Credit cards and other electronic payments have been around for a long time, but they represent fewer than half of all consumer transactions globally and, according to one Fidelity manager, they're disrupting legacy payment approaches.
"This is why we see opportunities for companies that can disrupt the status quo in finance," says Chuck Culp, analyst for Fidelity® Disruptive Finance Fund (FNTEX). "Payments are among the areas where we're finding long-term opportunities."
Culp believes it could be just a matter of time until a much larger percentage of transactions is sent electronically, presenting an investment opportunity for payment-processing companies.
According to Culp, COVID-19 is accelerating the transition to contactless and other digital payment types. He says the recent coin shortage in the US highlights a rapid shift in consumer preferences to digital payments, even though the nation remains well behind other developed countries in the move to contactless transactions.
Electronic payments are not just for consumers: Over time, Culp sees a major opportunity for digital business-to-business transactions. He estimates that about two-thirds of corporations still pay their bills via check or bank-to-bank transfer, which he considers error-prone and expensive.
"With help from credit-card companies and software partners, I think more firms will pay their suppliers and business partners electronically in the future, allowing for speedier payments, lower costs, and more control over spending," he says.
According to Culp, 2 big players in the contactless/corporate bill payment spaces are Mastercard (MA) and Visa (V). Each was a large fund holding as of July 31.
The fund also held outsized stakes in smaller payment processors he thinks could have long-term potential, such as PayPal Holdings (PYPL) and Global Payments (GPN), as well as Network International Holdings (NWITY), a U.K-based company with operations in the Middle East.
"Our team is looking all over the world for companies that can disrupt the status-quo in finance," Culp adds.
Fidelity® Disruptive Finance Fund (FNTEX) held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information such as standard performance and holdings, please go to the fund ticker symbol link on this page.
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