While society places extraordinary value on building good credit, many fail to realize that this dynamic is perhaps one of the biggest Catch-22s in existence. As you know, financial advisors emphasize their clients must live within their means. Obviously, the best way to comply is through living a debt-free life. But, by not having a track record of debt and its repayment, you build no credit.
In turn, lenders often turn down prospective clients because they are not “creditworthy.” To remedy this contradiction, Opportunity Financial replaces the credit-score mechanism altogether, making its stock offering extraordinarily relevant and providing economic opportunities and opening up the stock market to new retail investors.
When Did Opportunity Financial IPO?
Opportunity Financial IPO’d on Wednesday July 21, 2021.
Opportunity Financial Fiscal History
According to the Federal Deposit Insurance Corporation (FDIC), a 2019 survey revealed that nearly 95% of “U.S. households (approximately 124 million households) were banked (i.e., had a bank or credit union account).” Further, it emphasized that these stats represented the highest number and percentage of households with bank accounts since the start of data collection, which was initiated in 2009.
Nevertheless, the FDIC warned that 5.4% of households (or nominally about 7.1 million households) were unbanked. Perhaps this statistic is what economists should have focused on all along. During former President Trump’s third year in office, the economy was booming and unemployment was running at multi-decade lows. The robust financial backdrop for everyday Americans implied strongly that, had the COVID-19 pandemic never materialized, the administration would have won a second term.
However, the pandemic did occur, which imposed severe consequences across the board — many of which we’re still paying for. While the media’s attention is rightfully on the growing delta variant threat, the FDIC’s unbanked statistics potentially serve as the canary in the coal mine. At the same time, it’s exactly the circumstance that well serves Opportunity Financial’s public market debut.
According to the fintech’s IPO prospectus, Opportunity Financial (OppFi) generated incredible growth thanks to its artificial intelligence (AI) and machine learning protocols which replace the antiquated consumer credit system. Instead, the company considers other attributes through its proprietary algorithms to determine the true credit worthiness of its prospective clients. As a result, OppFi has garnered strong membership growth and rising revenues. The business model has proven solid, and the company has continued to use best practices.
The numbers speak for themselves. In Q4 2020, OppFi had 594,000 unique customers, representing 33% year-over-year growth. But by the end of 2021, the fintech firm estimates that it will have 899,000 customers. Further, in 2020, it estimates revenue of $323 million, up over 20% from 2019’s tally. As well, management projects that by the end of this year, OppFi will ring up $418 million in top-line sales.
However, investors should note that Opportunity Financial LLC went public via a reverse merger with a special purpose acquisition company (SPAC). Over the trailing year, SPACs have generated intense interest — and some controversy to be fair — because of their intriguing combination of financial access but often unbalanced reward profiles.
Back on Feb. 10, 2021, Opportunity Financial announced its intention to merge with FG New America Acquisition Corp. (NYSE: FGNA), a SPAC or blank-check firm. A SPAC entity has no business of its own and only goes public with the intent of merging with a private enterprise, usually a startup.
On the positive front, SPACs open doors for public investors that they otherwise may not have because of the expensive and time-intensive route of traditional IPOs. As well, regular retail buyers can jump on a SPAC pre-merger announcement, which allows them to buy shares at the initial offering price, which typically starts at $10 per share.
Still, investors should be aware of the downside of SPACs. For one, these reverse mergers produced some wildly choppy investments, such as the see-sawing Virgin Galactic (NYSE: SPCE). Also, SPACs tend to overwhelmingly reward sponsors, who often receive a 20% equity stake in the combined entity, making this online lender one of the best financial instruments for those who wish to invest in the long term.
Opportunity Financial Potential
Perhaps the biggest opportunity for Opportunity Financial is the democratization of financial access. As the FDIC data showed, millions of Americans were completely unbanked despite a period of strong economic growth. With the COVID-19 crisis imposing an unbalanced recovery — particularly as the top 1% of society now own a staggering 32% of total net worth — many more millions will find themselves locked out of financial services. Logically, OppFi can help rectify this wealth gap.
Just as crucially, OppFi can heal wounds that the broader financial services industry — whether knowingly or unknowingly — perpetuated for decades. According to information compiled by a report from The Washington Post, the antiquated credit scoring system serves to deny access to historically marginalized or underserved communities. The report stated that credit scores can have the same detrimental effect as a loan officer deliberately discriminating against an individual prospect.
Fortunately, the beauty of OppFi’s platform is that its algorithms get to the heart of the matter, determining credit worthiness without considering irrelevant data such as immutable characteristics. Not only does this AI-driven service open doors for marginalized households, it also improves overall economic health by connecting those living in the margins with critical tools. OppFi estimates that nearly 60 million Americans lack access to mainstream financial products.
Finally, democratization is a huge topic among younger demographics. Since social responsibility ranks highly for both millennials and Generation Z, it’s reasonable to assume that over the long haul, OPFI stock will attract investors concerned about environmental, social and governance (ESG) issues.
How to Buy Opportunity Financial (OPFI) Stock
If you know how to trade stocks, you can continue. If you need a little guidance, you can follow the steps listed below.
Step 1: Pick a brokerage.
In prior generations, online brokerage clients focused largely on platform costs and fees. Today, competition and technology have sparked standardized financial incentives, such as commission-free trading. Therefore, when picking among the best brokers, you should focus on access to financial vehicles.
Step 2: Decide how many shares you want.
One of the most important steps, your share count determines your risk-reward profile. A higher share count allows you greater profitability potential but at the risk of volatility exposure. Therefore, choose a balanced figure that you’d be comfortable with.
Step 3: Choose your order type.
Before trading, make sure to understand these market concepts:
- Bid: The maximum price a buyer will offer, the bid is always lower than the ask.
- Ask: The minimum price a seller will accept, the ask is always higher than the bid.
- Spread: Beyond the difference in the bid-ask price, spreads indicate market liquidity and risk. Tighter spreads signal strong market negotiation, resulting in higher liquidity and lower risk. The opposite is true for broader spreads.
- Limit order: Limit orders fulfill transactions only at a specific price. They offer pricing transparency but no execution guarantees.
- Market order: In contrast, a market order guarantees fulfillment at the going rate via the least favorable terms (i.e., buy orders on the ask).
- Stop-loss order: A protective mechanism for your portfolio, stop-loss orders will fulfill at either a predetermined price or any price lower than the requested rate.
- Stop-limit order: To eliminate ambiguities of stop-loss exits, stop-limit orders only sell out of your position at a predetermined price. However, such orders have the same nonfulfillment risk as limit orders.
Step 4: Execute your trade.
To execute a market order, follow these steps:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (remember to input your desired execution price).
The Stock that Society Desperately Needs
Every quadrennial cycle, politicians wax poetic about unity among all Americans. However, government data reveals that the wealth gap has been worsening, especially so because of the pandemic. To bring substance to words, Opportunity Financial serves the underserved, enhancing economic potential and delivering necessary healing.