The last 12 months have been brutal for fintech investors.
The Nasdaq 100 is +21% over the past 12 months, while iShares Fintech Active ETF is -22% over the same period.
Many of the best-known names fell much further:
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$Klarna Group plc(KLAR)$ : -65%
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$Sea Ltd(SE)$ : -48%
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$Grab Holdings(GRAB)$ : -46%
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$Adyen N.V.(ADYEY)$ : -39%
Sofi grew revenue +43% Y/Y in Q2 2026, yet its stock is -46% over 12 months!
When revenue rises and the share price falls, investors are paying a lower multiple for the same business, and that happened across fintech. Investors got scared of the economy, and fintech was the first place they sold.
Fintech falls harder than the market when the economy wobbles because it is a bet on the everyday consumer. Many fintech customers are younger and have smaller savings. The lenders among these companies also depend on borrowed money to fund their loans, so they get hit twice when rates rise.
3 shocks drove the sell-off.
1. Trump's Trade War
Tariffs never left the headlines.
The trade war accelerated on April 2, 2025, a day Trump called “Liberation Day.”
In the White House Rose Garden, he announced a 10% tariff on almost all imports, plus much higher rates on dozens of countries, such as 34% on China and 46% on Vietnam. The S&P 500 lost 10.5% over the next 2 trading days, wiping out more than $5T in value, its worst 2-day drop since the 2020 COVID crash.
The legal fights started almost immediately, and on February 20, 2026, the Supreme Court ruled that the emergency law behind most of Trump's tariffs doesn't allow tariffs at all.
The government must refund about $166B collected from more than 330K businesses.
The average US tariff rate fell from 27% in April 2025 to 12.1% in July 2026, yet the rules kept changing month after month!
Fintechs don't import goods, so tariffs reach them second-hand, through their customers.
Tariffs are import taxes that increase the prices of imported goods, such as Mexican avocados, French cheese, Italian wine, and Korean skincare products. Additionally, tariffs increase the prices of local goods and services that use imported products to serve customers. US-made cars that use Polish or Chinese parts become more expensive. Nail/Hair/Spa salons might increase their prices if imported beauty products become more expensive
That leaves less money for the shoppers who borrow through Sofi, or Klarna.
Payment companies feel it differently, as Block, Toast, and PayPal earn a % of each sale, so higher prices actually lift the dollar value of each transaction. The risk is fewer transactions, as small merchants pass tariff costs on to shoppers and sell less.
However, the biggest problem tariffs created was uncertainty. The legal basis for US tariffs changed again and again within a year, and every court ruling raised a new question.
Small businesses that run on Block and Toast pay the import costs directly. Latin America has also been a repeated target, which weighs on fintechs like Mercado Libre and Nu that earn most of their money there.
Constant rule changes make it hard for companies to plan, so investors are willing to pay less for growth they can't predict.
2. The Iran War
Then came the biggest shock of the year.
On February 28, 2026, Trump ordered Operation Epic Fury against Iran. US and Israeli strikes the next morning killed Supreme Leader Ali Khamenei and several senior officials. Iran fired missiles at Israel and the Gulf states, and attacks on tankers choked traffic through the Strait of Hormuz.
Oil prices exploded.
As you can see in the chart above, Oil was $72 in mid-February, but by March it reached $120.
US drivers felt it right away as a gallon of gas went from $2.98 in February to $4.48 by May 5.
US gas prices jumped +50% in less than 3 months!
Expensive gas hits fintech customers first. That makes perfect sense, as someone living paycheck to paycheck has less left for a loan payment when filling the tank costs $50 more. That raises the risk of missed payments, and lenders' stocks sold off hard.
3. High Inflation
The oil shock fed straight into inflation.
US inflation reached +4.2% Y/Y in May 2026, the highest since April 2023 and a huge increase from before the war. If you look at the chart above, you clearly see where the war began.
Inflation cooled as oil came down, to +3.4% Y/Y in July and August, but that's still above the Fed's 2% target, and new Fed Chair Kevin Warsh said waiting until 2029 to get back to 2% is too slow.
On September 16, the Fed raised rates by 0.25% to 3.75-4%, its first hike since 2023.
Higher rates hurt fintech more than most sectors because lenders like Sofi, Upstart, and Affirm borrow money to fund their loans, so their costs go up while their borrowers struggle more with payments.
So it is a double hit, their cost of capital rises, while default expectations rise.
Growth stocks are also valued on profits years into the future, which are worth less when rates rise.
Sofi beat estimates and raised its 2026 revenue guidance on July 29, and the stock still fell more than 9%.
4. Why Buy Now?
Fintech stocks have spent a year getting cheaper while the businesses behind them got bigger.
That gap is your opportunity.
4.1. Valuations Have Compressed
A stock price comes down to 2 things:
1. How much a company earns?
2. How much investors will pay for those earnings?
Over the past year, the first number kept rising for most fintech companies, while the second one collapsed.
That second number depends on mood.
When investors worry about war and inflation, they pay less for every dollar of future profit. They pay the least for companies whose customers look most exposed to a weak economy.
However, mood can swing both ways.
The fear that pushed fintech P/E multiples down can reverse quickly once the headlines calm down. Investors who buy while multiples are low could benefit from 2 tailwinds, earnings growing and the multiple on those earnings expanding.
When earnings rise and the share price falls, every dollar you invest buys more profit than it did a year ago!
By the time the economy looks safe again, the multiples have usually recovered too, and the low prices are gone.
4.2. The Operating Numbers Keep Coming in Strong
Q2 2026 was the toughest test for fintech in years. It came right after the oil shock, with inflation at its highest level in 3 years.
All of the fintech companies I follow still beat estimates and kept or raised their EPS guidance.
Customers kept signing up, and they kept paying back their loans.
Fintech lenders serve younger customers with thinner credit histories, so rising late payments would be the first sign of real trouble. The delinquency and charge-off trends reported for Q2 mostly improved instead.
Part of the reason is how these lenders work as most fintech loans are short. A buy now, pay later loan is repaid within weeks, and a personal loan within a few years. Approvals run through AI credit models that update constantly. When the economy weakens, fintech lenders can tighten approvals within days, before a bad batch of loans runs off quickly. A bank sitting on 30-year mortgages can't adjust that fast.
Fintech's customers kept paying their bills through a war and the highest inflation in 3 years!
If credit was going to crack, it should have cracked in Q2, yet it held.
The market prices in a consumer collapse that never came.
4.3. Higher Rates Are Already Priced In
Stocks move on expectations, and by the time the Fed raised rates in September, fintech stocks had already spent 6 months pricing in hikes.
The companies have adjusted, raised the rates they charge and tightened who they approve, and several now build 1 or 2 more Fed hikes into their guidance. When guidance already assumes higher rates, a Fed pause turns into upside.
History favors buyers as in the last rate cycle, many fintech stocks bottomed in late 2022, months before the Fed's final hike in July 2023.
Investors bought once they could see the end of the hikes, well before any rate cuts.
In the last rate cycle, fintech stocks bottomed months before the Fed's final hike!
Furthermore, the bar for good news is now low. The market already expects more hikes, so anything short of that helps fintech.
4.4. Fintech Disruption Is Continuing
Most importantly, the fintech bull case remains strong despite the problematic macroeconomic situation.
Younger customers are leaving traditional banks, and the shift picked up speed during the last 12 months.
The share of Gen Z with a neobank as their main bank nearly doubled in 12 months, from 8.9% to 17.2%.
According to EMARKETER. J.D. Power's 2026 study found online banks and fintechs now win 28% of the new primary checking accounts opened by millennials and Gen Z.
Younger customers switch for practical reasons because fintech apps deliver a superior customer experience compared to many legacy banks. In J.D. Power's study, SoFi scored well above Chase, the best-scoring national bank, with Gen Z customers.
We can’t forget about the largest and most consequential generational wealth transfer in human history.
Boomers are the largest and richest generation in history, and they are getting old fast. Experts estimate that over $100T will pass between generations in the US through 2048. Millennials will inherit $46T, more than any other generation.
That money is moving from people who grew up with bank branches to people who grew up with smartphones.
Millennials will inherit $46T, and they won’t keep all that wealth in Chase bank accounts.
Gen Alpha will be even more digital. The oldest are teenagers now, and they have never known a world without mobile payments.
This shift doesn't care about tariffs or oil prices.
Every year, customers loyal to their local branch are replaced by customers who want a superior customer experience. A customer won in their 20s can stay for 40 years, and fintech companies are winning them. And you can invest in these stocks now while the multiples are low.
5. 5 Stocks to Buy
5.1. Klarna
Klarna is the largest buy now, pay later company in the world, with 118M active consumers, and is turning that base into a full shopping and banking app.
The new products are taking off, with its paid membership reaching 2M subscribers in Q2 2026, 8x more than a year earlier, and the Klarna Card has 6.5M active users. Subscriptions and cards give Klarna steady revenue that doesn't depend on a single purchase.
Moreover, after many unprofitable quarters, Klarna also turned profitable. Revenue grew +27% Y/Y in Q2 2026, and the company reported a small profit when analysts expected a loss.
Klarna is 69% below its $40 IPO price and trades at 12x analysts' 2028 earnings!
Klarna barely makes money yet, so its P/E this year means little. Analysts expect net income to jump from $15M in 2026 to $297M in 2027 and $439M in 2028. That puts the stock at 18x 2027 earnings and 12x 2028 earnings.
As the company expands in banking services and the BNPL ecosystem, it will find new ways to monetize its 118M active users.
5.2. Sofi
Sofi is a US digital bank that offers loans, checking and savings accounts, investing, and credit cards in one app.
Sofi added a record 1.1M members in Q2 2026, and its existing members are using increasingly more products inside the Sofi app.
More than half of its new products were opened by existing members, up from about a third a year earlier.
Selling a second product to a customer you already have costs far less than finding a new one. Every extra product makes each member more profitable and less likely to leave.
Sofi's deposits are its competitive advantage in this market. Deposits grew $5.3B in Q2 to $45.5B. Lenders that fund themselves by selling loans to investors pay more when rates rise. Sofi funds most of its loans with customer deposits, which cost far less. Credit is improving too, with personal loan charge-offs falling in Q2.
The stock fell because investors fear more rate hikes and want bigger profit margins.
Management chose to reinvest the extra revenue into new products instead of raising its profit guidance.
Analysts expect Sofi's net income to grow from $805M in 2026 to $1.49B in 2028. At today's price, that's 25x 2026 earnings, falling to 14x 2028 earnings. A mid-teens P/E 2 years out is cheap for a company still growing revenue +30% Y/Y or more.
The CEO Anthony Noto believes Sofi will become a $1T company and can grow at 20% per year for a long, long time.
5.3. $Nu Holdings Ltd.(NU)$
Nu is the largest digital bank in Latin America, with 139M customers across Brazil, Mexico, and Colombia. It started with a no-fee credit card in Brazil and now offers accounts, loans, insurance, investing and more.
Nu is extremely profitable, it earned $1.1B of net income in Q2 2026, up +49% Y/Y, with a 33% return on equity. It runs without branches, so it spends less than 20 cents on costs for every dollar of revenue. Big traditional banks spend several times that.
Customers also use it. More than 83% of Nu's customers are active each month, a sign that people treat Nu as their main bank.
Nu grew net income +49% Y/Y in Q2 2026, while its stock is fell 13% YTD.
That gap means Nu got much cheaper. Analysts expect net income of $4.2B in 2026, rising to $7.1B in 2028. That puts Nu at 19x 2026 earnings and 11x 2028 earnings, a low price for a bank compounding profits this fast.
The company recently expanded to the US and is well positioned to create a decent business there. Getting more USD-based revenues would help the company reduce FX risk and increase the multiple it trades at.
5.4. $DLocal Limited(DLO)$
Dlocal helps global companies take payments and pay out money in emerging markets. If Uber or Netflix wants to collect money in Nigeria or Vietnam, Dlocal handles the local payment methods and currency rules.
Growth is accelerating, with Total payment volume growing +92% Y/Y in Q2 2026, its fastest pace since 2022.
Dlocal processed more money in Q2 2026 than in all of 2023.
The best sign is how its existing customers behave. Merchants that used Dlocal a year ago paid it 53% more this year. They are sending more countries and more volume through Dlocal as they expand, so growth comes without much extra sales spending.
Dlocal still grew net income +28% Y/Y, and it generates enough cash to buy back stock. It repurchased $86M of shares in Q2 alone.
Analysts expect net income to grow from $252M in 2026 to $446M in 2028. At today's price, Dlocal trades at 17x 2026 earnings and under 10x 2028 earnings.
Dlocal is in a great position to capture hundreds of billions of dollars in emerging market payment volumes as Africa, Latin America, and Asia digitize their payment ecosystems.
5.5. $Pagaya Technologies Ltd.(PGY)$
Pagaya uses AI to help banks and fintechs approve more loans. When a lender turns down an applicant, it can send the application to Pagaya. If Pagaya's model approves it, the lender keeps the customer, and Pagaya funds the loan through its credit investors partners. Essentially, Pagaya connects lenders with credit investors and earns fees for each loan it helps create.
Pagaya has been profitable on a GAAP basis for 6 straight quarters, after years of losses. Network volume grew +33% Y/Y in Q2 2026, and management raised its 2026 net income guidance to $155-180M
. New partners keep signing up, including Upstart and Sezzle this year.
Pagaya trades at 3.5x analysts' 2028 earnings estimate!
Analysts expect $361M of net income in 2026, rising to $486M in 2028. Those numbers are about double management's 2026 GAAP guidance, which suggests analysts use adjusted earnings. Even on management's own GAAP guidance, Pagaya trades at 11x 2026 earnings.
Pagaya is the cheapest stock on this list, and there's a reason.
Pagaya depends on investors buying its loan-backed bonds. When rates rise, those investors demand higher returns, and Pagaya has to accept smaller fees on each loan. Its fees as a share of volume fell in Q2 for exactly this reason.
Pagaya carries the most risk of the 5. It also has the most to gain if rates ease, since lower funding costs would flow almost straight into its profits.
However, in the long term, the business seems highly appealing as there are hundreds of billions of loans originated each year by fintechs. These fintechs prefer not to take the credit risk and simply collect a few % origination fee.
Meanwhile, institutional investors like insurance companies, pension funds, and private equity funds have trillions of capital to deploy.
There is significant potential for Pagaya to capture tens of billions of dollars of these volumes!
Markets are always moving - and sometimes, the best move is knowing what works for you.
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