying just about everything online accelerated dramatically. That means a greater need for digital payments – and who is disrupting the digital payments industry? Square.
SoFi has a lot going for it, and most believe it will grow rapidly in coming months and years. However, buying shares of a newly public company over a proven winner could be a bit too risky for all but the boldest investors.
SoFi vs. Square Stock: The Bottom Line
Both SoFi and Square are leading disruption in the financial services industry. When it comes to SoFi vs Square stock, which is best comes down to risk tolerance and investment goals.
Buying SoFi stock gets you in on the ground floor of what could be a very valuable company in a few years’ time. However, there are a lot of unknowns, and more risk-averse investors would be better off taking a wait-and-see approach.
Square stock is generally thought to be expensive – approaching overvalued – but nearly everyone believes that it will continue its meteoric rise. For risk-averse investors, that makes Square stock the right choice, but those willing to take more risk in exchange for higher return potential should go with SoFi stock.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.