Contactless payments, or “going cashless”, has always been a popular long-term theme for investors. There are many stocks in the space that provide opportunities.
That’s because cash is inefficient as a form of payment, on many levels. Unsurprisingly, the “fintech” digital payments theme was turbo-charged by Covid-19.
In the time of coronavirus, the ability to use contactless forms of payment also takes on a new meaning. This is versus what is generally seen as “dirty” cash transactions (given how many people generally handle hard cash such as bank notes and coins).
Clearly, there’s opportunity for the sector to entrench contactless payments as a habit beyond the pandemic. So how can we tap into these opportunities for long-term gains?
Here, I outline two fast-growing, payment stocks in the fintech space that investors can consider as long-term buys.
PayPal Holdings Inc (NASDAQ: PYPL) is a company that many investors may be familiar with. Known primarily as an online payments system, it was actually spun off by previous owner eBay Inc (NASDAQ: EBAY) in 2015.
Its time as a standalone, listed company has been impressive. Although it first listed in 2002 at US$13 a share, it was acquired by eBay after only six months as a public company.
The second time PayPal went public, in 2015, it started trading at around US$41 a share. Less than six years later, at the start of 2021, it trades at around US$235 – meaning shares have risen nearly six-fold over the period.
In PayPal’s latest third-quarter 2020 earnings report, the company reported revenue of US$5.46 billion, which was up 25% year-on-year on a FX-neutral basis.
Furthermore, PayPal’s total payment volume (TPV) in the third quarter hit an all-time high of US$247 billion, up an impressive 36% year-on-year on an FX-neutral basis.
Perhaps even more exciting is that PayPal appeals to younger investors with its Venmo cash-transfer app (which has also released its own credit card in the last few months).
In addition, the company has also started to allow users in the US to buy, hold and sell cryptocurrencies from their PayPal accounts.
Square Inc (NYSE: SQ) is another fast-growing financial services and mobile payments firm. Serving small- and medium-sized businesses, it has also made it easier to transfer money between people via just an app.
Square actually shares its CEO Jack Dorsey with one other company; Twitter Inc (NYSE: TWTR). The charismatic entrepreneur co-founded Square with Jim McKelvey in 2010.
Square’s financials are equally impressive as PayPal’s. In the third quarter of 2020, its total net revenue exploded by 140% year-on-year to US$3.03 billion.
Meanwhile its popular smartphone payments app – Cash App – saw gross profit hit US$385 million over the period, up 212% year-on-year (see below).
Source: Square Q3 2020 shareholder letter
Square was one of the pioneers of cryptocurrency trading (Jack Dorsey is a huge proponent) but it’s also looking to register itself as an official “bank” in the US sometime over the next year in order to disrupt, and grow into, more areas of the financial services sector.
For investors who are looking at a fintech disruptor that is making consumers’ lives easier, Square easily fits the bill.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of PayPal Holdings Inc and Square Inc.