In Depth

Payments Stocks: Tanking Or Turning Upwards?

In the markets, there are rallies and routs – and then there are bloodbaths. On Monday the western world awakened to a nearly 9 percent plunge in the Chinese stock market, a slide tied to very real and deepening investor fears, that the economy is on a permanent path toward mediocre growth, and that despite the best efforts of the Chinese government, stocks are headed inexorably lower.

Since misery does love company, the Dow plunged more than 1,000 points early in the trading day on Monday, and then recovered by midday to be “only” a few hundred points off, to finally end lower at the close. Likewise, broader indices such as the S&P and the tech-heavy NASDAQ were slammed down by more than 3 percent before clawing back some ground and then sliding again. In stock market parlance, a correction is underway.

Panic selling? Certainly. An opportunity? No one quite knows, though the “smart money” – that is the term commonly bestowed on professional investors – seemed to be leading the wave of buyers rushing in to prop up equities. News reports during the day seem centered on the retail investor who’s seemingly thrown in the towel amid fright and the China syndrome.

And what of payments and eCommerce companies? Tech was hit hard intraday before rebounding, so the headlines screamed bloodbath: Apple down 10 percent intraday, Microsoft down 6 percent, PayPal, newly independent, down 9 percent earlier in the session.

Amid all that, some strange events transpired, none stranger, perhaps, than Apple CEO Tim Cook’s email to Jim Cramer, the stock market pundit, seeking to calm not just Cramer, but investors worldwide.

The Apple executive noted that business proceeds apace for China, and that the company’s app store in China had seen its best performance to date. In the email, Cook noted that China, among the most important markets for his company, had seen “strong growth” through July and August.

The electronic communication itself between seasoned tech maven and boisterous stock market cheerleader may be an eyebrow-raiser, but the content itself should at least give some pause to those investors rushing to the exits: There’s sometimes a disconnect between stock market activity and fundamentals underlying a company’s business.

That may be the case for what is happening now, and there could be a tell in names that dropped less than the market, or even rose on the day. In the case of the former, PayPal headed into the final minutes of the session, off a little over 1 percent, with an impressive retracement off of the day’s lows.

The PYMNTS stock index and its subsets tracked broader measures pretty much in lockstep, with networks down 3.7 percent headed into the final minutes of the session, and remittance companies off a similar amount, taken as a whole. The close was a snapshot in panic as those levels were only marginally better at the end of the day. Stalwarts like Visa weren’t much worse off than the general markets, which may in fact be a good sign, even as investor concerns center on a global slowdown.

One caveat: Though growth fears feed off of China, and it is the Chinese consumer that has been an engine of growth for luxury spending, there’s enough of a shift in technology to buoy payments companies over the longer term.

Consider, for example, the continued growth of cross-border eCommerce. A blip in luxury spending may snip away at margins or top line growth in a company like Alibaba, which has been looking to expand its footprint outside its home arena. But cross-border commerce is enough of a greenfield opportunity that the industry itself will have legs, indicating decent outlooks for Xoom and PayPal.

Similarly, cybersecurity companies will have consumer and business demand in place no matter who is doing buying, when, or where. In fact, MarketResearch.com forecasts the global cybersecurity market to jump from $106.32 billion in 2015 to $170.21 billion by 2020.

One likely market casualty: investor appetite for initial public offerings, or IPOS, where rocket-like trajectories, ever upward, may be a thing of the past. As companies like Square and others may have been the hot “will they or won’t they” IPO du jour, expect to see some judiciousness before companies come to market. It just may be the case that the “Great Fall of China,” as some pundits call it, will keep new listings at bay.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 AML/KYC Tracker provides an in-depth examination of current efforts to stop money laundering, fight fraud and improve customer identity authentication in the financial services space.

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