Better Buy: Canadian Bank Stocks or Fintech Stocks?

Canadian bank stocks like Bank of Nova Scotia (TSX:BNS) are the traditional pick, but you shouldn’t sleep on fintech stocks.

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The S&P/TSX Composite Index was down 17 points in early afternoon trading on Monday, July 17. Meanwhile, the S&P/TSX Capped Financial Index was enjoying slight gains during the same trading session. Today, I want to compare Canadian bank stocks to financial technology (fintech) stocks in the first half of the 2023 summer season. Which is the better buy right now? Let’s dive in.

What is the difference between bank stocks and fintech stocks?

Canadian bank stocks should not require an introduction for the average Canadian investor. The Big Six banks have set themselves apart as stand outs on the global stage, especially after these institutions impressively weathered the 2007-2008 financial crisis and the Great Recession. However, banks did see a challenge in the previous decade from fintech.

Fintech has sought to simplify and modernize transactions for consumers. Banks were lagging fintech companies in the late 2000s and early 2010s in the digital banking space. However, these institutions soon recognized this gap and made substantial investments in their digital platforms. That does not mean there aren’t good reasons to snatch up top fintech stocks this summer.

Here is one fintech stock with nice growth potential to watch in 2023

Payfare (TSX:PAY) is a Toronto-based financial technology company that provides instant payout and digital banking solutions to gig economy workers in North America. Shares of this fintech stock have jumped 20% month over month at the time of this writing. The stock has surged 41% so far in 2023.

This company released its first-quarter (Q1) fiscal 2023 earnings on May 10. Payfare delivered revenue growth of 76% to $42.3 million. The company reported 1.12 million active users at the end of Q1 — up 62% compared to the active user count at the end of Q1 2022. Moreover, adjusted net income rose to $3.45 million compared to a loss of just under $1 million in the previous year.

Payfare boasts an immaculate balance sheet. Better yet, the company has climbed into profitability. This is a fintech stock that can deliver strong growth going forward.

This top bank stock is still undervalued with a great dividend

Scotiabank (TSX:BNS) is one of the Big Six Canadian banks. It is often called “The International Bank,” as it boasts a large global footprint, particularly in Latin America. This bank stock has dipped 1.7% over the past month. Its shares have increased marginally in the year-to-date period. Investors can see its recent performance with the interactive price chart below.

Investors got to see the bank’s Q2 fiscal 2023 earnings on May 24. Scotiabank reported adjusted net income of $2.17 billion, or $1.70 per share — down from $2.76 billion, or $2.18 per share, in the previous year. Meanwhile, total revenue slipped marginally to $7.92 billion.

Shares of this bank stock currently possess a favourable price-to-earnings ratio of 9.7. Moreover, Scotiabank offers a quarterly dividend of $1.06 per share. That represents a tasty 6.4% yield.

The verdict

Canadian bank stocks are profit machines that provide a nice balance of capital growth and income for investors. However, Payfare is a fintech stock that is worth snatching up for investors who are hungry for a shot at serious growth in the 2020s. That said, I’m sticking with Scotiabank’s value and very strong dividend at the time of this writing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

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