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Cashing in on the death of cash

Lex Hall  |  19 Mar 2021Text size  Decrease  Increase  |  
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Predictions of the death of cash have been building for a while now. Fewer ATMs, tap-and-go payments, transaction apps, and of course the national payments platform. I knew cash was well and truly doomed when I saw a parent the other day prevent her toddler from picking up a stray $5.

“Dirty!” the mother said, snuffing out what was presumably her child’s first taste of free money. Perhaps the mother was right. Perhaps it was either a covid-carrier or proceed of crime. Is the convenience and trust of tangible paper a thing of the past?

A decade from now I think digital payments will be the norm, and people will give you odd looks if you try to pay with cash,” said Capital Group’s Jody Jonsson this week—a week which coincided with the Commonwealth Bank extending the cashless trend with its latest BNPL foray.

And recent data suggests Jonsson’s right. Earlier this month, FIS, a fintech company, estimated Australia will be mostly cashless within a few years. It says that by 2024, only around 2 per cent of transactions in Australia will occur using cash—down from 8.3 per cent in 2020.

“We’ve seen this trend for several years in developing countries—where many consumers had no bank accounts but did have mobile phones and adopted mobile payment technology quickly,” Jonsson says. “The pandemic accelerated use of digital payments around the world, including places where it hadn’t previously been ingrained in daily life. Once this crisis is over, I think a lot more people will be comfortable making digital payments, and they probably won’t feel the need to use cash as much as they did before.

“As consumers become increasingly comfortable with the technology, companies with large global footprints could be poised to benefit. We’ve also seen strong growth in smaller companies based in countries such as Brazil that offer mobile payment platforms for merchants.”

Digital payments, on a global basis, surpassed cash payments just a couple of years ago, suggesting this trend still has a lot of room to run, according to Morningstar equity analyst Brett Horn. The global digital payments market is projected to grow from US$3,885 billion in 2019 to a staggering US$8,059 billion by 2023, growing 20 per cent annually. The trend is propelled by the global mobile payments market, which is set to skyrocket from US$1,139 billion in transaction value in 2019 to a US$4,690 billion by 2025, at a 27 per cent annual clip.

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The convenience of a cashless society sounds good and is good in practice. But disadvantages loom too. Will it leave us more vulnerable to data breaches, more surveillance, more manipulation of our spending habits, and of course, will cashless payments make it easier for the state to tax our hard-earned? (And if you’re wondering: yes, I did pocket that stray and dirty $5).

Digital paper trail: a selection of cashless companies

a table showing Morningstar status for Visa, Mastercard, MercadoLibre, Afterpay and Zip Co

Source: Morningstar Direct; data as a 19 March 2021

In Firstlinks this week, Graham Hand reflects on 12 months since covid first hit and draws an interesting picture by looking at the mixed fortunes of three emblematic companies: Flight Centre, JB HiFi and Commonwealth Bank.

Hand also hears from nabtrade’s Gemma Dale on how seasoned investors and traders using the platform have reacted recently to market conditions, seizing opportunities they would not have considered a year ago.

Elsewhere, and speaking of money, is CBA’s new BNPL offering a threat to Afterpay or just another credit card? Morningstar analyst Nathan Zaia has his doubts about the bank's latest foray into the buy now, pay later arena.

Retail giant Myer is significantly undervalued and poised for the rebound. Morningstar's Johannes Faul explains why its strong balance sheet will help it navigate the shift to online shopping and capitalise on the return to normal life.

Morningstar this week began coverage of insurance giant AUB Group. Emma Rapaport speaks to Zaia on why he believes the company is undervalued. Elsewhere, Rapaport looks at Vanguard’s first actively managed Australian fund, which has hit the market with an Australia-first fee structure, which fluctuates to reflect performance.

How do you choose which retirement income-generating strategy is right for you? Christine Benz, who was this week named in Barron’s 100 most influential women in finance, compares different strategies for generating cash flows, from pure total return to income-centric approaches to annuities.

In the long history of market crashes, the coronavirus market crash was the shortest. The year may have been unprecedented, but the best course for navigating a market dip stayed the same, writes Paul D. Kaplan. And Katherine Lynch lays out seven charts that illustrate the crash.

Are global healthcare stocks on your watchlist? Subsectors such as biotechnology, pharmaceuticals and diagnostics feature some globally listed names that are trading at discounts.

When stocks become collectibles. It’s hard to avoid the conclusion that some stocks are prized for the belief that others will desire them. The economic implications should not be ignored, writes John Rekenthaler; and on collectibles, would you have paid $90 million for that mosaic of computer images known as The First 5000 Days? Guest contributor Erica Hall takes a look at the “expensive JPEG file”.

Do you know what a dividend trap is? Better still, can you spot one? Nicki Bourlioufas can, and she has a timeless warning on why a generous payout may be enticing but not always a positive sign.

And finally in Your Money Weekly, Peter Warnes argues the covid recovery story masks the pain facing the local private sector. Despite being a major employer, the small to medium-enterprise sector is unsubsidised and exposed to harsher headwinds, Warnes says.

Morningstar's Global Best Ideas list is out now. Morningstar Premium subscribers can view the list here.

See also Morningstar Guide to International Investing.

is senior editor for Morningstar Australia

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