Australia is heading towards being a cashless society. Is that a good thing? And how can we profit from that?
Although more of us are paying for things by means other than cash, there is a growing amount of physical cash out there. There will be even more soon after the announcement of the new Australian $20 note.
We are supposedly the sixth-most cashless society in the world. I’m certainly one of those people that hardly ever use cash. Nearly every shop and café has a EFTPOS machine these days, I can’t remember the last time I used an ATM. A cash-only takeaway shop would be the last time I paid for something with physical money.
RBA boss Dr Lowe has previously said that for each Australian there are thirty $50 banknotes and fourteen $100 banknotes. I’m definitely not carrying around almost $3,000 in cash everywhere, not even a thirtieth of that. Plenty of those notes are probably overseas. Think of all the foreign exchange places and banks in overseas countries that would need to keep some Aussie dollars on hand.
But it’s certainly true that we’re becoming more of a cashless society. In the retail world we’re seeing a big shift towards buy now, pay later businesses like Afterpay Touch Group Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P) and FlexiGroup Limited (ASX: FXL).
Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) are also benefiting from people going cashless. It’s expensive to operate a large network of branches and ATMs, and they have to keep them all supplied with cash.
The biggest beneficiaries of people going cashless are the payments businesses of Visa, MasterCard and PayPal. Obviously they’re not listed on the ASX. But one of the most concentrated ways to get exposure to that theme is with the listed investment company (LIC) MFF Capital Investments Limited (ASX: MFF). At the end of September 2019, over 31% of MFF’s portfolio was allocated to Visa and MasterCard.
The shift to a cashless society is a long process. Eventually cash will disappear, but I think it will be many years until then. MFF Capital would be my favourite way to profit from this area – I don’t want to invest in ASX banks and the buy now pay later sector doesn’t appeal to me, partly because of the high valuations.
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Tristan Harrison owns shares of Magellan Flagship Fund Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended FlexiGroup Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.