Originally written by Tom Wickenden, 16th February 2022
The traditional bank-centric payments system – based around cash and plastic credit cards – is being rapidly disrupted by faster, cheaper, and more often secure mobile based systems. Across emerging markets, and among the young within developed markets especially, many are already ‘leapfrogging’ traditional payment systems and embracing the growing array of innovative alternatives.
Below we highlight some of the key drivers of growth in digital payments systems providing a potentially compelling investment opportunity for the companies facilitating these innovations.
The shift to digital payments
Global cashless payments are on track to increase by more than 80% from 2020 to 2025, from about 1tn transactions to almost 1.9tn, and almost triple by 2030, to total over 3tn annually[1]. This uptake is being facilitate by key technological advancements, largely due to the evolution of smartphones as payment devices:
- Growth in smartphones – Last year there were already 6 billion smartphones across the world, a 50% increase in just four years[2]
- Digital wallets – The ability to load and store payments methods and access traditionally physical funding sources, such as cards or accounts, on mobile devices is becoming increasingly pivotal as a payments ‘front end’, as exemplified by Apple Pay
- Development of Near Field Communication (NFC) – NFC technology provides for contactless communication between device, like smartphones and compatible payment readers, which in turn has seen ‘pay-wave’ capabilities increase dramatically
Whilst these systems still largely rely on accounts with established banks, it is predicted that mobile-based payments systems could start to bypass traditional banks and credit card companies all together. Indeed, many users not yet engaged with traditional bank-centric payment systems – such as in emerging markets and among younger populations in developed markets – are already technologically ‘leap-frogging’ into the new payment systems.
Emerging markets going cashless
McKinsey estimates that two billion individuals and 200 million small businesses today in emerging markets lack access to savings and credit, leaving a significant amount of wealth storage outside the traditional financial system[3]. Over the next decade, the payments landscape is projected to have rapid changes within developing economies, with a much stronger shift toward e-commerce, digital payments, instant payments and cash displacement.
BetaShares Future of Payments Etf (ASX:IPAY)
Providing exposure to up to 50 companies at the forefront of innovation in digital and mobile payments, IPAY provides a convenient way for investors to access this investment thematic. This includes companies with exposure to:
- Card networks: companies that provide services for controlling where cards are accepted, and facilitate transactions between merchants and card issuers. Example companies include Visa and Mastercard.
- Infrastructure and software: companies that provide hardware or software services for transacting payments across various channels, such as point-of-sale, mobile, and online. Example companies include Fidelity National Information Services and Global Payments.
- Processors: companies that handle front-end and back-end transactions and processing from various channels, such as credit cards, debit cards, point-of-sale payments, or buy-now-pay-later (BNPL) services. Example companies include Paypal and Square.
- Solutions: companies that provide products and services for accepting payments by a variety of payment methods. Example companies include Fiserv and Worldline.
Key Facts:
- Provides exposure to up to 50 of the leading companies innovating in the global payments sector, providing exposure to: card networks, infrastructure and software, processors and solutions including Visa, Mastercard, Paypal, Square and Affirm
- Adoption of innovative payment solutions is projected to grow strongly, with global mobile payments anticipated to increase from US$1.5 trillion in 2019 to US$12.1 trillion by 2027.
- Offers potential portfolio diversification benefits to Australian investors, given that companies account for a relatively small share of the Australian market
- MER: 67bps
Additional Information:
Investment risks associated with IPAY include market risk, sector risk, international investment risk and concentration risk. For more information on risks and other features of the Fund, please see the Product Disclosure Statement.
[1] Source: PWC Australia, Six macrotrends shaping the future of payments
[2] Source: IHS Markit
[3] Source: McKinsey & Company, Digital Finance For All
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