The financial sector has been one of the worst-performing parts of the stock market in 2020, down by more than 18% versus a 9% gain in the S&P 500. And there are certainly some good reasons for this poor performance. But what about after the COVID-19 pandemic ends? Will banks be overtaken by fintech disruptors? In this Fool Live clip, banking experts Jason Moser and Matt Frankel, CFP, discuss what investors should know about where banks might fit in the new financial world.
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Jason Moser: Let me see here, W says, ''Matt seems upbeat on the banks, but JMo keeps beating the drums for the war on cash. Do the banks bounce back after COVID, or do they start losing the war or something else?'' I don't know. What do you think, Matt?
Matt Frankel: Well, I think it's faulty logic to consider those as two separate things. Bank of America (BAC 3.35%), for example, has done a fantastic job of embracing technology and really embracing cashless banking systems. They were one of the companies that funded Zelle's development, if you remember that.
Jason Moser: Yeah, absolutely.
Matt Frankel: They consistently get rated the No. 1 or No. 2 mobile and online platforms year-after-year by the major banking publications. I wouldn't necessarily say that the banks are going to be losers of the war on cash, but as JMo often puts it, a Square (SQ 3.19%) or a PayPal (PYPL 1.44%) is the real way to play that trend. But I wouldn't necessarily think of banks as losers. The traditional banks that we're talking about and a lot of the war-on-cash companies generally compliment each other. Like your war-on-cash basket has Visa (V 1.01%) and MasterCard (MA 0.77%), and most of those cards are funded by the banks we're talking about.
Jason Moser: Yeah. That's a really good point. I'm glad you mentioned it, because I was thinking the same thing. Banks really I think are just finding their position in that value chain, in this new value chain of how money is moving around. They have obviously very strong networks with a lot of information and a lot of assets.
Yeah, I think I'm more optimistic or more amped up on those war-on-cash stocks. But like you said, it's worth remembering, Visa and MasterCard are in that basket. Those are basically boring old big bank-style names. But what they did, I think it was a nice come back, because it felt like they were a little bit asleep at the wheel when it came to technology and fintech and going cashless. They've done a very good job of finding their position in that value chain with things like PayPal and Square, being able to fund accounts using cards however it may be. I mean, I have a PayPal account that pays my Spotify (NYSE: SPOT) bill through my Visa credit card.
An interesting hack -- I've told this before on this show -- but one thing you can do, the more that you can route payments through one channel, like if you have everything going through one channel on PayPal, and you're paying via credit card through your PayPal account, when that credit card expires and you have to update your information because it's all going through just the PayPal channel, you just update the card in the PayPal channel as opposed to having to update the card with each and every different service provider that you're ringing the payment through. A friend of mine up in New York gave me that tip, and it's worked out really well. It's pretty clever, actually. I try to route as much as I can through PayPal, paying with my Visa, because then I immediately turn around and just pay that Visa off from a checking account anyway.
Matt Frankel: Yeah. Now, I definitely agree with that.