Compare 2020 to the world that existed in 2019. Zoom and Microsoft Teams meetings replaced business meetings and domestic and international travel. Employees relied on their home internet connections for access to employers’ sales, marketing, customer service and accounting systems. Spare rooms became upgraded home offices. Availability of cloud computing and the ability to easily share digital storage became an urgent problem for many businesses.
Trapped in our houses in lockdown, we did a record amount of our shopping online.
How quickly did we respond to restricted in-store shopping? According to Mastercard Spending Pulse, the ecommerce share of total retail sales in the US doubled in April and May 2020 from that of the prior year to reach 22 per cent of total retail sales.
In the UK, the ecommerce share of total retail sales in those two months reached 33 per cent. The story is similar in Australia even though the virus only brushed our shores and has been mostly contained.
Even with a return to in-store shopping, ecommerce has enjoyed a permanent uptick and it has substantial ramifications for the ecommerce sector and the digital payments sector beyond the incredible lifts these businesses enjoyed in 2020.
Digital payments businesses, such as Square and Paypal, which handle a growing percentage of contactless and online payments, have enjoyed giddy share price increases on the back of substantial increases in earnings.
This time last year, Square Inc. (Class A) was trading at US$60 per share. At the date of this note it trades at US$245 per share. That’s an increase of around 300 per cent. Paypal, currently trading at US$262 is up approximately 127 per cent over the same period.
But that’s history. Hyperion believes there is another megatrend hidden within the trend of using digital payments instead of cash, which creates a substantial long-term opportunity for investors.
There is growing evidence to suggest Millennials and Generation Z don’t have any loyalty to traditional banks and that they shun credit cards.
Hyperion estimates that 70 per cent of those under 30 years of age in the US don’t possess a credit card and there are at least 60 million consumers in the US that are under-banked.
There are inherent security issues with using debit cards for both online and in-store transactions. Our research shows that consumers have embraced cash apps that run on their phones to increase the security of their money and increase the flexibility of how they use their savings. In doing so, they are replacing traditional banking relationships.
Square, for example, has created an ecosystem for merchants and younger consumers. Merchants can accept contactless payments with widely available cheap in-store terminals that have no lock-in contracts and free point-of-sale software.
Consumers use the Square cash app that provides convenient ways to send money to friends and family (peer-to-peer), pay for goods and services (cash card), receive their weekly pay by direct deposit, invest in shares and cryptocurrency, plus earn rewards for spending using the cash card.
Square and Paypal are taking market share from both traditional banking services and credit card suppliers and are transitioning consumers to a super app that allows them to enjoy superior control over their finances.
Globally, there are over 3.8 billion people under 30 years of age, and Square and Paypal have only just started to monetise the opportunity. Now that’s a megatrend worth following!
This article was originally published by the ASX as part of the ASX Investor Day 2021 series of events.
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