Best in breed:
Scott Phillips
Remember that WAAAX acronym? Standing for Wisetech, Altium, Appen, Afterpay and Xero, it was supposed to be our answer to the US FANG stocks: Facebook, Amazon, Netflix and Google.
“Supposed to be” because, in part, it was a neat little marketing confection – none of our businesses, unfortunately, measures up to that American quartet … at least, not yet. And it’s partly because the success of the WAAAX group has been mixed – and certainly volatile.
None more so than the Australian fintech market darling Afterpay. Crashing from over $40 in February, the company’s shares hit a low of under $9 – essentially a 75% fall. But that was the entree. In the following three and half months, the shares were up seven-fold, to almost $70. Did I say it was volatile?
And yet Afterpay isn’t really a fintech company. I mean, sure, it’s in the finance game. And yes, it uses technology, but then so do Westpac and AMP. The market (and the companies in question) like taking liberties with these sorts of descriptions. It reminds me of the dot.com boom when a business could add 20%-30% to its share price just by sticking “com” on the end of its corporate moniker. Other businesses that decided to go from, say, trucking to ecommerce could make an announcement and see their shares double or triple. (Don’t let anyone tell you the finance profession is rational!)
I don’t want to take anything away from Afterpay or its ilk, by the way. To invent a new way of paying, and have it accepted across the country – and increasingly the world – is no mean feat. It’s just not fintech. Instead, that description belongs to companies that are truly technology businesses, disrupting the traditional finance sectors. Companies like the last of our acronymic quintet, Xero. Along with others, it has turned small and medium enterprise accounting on its head by taking it to the cloud and making it accessible to pretty much anyone (and by recruiting accountants to be its chief proselytisers – an often underrated strategic masterstroke).
Or the new wealth platform mobs: HUB24, Netwealth and the like. These companies have created tech to do what tech often does: make an existing process simpler, faster and cheaper for its clients, winning globs of market share along the way.
And frankly, while I think it represents pure speculation, as opposed to rational investment, the new breed of bitcoin and blockchain businesses also belong in this category – even if they are far less proven and risky – as companies that are using technology to upend the staid old ways of the finance game.
Yes, you can contort the definition to include Afterpay if you want: it’s disruptive, for sure, and it’s definitely providing a finance product (though it’s quick to say the credit code shouldn’t apply to it, so these things can be convenient).