November 22, 2017

How to profit from the rise of cashless shopping by investing in digital payment companies

Shoppers are increasingly ditching notes and coins for tap-and-go payment cards and smartphones
They say cash is king - but for how much longer? Shoppers are increasingly ditching notes and coins for tap-and-go payment cards and smartphones.

Some countries, such as Sweden and Canada, are quickly turning into so-called cashless economies, where shops and restaurants only accept cards and mobile payments.

We’re a long way from that here in the UK. But we are spending 27 times more on contactless cards now than three years ago.

We spent £100,255 a minute on contactless cards in June, up from just £3,668 in June 2014, according to banking trade body UK Finance. 

Experts believe that even if cash doesn’t disappear entirely in Britain, the trend towards digital currency is here to stay. 

Shoppers are increasingly ditching notes and coins for tap-and-go payment cards and smartphones
Matthew Tonge, manager of the Liontrust Special Situations investment fund, says: ‘Nearly everywhere you go it’s as simple as tapping your card or using your smartphone.

‘There may even be people who are born now or in the near future who go through their entire lives without ever touching money.’

So can you profit from the cashless spending revolution? Many firms are racing to develop technologies to make it easier to pay by card or by phone. 

For example, technology giant Apple lets you pay for goods online using just your thumbprint with its so-called Apple Pay technology. You simply hold your thumb over the sensor on your smartphone at a retailer’s online checkout page and the payment goes through.

In the U.S., Amazon has launched a supermarket with no cashiers or tills. Instead, the store is kitted out with sensors that make a log of the items you have picked up. When you leave, the bill is totted up and the money automatically debited from your bank account.

The Liontrust Special Situations fund invests in a Cambridge-based firm called Bango, which lets mobile users add the cost of music and app downloads to their monthly bills.

In June, Bango signed a deal with Amazon in Japan so shoppers can do the same with larger items such as books, clothes or kitchen utensils. It also has major deals with Google and Samsung.
Experts believe there may even be people who are born now or in the near future who go through their entire lives without ever touching money
Liontrust Special Situations owns 8.7 per cent of Bango, which is worth around £160 million. The fund has turned £10,000 into £18,822 in five years.

Chinese shoppers are ditching cash faster than most of Europe and North America.

The UN predicts that cash will be used in less than a third of purchases in China by 2020, compared with more than 60 per cent in 2010.

And payments made with smartphones are set to rise nearly 500 per cent to £300 billion in four years.

Social media giant Tencent, which is worth £386 billion, is one of the country’s leading smartphone payment companies.

It owns messaging service WeChat, which allows its 900 million users to pay for goods by scanning a barcode generated by the till with their smartphones and tapping in their passcode.

The money is then taken from their account as if a debit card had been used. Darius McDermott, of broker Chelsea Financial Services, tips Fidelity Asia for savers wanting to cash in on Tencent’s success.

The social media giant is the fund’s biggest stock pick, accounting for £6.93 of every £100 of savers’ cash. The fund has turned £10,000 into £20,980 in five years.

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PayPal, which launched in 1998, is one of the world’s largest internet payments companies, used by 20 million British internet shoppers every year, and 218 million worldwide.

It links your online PayPal account to your debit and credit cards so you can buy goods online by just typing in your password. You can also use it to transfer money to family and friends.

Since it split from internet auction site eBay in July 2015, PayPal’s share price has rocketed nearly 125 per cent to $77.93 (£58.82).

Jason Hollands, of investment firm Tilney, recommends Lindsell Train Global Equity. It invests £5.21 of every £100 of savers’ cash in PayPal, and has turned £10,000 into £27,330 in five years.
Another pioneering payments firm is iZettle. Its technology allows small businesses, market traders and taxi drivers to accept card payments without having to fork out for expensive equipment.

Since October 2016, all London black cabs have been forced to accept card payments. Many are choosing iZettle as a cheap option. Instead of a monthly fee, business owners give the firm 1.75 per cent of every sale, or £1.75 for every £100.

Shop owners can also use the small contactless card readers to log what has been sold, so they can keep track of stock.

The Stockholm-based firm is not listed on the stock exchange, so it’s difficult for savers to invest in.

But Ben Yearsley, of adviser Shore Financial Planning, says you can buy into iZettle through a fund called HarbourVest Global Private Equity, which invests in start-up firms. The fund has turned £10,000 into £17,583 in five years. 

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