When did you last use cash? I’m guessing it was pre-Covid. It’s not just the travel and hospitality industries that are changing dramatically; every business is being plunged into contactless methods of operating.
As consultants McKinsey put it “the covid-19 crisis seemingly provides a sudden glimpse into a future world, one in which digital has become central to every interaction.” Companies and individuals are being forced up “the adoption curve almost overnight.” Investors need to know who are the winners and losers in this scenario, and what are the social implications?
Of all countries, China has had the most robust response to the Covid crisis, and we recently saw the economic benefits (a surprising 4.9% GDP growth in Q3). At one point, China even eliminated money itself – withdrawing cash from circulation. Symbolic of a future where cash is replaced by digital exchange.
China’s Ant Group has driven this digital revolution that is sweeping all aspects of that country’s financial system. The 700 million users of Alipay’s app have access not just to online payments but also asset management, lending and insurance. The Jurassic nature of China’s existing state banking system (credit cards and even cheques were frowned upon) allowed this new kid on the block free reign to capitalise on China’s increasing prosperity. Its impending $34 billion IPO on Hong Kong and Shanghai is said to be targeting a valuation of some $250 billion, which would make it larger than Bank of America.
Analysts suggest that this IPO is part of a need to “go global” as Alipay may be reaching saturation in China. The immediate dilemmas for responsible investors are obvious. Founder Jack Ma is of course a member of the ruling Communist party, and his ever present app not only assists health-tracking during the pandemic but is also woven into the Party’s system of mass social surveillance. This has led Republican Senator Marco Rubio to ominously suggest that the US “should take a serious look at the options available… to delay the IPO” – though it is by no means clear what leverage the US really has here.
Digitalisation of transactions is not just a Chinese phenomenon. Everywhere Covid is accelerating the elimination of cash. Mercado Libre, the online marketplace and payments provider in South America, saw revenue grow 61% in Q2 (in Mexico it was 96% and in Argentina 110%).UK ATM usage is down 40% compared to last year, and half of shoppers say they have not used cash since the epidemic began. I think I’ve used it once.
This digitalisation goes beyond cash. 12% of the UK population downloaded a banking app for the first time one month into lockdown. In some countries, like Sweden, FinTech firms now provide more loans than traditional banks.
Nor is this revolution confined to banking. McKinsey reports a global acceleration in digital adoption in nearly every industry. This has been particularly high in banking (up from 51% to 73%) but present also in entertainment (40% to 64%) and in grocery (where adoption has more than doubled from 30% to 61%). Covid is making the use of cloud computing, and remote transactions, the norm rather than the exception.
One obvious frontline in this battle is health and health insurance operators. “Dr Zoom will see you now…” is becoming a global phenomenon. Bupa Global has launched a virtual GP service offering 24/7 access. In Australia, practitioners cite Covid as a “game changer for telehealth.” Pre-pandemic, only 3% of UK general practice doctors had the facilities for remote consultations. Now that figure is 99%. Last year, JP Morgan acquired InstaMed, a healthcare payment solutions specialist. InstaMed’s CEO Bill Marvin says we will never return to pre-Covid situation – “instead of pushing a rope …we’re now pulling one.” MetLife has introduced medical tele-underwriting. AXA Poland has launched a new life insurance policy where seniors get a wristband allowing Doctors to monitor their health.
There are also opportunities for companies in the provision of remote services in education. In the States nearly half of colleges are now providing learning online. Hence, whilst educational publisher Pearson’s reported a 14% decline in overall sales in the first nine months of 2020, note it also had a 32% jump in its global online services sales in Q3.
Interestingly, Softbank recently invested $215 million in the Norwegian education start-up Kahoot (a gamified e-learning company). Speaking in July Softbank’s Vision Fund chief Rajeev Misra said there were three remote areas where he was “putting dollars to work” – virtual learning, digital healthcare, and food delivery. Softbank has invested in various food and grocery delivery firms such as DoorDash, Grofers, Ele.me and UberEats. And technology is helping not just the ordering process, but also the delivery. A lot of food delivery companies are experimenting with robots.
Indeed, robots have never had it so good: look at these striking ‘march of the robots’ images.
As Richard Pak of Clemson university says “what this pandemic has done is make people extremely aware of hygiene…robots and digitalisation provide a definite safety benefit.”
Disinfecting UV robots are appearing everywhere. Belgian company Zara Bots has gone further, deploying anti-pandemic robots in Africa which detect if a patient is not wearing a mask or shows symptoms. Boston Dynamics’ pioneering weirdly dog-like robots are suddenly finding new uses – such as reminding Singapore park-goers to socially distance. The robot is equipped to detect transgressions but not to collect data, at least not according to the authorities. I wonder if the same will be true in China?
Which brings me on to the ESG consequences of all this change. Foremost among them must be the sharp rise in unemployment. In the US there is strong evidence that this is rolling back hard-won achievements in improving diversity. While there is concern at the high unemployment rate (8.4% in August) note white unemployment is only 7.3%, while black is 13%. Gender diversity is also suffering. The Lancet recently reported that some 30% of newly unemployed mothers aged 25-44 cite child care as the main reason for them not now working. Even higher for those with children experiencing distance learning (36%). In Europe there are similar issues, and particular problems for youth unemployment (now over 30% in hard-hit Italy and a staggering 41.7% in Spain).
Government can have a role in alleviating this. A recent survey by the Royal Society of Arts, Manufacture & Commerce urged the UK Government to target more automation-proof jobs in the arts .
So can responsible investors. Covid has created a boom in social bonds. $85 billion have been issued so far this year, compared to just $10.6 billion in the same period in 2019. The French government agency Cades and the unemployment insurance fund Unedic have led the way, issuing $22 billion to fund projects aimed at tackling unemployment. Likewise, Spain’s Caixa bank issued a 1 billion euro bond last month to provide loans to low income families.
Action is needed.
In The Machine Stops, E.M Forster foretold a world where humans spurned contact and lived via screens. Written in 1909, it has never been more up to date.
Christopher Walker is a writer on business and politics. He sat for several years on the asset allocation committee of a major asset manager.