Ukraine has cashless future in its sights – and so does Dominion
Ukraine has become the latest country to embrace – or plan to embrace – its cashless future. Going cashless has some serious benefits from a governmental point of view: primarily, an e-paper trail is easier to keep track of than a paper trail. That means trouble for black and grey markets, and it means more taxes coming in. Any country would enjoy these benefits, but Ukraine – with its burgeoning illegal and semi-legal trade problems, and protracted state of conflict – flat out needs them.
According to Ruslan Kravets, head of the Ukrainian central banks ‘cashless economy’ project, Ukraine’s aim is “to shrink the shadow economy through electronic payments.” This is no small task: experts think that as much as a third of the Ukraine’s $90 billion economy could be the result of illicit dealings. It follows India (which recently removed smaller bank notes from circulation) and China (where roughly 50% of all payments are cashless) in hoping to forge a more accountable economy through adoption of the latest payment technology. But, it faces a problem: while Ukrainians receive half of their income electronically, they spend four fifths of it in cash.
Nonetheless, whatever difficulties the Ukraine may meet in realizing its goal, cashless economies are coming. Fred Baccanello, Investment Manager for Dominion’s Ecommerce Fund, defines this trend as one of the most powerful evolutions underpinning the sector. In a note, he said that the move from cash to electronic payments was “at the very heart of ecommerce, and one of our key long term trends.”
According to Mr. Baccanello, the trend is being driven by a number of factors. The Ukrainian government is not alone in seeing cashless payments increasing tax revenues, shrinking black markets, and controlling money laundering. But it is consumers, who value the convenience that electronic payments provide, who are really pushing the trend. Today, you can make purchases from your couch.
Giving Dominion’s view on the future of cashless payments, Mr. Baccanello wrote:
“We continue to see double digit growth in electronic payments, with online payments growing at a disproportionate rate, benefiting more online focused companies such as PayPal.”
MasterCard and Visa – five years of growth towards a cashless future
SOURCE: Yahoo Finance
“While we have holdings in the dominant card networks, Visa and MasterCard, we see more upside on the Merchant Services side – those companies such as Global Payments who provide the payment networks to merchants – as valuations are more attractive and the sector is consolidating, which will drive accelerated industry margin growth on top of a business model that displays a high degree of incremental operating leverage as volume growth drives revenue growth on a fixed cost base.”
Perhaps the most important thing for investors to realize is the connection between cashless payments and the wider ecommerce trend. Baccanello sees the two co-existing in a feedback loop, constantly fuelling further growth. He told me: “ecommerce is, in part, able to grow due to the advances in electronic payments and, in an example of a virtuous cycle, as ecommerce grows so will demand for electronic payments.”
What this means is that cashless payments are redefining commerce worldwide. Just like industrial and robotic revolutions, the ecommerce revolution has come about because a new model outcompetes an old one. The future will be cashless because, when you measure the benefits of such an evolution against the drawbacks, it has to be. And that’s great news for Dominion’s Ecommerce Fund.
The views above are those of the author and do not necessarily reflect those of Dominion Fund Management Ltd. Additionally. Dominion holds a number of companies in its Ecommerce Fund – including Visa, MasterCard, PayPal, and Global Payments – that stand to benefit from the trends discussed in this article.
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The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.