Top cashless society companies for the years ahead.
Is the U.S. becoming a cashless society? A 2019 report from the Federal Reserve Bank of San Francisco found in its survey that consumer use of cash represented 26% of transactions in 2018, and that cash was used heavily for small-value payments. Ted Rossman, industry analyst at Bankrate.com, says: “Yes, we’re slowly moving away from cash, but I’d emphasize slowly.” That said, “there are reasons to believe that the importance of cash is diminishing, and the pandemic has accelerated this trend. Some consumers view cash as germy and have gravitated to credit cards, debit cards and mobile payments services instead,” Rossman says. How can investors seize on this shift from dollars to digits? Here are seven stocks to buy for the (increasingly) cashless society.
Square (ticker: SQ)
Square is arguably the best example of a company positioning itself to benefit from an increasingly cashless society. The company offers point-of-sale software and hardware solutions to facilitate payments for small businesses; it can convert an iPad into a payment terminal and makes a contactless chip reader to boot. Square also owns Venmo competitor CashApp, which can dramatically accelerate the velocity of money and gives vendors fast liquidity. Vidya Peters is the chief marketing officer of Marqeta, a $4.3 billion private California startup, which helps companies like Instacart, Doordash and Square issue their own cards. She highlights one use case in a peer-to-peer payment: “CashApp uses Marqeta to instantly issue a card. It’s a digital card. It could be on their mobile wallet, but the dollars they just received from their friends can go on that debit or prepaid card to be used instantly.”
Apple’s massive base of nearly 1 billion active iPhones is a key leverage point the company uses to build and maintain its dominance in the software market via the App Store, but it’s also using that leverage to potentially change traditional brick-and-mortar retail transactions. It recently bought Canadian startup Mobeewave for $100 million, in a move that should allow iPhones to function as mobile payment terminals, no extra hardware required. “As consumers and businesses depend less on cash transactions, there’s a big push toward a world of contactless payments to limit ‘riskier’ interactions,” says Heidi Bullock, chief marketing officer at Tealium. “Mobeewave’s technology enables more merchants to accept these payments, which is a win for both parties.” With Apple Pay and Apple Card already under its umbrella, AAPL is an increasing adoptee of a more cashless society.
PayPal is one of the largest companies that could be considered a pure-play on the move toward a cashless society. The company has been positioning for online payments since its foundation in 1998, and in the last decade has increasingly dominated the growing mobile payments vertical. PayPal, which owns Venmo, is growing like a weed in 2020; adjusted earnings jumped 49% last quarter to $1.07 per share as the company added 21.3 million net new accounts, bringing its total active accounts to 346 million, the most in company history. Free cash flow also jumped 112% in the quarter, and the stock is on an absolute tear, soaring by more than 80% in 2020, at the time of this writing.
“It’s likely that payment processors such as Visa and Mastercard will continue to benefit from the secular trend toward digital payments,” Rossman says. “Mastercard, in particular, has made a lot of effort to rebrand itself as a technology company.” Those efforts look to be steadily paying off: Mastercard said 37% of in-person purchase transactions were contactless in the second quarter, up from 28% in the same quarter a year prior. Credit card companies also benefit from the shift to e-commerce — a pivot in consumer behavior that has been essentially forced in 2020, especially in areas like grocery. Online grocery sales convert customers who might otherwise pay in cash or check to use a card. MA stock is up about 15% year to date through late August.
Naturally, credit card giant Visa will be another beneficiary of an increasingly cashless society. Visa has larger worldwide penetration than MasterCard, with about 60% of the credit and debit card market to MasterCard’s roughly 30% share. Starting in May, Visa got an additional boost when it teamed with the U.S. Department of the Treasury, with Visa-branded debit cards loaded with stimulus payments in some instances. Already one of the 10 most valuable publicly traded companies on U.S. exchanges, the $440 billion Visa is a prime contender to join the $1 trillion club sometime in the 2020s. Shares are up about 10% year to date.
Although Alibaba is China’s most dominant e-commerce company, it also holds an extremely valuable stake in Ant Group, the most valuable fintech firm in the world. Expected to file to go public in the coming days in a dual Hong Kong and Shanghai initial public offering, Ant could earn a valuation around $200 billion when it hits Asian exchanges later this year. Payments app Alipay is its crown jewel, reportedly boasting more than 700 million monthly active users in China alone. Alibaba has a 33% stake in Ant Group, which is expected to blow past Alibaba’s own record-setting 2014 IPO valuation of $168 billion. The stock is up more than 30% to date.
Last and least by market cap is StoneCo, the $15 billion tech company helping to enable the move toward more cashless societies — but in Brazil. STNE is a good way to diversify bets geographically in this space, offering payment processing and retail management software for both online and brick-and-mortar Brazilian retailers. Brazil, which is South America’s most populous country with more than 209 million people, is a great market to have a foothold in; Warren Buffett’s Berkshire Hathaway (BRK.B, BRK.A) owns around 14.1 million STNE shares, which is about a 4.4% stake in the business. Although Brazil has been hit hard by the pandemic, total e-commerce payment volume still grew by 80% year over year in the second quarter.
Top cashless society stocks to watch:
— Square (SQ)
— Apple (AAPL)
— PayPal (PYPL)
— Mastercard (MA)
— Visa (V)
— Alibaba (BABA)
— StoneCo (STNE)
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