A digital currency world is coming. The 2022 Beijing Olympics will operate via a digital RMB for local attendees and may include digital cross-border payments as well. Our Federal Reserve is experimenting with digital currency. Both Fed Chair Powell and Treasury Secretary Yellen have talked down Bitcoin and said the U.S. will move slowly with a digital currency but that it is coming (the U.S. won’t be willing to fall too far behind China on the digital currency front). Insofar as a digital currency is concerned, which companies are best prepared to gather digital deposits and control digital payment flow?
The short list consists of three companies, all of which have significant mindshare with young consumers and the scale to make the requisite investments to drive digital payment activity. Those three companies are Apple (AAPL), Square (SQ) and PayPal (PYPL). In a digital world – which many people got a taste of in 2020 due to COVID – customer mindshare is not and will not be determined by physical retail locations. This rule also applies to physical bank branches. In the not too distant future the physical locations that JP Morgan (JPM) and other legacy financial institutions are investing in will become a liability. By way of comparison, Apple has had success with Apple Pay, Square with its Cash App and PayPal with both legacy PayPal and Venmo – none of which required physical real estate (other than the Trojan horse iPhone).
I did not include Google (GOOGL) on this list because it has bungled the Google Pay roll out. Facebook (FB) has digital currency ambitions but would be wise to focus less on a proprietary digital currency and more on controlling payment flow. However, Google and Facebook could get into the digital payments game by acquiring one of the larger fintech payments companies such as Square, PayPal, Adyen or Stripe, or a company such as Shopify (SHOP) which would enable the acquiring firm to control payments flow. Another option would be to acquire a large legacy bank with a sizable deposit base and a customer cohort that skews younger so that when physical branches are eliminated customers would remain.