Wall Street And the Payments Biz

As we look at the numbers at precisely 3:15 p.m. Eastern Time on Aug. 17, most of the payments and payments-related stocks we track are up for the day. Indeed, out of a basket of some 17 stocks, only four are down—and there’s still part of the afternoon left. Some, like Adyen, Apple, eBay, Green Dot, Mastercard, PayPal, Shift4, and Square, are at, over, or very near, their highs for a year in which a pandemic has ravaged most businesses.

Jim Daly’s cover story, in this issue, explains this shouldn’t come as a surprise. “The publicly traded payments companies have done better than the broader market for years,” he says. Indeed, as he points out, one hundred dollars invested early in 2011 in a basket of more than 25 payments stocks tracked by The Strawhecker Group would have been worth $670 by the first quarter this year, a 22% compounded average annual return. The same investment in the S&P 500, by contrast, would have yielded $234.

The love affair on Wall Street shows no signs of abating. In fact, the infatuation only grows more intense. Jim points to the example of one of the most recent IPOs, that of Shift4 Payments Inc. Priced by its underwriters in the low $20s, the processor’s stock debuted in early June as if shot out of a cannon and closed the first day at $33.54. By mid-August, the shares were brushing against $50. Two factors explain its success so far: investors appreciate its growing share of the vital restaurant business, and the big processor mergers last year made Shift4 and other players more visible to prospective clients by reducing the ranks of competitors.

Clearly, Covid-19 isn’t damping demand for payments stocks. Another example is Green Dot, which got its start in prepaid products and now flexes a highly successful strategy centered on a bank it acquired in 2010. Dan Henry, who took over as CEO early this year, made it plain from day one that the bank is key to Green Dot’s future. The market agrees. The stock opened the year at $23.30 and by mid-August had climbed to the mid-$50s.

We are not in the business of recommending stocks, nor do we intend to get into that game. The shares of any of the companies mentioned in this column could plunge tomorrow and stay in the basement for months. Our point is only to say that, to the extent the collective wisdom of stock markets matters, the payments business appears to be on a solid footing despite the buffeting of pandemics, economic shocks, and the inevitable regulatory interventions.

—John Stewart, Editor, john@digitaltransactions.net