5 Stocks in Focus as Digital Payments Become the New Normal

Torri Donley

The coronavirus outbreak could be a game-changer for digital financial services. Low-income households and small firms can benefit at large from advances in mobile money, fintech services, and online banking. Inclusion of digital financial services is expected to boost economic growth. Technology continues to be the single-most important factor revolutionizing […]

The coronavirus outbreak could be a game-changer for digital financial services. Low-income households and small firms can benefit at large from advances in mobile money, fintech services, and online banking. Inclusion of digital financial services is expected to boost economic growth.

Technology continues to be the single-most important factor revolutionizing the payments industry. Many countries such as Liberia, Ghana, Kenya, Kuwait, Myanmar, Paraguay and Portugal are supporting this shift with measures such as lowering fee and increasing limits on mobile money transactions.

Although data security and privacy concerns and additional charges on making digital payment have limited the demand for digital payment solutions, the pandemic has become a key catalyst.

Moreover, digital financial services are enabling governments to provide quick and secure financial support to remotely located people and businesses as demonstrated in Namibia, Peru, Zambia, and Uganda amid lockdown. This will help mitigate the economic fallout and potentially strengthen the recovery.

Consumer Shift to Digital Payment Options: Key Growth Driver

Consumer shift to contactless money transfer for insurance payment, medical care, online shopping, transportation, movement of goods, for bills and utilities payments is gaining traction.

The digital payments industry is set to thrive on the recently reported strong U.S. consumer confidence data — a key determinant of the economy’s health that reached a three-month high in June. Per Conference Board data, the Consumer Confidence Index rose to 98.1 in June from a revised reading of 85.9 in May.

Globally, seven in 10 consumers say the shift to digital payments will likely be permanent, and nearly half of consumers plan to go cash less, after the pandemic subsides, according to a Mastercard weekly survey launched on Apr 27.

Digital Payment Industry Set to Thrive

The proliferation of smart connected devices and adoption of technology that enables payments in vast environments is driving the industry.

Per Statista, total transaction value in the Digital Payments segment is expected to see 15.3% year-over-year growth in 2020 with a 5.4% uptick in users. Total transaction value is expected to show a CAGR of 12% by 2023.

Investments are being made in contactless, scan-to-pay and Secure Remote Commerce to facilitate a faster, safer and easier process for consumers to pay and businesses to receive payments.

Store operators and other merchants, utility providers and even banking organizations are opting for digital wallets and other modes of online payments over offline payments. Notably, financial technology leader, FIS, in its Worldpay 2020 Global Payments Report stated that digital wallets are expected to become the most common mode of online payments by acquiring a market share of 52% by 2023.

Further, players are now turning to the usage of AI and blockchain technology, which is further expected to revolutionize the payments industry by making transactions secure, cost-effective and seamless across the globe and to help detect and prevent fraud. Advances in these fields should continue to help improve risk tools and solutions, and prevent deceptions in the digital payments ecosystem.

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Amazon, Facebook & Apple in Focus

Amazon AMZN is gaining traction on the back of its online payments processing service — Amazon Pay. The app enables users to make payments, perform shopping, pay bills, book flight and event tickets.

Further, this Zacks Rank #2 (Buy) company’s strong cashback offerings and the huge customer base of its e-commerce platform boost the adoption rate of Amazon Pay. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Facebook’s FB payment service intends to provide secure and convenient online payment experience to users. The payment solution allows users to view their payment history and manage payment methods.

Moreover, this Zacks Rank #3 (Hold) company recently launched WhatsApp-based digital payments service in Brazil (currently under regulatory scrutiny) after WhatsApp’s efforts to launch UPI payments service in India were held up by regulators, including the country’s central bank, for two years, despite a testing initiative.

Facebook will prioritize introduction of the feature in four markets: Brazil, Mexico, Indonesia and India.

Meanwhile, a ten-fold surge in activity on Apple’s AAPL Apple Pay was witnessed as quarantined customers used digital and contactless tools to handle their financial activities. The card is now accepted by retailers like Taco Bell and Target. This Zacks Rank #3 company’ app is now available in more than 50 markets.

Further, the easy synchronization of Apple Pay with Apple Watch remains a major positive.

PayPal & Square in the Fray

PayPal PYPL enjoys solid momentum in peer-to-peer transfer on the back of its well-performing Venmo, which enables transfer of money between family and friends via mobile devices. This Zacks Rank #3 company, which added 7.4 million new active customers in April, will roll out a permanent QR code feature in 28 markets including the United States. This will allow buyers to scan seller QR codes in order to pay for items in a touch-free manner using their PayPal wallets.

Notably, the Venmo app processed more than $29 billion in fourth-quarter 2019, up 56% year over year.

Square SQ, which also carries a Zacks Rank #3, is gaining traction on the back of its innovative product lines. Moreover, its peer-to-peer payment service, Cash App, has become a key catalyst. The company is witnessing solid adoption of Cash App, thanks to its user-friendly interface.

Meanwhile, Google is planning to turn its Google Pay app in the United States into a one-stop shopping platform. The company’s employees have reportedly been working to persuade grocery stores, gas stations and restaurant chains to sign up for the plan.

Given the wide-scale adoption of Android smartphones, expanding international presence and partner base, Google Pay is expected to gain a competitive edge over its peers in the digital payments market.

Zacks’ Single Best Pick to Double

From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.

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