The Great Cash Debate
After nearly 26 years of marriage, I can say point blank that my wife and I get along great.
We pretty much have the same core values. Except in one case: she never carries cash and I never leave the house without several hundred dollars in my wallet.
She greatly prefers to pay for everything digitally or with plastic.
She is far from alone. A new report from the Federal Reserve shows that last year Americans made a whopping 63% of their payments with some form of card.
No wonder the US credit and debit card market is valued at $3.1 trillion.
I’ve identified a key backend supplier poised to profit handsomely from this unstoppable trend. And, this storied leader processed $1 billion in cryptocurrencies in the first six months of this year.
Let me show you why it’s one of the reasons the stock should keep beating the broad market by 62.5%…
Cash Versus Cards
There’s a number of reasons I like to carry cash. One is that I enjoy my privacy and the other is that I live in earthquake country. If we get a big shaker, the electrical grid would likely go down, making plastic pretty much useless.
My wife has no such worries. She figures the convenience of tracking expenditures and getting rewards are more than worth the potential risks.
Clearly, the vast majority of Americans agree with her…
According to the Atlanta Fed’s survey, Americans used their credit or debit cards 12% more often between 2019 and 2020.
No doubt some of this was due to the Covid pandemic. Especially in the spring and summer of 2020, there was a lot of concern about whether Covid could spread by touching objects such as cash. Many establishments even banned the use of cash to reduce the risk for their essential workers.
The decline of cash goes back long before the pandemic.
I mean, when cash is lost or stolen, it’s gone. When your card is lost or stolen, you can freeze your account and even get reimbursed for fraudulent charges.
Virtual transactions are especially attractive to businesses. In fact, studies show that customers spend more money when they don’t physically hand over cash.
Plastic, Paper, Crypto, SHOOT!
Today, payment cards have a new competitor-cryptocurrency.
Don’t take my word for it. The company I have in mind recently reported that it handled $1 billion in cryptocurrency used to pay for a wide range of goods and services.
That number was just for the first six months of this year.
The firm in question is Visa Inc. (V), which runs the world’s second-largest card payment network, called VisaNet.
Master of Money and Data
Outside of China, VisaNet handles 50% of all card payments, making it the undisputed leader in its industry. Today, VisaNet connects more than 2 billion debit, prepaid, and credit cards, over 2 million ATMs, and some 15,000 financial institutions, all across 200 countries.
This is made possible by the four VisaNet datacenters that process all this data. Located in Virginia, Colorado, London, and Singapore, each one is one of the most secure facilities on the planet. They are protected against terrorist attacks, criminals, and natural disasters.
Each one can generate its own power and continue running even if utilities are shut off, and the other centers go down.
And while Visa doesn’t issue Visa credit cards itself, the firm makes money by taking about 2% out of every one of the 80 billion transactions made through VisaNet every year.
In short, Visa is not a financial company. It’s a state-of-the-art tech firm that processes information at an almost unimaginable scale.
Adaption of “Open Banking”
Visa recently acquired Tink, a Swedish fintech pioneer, for more than $2 billion. Tink is a leader in “open banking,” which allows users to see and manage all their financial accounts and data in one app, regardless of where those accounts exist.
Users can also give banks permission to use Tink’s platform to verify their data at other banks. This can speed up financial applications and transfers.
Tink’s platform already connects to more than 3,400 banks and financial institutions across Europe, representing more than 250 million customers.
Both the move into crypto and the acquisition of Tink demonstrate Visa’s forward-thinking business strategy.
New and Rapidly Expanding Avenues of Growth
But as I mentioned, crypto and open banking are looking to overtake cards when it comes to payments.
After all, cryptocurrency transactions can be done completely on the blockchain, without a need for a separate payment network like VisaNet.
Not only that, cryptocurrencies are capable of incorporating highly specialized functionalities that can make them perfectly suited for handling unique jobs and kinds of transactions that are just now existing for the first time.
It’s important to think of cryptocurrency as an entire sector, and not just Bitcoin and a few imitators, because it’s going to be newer up-and-coming coins that will be able to best meet the needs of the new, high-tech economy.
I know of three coins in particular that I see as particularly good fits for the demands of today, each with the potential for a huge surge in adoption, and to outperform the gains we’re seeing from Bitcoin.
Open banking, meanwhile, promises to connect financial institutions to each other directly, without the need for a middle-man like VisaNet. So, Visa’s strong moves into these spaces show how the firm keeps finding new avenues of growth.
But you won’t have to wait for those moves to lead to earnings growth before you see returns.
Visa shares are already outperforming the market. Since the market rebounded on May 12, Visa has gained 11.7%, beating the S&P 500 by 62.5%.
Please don’t think this is a one-off.
Over the past five years, the S&P 500 has basically doubled. But Visa crushed that with returns of nearly 217%.
That’s why I say you should look at this fintech leader as a great foundational play for your portfolio.
Cheers and good investing,
Michael A. Robinson