Ringing up contactless payments at the World Cup

Ringing up contactless payments at the World Cup

While mobile payments made with one’s smartphone and other forms of contactless payments, such as transactions completed with watches, necklaces and rings, may not be blazing the payment trail in the US, it’s a very different story outside the US. A great example of the Cashless Consumption aspect of our Digital Lifestyle investing theme and index is being played out (pun intended) at the World Cup as event goers use digital payments both in and out of the stadiums.

It’s a great reminder to avoid one of the traps US investors tend to fall into — failing to look outside the US for investing data points. Even Digital Lifestyle index constituent Visa acknowldges a global view is needed to properly assess the adoption of contactless payments.

Soccer is a contact sport, but fans are using contactless payments at one of the sport’s most famous events: Approximately 17 percent of purchases with Visa in the World Cup’s 11 Russian host cities, for example, used contactless payment technology with devices such as smartphones, bracelets and rings. However, the share of contactless payments inside the stadiums hit 54 percent — made by fans from Russia and other countries.

Beyond the World Cup, Visa CEO Alfred Kelly said at a conference in May that his company continues to make progress with its efforts in contactless payments, saying that, beyond the lack of progress in the United States, “we’ve seen really good progress around the world.” He noted that, a year ago, one out of every eight global transactions processed by the company was contactless, moving up to one in five last quarter.

Source: Contactless Takes The Prize At The World Cup | PYMNTS.com

Visa & Mastercard mandating contactless payment terminals

Visa & Mastercard mandating contactless payment terminals

New technology adoption can be driven, primarily, by two forces – bubbling up based on consumer demand or pushed down due to a mandate from companies or the government. With contactless payments, we’ve seen consumer uptake grow as mobile payments, like Apple Pay, have come to smartphones and wearables. Now Mastercard  (MA) and Visa (V) are mandating payment terminals to include contactless payments by 2020. This should deliver a pronounced step up in contactless payments, but it also means an upgrade wave coming to payment terminals from Verifone (PAY), First Data (FDC), Ingenico and others.

Apple Pay should get a major lift within the next five years from a pair of factors, according to new research, most notably contactless support demanded by credit card giants Visa and Mastercard.

By 2020, both companies will require payment terminals in many markets to offer the technology, Juniper Research noted. The lack of compatible sales terminals has been a consistent obstacle in U.S. Apple Pay adoption, such that some retailers —like Anthropologie —have promised support for years without delivering.

Growth may also be aided by shoppers wanting to avoid the slower speeds of chip card transactions, which are presently replacing magnetic swipes.

U.S. contactless payments at retail are forecast to rise from 2 percent this year to 34 percent by 2022, Juniper said. Globally, figures are predicted to rise from 15 percent to 53 percent, reflecting the technology’s greater popularity in countries like Poland, Japan, and the U.K.

Source: Apple Pay likely to get boost from Visa & Mastercard mandating contactless payment terminals

Tencent scales thematic investments in payments, AI and cloud

Tencent scales thematic investments in payments, AI and cloud

Our Content is King theme isn’t the only one getting a lot of attention this week as more companies look to invest not only in payments, which we see as Cashless Consumption but also artificial intelligence, a slice of our Disruptive Technologies theme. As we look at these moves, we are reminded of the global nature of our investing themes. This means that Amazon (AMZN), MasterCard (MA), Visa (V), Facebook (FB), Alphabet (GOOGL), Apple (AAPL), PayPal (PYPL) and the like need to be aware of moves made by Tencent (TCHEY), Alibaba (BABA) and other players outside the US.

Tencent, the Chinese mobile games and social media company, is gearing up to increase its investments in online payments, cloud services and artificial intelligence.Still, with competition on the rise in the digital payments market, the investments are necessary. “We think there is still a lot of growth potential from Tencent’s cloud and payment business,” BOCOM International Analyst Connie Gu said in the Reuters report.

China’s Tencent isn’t only investing in artificial intelligence, payments and cloud services. Earlier this month, it showcased how it is also investing in other areas. Essential Products, the smartphone company that was started by Andy Rubin — the creator of the Android mobile operating system — raised $300 million in venture funding from a cadre of investors, including Tencent. According to a news report in The Wall Street Journal, the company announced the list of investors betting it can take on Apple and Samsung Electronics in the smartphone market, reported the paper.

Source: Tencent Increases Investments In AI, Payments | PYMNTS.com

Tematica’s Take on the February Jobs Report, and What It Means for the Fed and Stocks

Tematica’s Take on the February Jobs Report, and What It Means for the Fed and Stocks

This morning the Bureau of Labor Statistics published the February Employment Report. One of the last few indicators economists, market watchers and the Fed will get ahead of next week’s Federal Open Market Committee meeting came in better than expected on several fronts. Over the last few week’s we’ve seen a rising expectation for a March rate hike, but more recently we’ve gotten conflicting signals in a variety of data points. While the February reports for the both the Producer and Consumer Price Indices and Retail Sales will be published early next week, barring any major snafus in those reports the February Employment Report clears the way for the Fed to nudge interest rates higher next week.

 

The details of the February Employment Report how it stacked up against expectations

 

 

Nonfarm payrolls came in at 235K besting expectations for 190K-200K depending on the source, and the Unemployment rate held steady at 4.7 percent.  A nice beat, but job growth slipped month over month compared to the 238K revised number of jobs created in January. Overall payrolls are up around 1.6 percent over the past year as we’ve seen the 12-month trend slowing over the past few years, which is to be expected in the later stages of this cycle. Job gains were reported in in construction, private educational services, manufacturing, health care, and mining, which was offset by job losses in retail.

 

 

In looking at several other metrics in the report, the Labor Force Participation Ratio edged up a tick month over month to hit 63.0 percent in February and we saw another sequential decline in the Not in Labor Force category. The percent of Americans actually working has reached 60 percent for the first time since 2009. In our view, those metrics are moving in the right direction.

 

We also like seeing the median duration of unemployment has been continually declining since its peak in 2010. Today that number has dropped to around 10 weeks.

 

 

Since the recovery, job growth has been concentrated primarily in lower-paying jobs in sectors such as retail, hospitality, education and food service. Recently we have seen higher-paying sectors such as manufacturing and construction posting material gains. While every sector outside of retail and utilities experienced gains, manufacturing grew 28,000, the largest increase in that sector since August 2013. Construction also surged by 58,000 jobs which was the biggest gain since March 2007 and has now added 177,000 to payroll in the past six months, a likely positive sign for housing.

If we were to pick one fly in the jobs report ointment it would be the sharp increase in the number of people with multiple jobs, which climbed to 5.3 percent of total employed, up from 5.0 percent a year ago. To us, this signals that more people are under the gun when it comes to helping make ends meet due to higher health care costs, soaring student debt levels or the need to boost savings levels, especially for retirement. From a thematic perspective, we see the pick up in multiple jobholders as a confirming data point for our Cash-strapped Consumer investing theme. More about that in a few paragraphs.

 

So what do all these employment “tea leaves” tell us about what the Fed might be thinking?

As Team Tematica discussed on this week’s Cocktail Investing Podcast, retail job losses were anticipated given the growing number of store closing announcements over the last several weeks from the likes of  Macy’s (M), Kohl’s (KSS), JC Penney (JCP), hhgregg (HGG), Crocs (CROX) and others. All of these companies are contending with the downside of our increasingly Connected Society that has consumers increasingly shifting toward digital shopping.  Given the relatively mild winter weather, the pick up in construction work likely bodes well for the housing market, which is one we keep tabs on as part of our Rise & Fall of the Middle Class investing theme. From an exchange traded fund perspective, the mix of jobs created in February likely means a higher share price for SPDR S&P Homebuilders ETF (XHB) and PowerShares Dynamic Building & Construction Portfolio ETF (PKB) are to be had while SPDR S&P Retail ETF (XRT) get left behind.

As Tematica’s Chief Investment Officer, Chris Versace, reminds his graduate students at the NJCU School of Business, the Fed has a dual mandate that focuses on the speed of the economy AND inflation. The one item that is bound to catch the Fed’s attention is wage growth, which rose even though hours worked remain unchanged in February vs. January. Per the report, “In February, average hourly earnings for all employees on private nonfarm payrolls increased by 6 cents to $26.09, following a 5-cent increase in January.”

While that wage growth likely reflects some impact from rising minimum wages, the mix shift in job creation toward higher paying jobs in mining, construction and manufacturing and away from lower-paying retail jobs was the primary driver. If we had to guess the one line item that could get some attention at the Fed, it would be the combined January-February wage growth, which equates to a 2.8 percent increase year over year – near the fastest pace of growth during the current expansion, and better than the expected 2.7 percent, but still well below the rate of growth prior to the financial crisis.

However, on a monthly basis, average hourly earnings for private-sector workers rose 0.2 percent during February, which was below expectations for 0.3 percent. If we dig a bit deeper, that 2.8 percent year-over-year growth is an overall number. Wages for nonsupervisory and production employees comprise about 80 percent of the workforce and that group saw their hourly and weekly wages rise by about 2.48 percent on a year over year basis – this group isn’t getting quite the gains that their supervisors are enjoying. Additionally, this metric is not adjusted for inflation and guess what….the most recent inflation rate as measured by the consumer price index was (drum roll) … 2.5 percent. So post-inflation, no real gains. Once we again, it pays to read more than just the headlines when deciphering a report like this.

That being said, in our view, this month Employment Report helps pave the way for the Fed to nudge interest rates higher next week. We expect financials, including shares of banks such as Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C) to name a few to trade higher today and lead the market higher. It goes without saying that means Financial Select Sector SPDR Fund (XLF) shares are likely to trade higher.

As the likelihood of higher interest rates are upon us, we have to consider what the incrementally higher borrowing costs could mean to consumers that have taken on considerably more debt in 2016? Team Tematica touched on this and what it likely means in this week’s podcast. While we’ve seen decent wage growth thus far in 2017, a new study from WalletHub shows that “US consumers racked up $89.2 billion in credit card debt during 2016, pushing outstanding balances to $978.9 billion, which is roughly $3 billion below the all-time record set in 2007.” This would certainly help explain the year over year increase in multiple jobholders we talked about several paragraphs above.

For an economy whose growth is tied rather heavily to consumer spending, higher interest rates could crimp the health of that economic engine when consumers start to look at their credit card interest rates. Add in higher gas prices and odds are Cash-strapped Consumers will be with us once the euphoria of today’s February Employment Report dies down. We’ll be watching credit card transaction levels at Visa (V) and MasterCard (MA) to gauge consumer debt levels and whether average transaction sizes are shrinking.

— Tematica’s Chief Macro Strategist, Lenore Elle Hawkins contributed to this article. 

Mastercard Data Show Chip Cards Are Worth the Wait When it Comes to Card Fraud

Mastercard Data Show Chip Cards Are Worth the Wait When it Comes to Card Fraud

 

While we may not be enthused with the longer check out times associated with the move to chip cards, data from MasterCard shows a few more minutes is making all the difference when it comes to credit card fraud.

Credit card fraud is down by more than 60% at Mastercard’s top five EMV-enabled merchants since chip cards were introduced late last year, according to the company.

Mastercard reports that 8 out of 10 of its U.S. cardholders have chips and counts 1.7 million chip-active merchants on its network — about 30% of total U.S. retailers. During a similar appraisal in May, Visa estimated 1.2 million stores were chip enabled.

Source: Mastercard: Chip cards cut fraud by 60% | Chain Store Age

China opens its markets to foreign bank card companies 

China opens its markets to foreign bank card companies 

Poised to be the largest population by 2020, Cashless Consumption is poised to get a big boost as global payment processing firms tap the China market. Analyzing how this impacts consumption and debt levels will factor into our Rise & Fall of the Middle class thinking.

China will allow foreign payment card companies to operate in the country under rules issued on Tuesday, potentially giving groups like Visa Inc (V.N) and MasterCard (MA.N) access to its 55-trillion-yuan ($8.4 trillion) card payment market.Visa and MasterCard, the world’s two largest credit and debit card companies, have been lobbying for more than a decade for direct access to China’s cards market, which is projected to become the world’s biggest by 2020.Bank card consumer transactions reached 55 trillion yuan in 2015, accounting for 48 percent of total social consumption, the People’s Bank of China said in a statement. The market is dominated by state-run China UnionPay Co Ltd.

Source: China opens its markets to foreign bank card companies | Reuters