Q: What is the "war on cash," and why should investors care?
The term "war on cash" refers to the general societal trend away from cash-based methods of payment in favor of card payments and other electronic forms of money transfer.
Banks, merchants, governments, and other entities are all gradually shifting away from cash, and it's easy to see why. Cash is relatively easy to lose, can be expensive to secure and move, and in many situations, cash is simply not a convenient method of transferring money.
From an investor's perspective, there are several types of businesses that stand to benefit from the gradual transition to a cashless society. Most obvious are payment-processing businesses like Visa, Mastercard, Square, PayPal, and others. The majority of payment transactions worldwide are still done in cash, so these companies still have a tremendous runway for growth.
Banks are another potential beneficiary, especially when it comes to consumer adoption of mobile deposit and mobile payment technology. In fact, an electronic deposit or transfer costs a bank more than 10 times less than a similar teller-assisted transaction. Many banks also have large credit card businesses that could stand to benefit as well.
In a nutshell, the amount of cash that is used for everyday purchases can be expected to decline over the coming decades, and some companies will get very rich from the transition.
Matthew Frankel, CFP owns shares of SQ. The Motley Fool owns shares of and recommends MA, PYPL, and SQ. The Motley Fool owns shares of V and has the following options: short January 2019 $82 calls on PYPL and short January 2019 $80 calls on SQ. The Motley Fool has a disclosure policy.