20 Aug The Global Pandemic Has Accelerated The Move to a Cashless Society. How Can We as Investors Benefit?
Have you tried going into a shop in the last few months and paying with the cash you’re holding in your pocket? If you have, then it’s very likely that it wasn’t accepted. In the current pandemic era, shopkeepers are flat out refusing cash as a form of payment, or at the very least highly discouraging customers from paying with notes and coins.
And it’s fair enough too. A study from 2002 in the US showed that paper notes carried more germs on them than a household toilet. A disturbing 94% of dollar notes were found to contain pathogens including staphylococcus, and the vast majority were covered in cocaine, suggesting that most of the cash we carry around has at one time or another been laundered through drug cartels and other nefarious businesses. More disturbingly, it was found that while viruses and bacteria can live on most surfaces for up to 48 hours, they can survive on banknotes for up to 17 days. It turns out cold hard cash is a straight out COVID spreading machine.
Cash was already on the way out in most modern societies. In the RBA’s most recent Consumer Payments Survey, taken last October, it found that debit cards finally overtook cash in Australia as the most used type of payment. Overall cash was only used in 27% of payments in 2019, compared to 37% in 2016 and 47% in 2013. Cards (debit, credit and charge) now account for 63% of transactions, with Internet and phone banking at 3%, and BPAY and PayPal accounting for 2% each. In the US the FIDC’s most recent study showed that cash now represented only 30% of all payments.
Since the global pandemic took hold, for most of us at the start of 2020, the move to being a cashless society has only accelerated, and it’s unlikely to ever come back. Much like most businesses will be happier to move to employees working from home in the future, the move from cash to contactless payments has been forced on many, but once they’re set up with new technologies, there isn’t much point in returning to the old way of doing things. Buy the time this pandemic is over cash may well be a thing of the past.
So what does that mean for us as investors? What stocks should we be looking at to take advantage of this situation? We’ve covered this in many different stock reports and in the catch-up and other forums over the years. But I thought I would throw a quick list together as a summary for those new to Capital 19 and as a quick recap for others.
Firstly, and most obviously, you’ve got your credit card companies. These have been some of our portfolios best performers over the last decade and there’s no reason why they won’t continue to be. Here you’re looking at Visa (V), Mastercard (M) and American Express (AEXP). All are strong companies in their own right, with solid financials. Here’s a stock report we did on Amex back in March: https://capital19.com/investing-in-us-stocks/american-express-axp/ Discover Financial Services (DFS) is another credit card offerer on a smaller scale to the others but at a much cheaper price following its falls in March.
Then you’ve got all of your digital payment companies. Those that support the e-commerce segment which has been quickly gaining market share in recent years, which has also been accelerated by the pandemic. The out and out leader here is Paypal (PYPL). We’ve been fans at Capital 19 for years and you can read our stock report that we did just a few months ago right here: https://capital19.com/investing-in-us-stocks/paypal-pypl/
In China, the leader is Alibaba (BABA) who owns 33% of Ant Financial the providers of Alipay. Alipay recently overtook PayPal as the world’s largest mobile payment platform. BABA is up almost 20% so far in 2020. Tencent Holdings (TCEHY) is another massive provider in China and one that is worth a look. It has its hands in many different pies, including video gaming, but it also has 800 million monthly users who have adopted its payment platform and boasts a bigger market cap than Alibaba.
Square Inc (SQ) is another company likely to take advantage of a move to a contactless society. It’s likely you have used their technology when making a payment at a stall or market, or a smaller shop. They design little white boxes that plug into mobile phones that enable the phone to accept credit card payments. Founded by Twitter owner Jack Dorsey they also compete in peer to peer transactions through mobile devices, while also providing lending services to businesses. Other competitors in the space include First Data (FDC), and Shopify (SHOP).
And when talking about digital and contactless payments you can’t forget the big boys. Apple (AAPL) has been the most successful in this space so far. They control half of all smartphones in the US, each with an Apple wallet which enables Apple Pay. You don’t even need to carry a credit or debit card around anymore. You just stick your phone near the reader and away you go. At the end of 2019, Apple Pay had 441 million users worldwide, up from 229 million the previous year. Here’s our stock report on Apple from April: https://capital19.com/investing-in-us-stocks/apple-aapl/.
Amazon (AMZN) has a similar product called Amazon Pay, They don’t have anywhere near the mobile reach of Apple but they do have Americans largest customer base. There were 150.6 million customers using the Amazon phone app at last count. They are quickly developing a payment product – Amazon Pay – that could rival all of the major players. Here is our latest Amazon stock report: https://capital19.com/investing-in-us-stocks/amazon-amzn/
There are many great reasons to hold the stocks mentioned above in your portfolio. They are already leaders in their field, and as a bonus, they are primed to take advantage of a move to a cashless society. Thanks to the pandemic this move has been accelerated and the profits that will come off the back of it will all be gobbled up, for the most part, by the companies mentioned. It’s just another important reason to hold them.