The payments industry has been one of the beneficiaries of the COVID-19 pandemic so far, which led to a rise in digital payments.
The global health peril discouraged people by and large to handle cash directly for avoiding physical contact and breaking the chain of infection. Due to closure of the local market places and to avert public gathering, people are preferring online purchases of essential supplies, which in turn, are amplifying demand for the digital payments market. The payments industry has been shifting to the electronic mode over the recent years, given the proliferation of technology and the coronavirus episode will only expedite this transition.
Though the coronavirus weighed on businesses across various industries due to a meltdown in demand and supply glitches, one industry that earned a sweet spot is the payments industry.
Albeit payments on account of travel and other discretionary spending took a hit, customers spent more on their daily essentials and staples as home-improvement needs and cook-at-home demand picked up. Most payments were made online, which involved modes, such as cards (both debit and credit), mobile phones or via direct bank accounts. Thus companies that process these payments and provide a payment network gained traction from this trend.
Optimistic Data Points
According to the latest Adobe Analytics data, U.S. online sales surged 42% year over year in August, marking a significant increase, albeit at a slower pace than July when online sales soared 55% year over year.
Though the online sales decline in August was due to the gradual reopening of bricks-and-mortar stores and customers stepping out to make physical purchases, the preferred mode of payments even at the shops, remains cashless, either mostly by mobile or via debit/credit cards.
Since March, Adobe attributes the pandemic to an extra $107 billion spent online. As of August, 130 days in 2020 exceeded $2 billion in terms of online sales compared with the 2019 reading when only two days surpassed the $2 billion mark excluding the holiday season.
Digital Payments Set for Long-Term Growth
Factors driving digital payment transactions include easy execution, which is faster and integrated besides offering users a seamless experience. Within the digital space, contactless payments are gathering steam as these are instantly made, taking roughly one-tenth of the time devoted to the traditional electronic transaction method. Per Capgemini, customer confidence in the security of contactless payments is increasing with improved device security features, such as biometric and cryptography.
Going by Research and Markets, the global digital payments market is expected to grow from $3.9 trillion in 2019 to $5.4 trillion in 2020. The market is expected to stabilize and reach $8,059.3 billion, seeing a CAGR of 20% through 2023.
According to Mastercard’s latest COVID-19 consumer impact study, above 70% consumers plan to continue or increase their online purchasing and approximately 60% believe, they will use less cash even after the pandemic subsides.
Major players in the digital payments market include Alipay, Amazon Pay, Apple Pay, Tencent, Google Pay, First Data, PayPal Holdings, Inc. (PYPL - Free Report) , Fiserv Inc. (FISV - Free Report) , Visa Inc. (V - Free Report) and MasterCard Inc. (MA - Free Report) .
Given the secular growth trajectory that the industry is expected to see, the major players are set for long-term growth. Below we mention a few stocks that can be held in the investment portfolio for good returns over the long haul. Each of these stocks currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Visa Inc., after posting revenue declines for the third quarter of fiscal 2020, is now seeing recovery in its business. Visa is riding the wave of surging contactless payments via its tap-to-pay solutions.
The company helped more than 55 countries to increase the frequent usage of tap-to-pay limits. In the United States, it added more than 80 million contactless cards in the first six months of the calendar year 2020 as a number of its financial institution partners accelerated their issuance schedules. Another positive trend is the swing to e-commerce. This works in the company’s favor because Visa's share of digital commerce where cash is not an option is approximately thrice the physical point of sale.
Also, a slew of acquisitions made by the company expanded its real-time payment capability while broadening its payment network.
The stock has gained 19% in the past six months compared with its industry’s rise of 20.8%.
Mastercard is focused on managing its business for the long term and is investing in key strategic priorities in areas like open banking, real-time payments, Cyber and Intelligence Solutions and B2B domains.
The company is making it big in click-to-pay facility as consumers welcome digital experiences. Several acquisitions like Finicity, RiskRecon as well as partnerships with Splitit allow the company to provide differentiated offerings.
In the past six months, the stock has rallied 31% compared with its industry average of 20.8%.
PayPal Holdings Inc.’s safety and simplicity of transactions and its superior brand name and cutting-edge technology differentiating it from its competitors remain noteworthy. The company offers simple, affordable financial services and digital payment facilities, enabling customers and merchants to access and move their money anywhere, anytime and through any connected device. The company’s One Touch is its most adopted product. This platform allows customers to make purchases through a variety of merchant websites or apps without having to enter additional information.
Venmo continues to bolster PayPal’s stake in mobile payments. This application enables the transfer of money between family and friends via mobile devices. Venmo users can now pay at more than 2 million PayPal merchants across the United States. Further, it is making good progress in acquiring net new active users.
In the past six months, the stock has soared 93% compared with its industry average of 85%.
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