As digital payment methods continue to surpass cash as the global consumer’s preferred way to pay, companies enabling this shift are positioned to significantly grow their earnings according to Munro Partners.
Partner and Portfolio Manager, Kieran Moore, said the rise of digital payments as a result of tap-and-go payments, e-commerce, emerging markets and business-to-business transactions has created several investment opportunities.
“The proliferation of tap-and-go payments has caused an inflection point in the evolution of digital payments, with consumer behaviour towards cashless transactions changing markedly,” he said.
“Previously, consumers tended to use cash to settle payments for small transactions such as buying a coffee or paying for parking. This is no longer the case and the digital payments have expanded.
“The growth of e-commerce has also driven this change. The move from offline to online has provided these digital payment providers with another source of revenue as consumers shift to online shopping.”
While digital payments in emerging markets have had a slower take-off, Moore identified this area as one set for future growth.
“Emerging markets are still predominantly cash societies, and like we have seen in other markets such as Australia, over time these markets will begin to adopt digital payments on an increasing scale,” he said.
“Business-to-business transactions, as well, have yet to be fully tapped into by digital payments, providing another potential area for future growth and expansion by digital payment companies.
“In the business world there are trillions of dollars in business-to-business transactions of which only a small fraction are currently digital.
“There is a lot of room to grow these earnings for those digital payment companies that can enable these business-to-business transactions to happen in their environment.”
Moore also highlighted the opportunities that lie outside of banks and traditional payments facilitators, with other players such as PayPal and Block working to support the shift to digital.
“Today, for a young person entering the financial system, it is possible to by-pass a bank and set up your entire financial life outside of a mortgage in a digital account or wallet.
“Take for example PayPal. It allows users to buy goods and services online, make transactions in local and foreign currency and even get paid a salary, like a standard bank account.
“As these digital payments evolve, we believe that over time banks will lose more and more market share as the world shifts to going cashless.”