Businesses, Consumers Go Digital, Signal Cash May Not Be King

By: |
September 1, 2020 6:35 PM

The markets are recognising the slew of companies that are at the heart of this change – Mastercard, Visa, Paypal, and a whole host of startups.

Digital, Cash, Mastercard, Visa, Paypal69 percent of small businesses said during the Square survey that the adoption of digital payments will be accelerated due to COVID-19.

It had nothing to do with the global pandemic which refuses to die down. But when the Mercedes-Benz Stadium (MBS) decided that it would only accept cards and mobile payments inside the stadium, little did it know that the timing was just perfect.

Beginning March 10 last year, MBS thought it was a smart idea to reduce the cost of handling cash, becoming the first stadium in the world to do so. When fans came for a match, it followed it up with a small cut in prices of its top five selling items. The time it cut down for a transaction for fans was a bonus and so was its annual savings of $350,000.

A slew of large brands like Nordstrom (JWN), Lululemon (LULU), and Starbucks (SBUX), besides small retailers, eateries and others are considering a similar move. Starbucks CEO Kevin Johnson’s memo helped put things in perspective for those who had any lingering doubts about the future of such a move. After all, some 20 million of its subscribers were already paying using the mobile.

The surge in online retailing is only boosting the trend further. Some of the biggest retailers like Target (TGT), Walmart (WMT), Home Depot (HD) have been experiencing a sharp increase in sales where no cash is used.
Digital, Cash, Mastercard, Visa, Paypal

Driving the change

The markets are recognising the slew of companies that are at the heart of this change – Mastercard, Visa, Paypal, and a whole host of startups.

Paypal (PYPL) has been on the roll for the markets as it announced that it expects full-year revenues to move up over 20 percent. It also reported the strongest quarter ever since the company went public five years ago. During the second quarter, its transactions grew 26 percent, as it added 21.3 million new customers, more than it had done in the entire 2016. For the first time, driven by the adoption of digital payments, its quarterly revenues topped $5 billion.

The Q2 EPS for Mastercard (MA) smartly bettered the average that analysts had been expecting. The stock has rallied nearly 50 percent from the March lows as lower cost offset the decline in income during the second quarter.

The EPS for Visa (V) too beat the consensus estimate was marginally better than expectations. Its network processed 337 million transactions per day, seeing a decline of 13 per as businesses took a hit.

During this period, the payment volume across different payment platforms has increased over 4X to hit $31 billion during the first quarter of 2020.
Digital, Cash, Mastercard, Visa, Paypal

Going digital first

According to a report from Square, which studied the change in trends for cashless business between March 1 and April 23 this year, the change being seen by the business was dramatic. It noted that cards were being actively used for low ticket items. The highest card usage growth was seen in Vermont, Massachusetts and Virginia.

69 percent of small businesses said during the Square survey that the adoption of digital payments will be accelerated due to COVID-19.

The change is driving an online shopping and e-commerce boom in the U.S. market. While the shift has been pretty dramatic, whether it has resulted in a permanent behavioural change in the consumer will be clearer in the near future. With a second wave of the virus hitting several countries, the immediate change in spending habits is expected to last for some time.

The cashless transaction move by companies is a trend that is certainly catching on. The finances of companies that are driving efficiencies as they minimise the use of cash will get a shot in the arm. The leader in each sector is certain to benefit if they can pull it off with smart implementation.

Smart execution should be the right strategy.

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