Banking has already pushed into the mobile age big time, with a host of financial institutions including JPMorgan Chase (NYSE:JPM) allowing consumers to make deposits simply by taking a picture of checks with their cell phone.
So how long is it before banking takes the next natural, evolutionary step into completely mobile banking, using your cellphone instead of a plastic card to conduct transactions?
This is not just a pipe dream or a sci-fi fantasy anymore. Consider that the Bill & Melinda Gates Foundation pitched the idea of killing cash altogether to thought leaders at January’s economic summit in Davos. The founder of Microsoft (NASDAQ:MSFT) thinks the idea is not only possible thanks to technology, but actually better for society thanks to transparency and cost savings as electronic transfers become the norm.
As an investor, you need to be ahead of this megashift. And if you need proof why the global cashless craze has power, just look at payment processor stocks.
Take Visa (NYSE:V) stock. The company went public in March 2008, just a few months after the bull market top, and is up over 150% since its IPO. In comparison, the S&P 500 is up just 20%. Longer-term, look at MasterCard (NYSE:MA). This stock is up a phenomenal 1,080% since its May 2006 IPO versus less than 25% for the S&P 500.
Remember, these are not lenders, but payment companies that take a small cut for every transaction they move across one of their branded cards — be it a credit card, debit card or prepaid card. Visa and MasterCard simply allow you access to your money in a more convenient, electronic form.
And what could be any more convenient and electronic than banking on your cell phone?
That means even more transactions, and even more fees for companies facilitating the mobile banking revolution.
Mobile Banking Stocks with Promise
Investing in Visa and MasterCard could give you a foothold into mobile banking, since these players are obviously entrenched and have trust with consumers.
Another obvious play would be eBay (NASDAQ:EBAY) with its PayPal unit. PayPal rose to prominence by providing electronic transactions for eBay’s auctions, but has since become a legitimate payment processor in its own right. PayPal moves $120 billion in cash annually (and growing), has more than 110 million active accounts worldwide and is even in thousands of brick-and-mortar retailers now thanks to a big 2012 rollout.
As for the unknowns that could go from nothing to industry leader, that’s admittedly a crap shoot. Some worth looking into, however, are:
- Mitek Systems (NASDAQ:MITK) is a very small stock ($120 million market cap and 10,000-share average volume) but has big mobile promise. Without getting too technical, Mitek produces a host of imaging technology, including smartphone apps to deposit checks, pay bills, save receipts and fax documents. This is the future of mobile banking and Mitek is already there. Just tread lightly if you want to buy — shares are down more than 60% in the last year, but up 40% since Jan. 1. This is a volatile issue that can burn you, so use limit orders and stops when trading.
- NXP Semiconductors (NASDAQ:NXPI) is a midcap stock based in the Netherlands that develops, among other things, near-field communication technology. NFC is essentially a very short-range Wi-Fi network — which allows you to pay by “bump” instead of “swipe.” In other words, if you have NFC in your cell phone, you can just touch it to a payment device at a qualified merchant and get your cash deducted from a mobile banking app. Starbucks (NASDAQ:SBUX) already allows for NFC transactions, and if the technology becomes widespread, then companies like NXP are the way to go.
- Intuit (NASDAQ:INTU) is best known for TurboTax and Quicken products. But it’s logical to think that after digitizing tax returns, the company could transition into mobile payment processing too. Its GoPayment mobile transaction app allows small businesses to use their smartphones to accept credit cards anywhere. The natural next step would be to just cut the swipe out of the equation and allow for mobile payment with or without a little plastic card.
- And then, of course, there’s constant innovator Google (NASDAQ:GOOG) and deep-pocketed mobile behemoth Apple (NASDAQ:AAPL). Either could easily have the software chops to figure out the best — and most secure — solution here. And heck, with Apple’s $100 billion cash hoard, it could even have the capital to get into the lending biz or pay nominal interest on deposits.
These are just a few ideas. There are many more companies out there with mobile banking promise, and still more that haven’t even been created yet but will surely benefit from this long-term megashift.
The Bank for International Settlements estimates that cash transactions total just 9% in the EU and 7% in the U.S. That sounds right to me since I never carry cash, opting to swipe my card for a $1.50 drink at the gas station or pay for parking via cellphone rather than keep folded paper in my wallet.
Mobile banking is going to be a big thing in the next decade or so, considering how scarce cash transactions already are. Investors who can get there first will reap some nice profits as a result.
- A recent report called “Mobile Banking: Handset & Tablet Market Strategies 2013-2017” says that more than 1 billion cellphone owners will use their devices for banking purposes by 2017. (Juniper Research)
- GSMA, a group representing the interest of mobile operators in 220 countries, reports that there are 163 live deployments of mobile payment agencies and 107 planned deployments. (GSMA)
- Why PayPal will soon be bigger than its “parent” eBay. (InvestorBistro)
- Sweden might do away with cash altogether. (CBS News)
- And for the doomers out there… why a cashless society is the mark of the Apocalypse, according to certain reads of prophecy. (Unveiling the Apocalypse)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.