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No cash, no problem

No cash signI recently visited China and snapped this picture. In case your Mandarin is rusty, it translates loosely to: Cash not accepted. 

It's a simple statement, but with surprisingly complex and far-reaching ramifications. These signs are widespread across the country—and third-party online payment solution Alipay is ubiquitous—in stores, restaurants, train stations, and seemingly everywhere. In China, mobile payment is the standard across all ages and socioeconomic levels. An article in The Wall Street Journal from earlier this year even pointed out that some panhandlers use mobile payment apps as a means to make “donations” easier.

Why should you care? For starters, it’s a stark reminder that emerging markets are not always secondary to developed markets, especially with regard to adopting and implementing new technologies. Parochial Westerners often forget that there’s a whole other world out there where investment and development moves at warp speed. The widespread adoption of mobile payments is but one example of how emerging markets are the real leaders in many aspects of the digital economy.

Consider that the U.S. saw $112 billion of mobile payments in 2016, according to estimates from Forrester Research. This may sound substantial, but it pales in comparison to the estimated $9 trillion of mobile payments in China, according to iResearch Consulting Group. The impact of this is enormous, and not just for the fintech and mobile banking players. The rise of digital pay has a ripple effect across countless industries and the entire economy. Already e-commerce penetration is quite large across China, and the march toward a cashless society is providing fuel to business disruptors in ride-hailing, bike-sharing, and beyond.

Sophus Pale By Comparison Chart

The use of mobile payments is reshaping how people spend, borrow and even invest. Moreover, in a geographically expansive country like China that is building out its digital infrastructure rapidly, mobile pay apps are also being used to mine an incredible amount of data on consumer spending habits, which can be used as another marketing tool to target the burgeoning consumer class. The long-term ramifications are exciting.

So while many investors are myopically focused on how near-term fluctuations in the U.S. dollar and U.S. Treasury yields might impact next quarters’ results, the eye-popping digital investment in China (and in other emerging markets) continues unabated. A mobile payment infrastructure that is more mature in China than just about any developed market is simply one example that illustrates why we remain constructive on emerging markets for the long term.

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future results.

An investor should consider the fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information about the fund can be found in the fund’s prospectus, or, if applicable, the summary prospectus. To obtain a copy, click here. Read the prospectus carefully before investing.

All investing involves risk, including potential loss of principal. There is no guarantee that a fund will achieve its objective. Past Performance does not guarantee future results. International investing involves special risks, which include changes in currency rates, foreign taxation, differences in auditing standards and securities regulations, political uncertainty, and greater volatility. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Securities focusing on a single country may be subject to higher volatility.

The information and statistical data contained in this material were obtained from third-party sources believed to be reliable; however, Victory Capital does not guarantee the accuracy of the information or data, and the information and data may differ from information provided by Victory Capital. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice.

The Funds are distributed by Victory Capital Advisers, Inc., member FINRA and SIPC, an affiliate of Victory Capital Management Inc.

©2018 Victory Capital Management Inc.

An investor should consider a fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information about funds can be found in the fund’s prospectus, or, if applicable, the summary prospectus. To obtain a copy, visit the ETF prospectus page or Mutual Fund prospectus page. Read a prospectus carefully before investing.

Investments involve risk including possible loss of principal. The value of the equity securities in which the fund invest may decline in response to developments affecting individual companies and/or general economic conditions. Dividends are never guaranteed. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty, and greater volatility. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. You may lose money by investing. There are no guarantees the funds will achieve their investment objectives and strategies may be unsuccessful.

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