The following commentary was originally sent to Growth Seeker subscribers on July 14, 2016, at 1:23 p.m. ET.
One of the great things about our thematic investing approach is that the themes are easily recognizable in the world around us, and therefore are very relatable. We find confirming data points are abundant. As we move forward, we will break down such data points as part of our regular commentary and analysis. We also think this will shed far more light on our thematic way of seeing the world and what's driving our investing themes. There are more than a dozen such themes, and we will aim to cover them over time for our subscribers.
Findings from a new Gallup poll confirm the continued shift in consumer payment preferences that sit at the core of our Cashless Consumption investing theme, particularly among younger respondents. Gallup's poll found that fewer Americans are paying for all or most of their purchases with cash, compared to just five short years ago. More specifically, in 2016 just 10% of respondents paid for all their purchases with cash, down from 19% in 2011 -- a nearly 50% decline. From a demographic perspective, respondents ages 23 to 34 now use cash in just over 20% of their transactions, down from 39% five years ago.
The shift away from cash and checks has been under way for several decades, first with charge cards then credit cards, and more recently debit cards. We're pretty sure most Americans are familiar with this, given that average household credit card debt hit $15,762 in 2015, according to Nerdwallet. While such high debt levels naturally tie into our Cash-Strapped Consumer theme, today we are focusing just on the shifting method of payment.
According to MasterCard, just 15% of global payments are digital today, but another $8 trillion may be converted to digital payment volumes over the next five years. The Cashless Consumption leader by transaction count has been North America, with Europe second, and while many are quick to assume that the developed economies are well on their way to adopting cash alternatives, the data show that's not quite the case. For example, in France and the Netherlands, cash still accounts for 40% or more of consumer transactions, according to data from MasterCard. What this tells us is that there is a long road ahead for Cashless Consumption in all its forms -- credit cards, debit cards and mobile transactions -- particularly for the provider(s) who develop a way to offer the privacy afforded by cash, especially in those regions with high tax rates.
Sticking with the U.S., toward the end of 2015 an Accenture survey showed that, "while 52% of North Americans are 'extremely aware' of mobile payments, only 18% used them on a regular basis." Exiting 2015, eMarketer found there were 23.2 million mobile payment users in the U.S., but the firm forecasts that user base will jump to 37.5 million in 2016 and continuing to grow to 69.8 million by 2019. As we have said before, we are not so focused on the exact forecast figures, but rather the trend line. In this case, it points to a sharp pickup in mobile transactions.
Given the growing install base of smartphones and the consumer preference to carry fewer things (maybe it's just us), it is not shocking to us that the next step in Cashless Consumption is mobile transactions. Payment options with apps from the likes of Apple (AAPL) , Alphabet (GOOGL) , PayPal (PYPL) , Samsung and Square (SQ) , as well as in-app payments offered by Amazon (AMZN) and Starbucks (SBUX) , should drive Cashless Consumption. Granted, those are just a few examples, and we suspect there will be more as Apple brings Apple Pay not only to the desktop/notebook shopping experience, but also as it begins to serve as the mobile-transaction interface for other apps. We look forward to the day when all we need to carry is our smartphone and keys, and hope one day it will just be our smartphone. (Amazon is part of TheStreet's Growth Seeker portfolio.)
Riding the Thematic Wave
The continued shift toward Cashless Consumption bodes well for payment processing network companies, such as Visa (V) , MasterCard (MA) , Vantiv (VNTV) and Global Payments (GPN) , simply because each cashless transaction needs to be processed over such a network.
While we like the security features associated with American Express AXP, as investors we prefer the many-to-one aspect that is had with MasterCard, Visa and the like, because of the far-greater number of banks and financial institutions they have partnered with compared to American Express. This shift is a continued positive for Square, as small and medium-size businesses look to offer cashless-consumption options to their customers. We've paid by Square at local coffee shops, gelato vendors and even after getting a haircut.
Continued global adoption of smartphones means that over time, more and more devices will be capable of conducting mobile transactions -- provided they have near-field communication (NFC) chips inside. This bodes rather well for NXP Semiconductors (NXPI) , which is the current NFC chip market share leader, with Broadcom (AVGO) and STMicroelectronics (STM) also vying for customers. (Apple, Alphabet, Starbucks, PayPal and NXP Semiconductors are part of TheStreet's Action Alerts PLUS portfolio.)
These technologies are also providing a way for emerging markets to develop consumer markets without having the infrastructure one would expect in the developed world. Entrepreneurs can easily accept electronic payments for transactions that would otherwise be nearly impossible without such technology.
Hitting the Thematic Headwind
As the use of cash diminishes, the need for legacy, cash-centric automated teller machines (ATMs) is likely to wane -- forcing companies like Diebold (DBD) and NCR (NCR) to offer more advanced capabilities and technologies in next-generation ATMs, including mobile transactions and two-way video. Less cash use also likely means less demand for cash replenishment at ATMs, a service offered by the likes of The Brink's Co. (BCO) , Dunbar Armored and Loomis.
