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Portfolio Manager Insights
Fintech: Positioned for AI disruption
As AI adoption accelerates and macro conditions evolve, fintech businesses are likely to see both significant opportunity and disruption, says Fidelity’s Coby Powers.
- With artificial intelligence rapidly reshaping the competitive landscape across financial technology, Fidelity Portfolio Manager Coby Powers is upbeat on fintech companies he believes can harness data and automation to disrupt incumbents, capture market share, and drive growth and efficiency in the context of a supportive U.S. consumer backdrop.
- “AI is emerging as a defining force across fintech, with the potential to accelerate innovation and widen the gap between promising upstarts and legacy providers,” says Powers, who manages Fidelity® Select FinTech Portfolio. “The current market environment represents an extraordinary opportunity for active management and stock picking. Fintech companies with a modern tech stack, strong data advantages and visionary management appear well-positioned, whereas legacy providers could face increasing disruption and profit-margin pressure.”
- In helming the industry-focused equity strategy, Powers seeks to invest in companies with technological and macro tailwinds, a strong management team, and long-term earnings power the market underappreciates. He believes firms with scalable platforms, network effects and rich data stand to benefit most from AI adoption, and he avoids those he considers to be on the wrong side of technology trends and macro cycles.
- As examples, he cites payment networks Visa and Mastercard, the fund’s two largest holdings as of January 31. “Both are leveraging AI across fraud detection, transaction routing and value-added services, potentially improving their profit margins while strengthening their competitive moats,” he says.
- Elsewhere within fintech, Powers suggests that digital-first platforms, such as fund holdings Shopify and Affirm Holdings, are embedding AI into merchant tools, marketing and underwriting, which he believes could drive higher sales conversion and better credit performance. Canada-based Shopify operates an e-commerce platform, while Affirm specializes in buy now, pay later services.
- Powers also sees potential AI beneficiaries among select digital brokerage platforms, given their use of automation and AI-driven analytics to enhance trading tools, customer service and operational efficiencies.
- He identifies the common thread in these businesses as their clear differentiation versus competitors, especially legacy-oriented financial services providers he thinks may face greater disruption risk.
- Traditional payment processors and core banking vendors often rely on older technology architectures or mature business models, according to Powers. As AI enables new payment flows, smarter checkout experiences and more-efficient platforms, these firms may face intensifying competitive and pricing pressure, he notes.
- Powers believes the U.S. macro backdrop remains supportive of fintech businesses. Policies from the current administration aimed at supporting employment, wage growth and household balance sheets have contributed to a relatively resilient consumer environment, he says, noting that stable credit conditions and improving real incomes could lead to higher spending and borrowing trends over time.
- In this environment, Powers likes the prospects for innovative consumer lenders, including fund holdings Capital One Financial and Brazil-based Nu Holdings. “These firms are leveraging advanced analytics and AI-driven underwriting to manage risk, expand access to credit and improve efficiency − capabilities that could help them gain share from more-traditional lenders in the coming years,” he says.
FEATURED FUND
Select FinTech Portfolio (FSVLX)
Seeks capital appreciation.
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