Season 4, Post 20: On the road, part 1

On the Road, Jack Kerouac’s defining 1957 novel, charts the progress of its protagonist from coast to coast across the US. While not literally following in his footsteps, your author is currently on the road, in America for the first time since March 2020. Having landed in Boston on Sunday, he will be visiting six states over nine days, crossing from East to West. The primary purpose for the trip is to meet companies across a variety of industries in order to understand how many of the key future trends which we follow are evolving. This week’s Blog covers the East Coast leg of our trip, while next week’s will focus on the remainder of America.

Days 1-4 saw your author pass through Connecticut, Maine, Massachusetts and New York. At a high level, the US is very much open for business. There were few requirements to wear masks in any city, and Manhattan was thronging with tourists from across the globe. One notable change, however, relative to your author’s last visit to the US is the increasing ubiquity of contactless as a form of payment. This was something confirmed to us when we met with Mastercard. Although the US lags some way behind other nations, about 1 in 2 in-person transactions using the Mastercard network globally now occur via contactless, a clear step change relative to pre-pandemic levels of 1 in 3.

Mastercard was just one of 11 businesses met over the past three days. Given the multi-thematic lens through which we view the world, our encounters brought us face-to-face with companies operating in industries as diverse as auto, data, healthcare, logistics, payments, synthetic biology and veterinary solutions. To the extent that there was common ground across this wide range of meetings, the following three take-aways stand out:

1: Transformation is real and happening. A combination of the pandemic, labour shortages and geopolitics has brought digital transformation front-and-centre of mind for not only every business we met, but also their underlying customers. There is a clear changed mentality where, wherever possible, tools that can aggregate data in order to drive accelerated automation and outsourcing (where relevant) will be deployed. The name of the game is not just increased efficiency and a more optimised cost base, but also increased resiliency, especially in the event of future unforeseen events. Just shy of a majority of executives with whom we spoke were of the opinion that an economic downturn was coming, although calling its timing was harder.

2: A more realistic assessment of the tools required. Absent thus far (and things may be different on the West Coast) was some of the hubris your author encountered on his previous trip to the US. Put another way, almost every business with whom we spoke was less keen to promote technology as an end in itself: none of artificial intelligence, blockchain or quantum is going to change the world overnight; rather, these technologies should be thought of as ‘enablers’ that are being slowly and gradually built into existing tech stacks in order to make them better. Businesses will increasingly deploy this toolkit of new technologies to improve and better differentiate their end products/ solutions, even if consumers may not always be aware of what has driven the change.

3: There’s a long runway ahead. It didn’t matter what business we met or which trend we discussed, there was a clear message from all executives – we are still (to use an Americanism) in an early innings. Even with a trend as well understood as the potential for digital payments to displace cash, we were given a clear explanation of why digital expenditure should continue growing comfortably at a c10% annual rate for the foreseeable future. Elsewhere, we heard that warehouses were “still living in the dark ages” when it came to automation; electric vehicles were “just at the beginning” of adoption and that the telemedicine opportunity was “pure white space.” At the same time, every healthcare/ medtech business expressed a message along the lines that “science does not stop” – new opportunities are continuing to emerge, almost daily. Watch this space.

19 May 2022​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in Mastercard. The author of this piece has no direct investment in the business. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.  

Alex Gunz, Fund Manager​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​