Investments for a Cashless Society

-- | 08/06/2020

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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Guy de Blonay. He is Manager of the Jupiter Financial Opportunities Fund. Hello.

Guy de Blonay: Good morning, Holly.

Black: So, as the fund's name suggests, you're focused on the financials sector. And I think this is one where there has been some real disparity, real winners and losers in terms of the themes we've seen in recent months. So, I mean, I guess, the obvious place to start is with the traditional banks. How are you looking at those at the moment, particularly in light of government involvement and dividend cuts?

Blonay: Yes. I think this year we've seen quite extraordinary – due to the pandemic we've seen extraordinary events such as regulators pushing or pressurizing companies, banks in particular but also companies in the insurance industry, especially in Europe or within the Eurozone to suspend or cut their dividends. I think fundamentally there could be some justification for the banking sector as provision levels have to go up obviously to cover losses on companies going under as a result of this crisis. But not all actives within these two sectors have shortfalls or capital weaknesses. So, the justification is arguably still an ongoing question. But I would say that if you had been focusing on sub-sectors that are linked to financial innovation, you would certainly be better exposed to this digital transformation that actually Covid-19 is accelerating, this migration towards a cashless society, this need to have a technology infrastructure to support a working from home environment.

Black: I think you've hit the nail on the head there. This is a major trend, isn't it? We've got shops not even accepting cash at the moment. So, how does that change the outlook for that more traditional part of the bank sector that perhaps still relies on those cash payments?

Blonay: Well, as you suggested, cash is dirty and it's now allowing an acceleration in this migration towards a cashless society. And I would say that companies that didn't have a digital strategy are embarking into one. They are certainly pushing or investing into this area to make sure that there is a possibility to embrace the ecommerce facility that companies have to rely on with this new environment that Covid-19 has put us into.

Black: Obviously, disruptors and/or upstarts might have a bit of a leg up on the competition here because this is exactly where they've been focusing their efforts for years. What are some of the innovations you're most interested in?

Blonay: Well, you're right. In the first part of your question you are right that banks or insurance companies in the US have been investing in digital transformation for years now. One of the reasons is because they have the capital to do so. In Europe or especially within the Eurozone, companies or banks or insurance operators, more specifically banks don't have the capital to invest as much as they would like to into digital transformation. Innovation for us relies on three pillars. We've got payment solutions to enable, as we mentioned earlier, this cashless society to progress. Data analytics, companies to understand better their clients, especially if they are ordering online and not going to shop physically and more. And obviously, make sure that the ecosystem that you have developed for your clients, especially the millennials and the generation Z that are more tech savvy, to make sure that there is a cyber-security platform that is securing the business to make sure that customers are safe to do business with you.

Black: Guy, thank you so much for your time. For Morningstar, I'm Holly Black.

This report appeared on 2022 Morningstar Australasia Pty Limited

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