Should You Invest in Mobile Payments Stocks?
Have you ever mulled over the idea that your great-great-great-great-great-grandmother was probably knitting socks in her small village so she could barter them for a jug of milk? Yes, the same milk that you buy today with a swipe of a card at the supermarket. Money has come a long way, hasn’t it?
From seashells to electrum to paper currency and now Bitcoin, the evolution of money has been absolutely fascinating. Today, mobile payment companies are gearing up to overtake traditional payment processing companies. Suffice it to say, now could be a great time to invest in mobile payments stocks and become party to the spectacular mobile payments revolution.
The “Golden Gate Bridge Model”
San Francisco is home to America’s most recent generation of overnight millionaires/billionaires. Many of these tech geeks landed in the city with a small startup idea and a big dream.
Between their breaks from coding, they’d head out to admire the beauty of the bay. One stunning site never missed an eye—the remarkable structure of the Golden Gate Bridge. But there’s something more fascinating about it than its grandeur.
Hundreds of thousands of cars pass over the bridge every day, each one paying a small fee for using it—the toll. On a cursory look, nothing about that appears extraordinary. But the eye of an entrepreneur sees a great business model in it. I’m calling it the “Golden Gate Bridge Model.”
The idea is very simple. Create a service that connects people with people, or connects people with businesses and, in turn, take a cut from the service. Jackpot!
That, my friends, is the same model on which Facebook Inc (NASDAQ:FB) and dozens of other startups like Uber Technologies, Inc. and Airbnb, Inc. are built today.
But one industry that applies this model in its true essence is the mobile payments industry.
How does it work, you ask? The name is self-explanatory, but allow me to shed some more light.
Top Mobile Payments Companies for 2017
The mobile payments industry primarily thrives on smartphones. While there are many variants of the technology, the basic idea is simple. Instead of carrying cash or cards, you use your phone to pay for your purchases by just bringing the phone close to another device that can process the payment, (I’ll get to this technology later.)
You no longer have to carry a wallet because your mobile phone is your wallet.
The idea is not new, but the industry is still in its infancy. That is because, in most parts of the world, grandmas might still be knitting socks to pay for milk. Yes, head over to remote areas of Somalia, Sudan, or Afghanistan, and you’ll find that paper checks are a concept alien to the locals. Although here in the U.S., we’ve long moved on from checks to cards.
Back in 2015, mobile payments accounted for a whopping $500.0 billion worth of worldwide transactions. That’s when IDC went “Nostradamus” on the industry. IDC predicted back then that the number would grow to $1.0 trillion by 2017. We are only four months into the year, so let’s wait until the end of the year to see how accurate that prophecy turns out.
My point is, it is obvious that the mobile payments industry is a high-growth industry with a lot of room to keep growing in the years to come. Needless to say, the top mobile payments stocks could turn out to be great growth plays for early investors.
A number of mobile payments companies are already active in this space. There are bigwigs like Samsung Electronics Co Ltd (NASDAQ:SSNLF)and Alphabet Inc’s (NASDAQ:GOOG) Google, then there are small players like Square Inc (NYSE:SQ) and PayPal Holdings Inc’s (NASDAQ:PYPL) “Venmo.” Then there are two dozen tiny little-known startups that are bringing about new innovations in the industry.
But I have my picks filtered out, and only three companies make it to my list of top mobile payments stocks.
Best Mobile Payments Stocks
Without further ado, here’s my take on what I believe could be the best mobile payments stocks to watch in 2017.
|Stock||Market Cap||5-Year Return|
|NXP Semiconductors NV (NASDAQ:NXPI)||$36.0 billion||544%|
|Apple Inc. (NASDAQ:AAPL)||$749.0 billion||185%|
|Mastercard Inc (NYSE:MA)||$121.0 billion||255%|
1. NXP Semiconductors NV (NASDAQ:NXPI)
Remember how I mentioned that mobile payments can be made by bringing your phone closer to another device that accepts payments? This technology is called near-field communication (NFC). Most smartphones today carry an NFC chip. Mine has it, and I’m sure yours has it too. Without that little chip, the whole industry of mobile payments would cease to exist. And guess who owns the biggest market share of NFC chips in the world? You guessed it; it’s the first candidate on my list of best mobile payments stocks.
NXP Semiconductors NV (NASDAQ:NXPI) is getting more traction for its automotive chips, as self-driving technology is about to get commercialized. This is partly why the company’s growing strength in NFC chips often slips under the radar. But I’m here to remind you that world’s top two biggest smartphone vendors buy their chips from NXP. Yes, Samsung and Apple are both NXP’s customers.
Seeing its stronghold over the semiconductor market, QUALCOMM, Inc. (NASDAQ:QCOM) jumped in with a buyout offer in October 2016. You see that big bounce on the price chart below? That’s when the offer came in. The offer is still on the table, and rumor has it that QUALCOMM will be bidding up the price.
Chart courtesy of StockCharts.com
Regardless of the offer, NXPI stock holds strong ground and can continue to grow on its own. This is a top mobile payments stock you don’t want to miss.
2. Apple Inc. (NASDAQ:AAPL)
Apple Inc.’s (NASDAQ:AAPL) mobile payments application—”Apple Pay”—is the shining example of my Golden Gate Bridge model. Apple Pay provides owners of Apple products the ease of making digital payments without a card, cash, or check. In return for this service, it charges them a fee (or toll, so to say).
Word on the street is that Apple is charging merchants nearly $0.15 for every $100.00 transaction. It seems like a tiny amount, just like that toll, but add up all the transactions, and the number could hit seven figures.
Apple Pay works on most Apple devices—including “iPhones,” “iPads,” and “Apple Watches”—through the NFC chips fitted in them. The mechanics are the same as I discussed above.
But don’t “Samsung Pay” and “Android Pay” also work on the same principle? Yes, they do. So then why am I rooting for Apple over the more ubiquitous Alphabet’s “Android” and Samsung phones? I have two solid reasons.
First, it is not the quantity of users that matters here but the quality. Apple products are owned by the affluent majority; the majority that has a lot of money, spends it, and is technologically savvy enough to transact it digitally.
Second, Apple has created a tightly-knit network of “iOS” users. Apple doesn’t allow intruders into its ecosystem, which means that big companies like Visa Inc (NYSE:V) and Mastercard that have developed their own mobile payment solutions can’t chomp at its pie, which is the case with Alphabet’s Android.
Chart courtesy of StockCharts.com
Apple stock rightfully deserves a spot on your list of best mobile payments stocks for 2017.
3. Mastercard (NYSE:MA)
Mastercard Inc (NYSE:MA) is a household name that begs no introduction. This company is another classic example of my Golden Gate Bridge model. Mastercard Inc (NYSE:MA) may be famous for its credit cards, but the company is not strapping itself down to one niche. Mobile payments is the company’s newfound interest.
Both duopolists, Mastercard and Visa, are head-to-head in the race to gain maximum market share. But Mastercard upped its ante in the mobile payments game by partnering with Google. The company has deployed its mobile payments service—”Mastercard Paypass”—on Android phones through “Google Wallet,” making its service more readily available in the market.
But that’s not the only reason why I’m picking Mastercard over Visa. There are two more reasons. First, Mastercard entered this arena long before Visa. This was back in 2011 in a partnership with BlackBerry Ltd (NASDAQ:BBRY), when PayPass was first introduced. So I’m giving it the first-mover advantage.
Second, a quick comparison of the company’s fundamentals brings Mastercard forward as the clear winner. Mastercard boasts better earnings, better return on equity, better dividend yield, and lower price multiples. Plus, the stock performance has been no less than outstanding over the years.
And here’s the kicker: like Apple, Mastercard is also a Warren Buffett stock. If the billionaire investor is funneling his money into it, I’d be a fool to not consider it.
Chart courtesy of StockCharts.com
Final Word on Best Mobile Payments Stocks
Mobile payments companies have an interesting business model. They perpetually make money, similar to a toll fee, for being a bridge between customers and merchants.
What’s more exciting about this industry is its promising growth in the coming years as more and more mobile users ditch their wallets in favor of mobile payment apps.
It doesn’t take a genius to put two and two together. The mobile technology revolution is real, my friends. And I’m seeing greater upside to these three top mobile payments stocks in 2017.