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Investors who like long-term investing tend to be slaves to "megatrends." That is, big-time shifts in the economy that provide durable investing themes — and therefore, almost guaranteed profits.
And one of those trends is the push into mobile payments.
Statistics portal Statista estimates that mobile-payment transaction volume rose from about $106 billion in 2011 to more than $235 billion last year — a 120% increase in two years.
Furthermore, Statista estimates mobile transactions could top $721 billion globally by 2017.
Of course, these are just projections. And furthermore, there's a big difference between folks who believe in this trend broadly as an economic shift and individual investors looking for a specific trade to profit from this trend.
There are no sure things in this emerging mobile payments space, but there is a short list of leaders that look like front-runners to ride this megatrend in the years ahead.
Here they are:
Ebay (EBAY) has long been at the forefront of mobile payments with its PayPal arm. And now, with its plan to offer lines of credit to PayPal users, eBay is transitioning from a tech and e-commerce company into a more of a financial-services player.
Since Carl Icahn petitioned unsuccessfully recently to win a spinoff of PayPal from its parent, the only way you're going to play this mobile payment player's potential is to buy eBay stock. But thankfully, Icahn's claims that eBay has mismanaged this division don't seem to be standing in the way of big success at PayPal.
Consider that eBay's payments business represented 44% of transaction revenue, tallying $6.1 billion of the $13.8 billion in transactions recorded in fiscal year 2013. That's up from 42% in 2012 and 41% in 2011.
Equally important is that the gross revenue number and total payment volume of the PayPal division continues to grow impressively. The $6.1 billion in payments transaction revenue last year was about 49% higher than the $4.1 billion recorded just two years ago; similarly, PayPal's total payment volume of $179.7 billion last year was up an impressive 60% from $111.8 billion in 2011.
Any company that moves around more than $100 billion in cash each year clearly has a lot of potential in the payments space. And while the e-commerce arm of eBay is a bit incongruous, investors interested in mobile payments should consider this stock because of PayPal's enormous potential.
Though it's a name many consumers may not recognize, VeriFone (PAY) is a leader in secure electronic payments. Its legacy business focuses on things like touchscreen cash registers and PIN pads for merchants, but mobile payments are becoming increasingly important to the future of VeriFone.
Its PAYware Mobile technology allows merchants to turn a mobile device into a credit-card reader with an easy-to-use plug-in attachment. And given that VeriFone has built its brand around secure transactions, customers and merchants alike can be sure that PAYware is safe and secure.
Admittedly, VeriFone is an old-school company that is trying to adapt — and a small one at that, with market capitalization of just $3.7 billion right now. However, Verifone still is the market leader in payment terminals with an impressive 60% market share of "EMV-enabled" terminals — that is, point-of-sale devices that serve global credit-card kings Europay, MasterCard (MA) and Visa (V). That tremendous market share is nothing to sneeze at.
Furthermore, the stock has a reasonable forward price-to-earnings ratio of about 17 despite a strong tailwind lately thanks to a massive run-up of 73% in the past 12 months.
Granted, much of the buzz in Silicon Valley is about mobile-payments company Square that offers a similar interface to PAYware. However, despite its hip veneer and sexy story with Twitter co-founder Jack Dorsey at the helm, Square is bleeding money and almost desperate for a sale, according to some reports.
Only well-heeled venture capitalists can buy into Square, anyway. If you're a retail investor, your next best bet — and perhaps a better bet given the fact it has a decent core business to fall back on — is Verifone. After a series of cost-cutting measures lately, management might have right-sized the business and given its payments arm a springboard for future success.
Or, at the very least, a big buyout from others who want its mobile payments know-how.
Visa (V) remains one of the world leaders in payment processing, so it's a natural fit for the mobile payments revolution.
Right now, Visa is benefitting from the cashless craze at home and abroad. About 80% of payments in America are non-cash transactions, with some nations in Europe over 90%. Visa stock has been riding high thanks to a strong baseline of transaction fees in these markets and big growth in emerging markets thanks to increased penetration of credit and debit cards.
But while point-of-sales transactions are a big driver of growth, Visa isn't just depending on people to swipe cards forever. The company started deploying cards with contactless payment technology as early as 2002, with its current incarnation in a technology known as payWave.
PayWave technology puts a chip in your card that communicates with specialized readers to make a transaction. This is a very shrewd move because it marries a conventional plastic card with a magnetic strip with the near-field technology that is so often talked about in the mobile-payments space.
Well, just move that chip out of your debit card and put it into your smartphone, and voila — mobile payments are instantly a possibility.
If the payments giant can get enough customers comfortable with the Visa brand and get enough merchants hooked up with this initial payWave technology, it will be simple to scale this up.
There has long been speculation about an iBank from Apple (AAPL). After all, the tech giant is already well-capitalized with some $150 billion in cash and investments on the books.
And while the present of Apple is very much tied up in hardware — specifically, its flagship iPhone that accounts for half of the entire company's revenue — the future could demand an increased focus on software and peripheral services to keep the company humming along.
Mobile payments are surely at the top of Apple's list of new opportunities.
In 2012, Apple introduced Passbook to organize cards and coupons. Then in 2013, there was the inclusion of a fingerprint scanner in Apple devices as a way to improve security. And now, analysts are speculating that Apple could collaborate with Visa to expand its mobile-payments capacity.
This is a clear move toward mobile payments.
And while critics will point out the rumor mill has long buzzed about Apple payments, it's worth noting that Apple has made big progress on mobile commerce even if it doesn't have a pure payments division just yet.
Consider that iOS devices, which include the iPad and iPhone, drove an impressive 23% of total e-commerce during the 2013 holiday season — five times the rate of Android devices. Furthermore, the average iOS user spent $93.94 per order.
Clearly Apple knows something about facilitating online commerce. Translating that to mobile success won't be easy, but it should draw on these past successes.
You can't mention Apple as a mobile payments possibility without also talking about Google (GOOG).
Google, like Apple, has a boatload of capital with about $61 billion in cash and short-term investments. It also has an easy way into the smartphone space with its dominant Android OS that ran 85% of smartphones shipped last quarter.
And, of course, Google has already made strides to address payments with its Google Wallet technology.
The functionality of Google Wallet is broad. The obvious edge over Apple is a "tap-to-pay" feature that takes advantage of near-field communication technology already available on many Android devices — something that is decidedly lacking in the Apple iPhone right now.
Furthermore, Google is looking to do much more than just allow for payments, creating broad features for Google Wallet that include sending money as a gmail attachment and syncing with select loyalty programs to get the most out of things like frequent-flyer miles.
The clearest use for Google Wallet is to provide easy transactions within the Google Play app marketplace or to buy content for your Android-powered device. But if consumers simply get familiar with Google Wallet in this way, there could be huge potential as more smartphones start carrying NFC technology and more merchants put compatible readers in their stores in the years ahead.
Market share matters, as does Google's nearly three years of experimenting with its Google Wallets payment technology even as others are still getting up to speed on mobile payments.