Payment is also made in a cashless world – AXA IM column

In addition to the many social, political and economic effects of the corona pandemic, which cannot yet be validly predicted, the development towards a more cashless society is very clear. Vincent Vinatier, portfolio manager of Framlington Equities’ fintech fund at AXA Investment Managers, is convinced that this trend will not reverse and that the greatest beneficiaries will be those companies that make cashless transfers or guarantee the security of such transactions.

Cashless societies are not new

The importance of e-commerce and thus also cashless financial transactions has been increasing continuously for years. The concept of a cashless society is also not a new invention. In 2019, only around one percent of gross domestic product circulated in Sweden in the form of cash[1]. The corona pandemic has now significantly accelerated this development on a global level. “Since the corona pandemic has spread worldwide and large parts of the world population have been restricted, the use of e-commerce solutions has increased significantly,” says Vinatier. “More and more people are buying everything online – from food and medicine to entertainment programs.” In April 2020, online retailing saw growth of around 209 percent over the previous year[2], Amazon’s first quarter 2020 sales were around $ 75 trillion[3] and in China, the online food market is expected to grow by 62.9 percent in 2020[4]. The pandemic has even forced smaller retailers to sell their products online, using sales channels from social media platforms such as Facebook, for example[5].

Payment processors are benefiting from the crisis

Companies that process payments made are clear beneficiaries of these trends. An example of this is May 1, 2020, when Paypal’s transaction volume was larger than on the two shopping days Black Friday and Cyber ​​Monday in 2019. In the first quarter of this year, the number of PayPal accounts actively used rose by ten million increased and a further growth of 15 to 20 million accounts is expected for the second quarter[6]. For the year 2022 there will be a trillion cashless transactions for the first time worldwide[7] totaling up to $ 5.7 trillion in volume[8]. This would correspond to a tripling of transactions and a quintupling volume compared to 2013.

Trust is crucial

In addition to payment processors, those companies will also benefit significantly from the development towards cashless payments that prevent online fraud and thus ensure systemic trust. Just as money basically only works if people recognize it and trust it, consumers in a cashless world must be able to trust that their transactions will not fall victim to fraudulent activity. Given this, the development towards a more cashless society will have continued. “Once consumers experience how safe, simple and efficient cashless payments are, they won’t want to go back to conventional bills and coins,” says Vinatier. “Although there may be a short-term reduction in offline transactions made due to slumping sales in the tourism and travel sectors, we expect moderate growth in transaction volumes for the whole of 2020. Payment service providers will benefit and the market will consolidate and be limited to a few large players. ”

[1] Payments in Sweden in 2019, Riksbank, 7 November 2019
[2] Global eCommerce Retail Sales Up 209 Percent in April, ACI Worldwide, 12 May 2020
[3] Amazon posts $ 75bn first-quarter revenues but expects to spend $ 4bn in Covid-19 costs, The Guardian, April 30, 2020
[4] E-commerce drives China´s stay-at-home economy in coronavirus aftermath, S&P Global Market Intelligence (stats from iiMedia Research), 23 March 2020
[5] Facebook Shops: Online stores open on Facebook and Instagram, BBC News, 19 May 2020
[6] PayPal says May 1 was largest transaction day in its history, but first-quarter results fall short, MarketWatch, 7 May 2020, transaction-day-in-its-history-but-first-quarter-results-fall-short-2020-05-06
[7] World Payments Report 2019, Capgemini
[8] Retail e-commerce sales worldwide from 2014 to 2023 (in billion US dollars), Statista 2020

Disclaimer: The text is a column by AXA Investment Managers. The content of the column is not the responsibility of 4investors and therefore does not necessarily have to agree with the opinion of the 4investors editorial team. Any liability and claims are therefore expressly excluded by 4investors!

At a glance – chart and news: PayPal

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