How COVID-19 is fueling contactless payment companies

COVID-19 is fueling contactless payment companies as people stray away from cash. Mizuho Senior Tech Analyst Dan Dolev joins the On the Move panel to discuss.

Video Transcript

ADAM SHAPIRO: Back to On the Move as we check markets. Want to let you know that the S&P 500 does retain its ability to stay positive, now up about 8 points. Dow is up 11 points, and the NASDAQ is up 73 points. We're inviting into the stream right now Dan Dolev. He is Mizuho senior tech analyst.

He's joining us from New York City to talk about the impact of the COVID-19 pandemic on the way we transact all kinds of things through contactless transactions. And before we get into that, I just want to talk to you real quick about something "Wall Street Journal" wrote about with Venmo. Because I think a lot of us know Venmo and Zelle.

But Venmo, particularly, got into some issues with having to go after people who overdrew their accounts, whereas other fintech apps don't necessarily go after people on these kinds of situations. What kind of impact does it have if someone as big as Venmo is doing something that the users might think, yeah, I want to stay away from them?

DAN DOLEV: You know, I think this is a really interesting question. You know, those apps have become so viral and so important and such an integral part of everyone's day-to-day life. Right, people are transacting once, twice, three times a day with Venmo. I think that the overall impact is going to be minimal, that I think that they've become such a big replacement of cash that you're not going to get a big impact over the medium term on these news.

JULIE HYMAN: Dan, as we look across-- it's Julie here, nice to see you. As we look across the different payment companies, and I know you look at PayPal and you also look at the likes of Visa and Square, which of them do you think have navigated this time the best, maybe gained the most market share and might have the biggest, stickiest advantage coming out of the pandemic?

DAN DOLEV: I think that's a great question. So we like both PayPal and Square. Let me just parse it out for Square. The Cash App has been a tremendous success. And it just shows how much successful it has become during the pandemic You have 30-- over 30 million actives who are actually using it right now, and they're actually targeting even more and more demographics.

And the TAM is going to be bigger than what we expected. You know, we hosted some executives from the Cash App this week, and they were talking about just how big the opportunity is and so many more opportunities. So they're going to come out strong out of the pandemic. The use case there has become much more strong.

On their seller side, on the point of sale side, Square is a natural share gainer. So if things get rough, they actually gain more share because, you know, the incremental user or the incremental restaurant is going to go to Square versus their own solutions. So they're coming out super strong out of the pandemic, and we're very bullish on them.

Same goes for PayPal, right. The work that we did, it shows it's not just e-commerce growth that's driving the growth, it's share gains, right? So the more people are clicking on the PayPal checkout button more often than before. So it's e-commerce, but it's not just e-commerce. There's idiosyncratic growth at PayPal that makes us really bullish on it.

And last I want to say, the QR code, they're piloting the QR code right now. As you know, people in China pay with using QR codes. Here, it's mostly Apple Pay, Google Pay, tapping. They're piloting QR code, and we did a survey showing 60% of PayPal and Venmo users want to use QR codes. You've got 120 million users, 60% of them likely would say that they want to try it.

That's 10% to 20% upside to their volumes over a very short time.

EMILY MCCORMICK: Dan, this is Emily. You mentioned Square's point of service, and that's one of the things that I-- or point of sale, and that's one of the services that I want to touch on. Because when we think about that company, it's exposure to small and medium-sized businesses, does the pandemic-related widespread shutdown of many of these stores and restaurants, some permanent, actually have a downside risk or create a downside risk for that company and others, like Visa and Mastercard, that might receive revenue as a percentage of each of those transactions?

DAN DOLEV: That's a great question. Thanks, Emily, for asking that. So one thing, over a short period of time, over one or two quarters, yes, it does create a risk, right? But if you think about Visa, for example, they get paid three times more for an e-commerce, for the average e-commerce transaction, they get paid, like, $0.45. This compared with, like, $0.15 for the average brick and mortar.

So even though brick and mortar is going down, because of the shut-- you know, shelter-in-place, e-commerce is growing 30% plus consistently in the US. And that's not stopping, which more than offsets the decline in brick and mortar. So guess what, e-commerce stays where it is, but brick and mortar is slowly coming back, right.

All you have to do is walk around, you know, the streets of New York, which I do. And you see all these restaurants, and they're packed, and there's people waiting in line to sit at the restaurants. So you're going to see a stable e-commerce and a recovery in brick and mortar, which means that payments is going to get more popular and drive more volumes for both Visa, PayPal, and Square than in the past.

ADAM SHAPIRO: Dan, the next evolution in fintech in these payment platforms, would it be some of them, perhaps, becoming banks themselves and no longer being kind of a middleman?

DAN DOLEV: That's a great question. This is sort of the holy grail, right? So if you think about it, we hosted the executives from-- the Cash App executives earlier this week. And yes, becoming more and more of a what I would call a BaaS, which is banking as a service, is the holy grail for some of those apps.

And the interesting thing here is the cost of acquisition for someone like Square are much lower than for a traditional bank. So they can afford to acquire more customers and monetize them better. And I think this is kind of the future. And there is such a big TAM on disrupting the big banks, and I think this the-- this is sort of the ultimate holy grail for the Squares of the world.

ADAM SHAPIRO: And let's get you back soon as we see them, perhaps, taking movement in that direction. Dan Dolev is Mizuho's senior tech analyst. Good to see you again, we look forward to the next discussion, hopefully before we're all back in studio or back in studio. All the best to you.