New report from Wilsons examines decline in traditional cash payments.

Cash payments are dying a quick death and electronic payments are showing stellar growth. The mass adoption of smartphone devices in everyday life has revolutionised the way we connect, communicate and function.

One of the most disruptive changes has been the way we handle and make payments, shifting what was once a tedious task to a tech-enabled instantaneous end-to-end process.

These technological advancements have prompted the decline in paper-based cash and introduced a suite of new electronic payment methods.

We believe payments will remain in structural growth for many decades and believe this provides an attractive investment proposition.

Wilsons new report discusses the payments landscape and attempts to de-mystify the eco-system into various constituent parts, and looks at the growth outlook.

Further, we recommend investors have an exposure to payments and have highlighted some key players.

You can access a free copy of Wilsons Thematic Insights report on payment technology here.

Secure, accessible and convenient

The rapid pace of technological innovation has crystallised structural decay in traditional cash-based payments. Electronic payments are secure, accessible and convenient relative to cash-based payments. Ubiquitous acceptance of electronic payments is stimulating strong growth in payment volumes.

RBA data confirms this trend and points to a tripling of debit card transactions since 2010.

Equally, a similar data series highlights that the number of ATMs in Australia has declined by about 3000 since 2017 and in time ATMs look set to become like telephone boxes – sparse and largely defunct.

Overall, according to a study by McKinsey, the global payments market has been framed at US$2 trillion in volume with an expectation of it rising to US$3 trillion over the next five years:

• Payments adoption is growing rapidly in Latin America, China and the Middle East.
• Mobile apps are helping to drive ubiquitous adoption of payments.
• Gradually the under-banked are evolving to use payments technology.
• Online spending is continuing to usurp physical retail spending.
• Cheque payments are gradually dying and being replaced by virtual payments.
• Tap-and-pay infrastructure has increased convenience.

The overarching conclusion is that the payments sector is attractive for investors. This is driven by three high-level components:

• Growth rates look set to usurp global GDP growth rates for the long term.
• High level of recurring revenue providing visibility.
• The segment naturally exhibits rich margin potential.

Payments landscape has a vast and varied value chain

Payments is a highly connected and sophisticated landscape involving numerous counterparties. Information is relayed between banks, point-of sale systems, payments processors, and payment networks in a continuous flow, all within a matter of seconds.

Our analysis of the value chain examines key market players including banks, processing networks, online platforms and emerging fintechs.

Analysis has also encouraged us to consider ways investors can play the space. Our data-screening of constituents across the payments value chain has been based on:

• Future revenue growth rates.
• Future profitability measures.
• Future valuation measures.

The final short list of companies is arrived at by critiqued-based off-market insights and Wilsons’ research.

Payments-exposed companies