Key Subsectors in Digital Payments
The payments landscape is undergoing significant transformation. Technological advancements are making payments cheaper, better and faster. Today, the future of money is envisioned as a digital-first environment. We already see traditional banks and physical cash losing out to digital currencies and FinTechs, with successive crises – particularly the emergence of the coronavirus (COVID-19) – adding to non-cash transaction momentum. It’s fascinating to see that contactless, digital wallets and QR code payments are all on the rise. And it is this demand for “anytime, anywhere” payments, fuelled by e-commerce growth and the enthusiastic adoption of transparent payment experiences, that is also amplifying consumer expectations for slick and intuitive digital experiences. We believe the holy grail for payments firms today lies in providing differentiated offerings that feature speed, convenience and access. To further explore this theme, in this piece, we unpack the five sub-sectors of the digital payments economy that we seek to invest in within our Rize Digital Payments Economy UCITS ETF. We believe companies positioning themselves in these five sub-sectors will be in a position to benefit from the structural transition toward online and digital payments, digital wallets and cryptocurrencies.
- Card Payment Networks
- Payment Processors
- Payment Infrastructure Providers
- Payment Services and Solutions Providers
- Cryptocurrency Economy Pioneers
Card Payment Networks
Companies in this Sub-Sector act as intermediaries, providing a communications network that facilitates and authorises card payment transactions (including credit/debit cards and prepaid cards) between consumers, merchants, processors, and financial institutions. Card Payment Networks actors play in an important role in supporting digital payment modes. This Sub-Sector is not inclusive of companies that issue credit cards as part of financial service activities, this is part of the sub-sector Payment Services and Solutions Providers. Examples of companies in this Sub-Sector include Visa Inc and Mastercard Inc, which are payment networks that authorise and clear substantial volumes of payment card transactions.
Companies in this Sub-Sector provide payment transaction processing solutions to complete digital payment transactions between merchants (retailer) and financial institutions. Examples include Point-of-Sale (PoS) payment processing or online card payment transaction processing. Examples of companies in this Sub-Sector include Shift4 Payments Inc, which provides a payment platform for omni-channel card acceptance and processing solutions, including end-to-end payment processing for businesses in the retail, hospitality, leisure and restaurant industries, and Repay Holdings Corp, which provides payment processing solutions such as credit and debit processing, automated clearing house processing, and instant funding.
Payment Infrastructure Providers
Companies in this Sub-Sector focus primarily on providing digital payment equipment and hardware devices and/or software technology. This includes, for example, bar-code scanning devices, QR readers and physical payment terminals. Such hardware devices facilitate the interface link of digital payment methods (example credit card, digital wallets, and payment apps) between merchants and consumers. Examples of companies in this Sub-Sector include PAX Global Technology Ltd, which is engaged in the development and sale of electronic funds transfer PoS products worldwide, or Bill.com Holdings Inc, which is a provider of cloud-based software that automates back-office financial operations for small and mid-size businesses.
Payment Services and Solutions Providers
Companies in this Sub-Sector provide digital payment services and solutions. Digital payment services and solutions include, but are not limited to, any one or more of the following: online bill payments, digital payment wallets, e-payments, payment gateway services and mobile payment services. An example of a company in this Sub-Sector is PayPal Holdings Inc, which enables digital and mobile payments on behalf of consumers and merchants worldwide through its various payment solutions that include, but are not limited to, Braintree, Venmo, Xoom, Hyperwallet, and iZettle. Another example of a company in this Sub-Sector is Worldline SA, which via its Merchant Services division offers commercial acquiring, terminal, omni-channel payment acceptance, digital retail and merchant wallet services.
Cryptocurrency Economy Pioneers
Companies in this Sub-Sector provide crypto asset and/or blockchain-focused services comprising cryptocurrency exchange platforms, crypto wallet services, crypto payment, and infrastructure solutions and/or crypto and blockchain-focused services. Digital payment usage and acceptance in the crypto economy is expected to increase as financial regulation around cryptocurrency ownership and use as a payment medium grows. Examples of companies in this Sub-Sector include Coinbase Global Inc, which operates a cryptocurrency exchange and payments platform, and Silvergate Capital Corp, which provides financial infrastructure solutions and services to participants in the expanding digital currency industry. Finally, this Sub-Sector does not include companies that are bitcoin mining operations and/or companies providing the “picks and shovels” that enable the mining of bitcoin and/or other cryptocurrencies.
Euromonitor International, “Euromonitor’s Classification for the Digital Payments Economy”, Page 5 and 6. Available at: https://rizeetf.com/wp-content/uploads/2021/11/Euromonitors-Classification-for-the-Digital-Payments-Economy.pdf