Over 77,000 Credit Card Transactions Take Place Every Minute in the U.S.
1 in 4 Americans Carry Cash and How You Can Profit from a Cashless Society
By the time you finish reading this post, over 388,127 credit card transactions will have taken place. Those figures only represent transactions taking place in America. I know, you are probably thinking where does this guy get these figures? Statistics show that over 40.8 billion transactions took place in 2017 (in the U.S.). With that number in mind, I simply divided that number by 525,600, which is how many minutes each of us are given every single year.
This trend is only continuing. If you are a millennial (like me), the thought of carrying cash around sounds inconvenient, to say the least. I typically carry cash when I travel or am about go on a road trip. The thought of being stuck at a toll on an expressway without any cash is the fear that spurs on that decision. Besides that, you will not be finding cash on me. Need to split a bill when you are out with some friends? There is an app for that. The struggle it was to figure out how to organize who paid what when everyone at the table was carrying different bills. "I have a twenty, who can give me a ten?". We all remember the one person who "forgot" their money or only had a few singles. Not today slim shady, not today. They will be receiving a Venmo notification before they even see the bill. Oh yeah, also, the one person who thinks they can leave before the bill arrives - don't worry, wireless connectivity does not require proximity. I digress.
The figures mentioned above are important for a few reasons. The first being that the U.S. is not the only country in the world (surprising, I know). There are countless other nations that utilize credit and debit cards on a daily basis as well. Since we live in a global economy, that means the same companies that operate their companies here in America (American Express, Discover, MasterCard, Visa), are also likely to be operating their business in Europe, parts of Asia and many other regions of the world. Some of these companies are conducting business in over 200 countries.
If you feel comfortable enough to invest in businesses by hand picking companies within the financial segment of the market, all the more power to you. If you are looking to cast a very wide net to diversify your holdings in this segment of the market, then investing in Vanguard Financials ETF (VFH) may be the route for you. This fund diversifies your money in over 400 financial institutions. Here are the top 5 companies you will find in this fund:
- JPMorgan Chase & Co
- Bank of America
- Berkshire Hathaway
- Wells Fargo & Company
- Citigroup
When you do cast that wide net, just know you are having your money diversified in the entire financial market, which includes companies and services outside of the four main credit card companies. These types of funds and businesses are very reliant on consumer spending. Like any other investment, they carry their risks, but with a long-term outlook; they also carry many rewards as well.
If you decide to get invested in the big four credit card companies (American Express, Discover, MasterCard and Visa) and avoid the diversified approach, it is essential to understand where their profits originate from. It is so important to know what you are investing in and to understand how their business generates revenue. Once you understand those things, you can begin to lay the mental framework for the big picture on whether or not you can envision these companies being around for the long-term.
Here are the main streams of revenue from the services that are provided by credit card companies: interest, fees charged to cardholders, and transaction fees paid by businesses that decide to accept those credit cards. This means that a majority of their income is generated from consumer spending. In America, 70% of our economic growth comes from consumer spending. Outside of events like the Great Recession that led to a steep loss of consumer confidence, businesses continue to expand and grow due to activity by consumers. It is that consumer spending and lending that has led to the profit margins that these companies make. Take Visa for example. In 2018 alone, they did over $20.6 billion in revenue. For 2019 they are reporting almost $23 billion in revenue. Are you starting to see a trend?
The next time you are sipping coffee, fueling your car with gas, paying for an auto repair or reserving a hotel room for a future vacation, take a minute to sit and observe. Before you get back into the busyness of the day, reflect on all of the monetary transactions that you make on a weekly basis. When you are out with friends eating dinner and the bill comes, watch how many people grab their cards instead of cash. Or, when you decide to put it on one receipt and split the bill on Venmo, cards are being used on there as well. When you are patiently waiting in line at your favorite coffee shop, observe the people in-front of you to see what they use to pay for that product or service. Chances are they will be using some type of card or mobile paying app.
These finance companies have paved a way to make paying for the things we need on a daily basis seamless. While everyone is spending for essentials and non-essential goods and services, you can be invested in the very companies that support the financial infrastructure to make that possible.
*This is not financial advice. For educational purposes only.