MoneyMe share price surges, but is it sustainable?

After rocketing up over 20% on Tuesday, can the MoneyMe share price sustain its valuation? A look at winning in the fintech sector.

hand about to burst bubble containing dollar sign, asx shares, over valued

Image Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Yesterday Moneyme Ltd (ASX: MME) announced it had reached a lending milestone of $500 million, and that it was launching a new payments processing service. Consequently, the Moneyme share price shot up and finished the day 20.47% higher. The crux of the announcement was not that the company was launching a payments processing service, but that it would offer a buy now, pay later (BNPL) function at the point of sale. A business move headed up by former Zip Co Ltd (ASX: Z1P) sales professionals.

I believe this exposes two core truths about the Australian fintech sector in 2020. First, the BNPL sector, or pay by instalments, is no longer revolutionary in Australia. And second, all of this and more is due to the failure of the big four Australian banks.

The failure of the big four

The big four banks are fundamentally mortgage providers, with business loans and digital payments thrown in. They have been woeful at defending their turf. For instance, by population Australia is a small country, dominated by four large banks protected by legislation. So how on earth did Tyro Payments Ltd (ASX: TYR) become the fifth largest merchant acquiring bank, after the big four, by number of terminals? Moreover, bank lending to households via credit cards has been falling significantly since 2002. The Australian aversion to consumer debt has been growing for almost two decades. So why didn't any of them come up with Afterpay Ltd (ASX: APT)? 

The Moneyme share price isn't the only one to benefit by being more accessible, user friendly and offering cheap pricing. To paraphrase Paul Keating, every pet shop galah has an opinion on fintech shares these days. Companies like CML Group Ltd (ASX: CGR) provide cashflow solutions to small and medium sized companies through innovative debtor finance platforms. Additionally, lenders such as WISR Ltd (ASX: WZR) provide short term personal finance, while RAIZ Invest Ltd (ASX: RZI) is helping the public to save money.

It is almost like watching the death of Borders Bookstores again after the rise of (NASDAQ: AMZN). Consequently, given that the big four banks have allowed these spaces to open up, what does this mean for Moneyme?

Is the Moneyme share price sustainable?

In my view, there is not a chance that the company's share price is sustainable. Not in the medium term anyway. It announced it had acquired 55 merchants. Zip Co has 23,600. Moreover, its most similar payments competitor, Tyro, has 32,000 Australian merchants. Not only that, but a BNPL service is something Tyro could quickly open up at the point of sale.

Furthermore, the Commonwealth Bank of Australia (ASX: CBA) is already doing so slowly via its part ownership of Klarna, the world's largest BNPL company. To illustrate further just how competitive this sector is now, the Splitit Ltd (ASX: SPT) model of working with the large credit cards, to break down payments into instalments, is also likely to eat into market share. 

Foolish takeaway

The Australian buy now, pay later sector has become crowded to the point of normalcy. Accordingly, I believe the spike in the Moneyme share price is irrational optimism, not a sustainable valuation. Additionally, this is without considering the impacts of inevitable Australian regulation, and a raft of unlisted companies.

I think there are plenty of other growth opportunities in the fintech sector generally. However, within the BNPL sector, I believe it is now a race for the United States market. The startup companies that can establish a beachhead in that $5 trillion retail market are the ones that will survive this modern day gold rush.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Tyro Payments and ZIPCOLTD FPO and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Amazon. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A man sits thoughtfully on the couch with a laptop on his lap.
Earnings Results

ASX 200 tech stock lifts off on another record-setting half-year profit

Investors are bidding up the ASX 200 tech company following its half-year results.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Technology Shares

Buy this ASX tech stock for a 26% return

Bell Potter is saying good things about this tech stock and sees it as a potential takeover target.

Read more »

Man smiling at a laptop because of a rising share price.
Technology Shares

Up 53% in a month, how Nuix shares are winning back investors

Is this ASX tech share back in the good books of investors?

Read more »

Sports fans looking at smart phone representing surging pointsbet share price
Share Gainers

Guess which ASX All Ords share just rocketed 25% on an earnings upgrade

Investors are bidding up the ASX All Ords share following an improved FY 2024 earnings outlook.

Read more »

A man looking at his laptop and thinking.
Technology Shares

ASX 300 fallen star down 62% in a year hits new 52-week low: Time to buy?

Here's my take on Weebit Nano shares today.

Read more »

A man and woman watch their device screens, making investing decisions at home.
Technology Shares

Own Xero shares? Here's what to expect from next week's results

Strong earnings growth is expected from this market darling next week.

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Technology Shares

Brokers name 2 rapidly growing ASX 200 tech stocks to buy

These tech stocks could be quality options for growth investors. Let's see why.

Read more »

a man weraing a suit sits nervously at his laptop computer biting into his clenched hand with nerves, and perhaps fear.
Technology Shares

What are 3 of the safest ASX 200 tech shares in Australia right now?

Here's how these tech companies stand out in a turbulent market.

Read more »