Investing for the future generation of students
This week marks 9 years since I started University. I had just turned 18, moved 600 miles away from...
If you’re an avid reader of millennial money you’ll know Dot, my grandmother. She’s a remarkable 94 years of age and still pays all her bills using a cheque. Given she was well into her thirties before the first credit card became available, this is perhaps not too surprising. But when she wanted to get us a house-warming present, and I suggested it might be easier to send money via PayPal, things got ‘messy’.
It turns out that every month she writes out individual cheques – to my mother! – for all her bills and expenses. She then goes and balances her cheque book (by hand), while my mother has to deposit the cheques – and then pay my grandmother’s bills via the phone or her own online banking. What a palaver!
“I haven’t reported my missing credit card to the police because whoever stole it is spending less than my wife.” – Ilie Nastase, former world No 1 professional tennis player
Even before the words lockdown were uttered by countries globally, the payment landscape was transforming dramatically. So far in 2020, a staggering $4.4 million worth of transactions* have been through digital payment methods – a 14% increase year on year*, according to Statista data. So, what’s driving this trend? The continued use of smart devices for one, a booming e-commerce industry for another and, more recently, the pandemic.
Digital transfer services are nothing too new. The aforementioned PayPal, a holding in BMO Responsible Global Equity** and Rathbone Global Opportunities** funds, launched its electronic money transfer service back in 1999. Alibaba, the Chinese technology company and holding in both Invesco China Equity** and Schroder Asian Alpha Plus**, introduced Alipay, a Chinese equivalent, in 2003. Competitor WeChat Pay was rolled out in 2013 and followed quickly by Apple Pay in 2014.
As technology continues to develop and evolve around us it’s clear that digital payments are not going anywhere. By 2028, payments by cheque are predicted to drop by more than half to 135 million and cash is expected to account for just 9% of all payments in the UK. Even more incredibly, Sweden could become a cashless nation as early as 2023***. Shock and horror to my grandmother!
While PayPal, WeChat Pay and Apple Pay are popular today, what’s next in terms of new investment opportunities? One area suspected to gain popularity is messaging-app payments. Think Facebook Messenger and WhatsApp (similar to WeChat Pay): both are owned by Facebook, another tech giant and holding in AXA Framlington Global Technology** and T. Rowe Price Global Focused Growth Equity**. Whether you are a fan of the company or not, Facebook has the leverage to reach billions of users.
As transactions rise, innovations will be instrumental to shaping the future. Bank of America, a holding in Ninety One Global Special Situations**, and Visa, a holding in Brown Advisory Global Leaders**, are investing heavily into peer-to-peer partnerships, for example. Visa released Visa Direct, which can be used to help messaging platforms enable p2p payments within apps to make real-time transfers.
Payment devices that you can wear have also taken off. Apply Pay allows users – like myself – to pay using an Apple watch. Tovi Sorga, an accessories brand based in Gloucestershire, also designs contactless bracelets and key fobs that contain a chip powered by payment app Pingit. Pingit is owned by Barclays, a top ten holding in TM CRUX UK Special Situations fund**, and it allows money to be sent instantly using just a UK mobile phone number
There is even a Cambridge-based company that sells a range of mens shirts that have a small chip embedded in the cuff! These shirts are linked to a prepaid card account from Mastercard, a holding in Premier Diversified Growth**.
Ultimately, investors and consumers alike can stand to benefit from the potential of this multi-trillion dollar industry.
*Source: Statista, https://www.statista.com/outlook/296/100/digital-payments/worldwide
**Source: fund factsheet, June 2020
***Source: JP Morgan, Digital wallets are supporting the drive to a true cashless society