One aspect of our daily lives that has completely transformed over the past decade or so is payments. The advent of the smartphone and the rise of the internet has brought everyone's bank account right at their fingertips and created new digital wallets where money is stored on the Internet. This enables everyday users to use their smartphones to pay for a wide variety of goods and services and increases the convenience offered to them in their daily lives.
This growth in digital payments isn't only a characteristic of the developed world. In fact, according to research from the consulting firm McKinsey, the outbreak of the coronavirus pandemic spurred growth in the digital payments market as it accelerated a shift to online platforms. This growth was not a novel phenomenon, as it simply picked up the pace. McKinsey suggests that non cash retail payment growth in emerging markets is nearly double of the global growth, as it outlines that the sector grew at a compounded annual growth rate (CAGR) of 13% between 2018 and 2021 globally but significantly outpaced this in the emerging markets by growing at 25%.
According to the consulting firm, not only did the pandemic influence these changes, but other factors such as a growth in electronic commerce platforms, government incentives, and investor interest in developing countries all facilitated the change. It bolsters these claims by quoting that electronic commerce volumes grew by 25% globally between 2019 and 2020 - the peak of the pandemic, and will continue to grow by as much as 15% until 2025. Similarly, the strong investor interest was clear through the fact that in Africa, 40% of startup investments were in firms that were developing digital payment platforms.
If you thought a 25% growth rate was impressive, wait until you see what Deloitte believes the future holds for digital payments. According to the firm, the global real time payments market was worth $13.5 billion in 2021, and it states that this industry will grow at a stunning compounded annual growth rate (CAGR) of 34.9% between 2022 and 2030. Deloitte also shares some eye popping figures for the U.S. real time payments market, as it revealed that it is growing by a remarkable 69% annually, as merchant preferences for quick and easy transactions, the rise in popularity of smartphones for both person to person (P2P) and person to business (P2B) transactions, and wider adoption of cloud based services are all at the heart of this explosive growth. Deloitte adds that the best is yet to come for the real time payments industry since the years between 2015 and 2020 were the sector's foundational years as they saw firms develop the right infrastructure to provide the services. Now that the foundation for digital payments has been laid, the sector is primed for "exceptionally higher adoption and ubiquity of instant payments" alongside the growth in different payment options available to users, believes Deloitte.
Building on these growth estimates, let's take a broader look at the sector itself. For these purposes, a research report from Grand View Market Research outlines that the global digital payments market was worth $81 billion in 2022. For its growth, Grand View Market's estimate mirrors those shared above since it also sits in the double digits. However, the firm is less optimistic than Deloitte, since it believes that the digital payments industry will 'only' grow at a 20.8% CAGR between 2023 and 2030 and sit at an estimated $361 billion by the end of the forecast period. The research firm also shares a stunning estimate for the total amount of digital payments transactions in 2022, as it believes that these stood at a whopping $8 trillion.
Finally, while all these firms are painting a highly optimistic picture of the market, it's nonetheless also true that rising inflation in the U.S. has dented consumer purchasing power - an occurrence that will naturally impact the amount of money that flows through the digital payments industry. On this front, PayPal Holdings, Inc. (NASDAQ:PYPL)'s chief executive officer Mr. Daniel Schulman shared his view of the current environment during his company's earnings call conference for the fourth quarter of 2022 where he highlighted:
Still difficult to accurately assess how the year ahead will play out in terms of e-commerce growth. If you ask 20 experts, you get 20 different opinions. Our baseline assumption is that discretionary spend will remain under pressure, and global e-commerce growth will be slightly positive year-over-year. That said, we are seeing signs that inflation is beginning to cool, and it’s logical to expect that discretionary spend versus non-discretionary spend will begin to increase. To be clear, we have not built any recent positive economic news into our forecasts. But as I mentioned, our Q1 is off to a much stronger start than we anticipated with branded checkout volumes accelerating nicely from Q4. Longer term, the secular tailwinds that have benefited our business have not changed.
Today, we'll look at some top digital payments stocks, with the notable picks being PayPal Holdings, Inc. (NASDAQ:PYPL), Mastercard Incorporated (NYSE:MA), and Visa Inc. (NYSE:V).
Best Digital Currency and Payments Stocks to Buy Now
Our Methodology
We started off our list by compiling a list of all companies that offer digital payments. Then, these were matched with their hedge fund investments gathered through Insider Monkey's database of 943 hedge fund portfolios for last year's fourth quarter. Out of this list, the top twelve digital payments stocks were selected based on hedge fund sentiment and are listed below.
Best Digital Currency and Payments Stocks to Buy Now
Affirm Holdings, Inc. (NASDAQ:AFRM) is an American company that is headquartered in San Francisco, California. The firm provides point of sale payment platforms for merchants and consumers alongside a software application.
Insider Monkey took a look at 943 hedge fund portfolios for last year's fourth quarter and found out that 22 had bought Affirm Holdings, Inc. (NASDAQ:AFRM)'s shares. The firm's largest investor in our database is Ken Griffin's Citadel Investment Group which owns 303,949 shares that are worth $2.9 million.
Mastercard Incorporated (NYSE:MA), PayPal Holdings, Inc. (NASDAQ:PYPL), and Visa Inc. (NYSE:V) are met by Affirm Holdings, Inc. (NASDAQ:AFRM) as a top digital payment company.
MoneyGram International, Inc. (NASDAQ:MGI) is a payments platform provider headquartered in Dallas, Texas. The firm enables consumers to send payments to each other all over the world, both from retail and franchise outlets and from their own digital devices. Its global reach makes it one of the best digital payments firms.
By the end of Q4 2022, 27 of the 943 hedge funds surveyed by Insider Monkey had held a stake in the company. MoneyGram International, Inc. (NASDAQ:MGI)'s largest hedge fund shareholder is Simon Davies' Sand Grove Capital Partners which owns 6.8 million shares that are worth $74 million.
The Western Union Company (NYSE:WU) is one of the oldest payment companies in the world since it was set up in 1851. These days, it allows users to make global payments digitally directly from their bank accounts while sitting in the comfort of their homes. The firm also provides customers the ability to pay their bills.
Insider Monkey dug through 943 hedge fund portfolios for their December quarter of 2022 investments and found out that 28 had held a stake in The Western Union Company (NYSE:WU). Cliff Asness' AQR Capital Management is the company's largest hedge fund investor since it owns 6.5 million shares that are worth $90 million.
Discover Financial Services (NYSE:DFS) is an American company that operates as a digital bank and enables customers to use its branded credit cards for making payments through the Club network and transfer funds through the PULSE network.
52 of the 943 hedge funds polled by Insider Monkey had invested in Discover Financial Services (NYSE:DFS), making it a top digital payments stock pick. The firm's largest shareholder is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital which owns 2.7 million shares that are worth $269 million.
Global Payments Inc. (NYSE:GPN) provides prepaid payroll and debit cards that enable unbanked individuals to make digital payments. It also has a payroll platform for businesses and is a top digital payment stock.
As of December 2022, 53 of the 943 hedge funds surveyed by Insider Monkey had invested in the company. Global Payments Inc. (NYSE:GPN)'s largest investor in our database is William B. Gray's Orbis Investment Management which owns 6.3 million shares that are worth $631 million.
7. Fidelity National Information Services, Inc. (NYSE:FIS)
Number of Hedge Fund Investors in Q4 2022: 64
Fidelity National Information Services, Inc. (NYSE:FIS) provides a variety of digital payment services such as online banking, payment processing, funds transfer, and other services.
Insider Monkey took a look 943 hedge fund portfolios for last year's fourth quarter and found out that 64 had bought Fidelity National Information Services, Inc. (NYSE:FIS)'s shares. The company's largest hedge fund investor is Steven Cohen's Point72 Asset Management which owns six million shares that are worth $410 million.
Fiserv, Inc. (NASDAQ:FISV) is a financial payments firm that offers mobile payments, point of sale products, and other services. It is based in Brookfield, Wisconsin.
64 of the 943 hedge funds polled by Insider Monkey during Q4 2022 had held a stake in the company. Fiserv, Inc. (NASDAQ:FISV)'s largest investor is Natixis Global Asset Management's Harris Associates which owns 19.4 million shares that are worth $1.9 billion.
PayPal Holdings, Inc. (NASDAQ:PYPL), Fiserv, Inc. (NASDAQ:FISV), Mastercard Incorporated (NYSE:MA), and Visa Inc. (NYSE:V) are some top digital payments stocks.
