It’s no secret that cash as a method of payment is dying. Credit, debit and online payments are accepted almost everywhere. And in some cases, like on an airplane, cash is no longer even an option.
But I’m not into the whole Bitcoin thing. I just don’t believe that it’s a viable currency. Call me old fashioned, but I’ll stick with dollars, silver and gold.
Electronic payment processors – like PayPal, which is owned by eBay (NASDAQ:EBAY) – represent a much better investment opportunity than Bitcoin. That’s because one of the real opportunities for Bitcoin is to replace cash in economies where a lot of people don’t have bank accounts. These people have a need for a virtual currency, and something like Bitcoin could fill that need.
But so can PayPal. And for that matter, so could virtual currency products from other electronic payment processors like Visa (NYSE:V) and MasterCard (NYSE:MA), if they introduced them. The fact that payments through these providers are backed by a regulated and understood currency makes their adoption much more feasible.
A lot of the value in Bitcoin comes from the expectation that a unit of the virtual currency will be worth more in the future. That’s not a good thing for a currency that should be used as a medium of exchange. It opens the door for consumers and vendors who use it to get badly burned.
In sharp contrast, the shift toward electronic payments has made payment providers MasterCard and Visa insanely good investments for investors that bought and held as cash-based transactions evaporated.
The pennies-per-transaction that they charge for their services add up to billions of dollars in profits each year. For example, an investor that bought shares of MA in May of 2006 has earned a gain of 1,700%.
Electronic transaction processors are in a lucrative business. They generate a ton of cash. That’s why companies with large user bases, like Apple (NYSE:AAPL), are thinking about getting into the business.
Apple has access to millions of users through iTunes. And when it looks at privately held companies like Square and Stripe, which are seeing their market values surge, the temptation to introduce its own version of PayPal grows harder to ignore. The Financial Times reports that, based on the latest rounds of funding, Square is valued at $5 billion while Stripe is valued at $1.75 billion.
EBay’s PayPal is growing briskly. In 2013 sales of the unit grew by 19% to $6.6 billion. And mobile payments outside of parent company eBay grew by 128%.
Activist investor Carl Icahn has a position in eBay (and Apple for that matter) and, because of PayPal’s potential, calls a spin out of the unit a “no brainer”. I think it’s fair to say that a similar payment unit within Apple and Google could make sense (to be clear, both companies have worked on this).
I won’t ever invest in Bitcoin instead of EBAY, AAPL, GOOG, V or MA. All of these companies have very real potential to make a lot of money (i.e. dollars) in the virtual currency market. Some of them already do.
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