22 January 2014 QED Regulating EU Mobile, Internet and Card Payments Conference Brussels, Belgium Greg Ohm EMEA Emerging Payments Head greg.ohm@citi.com

Global Consumer Bank

2

North America, Europe and Asia are expected to see a surge in adoption on the back of increasing consumer acceptance and concerted efforts by market participants

Africa

Asia

North America

§  Initiatives predominantly targeting the unbanked; M-Pesa huge success story §  Opportunity in P2P transfers and Remote payments driven by demand for

mobile recharge. §  Discussions related to social disbursements, payroll transfers via mobile could

fuel opportunity

§  Home to markets with advanced mobile cultures that have led proximity initiatives (e.g., Japan, South Korea) – NTT Docomo’s Felica is a major success

§  Relatively less developed markets (e.g., India, China) will experience rapid uptake in P2P payments

§  In most markets, the ecosystem needs to jointly realize the opportunity

§  Significant market momentum (e.g., MCX – major retailers, IsIs – major MNOs); all likely to launch in 2013; Testing ground for major digital disruptors (e.g., Google); Dominant PayPal presence

§  Remote will remain a major opportunity driven by increasing acceptance of m-commerce; Proximity will register largest growth (both NFC and non-NFC variants likely to materialize)

Key Trends Market Size and Distribution (in USD billions, 2016)

Regions

Europe

§  Dominant opportunity in remote payments §  Significant interest in contactless payments - France, UK, Poland taking lead in

realizing the opportunity §  Market requires ecosystem to rally around the opportunity (similar to France).

Consequently, focus on standards development (SEPA payments, EU e-money directive)

LATAM

§  Mobile payment solutions predominantly targeted at unbanked/ under banked population. SMS based payment service by Oi Paggo over 1mn customers as they addressed need for credit services for the low income segment

§  Services sought would include money transfers, bill payments and retail purchases using a mobile phone

36%

33%

9%

34%

Remote

58% $120 bn

P2P Proximity

38%

$29 bn 38% 28%

$138 bn

45%

39%

$11 bn

27%

29%

4%

18%

$150 bn

62%

Note: Discussion based on observations in the 27 countries analyzed Estimates exclude current and future projections of popular closed loop initiatives (M-Pesa, Felica) to ensure parity in comparing market sizes

Surge in Adoption of Mobile Payments

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The Evolution of Payments The new generation of payment methods… competitive look

Card Networks Banks and Processors

In the cards network category, we include Visa, MasterCard, American Express, Discover and China Unionpay. Looking at the big picture, here is what the card networks have achieved in the last six months: §  Unveiled incremental details about their proposed respective wallets

(such as partnerships, timelines, etc.); §  Focused on targeted offers through either M&A or specific merchant

arrangements or both; and §  Worked on expanding their funding reach beyond traditional bank

relationships by investing in prepaid and cash-based funding options.

Telecom Companies In this category, we include not just telecom companies but also a range of technology companies that focus on direct-carrier billing including Boku, Bango, PayOne, payVia and others. The telecom category has been busy as well, having: §  Continued the process of starting regional partnerships to introduce

wallets – partners include card networks, technology companies and sometimes, banks;

§  Introduced direct-carrier billing relationships in several geographies; and

§  Made progress on SMS-based (text messaging) mobile payments in several emerging markets.

Based on telecom company actions, support for NFC-based technology seemed very strong among the “developed economy” telecoms, relative to other categories of participants. Obviously in regions where feature phones are more prevalent than smart phone, non-NFC technology is making progress.

On the bank side of this category, we looked at the actions of U.S. and non-U.S. banks while on the processor side, we include technology vendors such as Fiserv, Fidelity National Information Systems, Monetise and Total System. §  The processors have unveiled products that could extend mobile

payments capability to smaller financial institutions; §  Larger U.S. banks have agreed to collaborate / exchange data to

facilitate person-to-person (P2P) transactions; and §  The category as a whole has unveiled regional inter-bank or bank/

telecom collaboration on wallets.

Technology and Internet Companies The obvious candidates in this category are Apple, Facebook, Google and PayPal. Although Amazon and Microsoft are mentioned less often, we believe they will have more to say in the future as Mobile Payments develops. Various point-of-sale (POS) providers constitute a key sub-category within the larger category. The POS providers themselves can be divided into two segments, although there are some companies such as VeriFone and Square that bridge these two segments. §  Mobile Payment Acceptance specialists – Essentially these companies sell

card readers. This list includes VeriFone, Square, Revel, iZettele, mPowa, payleven, NCR and others.

§  Loyalty and Targeted offers enablers – This is a long list of companies, which includes Levelup, Cardlytics and other such companies. This is clearly an interesting space and there are a significant number of participants in practically every single category from Banks to Card Networks to Technology Companies who believe they have a right to and an ownership of client data that seems to underpin success in this segment.

Source: Capgemini Analysis 2012

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Waves of Innovation in Payments Innovation continues to drive a fast moving environment and new market entrants

5

Several players are vying for their ‘piece of the pie’

Early stage exploration, selective launches

All active, consortiums formed, emerging mkt

success

Several partnerships, some live

Broadly reactive, partnerships

forming

Exploring

Forming

Early stage exploration with trials and pilots

Move from trials / pilots to live deployments Norming

Performing

Multiple live initiatives, but limited traction/ commercial success

Commercial deployments with significant traction enjoying profitable operations

Traditional FI

Digital

MNOs

Networks

Agenda Barriers What they Need

Maturity and Timeline

Merchants

Add to VAS portfolio to unlock incremental

revenue, reduce churn, and ensure relevance

Migrate to mobile; Migrate to the physical

world

Protect existing revenue streams; tap into new

revenue streams; reduce costs

Retain their role in the payment processing

value chain and pursue new, direct-to-consumer

value propositions

Consumer trust, financial infrastructure, compliant operations; Mobile banking relationships in place

Limited distribution and reach, cumbersome and slow processes, lack of ‘innovation

culture’

Culture of innovation, access to capital and technology IP, rapid and agile product development, massive

reach and distribution, consumer product familiarity

Distribution and reach – both digitally and physically, customer access and control, leverageable infrastructure –

particularly billing and recharge

Significant reach across markets through network members;

oligopolistic tendency with control of network infrastructure; sets rules

across banks and merchants

Limited financial infrastructure, brand

equity, and regulatory experience

Limited financial infrastructure, brand

equity, and the ability to leverage compelling

existing digital products

Lack direct consumer access, need to

balance ambition with existing interests, lack of ‘innovation culture’

Increase volume and revenue through digital

payments; drive differentiation with

online retailers

Significant distribution and customer engagement; control offers/ rewards; push to online, with an advantage in

connecting online-2-offline; SKU-level data; payment capabilities

Lack a compelling, integrated digital user

experience; closed-loop will require significant

investment & alignment

Exploring Forming Norming Performing

24 months out

Exploring Forming Norming Performing

12-18 months out

Exploring Forming Norming Performing

12 months out

Exploring Forming Norming Performing

18 months out

Early movers gaining traction

Exploring Forming Norming Performing

18-24 months out

Crowd Leaders

Leaders (PayPal, Amazon)

Crowd

Crowd

Crowd

Crowd Leaders (Walmart, Starbucks)

Progress What they Have

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What business model best aligns with our goals to ensure success?

Business Model Considerations

Bank – Network Collaborative Innovator Retailer Mobile Operator

•  Banks/issuers •  Payment

Networks Builds on existing network and deploys mobile payment application or devices to customers via bank partners

•  Mobile Network Operators (MNOs)

•  Banks/Issuers •  Payment

Networks

Collaboration among the banks, mobile operators, existing payment networks and other stake-holders in the mobile value chain

•  Alternative solution providers

Technology-based solution that leverages existing and complementary mobile assets to develop mobile payment capabilities

•  Retailers •  Stand-alone

merchants

Merchants create independent, closed-loop payment applications

•  Mobile Network Operators (MNOs)

Mobile operator acts independently to deploy mobile payment applications and value added services

Model Participants

Descriptions

The collaborative model poses the most complexity but also holds the most promise for delivery of an end-to-end mobile payments solution to the ecosystem

Source: PWC

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The Changing Payments Ecosystem - Ensuring a Level Playing Field Non-traditional players continue to disrupt and transform the payments landscape

•  Several non-traditional players like Square, PayPal, and others have introduced many new, innovative ecommerce solutions

•  Many of these solutions are being readily adopted by consumers – but without some of same protections and rights they expect from their financial institutions

•  These new competitors have also disrupted the status quo around traditional roles, relationships, regulation, liability and consumer protection

•  This requires all stakeholders to align on a common strategic framework and ensure a level playing field for all participants

Customer • Data protection •  Fraud / Security • Refunds • Disputes •  T&Cs •  Explicit consent

Payment Parties •  Transparency • Define contractual

relationships •  Allocation of rights &

responsibilities •  Fair allocation of

liability •  Business case

Regulators • Open, efficient,

innovative, transparent payment systems

• Clear legal framework •  Fraud •  Balanced liability

reparation • Geographic scope

(outside EU)

8

Thank  you.  

9

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