Industry Insight: Digital Payments

By: Stephen Timoney

COVID-19 has been a catalyst for significant economic upheaval globally, including an acceleration of pre-existing trends in the payments sector, where years’ worth of secular change happened in a matter of months. As the global economy emerges from the pandemic, we expect a sustained acceleration in ecommerce and omni-channel retail to continue benefitting digital payment methods, to the detriment of cash.

Since 1994, when a Californian branch of Pizza Hut completed the first ever online sale – a pepperoni pizza – there has been a relentless shift from in-store to online purchases. That trend has gathered significant pace in the past year, accompanied by a marked increase in digital payments. According to the consumer data and analytics firm, NielsenIQ, only 9% of global consumers were regularly shopping online before the outbreak of COVID-19, but by May 2020 – just a few months into the pandemic – 44% were doing so each week, with 23% of global consumers reporting shopping online multiple times each week. Non-traditional payment service providers, with a high weighting to ecommerce, benefitted particularly from this trend: PayPal experienced a 24% increase in total payment volume in the first nine months of 2020. Among the more traditional players, Visa saw a 14% rise in cards being used for ecommerce spending globally (excluding travel) over the same period.

“As the global economy emerges from the pandemic, we expect a sustained acceleration in ecommerce and omni-channel retail to continue benefitting digital payment methods, to the detriment of cash.”

Meanwhile, COVID-19 has also had the effect of further blurring the lines between online and in-store shopping. So-called “click-and-collect” transactions, in which consumers purchase a product online and collect at the retailer, have been a lifeline for many businesses during the COVID-19 crisis. In the wake of the pandemic, we believe such omni-channel trading will be a crucial means of fully utilising retail assets, while also encouraging shoppers back to physical stores. Now more accustomed than ever to online shopping, we believe consumers will increasingly expect a seamless experience across channels, including the ability to pay online, in-app or at point of sale. While cash can be used in the latter instance, here too digital has seen a boost: MasterCard reported more than 40% growth in contactless transactions globally in the first quarter of 2020, and we expect the hygiene benefits and convenience of cashless payments to remain in consumers ‘muscle memory’ long after COVID-19 has abated.

Against this backdrop, Capgemini, the international consultancy firm, expects global non-cash transaction volumes to grow by 13% per annum from 2021 to 2023, with Asia Pacific (21% per annum), Middle East & Africa (14% per annum) and Europe (10% per annum) to be among the fastest-growing regions. Our favoured payments companies stand to benefit directly from this trend:

Adyen is a technology-oriented global payments business. It simplifies digital payments for merchants, by integrating the full range of payment services on one, highly efficient, purpose-built platform, obviating the need to deal with a complex network of intermediaries. Adyen’s platform has been designed to work across all channels – in-store, online and mobile – and geographies, and its efficiency, omni-channel capabilities and international range make Adyen a highly desirable partner for large global enterprise customers, such as Spotify, Facebook, Microsoft, L’Oréal and Nike.

PayPal is a leading technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It provides simpler ways for merchants of all sizes to accept payments in multiple currencies from merchant websites, mobile devices and applications, and at offline retail locations, through a wide range of payment solutions. For consumers, PayPal offers a digital wallet, enhancing convenience and providing the security of not having to share payments details with multiple merchants/sites.

Visa is the world’s leading global payments technology company. It does not issue cards, nor does it extend credit to cardholders, but instead generates revenue from over 15,000 financial institutions that issue Visa-branded cards and the merchants who accept them, by acting as a network operator to process card payments.

If you would like to discuss anything raised in this article in more detail, please don’t hesitate to get in touch.

This note has been produced by Killik & Co on the basis of publicly available information, and all sources are believed to be reliable, but we have not independently verified such information and we do not give any warranty as to its accuracy. Some of the stocks mentioned in this note are covered by Killik & Co’s Equity Research team and others are not. The mentioning of the stocks does not represent a recommendation to buy or sell any securities, and the note is intended as a marketing communication rather than research. This note does not purport to be a complete description of the securities, markets or developments referred to in the material. All expressions of opinion are subject to change without notice. Nothing in this note should be construed as investment advice or as comment on the suitability of any investment or investment service.  Prospective investors should take advice from a professional adviser before making any investment decisions. There are risks with almost every investment that you may not get back the original capital invested. The value of your investments may fall as well as rise and the past performance of investments is not a guide to future performance.