- Thanks to the pandemic, the share of people doing all of their finances and payments online has surged to record highs. The accelerated shift from physical to digital payments has given a major boost to fintech firms like PayPal and Ant Group, which are increasingly moving in on territory that has long been dominated by conventional banks. (The Economist)
- NH: Recently, I interviewed Ami Joseph, Hedgeye’s technology sector head. (See “Generational Impacts on Technology.”) One of the themes we focused on was how Covid-19 was pushing digital tech forward on every front--and pumping up the market cap of the big tech and communications players along the way. This Economist article touches on the recent acceleration and growth of digital payments during the pandemic.
- So far, in 2020, cashless transactions have skyrocketed. In the US, online banking registrations rose 200% in April. At the same time, mobile banking traffic increased by 85%. This year traditional banks make up only 72% of the total market value of the global banking and payments industry, down from 81% the year before. Fintech now makes up an astounding 11% of the market.
- Internet-based wallets that allow P2P transfers have also seen a spike. Venmo grew by 50% YoY in its second quarter. PayPall (PYPL), Venmo’s parent company, has seen its stock rise by over 85% YoY. Some companies, like Lyft (LYFT) and Uber (UBER), have even started allowing P2P transfers as a payment option.
- With the growing popularity of online banking, many of these companies are racing to make their apps a one-stop-shop for all online transactions. In the Apple Wallet (AAPL), you can open an Apple credit card, check into a flight, and download a movie ticket. Sberbank in Russia is now allowing customers to order takeout straight from their app.
- All of this was underway, of course, before the pandemic hit. And I have been writing about it for awhile. (See “Apple Leads The Charge In Cashless Payments.”) What Covid-19 did was put these trends on sudden fast-forward. In order to maintain their "social distance," people want to do everything online or--when they do go into brick-and-mortar stores--they want to execute their purchases rapidly with a payments card. They certainly don't want to touch physical cash. Many urban retailers in fact are no longer accepting cash. And out of concern for folks who lack cash or debit cards, some cities and states are now requiring (or will soon require) that retailers must accept cash.
- The open question is this: Will payments shift "back to normal" after the pandemic passes? Or is this a path-dependent shift in behavior that few will regret once they have gotten used to it?
- IMO, it's mostly the latter. And keep it mind that it's getting an extra push from a longer-term generational tail wind. Cashless finance complements the Millennial and Homelander peer personality. By banking through big-name tech brands, young people are supporting their favorite companies while still receiving loyalty deals. And apps like Venmo have turned banking into a social media like experience. As companies continue to combine business and lifestyle capabilities, the rising generations will continue to be the first in line.