Digital payment stocks are gaining steam thanks to non-cash payments. And with good reason.
More than 34% of all transactions around the world are non-cash, and that number is increasing 11% every year. North America leads the world in non-cash transactions, garnering 34% by volume, followed by Europe (23.4%), mature Asia-Pacific (12.7%), Emerging Asia (10.5%), Central Europe, Middle East and Africa (CEMEA, 10.3%) and Latin America (9%).
The fastest-growing region for non-cash transactions is Emerging Asia (Malaysia, Thailand, Indonesia, Philippines, Taiwan, Pakistan, Sri Lanka and Bangladesh), which grew 43.4% and CEMEA, which posted a 16.4% rise.
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By 2020, global transactions are forecasted to increase to 726 billion, using digital payment technologies, primarily due to tech innovations like wearable devices, connected homes, augmented reality, and contactless payments (credit cards and debit cards, key fobs, smart cards and smartphones using radio-frequency identification (RFID) or near field communication).
The catalysts behind this growth are solid:
- Rise in internet consumers and mobile payments in China and India. Last year, more than two-thirds of online purchases in China were made using mobile phones
- The increase in market share by financial technology firms (FinTech) such as Apple (AAPL), Facebook (FB), Alibaba (BABA), Amazon (AMZN) and Google (GOOG) as payment processors
- Open sharing, allowing non-banks to participate in the payments arena
- Customer demand for 360-degree view, the ability to gather and view financial data across multiple accounts and channels, which should boost ecross-sellross sell/upsell and better customer segmentation
- Cross-border payments
Two Digital Payment Stocks
Contributor Charles A. Carlson, editor of DRIP Investor, recently put the spotlight on this industry in my Wall Street’s Best Investments newsletter. Charles recommended a digital payment stocks named Total System Services (TSS), a leading global payments processor that is growing at double-digits by acquisition and internal catalysts.
Total System recently acquired Cayan for $1.05 billion, whose leading product, Genius, is a cloud-based customizable and scalable platform that integrates processing, payment acceptance and customer experience. That purchase adds to Total System’s processing of more than 25 billion annual transactions and help TSS expand its product offerings to small and mid-sized companies.
Here are Charles’ thoughts:
“The current consensus earnings estimate for 2018 is $3.78 per share, representing 13% growth. And given the firm’s propensity to beat the consensus estimate, the $3.78 number is probably conservative. The strong earnings should help fuel dividend increases and additional stock buybacks. The company boosted its quarterly dividend 30% in 2017 to $0.13 per share, and a 15%-20% increase in 2018 would not be surprising.
“Total System Services trades at 22 times the 2018 earnings estimate. While that multiple is not cheap, it is reasonable given the company’s expected growth and the values fetched in its sector. Investors would be wise to take advantage of pullbacks to add these shares to DRIP portfolios.
“The company’s market capitalization is around $17 billion, not puny but certainly small enough to attract larger firms in the space who may want to expand via acquisitions.”
We have also seen a recommendation for another digital payment stocks in our Wall Street’s Best Dividend Stocks:
Capital One Financial (COF), recommended by Vita Nelson, editor of DirectInvesting.com. Vita commented: “Capital One Financial Corporation (COF) offers a range of financial products and services to consumers, small businesses and commercial clients through branches, the Internet and other distribution channels, and operates three primary business segments: Credit Card, Consumer Banking and Commercial Banking.
“Capital One has paid dividends to investors since 1995 and has increased its payments for three consecutive years. During those last three years, it has increased its dividends at an average rate of 66%. Its Price to Earnings ratio (a measure of valuation) of 8.57 is 44.2% below its industry average, (and) its Price to Book ratio (and) Price to Sales ratio (are also) below industry average.”
No doubt about it, cash is taking a back seat to digital payments—around the world. And these companies are “cashing in” on that trend.
And to get further updates on these stocks or to get a whole list of other stocks that the best Wall Street’s gurus are recommending, consider taking a subscription to Wall Street’s Best Investments.
Nancy Zambell, Editor of Wall Street’s Best Investments, has spent 30 years helping investors navigate the minefields of the financial industry. Nancy scours more than 200 advisories and research reports to select the top recommendations, which she collects for you in this easy-to-read digest.Learn More
*This post has been updated from an original version.