Wells Fargo's Jason Kupferberg on payment stocks: Proceed with caution

Market Overview & Investment Thesis - Fintech sector exhibits a dichotomy: strong fundamentals ($2 trillion+ market cap, solid financials, secular tailwinds) versus negative investor sentiment (competition, disruption worries) [3][4] - Wells Fargo believes investor sentiment is overly negative, presenting numerous opportunities in the fintech space [4] "Fab Five" Fintech Companies - Auden: Possesses best-in-class back-end tech stack, expanding into new markets, expected to maintain 20%+ topline growth for several years [6] - Affirm: Buy now pay later (BNPL) has robust secular opportunity, currently representing only 8% of US e-commerce; management team and execution are impressive [7] - Mastercard: Maintains a tremendous competitive moat, adapting to new payment technologies, and generating a terrific cash flow profile [8] - Visa: Similar thesis to Mastercard, with effective diversification into value-added services [9] - Toast: Holds a strong competitive position in the point-of-sale space [9] Underweight Ratings (Cyclical Call) - ADP and Paychex are underweight due to cyclical concerns related to potential rising unemployment and lowering of interest rates [10] - The underweight ratings are not structural, as these companies still have solid business models [10] Buy Now Pay Later (BNPL) - Wells Fargo views BNPL as a more consumer-friendly product than traditional credit cards due to transparency and lack of late fees (specifically the "pay in four" model) [12][13][14] - BNPL can help consumers stretch their dollars, especially around the holidays, and retailers benefit from increased transactions [14]