“The End of American Money As We Know It”

What's Dr. David Eifrig's "New Currency?"

By Travis Johnson, Stock Gumshoe, February 11, 2015

We see pitches about the “end of money” all the time — across the spectrum from the goofy spiel for “loyalty points” being the next Bitcoin, to actually trading in Bitcoin, to the more popular “end of America” pitch about the dollar dying and the need to have old silver coins and gold in your bunker that you can trade for sorghum and molasses and ammunition after we enter the next dark age.

But this one’s a little different — and, frankly, more “real” and familiar and less reactionary. The spiel is from Dr. David Eifrig in an ad for his Retirement Millionaire, and his tease is really about the next stage of payments and the end of cash and conventional credit cards.

Which is also not necessarily a new idea, of course, our society has been mostly cashless for close to a generation now, since the debit card came into full swing, credit cards became easy to get, and we saw the end of the paper “paycheck” and, before that, the cash payroll distribution… and it becomes more “cashless” every day thanks to the growing ubiquity of electronic payments.

So what investment does Eifrig recommend to play this variety of the “end of money” story? Here’s a little intro from the ad:

“Recently announced 2015 ‘dollar upgrade’ will radically reshape everything we know about money… from saving and spending… to banking and finance… to investing and retirement….

“A new digital currency ‘is coming to town,’ says Fortune journalist Philip Elmer-DeWitt, ‘and I can’t wait to try it.’

Headline & Global News calls it simply, ‘The next form of currency.’

“Similar to the advent of credit cards in the 1950s… Debit cards in the 1980s… and online banking in the 1990s… this upgrade will completely – almost radically – reshape everything we know about money… from spending and saving… to banking and finance… to investing and retirement.

“Already, the global financial community is quickly gearing up for the massive digital ‘overhaul’ – what is likely be the biggest change to money in the U.S. in decades.”

And then…

“Keep in mind: This upgrade will not replace the dollar.

“It won’t compete against it.

“In short: It’s designed to make the dollar better.”

So what’s he talking about?

This is, as some of you have guessed, another tease that’s largely about Apple Pay — the payment system using Apple’s iPhone and near field communication (NFC) chips to process payments at cash registers using credit or debit cards that you already have (if your bank participates, you really just take a picture of your card, authorize your phone to use that account, then wave your phone at the cash register’s payment thingamajig and verify it with your fingerprint on the phone). Your bank has to be participating for it to work, and the retailer also has to accept Apple Pay, but by all accounts the power of Apple’s market presence has been a big jolt for these kinds of touchless payments — which have been possible for a long time, but haven’t achieved commercial acceptance in the U.S.

Here’s more from the ad:

“It could quite possibly be the single most perfect version of money ever created.

“For most, this is a welcome – and long overdue – change…

“Others are concerned about what the transition to a completely digital dollar might mean for the future of spending, saving, and investing in America—

“But here’s the thing…

“It doesn’t matter whether you’re prepared or not… this upgrade is happening….

“The good news is, it’s still not too late for you to grab your piece of the pie.

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“I’ll even tell you about a super simple trade you can make right now, today—one that could prove very profitable in the coming months.”

Aaaaand, that’s what we were waiting for, right? The way that this “end of money” will make us some money? He won’t tell you straight out, of course — for that, you’ll need to sign up for his Retirement Millionaire newsletter.

Or, of course, we could figure it out from the clues. That is what we do here, after all. Shall we proceed?

Here’s where Eifrig gets into the meat of the tease:

The Next Big Money Revolution Is Here

“The new payment revolution I’m talking about is called NFC.

“NFC stands for Near Field Communication. In its early form, NFC was used by the military to prevent ‘friendly fire’ accidents. The technology was declassified in the mid-1990s.

“An NFC chip is essentially a tiny radio transmitter – about the size of a ladybug. It’s inactive, until it receives a signal from another NFC-enabled device. The technology operates in a two-way manner, so that information can be passed in both directions. NFC-ready devices must come within a few inches of each other to transfer data….

“If you’ve ever used a ‘smart card’ to unlock a door… or if you have a car with a remote ‘keyless entry’ system… you’re using NFC.

“But now, this technology is being adapted by banks, payment processing firms, credit card companies, and retailers and merchants across America to completely transform the way we pay for things.

“In short, with NFC technology our wallets will be replaced by smartphones….

“According to Visa, Americans are now TWICE as likely to carry a mobile phone as they are cash.

“And those between the ages of 18 and 34… FOUR TIMES as likely.”

He goes on to describe the convenience (lots of cards and accounts on one device, no wallet) and security improvements of NFC (phone is locked and trackable, unlike your wallet, transactions use one-time token codes, not your full credit card number that might be stolen or re-used or hacked), and that’s all true — though whether or not it will lead to mass public (or retailer) acceptance is still probably an open question.

Habits change slowly, and established players want to protect their slice of the pie — and retailers are grouchy about credit cards and the fees they pay so they’d really like to come up with their own payment network that doesn’t rely on Apple, Visa or Mastercard (which is why some retailers, in high-profile actions, have blocked Apple Pay as they work to develop the CurrentC system with their own consortium).

But if we assume that we’ve finally hit the “tipping point” on touchless mobile payments, what is Eifrig’s investment idea?

“I believe NFC is in the same exact position as credit cards were in the 1950s… debit cards in the 1970s… and online banking in the 1990s…

“Which means – right now – we are perfectly positioned to capitalize on this massive new trend….

“So how do you capitalize on this?

“Of course, one obvious trade you could make right now is to buy shares of Apple.

“The consumer tech giant, for example, will get 15 cents for every $100 spent using Apple Pay.

“While that may not sound like much, just consider: If Apple Pay captures even just a tiny percentage of the $13 TRILLION in credit, debit, and cash transactions that occur worldwide every year, Apple’s revenue will surge.

“But here’s the thing. Apple is the largest publicly traded company in America right now. It’s currently trading for over $100 per share. While I believe Apple is a good investment and its shares will continue to rise, it’s likely not going to make you thousands of percent gains anytime soon.”

Hard not to agree with that — Apple is my largest single equity position, and I’m hoping the “network effect” of Apple Pay will help to keep iPhone user loyalty high, their revenue is going to continue to be dominated by sales of iPhones for the foreseeable future. At that fee rate, even if Apple Pay has a hand in processing half a trillion dollars of payments a year at some point in the next few years, that’s still only $750 million in fees to Apple — sounds impressive, but that’s less than a half of a percent of Apple’s revenue. Even if you assume that Apple Pay has no costs (it does) and that number moves straight to the bottom line, $750 million would be less than 2% of Apple’s profits for last year. Doesn’t mean Apple Pay can’t be huge, but it has to scale up dramatically, and globally, to become a meaningful line item for Apple within the next few years.

But that, of course, is just the lead-up to what he says you should buy to play this “NFC Revolution” … he’s got a bigger, short-term (12-24 months) wave of profits he sees for us…

“Major credit card companies are mandating the use of a technology that enables NFC at merchant locations throughout the U.S. by October 2015.

“It’s called the EMV Mandate… and it is a major, major deal.

“You see, the EMV mandate requires virtually every merchant in America to make the switch to ‘chip and pin’ payment terminals by October 2015, or else be liable for fraudulent charges resulting from using outdated machines….

“… ‘chip and pin’ and NFC are two technologies that work together… they complement each other. Think of chip and pin as the contact (or swipe) version and NFC as the contactless version. Because of this connection, the top manufacturers are including both “chip and pin” AND NFC in nearly all payment terminals going forward… as they gear up for the October mandate.

“By 2017, a full 86% of payment terminals in North America will accept NFC, according to research firm Berg Insight….

“With an estimated 9 million retail locations in the U.S., there are literally millions of payment terminals that must be converted between now and October. And remember, the vast majority of these new readers WILL include NFC technology.”

So, as you probably guessed, he’s teasing some companies that will benefit from this rollout:

“… one of the best ways to play this trend is to invest in the companies that supply the necessary hardware that make the technology work.

“Specifically, I’m talking about the NFC chips that go inside the smartphones and the point of sales terminals (soon to be essentially mandated throughout the U.S.)….

“THE premier NFC chip maker in America – this company actually co-invented the technology.

“So it’s no wonder this company commands a whopping 80% of the NFC chip market….

“I wouldn’t be surprised if this little-known firm becomes a household name over the next few years!

“That’s in part because this is the company that supplies the chips for what will likely become the most widely used NFC phone in America… the iPhone 6….

“Shares are up 60% over the last 12 months, but that’s peanuts compared to what I think could happen as the nation-wide EMV mandate approaches – with its implications for the rise of NFC technology. “

This one, as some of you might have already guessed, is NXP Semiconductor (NXPI), a large chipmaker that is indeed the biggest player in NFC chips — though, as we discussed a couple weeks ago when Andy Obermueller was teasing it and a few years ago when David Gardner at the Motley Fool was teasing it.

The stock has been a growth darling this past year, and had another solid quarter to end 2014 (they reported last week), and their key growth businesses (NFC and automobiless) are both growing very fast right now, helping them to generate 20% earnings growth both this year and well into the future if analysts are right.

This is certainly the most popular “NFC” investment, and even after a huge run you might consider it cheap if you’re confident the growth will continue at this rate — the stock has a trailing PE of about 17, and a forward PE on 2016 estimates of about 12, so if you’re looking for one NFC chip play this is the market leader and is reasonably priced.

The second largest NFC chipmaker is probably Broadcom (BRCM), though other large firms like Qualcomm (QCOM) offer NFC chips as well and might fight harder for market share as the market grows, and both QCOM and BRCM can benefit by bundling NFC with other chips they supply to phone makers — I don’t know how much being the current leader or having “first mover” advantage will help NXPI to hold on to their market share, but it seems a safe bet that the market will become more competitive as it grows. The other name that comes up frequently as a NFC supplier, also fairly large, is Infineon (IFX in Germany, IFNNY over the counter in the US).

But Eifrig says there’s more in his “How to Cash in on the NFC Revolution” special report, including lots of chatter about NFC’s non-payment inroads into other businesses (like hospitals)… and he also teases the company that makes the NFC chips for budget smartphones. So who’s that?

“In my report, I’ll also introduce you to a company that makes NFC chips for smartphones in the ‘under $150’ market – the so-called ‘budget’ smartphone market.

“Why ‘budget’ smartphones?

“Because the market for these phones is going to absolutely explode over the next few years – as emerging economies like China, India, and Singapore begin their own adoption of Near Field Communication.

“China Mobile, for example, China’s largest mobile network company, recently announced the launch of an NFC payments service in more than 14 Chinese cities, including Shanghai, Beijing and Guangzhou. Already, 8 banks have signed up to back the initiative.

“Similar NFC initiatives were recently introduced in Singapore, South Korea, Japan, the Philippines, India, and Turkey.

“By 2017, ‘budget’ smartphones will make up a full 52% of the worldwide market, according to a study from Informa, Telecoms, and Media.

“In short: There are incredible gains to be made and you do not want to overlook this market.

“I expect the company that makes the NFC chips for the ‘budget’ smartphone market to skyrocket in the coming months and years.”

That’s not a lot of terribly helpful clues, but my first guess on that would be MediaTek (2454 in Taiwan, MDTKF on the pink sheets — very illiquid, hardly ever trades in the US), which does have a strong “integrated chip” business with low-cost Chinese smartphone makers, including NFC chips (still a fairly small part of their business, as it is for pretty much all of the chipmakers who make NFC ships), and it is a large cap company with a market capitalization of better than $20 billion… but it’s very hard for US investors to buy.

So, personally, I’m pretty happy just holding on to Apple (AAPL) for now. If I were to wander into the woods of semiconductor chips again to make a bet on rapid NFC adoption, it would probably be with NXPI… but I’d keep a close eye on it, the stock is riding high on momentum.

But enough about me — its’ your money, so what do you think? Interested in investing in NFC chips or in other players in the NFC adoption universe… maybe even including the companies that make the terminals, like Verifone (PAY) or NCR (NCR) or others? Let us know with a comment below.

P.S. And yes, if you stuck around for the entirety of Eifrig’s ad “presentation”, he does also pitch some other things he’s suggested to Retirement Millionaire subscribers — the one we get asked about most is the “how to get free silver from your bank” spiel, if you’re curious about that one we wrote about it here.


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