Should You Forget Big Banks and Bet on Fintech Instead?

For decades, big banks like Wells Fargo (NYSE: WFC), and Bank of America (NYSE: BAC), were solid investments. And they still are. Although none of them are ever going to be high-growth holdings, the world always needs an efficient way of borrowing and saving money. Banks provide exactly that.

As is the case with so many other industries, however, technology is changing this one. Consumers and corporations alike now expect the convenience and flexibility that only technology can facilitate.

With that as the backdrop, investors looking for a new holding in the financial sector would be wise to consider taking a stake in one of the few banks being built from the ground up to take full advantage of newer technologies. That's SoFi Technologies (NASDAQ: SOFI). Here's a closer look.

What's SoFi Technologies?

It's not exactly a household name -- at least not yet. As of the end of last year it was only serving 13.7 million customers. Its $53.6 billion in assets pales in comparison to Bank of America's $2.6 trillion.

Current size doesn't indicate future growth potential, though, and SoFi is proving it's got plenty of that.

Launched in 2011 as a means of helping borrowers get a handle on their student loans, it's since evolved into so much more. It was officially granted its charter to be a national bank in early 2022, and now offers everything you'd expect from a bank, like checking accounts, loans, credit cards, and brokerage services, just to name a few.

More importantly for interested investors, SoFi's customer headcount has rapidly grown in step with the ongoing expansion of its offerings, from a little more than 1 million customers in early 2020 to 14.7 million now.

What gives? It's just a sign of the times. With the advent of the internet in the 1990s followed by the proliferation of mobile broadband and smartphones beginning in the 2000s, consumers are increasingly embracing online and mobile self-service options, even with businesses like banking that have traditionally been built around in-person relationships.

SoFi doesn't just offer online banking, though. It's only an online bank -- no brick-and-mortar branches -- built from the ground up to serve the market without being held back by a legacy business and physical assets that still need to be maintained.

Exactly what consumers want

And make no mistake. This is very much the new norm for this ancient business, even for a segment of consumers you might not expect.

It comes as no real surprise that the American Bankers Association's most recent survey of 4,403 of the nation's bank customers indicates that roughly two-thirds of millennials and Gen Z prefer a mobile app to handle banking. This 45-and-under crowd is comfortable with computers, after all, as well as the mini-computers they carry around in their pockets. Indeed, the 30-and-under Gen Z crowd probably doesn't remember a time without smartphones, let alone high-speed internet.

What's curious (underscoring just how normalized internet banking has become) is the degree to which so many non-digitally native consumers are also embracing self-service banking tech. More than half of Generation X first and foremost uses a mobile banking app to take care of banking matters, and for the first time ever, as of last year, mobile apps have dethroned internet-connected computers as the means by which baby boomers (aged 62 to 80) did most of their banking.

Image source: Getty Images.

At the other end of the spectrum, only about 12% of baby boomers still prefer to visit a branch in person to handle banking business, even though this is what they had done for the majority of their lives.

As all of these groups age and new generations that are even more digitally and mobile-native are introduced, look for SoFi to expand its asset base even faster than it's growing its user base. This potential expansion is why Cognitive Market Research expects North America's neobanking industry to grow at an average annual pace of more than 46% through 2031, consistent with an outlook from Straits Research.

And for what it's worth, that's nearly the pace at which SoFi's top line improved last year, and in its recently reported first quarter, when revenue rose 41% year over year. It's already catching this long-term tailwind.

Plenty to like, even if the market doesn't see it right now

Most traditional banks also offer a healthy lineup of online and mobile banking options these days, for the record. It's not as if SoFi can simply exist and expect to continue winning new business. Like any other outfit, it must compete to produce growth.

It's clearly doing something right, however. Last quarter's top-line growth of 41% and subsequent earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of 62% says as much. So does the fact that Forbes magazine recently named SoFi the U.S.'s No. 1 bank for 2026, marking the fourth consecutive year the company's received the accolade. (It's also the Motley Fool's best digital-only bank for 2025, by the way.) Offering superior service, features, and flexibility is what produces fiscal results that are eventually reflected in the stock's price.

SoFi, however, has underperformed in recent months and it stumbled on Wednesday in response to Q1 earnings and full-year projections that merely met average analyst estimates. But while the shares have lagged since November, the analyst community forecasts a stock price of $23.58 per share -- about 45% more than the recent market price.

Bank of America is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.