There remains uncertainty regarding whether the COVID-19 pandemic-fueled growth of fintech will continue. Furthermore, banks have been easing their credit criteria and ramping up technology spending, and by so doing posing a competitive threat to the fintech industry. Hence, we think popular fintech stocks Upstart (NASDAQ:UPST) and SoFi Technologies (SOFI), which are trading at lofty valuations, are best avoided now. Read on.The COVID-19 pandemic increased the popularity of financial technology or fintech, with lockdowns becoming the accelerator of digital finance adoption. However, a large population is still more comfortable with the traditional methods of payments and may prefer those over digital payment methods if given a choice. Thus, there remains uncertainty regarding whether the recent behavioral shift toward digital financial transactions will be sustained or not.
Community banks, the traditional fintech competitors, have ramped up technology spending by a median of 10% over the past year. On average, banks are expected to spend $1.69 million on technology in 2021. Banks also have eased credit standards for households and businesses by lowering rates and expanding credit lines.
So, given the industry’s competitive threats, we think it may be best to avoid popular fintech stocks Upstart Holdings, Inc. (UPST) and SoFi Technologies, Inc. (SOFI), which look overvalued at their current price levels.