Mobile Payments

When is the last time you wrote a check to pay for something or left the house with a set amount of cash in your wallet for errands? For a growing number of people worldwide, it is entirely possible that they may not be able to recall. In the U.S., the use of credit and debit cards have largely replaced the use of checks, and carrying cash is increasingly seen as unnecessary and inconvenient. This dramatic transformation of our payment practices can be explained in part by the emergence of mobile payment technology for smartphones in recent years.

The rise of mobile payments has transformed the way we pay for everyday items and simplified how we share money with one another.

With smartphones in almost everyone’s pockets and apps that transfer money digitally in seconds, the days of frantically searching for an ATM or cursing yourself for leaving your wallet at home are coming to an end. Who needs a checkbook when you can quickly transfer your friend that $25 you owe them with a few taps on your smartphone?

What Are Mobile Payments?

According to Square, a leading mobile payment technology company, mobile payments are defined as “regulated transactions that take place digitally through your mobile device.” 

Most mobile payments are conducted through a mobile wallet or mobile money transfer. A mobile wallet is a smartphone app that securely stores credit or debit card information. This information can be digitally communicated to a business’s point-of-sale system by holding the smartphone near the business’s payment reader.

Popular mobile wallet apps include Apple Pay, Samsung Pay, and Android Pay, and companies that provide businesses with software and devices to accept mobile payments include Square, SumUp, and PayPal.

In the case of mobile money transfers (also sometimes referred to as “peer-to-peer” or “P2P” payments), funds are transferred between users on an app. Typically, a user creates an account on the app, links their bank account, debit card, and/or credit card information with the app, and “adds” accounts of other individuals who use the app. Money may then be requested from or sent to the accounts of these individuals.

Popular money transfer apps include Venmo, WorldRemit, and Azimo.

Mobile payment companies monetize the services they offer in a variety of ways. Square, for instance, charges businesses a fee ranging from 2.5% to 3.5% for each transaction (with a flat fee of 10 cents added to each transaction fee). Venmo, on the other hand, charges its users a 3% fee for sending money via credit card instead of debit card. Both companies offer expedited access to transferred funds for a fee. Since its November 2015 IPO, the stock price for Square has risen from about $8 per share to about $65 per share (as of November 2019). Since its July 2015 spinoff from eBay, the stock price for PayPal (Venmo’s parent company) has risen from about $40 per share to about $103 per share (as of November 2019).

A Fast Growing Market

According to a 2018 report by GSMA, 143 million new mobile payment accounts were opened worldwide in 2018, bringing the total number of accounts to 866 million. Approximately $1.30 billion was processed every day via mobile payment in 2018, and a typical active user moved an average of $206 per month.

The speed, efficiency, and security offered by mobile payments help explain why this technology has become so popular across the globe. The rise in this technology is also providing people who have traditionally been excluded from formal banking systems with access to life-changing financial services.

According to the World Bank, “Financial inclusion is a building block for both poverty reduction and opportunities for economic growth, with access to digital financial services critical for joining the new digital economy.”

Why Invest in Mobile Payments?

For those interested in investing in this rapidly-growing sector, however, there are a few important points to understand.

The mobile payment companies mentioned thus far are undeniably successful. Square’s total net revenue in the third quarter of 2019 was $1.27 billion, which is a 44% increase over 2018’s third quarter earnings. PayPal’s total net revenue for the same quarter was $4.38 billion, with Venmo accounting for $400 million (double the $200 million from the third quarter in 2018). With steady growth and a seemingly-unlimited appetite for disrupting the value of traditional financial institutions, there has never been a better time to consider investing in companies offering mobile payment solutions.

While Square and Venmo may be the first that come to mind with respect to mobile payments in the U.S., there are many other companies that have arisen in recent years in other parts of the world that are just as innovative and, in terms of active users, arguably more successful. Whether it’s WeChat Pay in China, Paytm in India, or M-PESA in Kenya, entrepreneurs across the globe have known about the transformative potential of mobile payments for years.

The acceptance of mobile payments as a trusted and valued financial tool has occurred at a faster rate and to greater effect in the developing world than in the U.S. For instance, an eMarketer report found that in 2019, approximately 80% of smartphone users in China regularly use mobile payments, while only about 30% of smartphone users in the U.S. regularly make mobile payments.

It may seem as if there would be no room for growth with 80% of users currently accounted for in China’s market, but it is important to note that the 20% of smartphone users not regularly making mobile payments represent about 135 million people.

Not to mention, the 70% of smartphone users in the U.S. not regularly making mobile payments represent about 138 million people. Smartphone users in the U.S. have been slow to adopt mobile payments en masse, due in part to a widespread perceived risk regarding the security of digitally-transferred funds. As the population in the U.S. ages and more accurate information about the security and convenience of mobile payments filters out, it is likely that a much higher percentage of the population will adopt the technology.

In the meantime, companies at the cutting edge of mobile payment innovation will continue to reimagine and redefine how we think about our finances.

How to Invest in Mobile Payments

A search on Magnifi suggests that there are a number of different ways for investors to get involved in the fast growing Mobile Payments sector.

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The information and data are as of the November 20, 2019 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.

Fintech

Uncovering New Opportunities in Fintech

The banking and finance industries don’t have great reputations when it comes to innovation. And why should they? Their products and services – including both personal and commercial banking, lending, advising and investment services – are tried and true businesses, having stood the test of time and returned profits for generations.

Frankly, for many years there was no good reason for finance to try new things.  But that’s changing, and the age of technology-driven financial services has officially arrived. It’s changing how and where we bank, how consumers borrow and even how assets are transferred internationally.  Legacy institutions like JPMorgan are on board, investors are pumping billions into the space with more than $25 billion invested in the segment through the first half of 2020. For those interested in investing in this fast-growing sector, however, there are a few details to understand first.

What Is Fintech?

At the highest level, financial technology – aka fintech – refers to the application of digital and online technologies to the banking and financial services industries.  But that means far more than just mobile access to your checking account.

According to the World Bank, the industry is: “creating new opportunities and challenges for the financial sector – from consumers, to financial institutions, to regulators. Fintech offers many opportunities for governments, from making their financial systems more efficient and competitive to broadening access to financial services for the under-served populations.”

Why Invest in Fintech?

As mentioned, the industry is growing very rapidly. A total of 668 fintech companies were founded in 2014, the high watermark to date, encompassing those working on technologies for Banking & Capital Markets, Investment Management, Insurance and Real Estate. And, although that growth has slowed in recent years, an increasing amount of venture capital investment is finding its way to larger, more established companies than in the early days, indicative of a mature market coming into its own. According to Deloitte, 722 fintechs raised $34.4 billion through September 2020.

There’s room for this trend to continue.  After all, the total market cap of the fintech sector as of today is roughly $1 trillion, and PayPal accounts for $285 billion of that total. That might sound like a lot, but when you consider the fact that the traditional finance industry has a market cap in the range of $68 trillion USD worldwide, according to The World Bank, it becomes clear that fintech still has a lot of room to grow.

And it makes sense. To date, we’ve just begun to scratch the surface of the many ways that technology can and will disrupt traditional financial services. We’re now living in a world of digital payments, mobile services and even virtual currencies, but we’re about to enter an era of real, personalized automation that has to-date been impossible.

How to Invest in Fintech

Given all of this opportunity for growth, let’s look at a few ways to invest directly in the fintech sector. After all, the majority of the fintech companies out there today are still private and closed off to most investors. But a search on Magnifi suggests that there are other ways to profit off of the growth of this red-hot new industry.

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The information and data are as of the October 9, 2019 (publish date) unless otherwise noted and subject to change.  This blog is sponsored by Magnifi. 

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.