Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Should you Buy Payment Disruptor Stocks in 2022?

Companies / Sector Analysis Jan 20, 2022 - 03:36 PM GMT

By: Stephen_McBride

Companies

There’s a big “threat” looming over one of my favorite groups of stocks. After years of running higher, these stocks reversed course in 2021…

And are now trading at a steep discount.

But while most folks are getting this story completely wrong…

I’ll show you why this “threat” is presenting a great buying opportunity.



Long-time readers know I’ve pounded the table on payments stocks for years…

In short, payment disruptors have seized banks’ most profitable businesses one by one, leaving them with scraps.

PayPal’s (PYPL) app lets you buy groceries and bitcoin… receive Social Security... and even pay taxes.

Credit card giants Visa (V) and Mastercard (MA) now handle more digital payments than big banks like JPMorgan.

More than 40 million people now use Block’s (SQ) Cash App at least once a month. That’s roughly one in eight Americans.

In short, payment disruptors have turned Wall Street on its head. And it’s made them among the fastest-growing and best stocks to own from 2016–2020:

  • But 2021 marked a big reversal for payments stocks..​

Visa and Mastercard had one of their worst years in almost a decade.

PayPal, Block (formerly Square), and almost every other money disruptor slipped into the red.



What’s going on with these former stock market darlings?

There are a few reasons for payments stocks’ recent struggles.

But one of the biggest “threats” can be summed up in four words:

  • “Buy now, pay later.”

As the name suggests, buy now, pay later lets you break up purchases into installments.

Say you buy a pair of sneakers for $100. Instead of handing over 100 bucks at the cash register, you can pay in four $25 installments over a few weeks.

Last year, consumers made $100 billion worth of retail purchases through BNPL companies like Affirm, Klarna, and Afterpay. That’s a huge jump up from $24 billion in 2020.

Buy now, pay later is considered a threat to existing payment methods because it’s a closed-loop system.

In short, BNPL firms don’t run on top of the existing payment networks that Visa and Mastercard largely own.

They’ve crafted a whole new payment network, which cuts credit card firms and other players out of the picture. This closed loop allows BNPL companies to keep all the fees for themselves.

The concern is BNPL firms will steal an ever-increasing share of payments for themselves, dampening growth for PayPal, Visa, and other payments stocks.

  • But BNPL is not a real threat… it’s a massive opportunity.

As I mentioned, BNPL firms like Klarna and Affirm have created their own payment networks.

The thing is… roughly 85% of installment payments are made with debit cards. And guess who issues those cards?

Visa and Mastercard.

Afterpay, the firm that pioneered BNPL, teamed up with Mastercard for its debit card.

BNPL is not a threat to these payment giants… it’s an opportunity.

Long-time readers know credit card companies earn a small fee each time you swipe your card. When folks choose buy now, pay later, they’re using their card multiple times. This means Mastercard now collects fees on four installments instead of one payment.

Affirm’s CFO Michael Linford agrees BNPL is an opportunity for payment networks. He recently said: “You can’t say Visa is a loser here. We ride Visa rails for a meaningful number of our transactions.”

BNPL is also a moneymaker for PayPal and Block.

PayPal launched its own buy now, pay later option in late 2020.

This past quarter it processed $2 billion+ of installment payments. PayPal quietly built a BNPL business that’s 75% the size of Affirm.

And back in June, Block acquired Afterpay. Over 100,000 businesses and 16 million customers have used Afterpay. Block now gets to collect all those fees.

  • Closed-loop networks aren’t a new idea.

A few years back, PayPal created a closed-loop network and tried to cut credit card giants like Visa out of the picture.

It just had to convince folks not to link their cards to their PayPal accounts… and instead pay using PayPal’s digital wallet. PayPal hid card payment options and put its own wallet front and center.

It was a total failure.

Today, most PayPal transactions are paid for with debit cards.

BNPL firms will suffer the same fate. They need to tap into the five billion or so plastic cards across the world to attract users.

  • But Stephen… what if you’re wrong?

What if BNPL firms do succeed in building a closed-loop system?

Investment bank Credit Suisse ran the numbers on this potential threat.

They looked at what would happen if BNPL accounted for a quarter of all digital payments and these folks chose not to pay with a card.

Even in this worst-case scenario, buy now, pay later firms would steal just 2.6% of Visa and Mastercard revenues.

That’s nothing for companies that grow sales roughly 15% per year.

I mentioned consumers made $100 billion worth of retail purchases last year through BNPL companies. That’s a drop in the ocean compared to the volume payment giants handle.

Look at this graph showing how small the buy now, pay later “threat” really is.



Billions of dollars might flow through BNPL companies, but payment rails handle trillions of dollars. Even PayPal is on track to process over $1 trillion this year.

Don’t be fooled: BNPL isn’t a threat to payments stocks. It’s an opportunity. That’s why I recently made PYPL, MA, and SQ all “buys” in my premium Disruption Investor portfolio.

Next week, we’ll dig into another big threat weighing on payments stocks: the US Federal Reserve’s new payment system.

The Great Disruptors: 3 Breakthrough Stocks Set to Double Your Money"

Get my latest report where I reveal my three favorite stocks that will hand you 100% gains as they disrupt whole industries. Get your free copy here.

By Stephen McBride

http://www.riskhedge.com

© 2022 Copyright Stephen McBride - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in