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Interview with Colin McPherson, CFA

Wealhouse Capital Management


Colin McPherson, CFA focuses on Global Equities at Wealhouse. He has a special interest in the Payment sector.

Q: What attracts you to invest in payment companies?

CM: I like companies that will improve the way we live. The bigger the improvement, the more opportunity there is for investors. At Visa’s (NYSE:V) most recent investor day, Jim McCarthy, Visa’s EVP of Innovation, noted that we’re at an inflection point in digital payments, similar to the onset of e-commerce in 1990’s. Perhaps this is why Visa recently announced their acquisition of Plaid for a whopping $5.3 billion. This is driven by an exponential increase in the amount of ways to send and receive payments digitally in the coming years.

Q: What is the process you go through when picking payment stocks? What is your manager style?

CM: I like to anchor the portfolio with companies that have good management teams, competitive advantages, free cash flow, recurring revenue streams, and strong balance sheets. The Payment Networks, Visa and Mastercard (NYSE:MA), fit these criteria. They maintain global networks that are incredibly difficult to replicate with 14,000 banks, 3.5 billion card holders and 40 million merchants. They both have a long runway of above-average growth, increasing margins, and increasing capital returns through dividends and buybacks. Given the growth and innovation in the industry, I also look for businesses that are undervalued relative to their future growth potential.

Q: Speaking of digital payments, can you describe some of the secular tailwinds supporting the space? How much longer will it take to pivot away from cash and cheques?

CM: Despite the shift to digital payments, there is still more cash and cheques used globally today than there was 5 years ago. Globally, 42% of payments are done through cards, compared to leading countries globally that use >80% digital payments. Most importantly, The US is still only at 60% digital payments and is still in the early stages of phasing in contactless payments, which has driven an acceleration digital payment adoption in other markets. Some countries like Germany and Japan still only have 20% penetration of digital payments, so there is a long way to go.

Q: What changes are happening at point-of-sale devices?

CM: New integrated payments offerings at point-of-sale are currently disrupting old and clunky point of sale devices for small and medium sized businesses. These company’s package software, data analytics, loyalty, and payments at point-of-sale to give retailers and restaurants a scaled down ERP offering to help run their business. Square was early on in pioneering this for small and micro-businesses, while Lightspeed (TSX:LSPD) in Canada has brought these integrated payments solutions to more complex retailers and restaurants. Integrated payments solutions are only a small percentage of point-of-sale devices and are growing twice as fast as the market.

Q: There is so much buzz around the Plaid deal, what else can we expect for M&A within Payments?

CM: Visa’s acquisition of Plaid is huge! Visa will now be able to use its trusted security reputation to scale Plaid’s technology over Visa’s ~14,000 global financial institution relationships. This will help accelerate growth for Visa and also accelerate growth for the broader fintech industry that can leverage the network.

2019 was a significant year for M&A in payments as over ~$100b was spent on three acquisitions: Fiserv Inc acquired First Data Corp for $38b, Fidelity National Information Services acquired Worldpay for $41b, and Global Payments Inc bought Total Systems Services Inc for $25b. Luckily, I was holding Total Systems Services when it was purchased, and continue to hold Global Payments.

Q: What should we look for next in payments?

CM: A huge potential market for digital payments to disrupt is Business-to-Business (B2B) payments. It’s a market with $130 trillion global transaction volumes growing to $200 trillion by 2020. It’s the single largest opportunity for payments and it is still largely untapped. It’s hard to believe but, ~80% of all SMB payments and 60% of all B2B payments are still done by cheque. This involves manual processes that are inefficient and lacks visibility. Automating these processes can result in ~75% savings for company’s, while improving the accuracy and data gathered from the transactions. A few public companies have been actively trying to expand B2B payments, including Visa, Mastercard, Coupa Software, Fleetcor, and Wex. Bill.com is a recent IPO in this sector, focusing on Accounts Payable automation within the SMB segment. I expect there to be continued M&A and IPO’s in this space given the untapped potential.

Q: Wow, that’s a lot of action to look forward to. Thank you for your time Colin.

CM: Definitely, hence why I feel positive about the payment space. Thanks for having me.


Colin McPherson, CFA became portfolio manager at Wealhouse in November, 2014. He has 13 years of experience in the investment industry. Colin joined Wealhouse in 2009 from Standard & Poor’s. Colin received a Bachelor of Commerce degree from Dalhousie University.