Monetising mobile money - jrj.com.cnpg.jrj.com.cn/acc/Res/CN_RES/INVEST/2013/9/4/c3733... · 9/4/2013 · Goldman Sachs India SPL ... creating newer growth opportunities. With an

September 4, 2013

European Payments

Monetising mobile money

Equity Research

Implications for key ecosystems; Buy the tech beneficiaries

Smartphones, Millennials driving mobile money revolution

Explosive growth in smartphone penetration (70% by 2015E) is driving

significant innovation and changing the way money is transferred and

transacted in its various forms (banking, payments and commerce). With

consumers led by the Millennial generation spending c.10% of their free

time on a mobile device, the growth of ‘mobile money’ will only accelerate.

Clash of the titans: Technology the net beneficiary

We examine the broader impact of mobile money in Europe. Across the

key ecosystems, we believe that it will create an incremental €15 bn

revenue opportunity (tech spending, micro merchants, mpayments) and

drive revenue share shifts of €8.8 bn (interchange fees, mobile advertising)

by 2017. We believe that technology will be the net beneficiary and

estimate an incremental revenue opportunity of €8 bn by 2017. We expect

a small negative impact on banks’ revenues primarily owing to regulations

related to interchange fees (€4 bn). In our view, there is a nominal impact

on mobile carriers in DM, but EM money transfer provides an attractive

growth opportunity (€3.7 bn). While we do not see significant direct cost

benefits from mobile money, mobile technologies can play a key role in

broader restructuring efforts at banks to reduce their overall costs by c.8%.

On the transactional front, we estimate European mCommerce (€65 bn) to

be c.31% of eCommerce by 2017 with a third of it being new revenues.

Fragmented landscape lends itself to consolidation

The European payments landscape is highly fragmented and we expect

M&A to accelerate in the space as the incumbents and new emerging

vendors acquire for technology or to gain scale to remain relevant. The

recent acquisitions of Ogone and Datacash highlight these trends.

We are now Buy rated on all European payment vendors

We upgrade Wirecard to Buy (Neutral) and add it to the Conviction List and

upgrade Ingenico to a Buy (Neutral) and reiterate our Buy ratings on

Monitise (on Conviction List), Gemalto and AtoS. Beyond the European

payment vendors, additional beneficiaries include SAP (mobile, analytics),

Opera (mobile advertising), Sage (SMB), Millicom (EM money transfers),

ASOS (retail) and US payment networks (MA, V). Non-beneficiaries include

De La Rue, internal IT, non-prime real estate and traditional advertisers.

S.K.Prasad Borra +44(20)7552-2927 [email protected] Goldman Sachs International

Mohammed Moawalla +44(20)7774-1726 [email protected] Goldman Sachs International

Alexander Duval +44(20)7552-2995 [email protected] Goldman Sachs International

Simon F. Schafer +44(20)7552-3631 [email protected] Goldman Sachs International

Jo Blackshaw +44(20)7552-3718 [email protected] Goldman Sachs International

Julio C. Quinteros Jr. (415) 249-7464 [email protected] Goldman, Sachs & Co.

Tim Boddy +44(20)7552-1036 [email protected] Goldman Sachs International

Frederik Thomasen +44(20)7552-9363 [email protected] Goldman Sachs International

Heath P. Terry, CFA (212) 3571849 [email protected] Goldman, Sachs & Co.

Andrew Lee +44(20)7774-1383 [email protected] Goldman Sachs International

Franklin Walding +44(20)7552-9446 [email protected] Goldman Sachs International

Gautam Pillai (212) 934-5827 [email protected] Goldman Sachs India SPL

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investorsshould be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investment decision. For Reg AC certification and otherimportant disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed bynon-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc. Global Investment Research

September 4, 2013 Europe: Technology

Goldman Sachs Global Investment Research 2

Table of contents

PM summary: Tech sector is the net beneficiary of mobile money 3

Smartphones, Millennials driving mobile money revolution 9

Clash of the titans: Technology is the net beneficiary 12

Banks: Regulation is a key concern; disintermediation concerns by tech appear overdone 15

Mobile carriers: Customer retention in DM; unbanked customer in EM 22

Retail: mCommerce accelerating growth of eCommerce 27

Technology sector: Net beneficiary of the growth of mobile money 31

European payments: Buy the tech beneficiaries 41

Wirecard (WDIG.DE): Multi-channel platform growth; up to CL Buy 54

Monitise (MONI.L): Platform strength underestimated; CL Buy 56

AtoS (ATOS.PA): Attractive value creation opportunity in Worldline; Buy 58

Gemalto (GTO.AS): Digital security provider for mobile payments; Buy 61

Ingenico (INGC.PA): Growth driven by EM rollout and regulation; up to Buy 63

SAP (SAPG.DE): Mobility platform & analytics an ace in the pack; CL Buy 65

Sage (SGE.L): 6m customer base ripe for payment monetisation; Neutral 67

Visa (V): CL-Buy on faster volume growth and capital allocation 68

MasterCard (MA): Buy on faster volume growth and capital allocation 70

EBAY (EBAY): CL-Buy; Established leader in online & mobile payments 72

Other key themes in take up of mobile money- NFC, EMV 74

Payments landscape: Attractive opportunities; complex landscape 100

Disclosure Appendix 113

The prices in the body of this report are based on the market close of August 30,, 2013



PM summary: Tech sector is the net beneficiary of mobile money

There is an accelerating shift to a non-cash economy driven by explosive growth in

smartphone penetration and the emergence of the Millenial generation as the key

influencers. Newer technology vendors (Square, iZettle) and revenue models (advertising,

couponing) focusing on shifting the benefits from back end of the value chain to the front

end (consumers, merchants) are emerging, creating newer growth opportunities. With an

estimated 70% smartphone penetration by 2015 and consumers led by the Millennial

generation spending c.10% of their free time on mobile devices (source: eMarketer), the

growth of ‘mobile money’ will only accelerate. According to Gartner, global mobile

transaction volume will grow at a 35% CAGR from $163 bn in 2012 to $721 bn by 2017.

Mobile money- banking, payments, commerce

Based on our broader categorisation of the payments related revenue opportunities into

banking, payments and commerce, we see meaningful outsourcing opportunities for

technology vendors in the mobile banking segment as the banks retool themselves to

adapt to the fastest growing channel i.e. mobile. We see mobile payments as a near to long

term opportunity in the form of mobile wallets in developed markets (DM) and tapping the

unbanked customers in emerging markets (EM). In our view, mobile commerce represents

the most significant revenue opportunity in the longer term; however, the landscape is

constantly changing and needs deeper collaboration across financial, retail and mobile

ecosystems to truly realise its potential.

Clash of the titans- collaboration is the key to monetisation

This report examines the broader impact of mobile money and related developments on

the various ecosystems in Europe. We identify Technology, banks, mobile carriers and

retail as the key sectors which will be impacted. Similar to the shift from on-premise to

online, the emergence of mobile money will have a significant impact on related

ecosystems and at a much accelerated pace owing to the high penetration of smartphones.

We believe that greater collaboration is needed among ecosystems (Financial, Mobile,

Retail) to truly realise the potential of mobile money. Additionally, in the context of Europe,

there is no one size fits all and we believe that different models would be best suited for

different countries owing to market share issues, regulations and country specific markets.

Based on our end market analysis, we believe that mobile money will create an

incremental €15 bn revenue opportunity (tech spending, micro merchants, mpayments)

and drive revenue share shifts of €8.8 bn (interchange fees, mobile advertising) across

ecosystems by 2017. While we do not see significant cost benefits from the growth of

mobile money, mobile technologies can play a key role in banks broader restructuring

efforts to reduce their overall costs by c.8%. On the transactional front, we estimate

European mCommerce (€65 bn) to be c.31% of eCommerce by 2017 with two thirds of it

being share gains vs. offline, desktop and a third being incremental (€22 bn).

Our key end market conclusions are as follows:

Technology- Based on our analysis, the technology sector will be the net beneficiary

of the changes brought in by mobile money as companies in various end markets

retool themselves to reduce cost and provide an omnichannel experience. We identify

IT outsourcing and micro merchants as the key incremental opportunities and estimate

a €8 bn revenue opportunity by 2017. Our estimates assume that European payment

vendors under our coverage can capture c.30% of this opportunity. We believe that

Monitise (mobile technology platform) and AtoS (Processing, Mobility services) are

best positioned to benefit from increased outsourcing and the platform development

opportunity. We see Monitise (mobile platform technology), Gemalto (TSM vendor)

and Wirecard (eCommerce platform) as best positioned to benefit from investments by



mobile carriers due to strong end market expertise. In our view, Wirecard (eCommerce

technology leader) and Ingenico (POS market leader) are key beneficiaries of increased

spending by retail vendors.

Banks- Banks face a more intense landscape (mobile and retail ecosystems) as they

try to extend their dominance in the traditional retail banking processes into payments

and commerce. While technology is perceived as the key risk for banks related revenue

opportunities, our end market analysis and discussions with industry participants

indicates to Regulation posing much more significant risks. We estimate a negative

impact of c.€4 bn by 2017 (vs. 2012) from changes to interchange fees as proposed by

the European Commission (EC). This is small compared to the broader revenue base of

European banks (-0.6%) and hence we expect to see a nominal impact on European

banks from changes proposed by EC. While we do not see significant direct cost

benefits from the growth of mobile money, mobile technologies can play a key role in

the broader restructuring efforts at banks to reduce their overall costs by c.8%.

Mobile carriers - Historically, telcos/mobile carriers had a nominal stake in the money

value chain however the emergence of the mobile as the primary growth channel for

payments is creating interesting newer revenue opportunities. We expect telcos to

successfully tap into an attractive EM money transfers opportunity, however in our

view there are limited revenue opportunities in DM due to high competition and lack of

differentiation. As always we expect developed markets mobile carriers to derive

limited benefits from overlaying services. We believe that Mobile carriers will have

nominal revenue opportunity related to mobile money in DM however they can use

mobile wallets for improving customer retention by integrating loyalty programs with

convenience shopping. We believe that Mobile carriers will be significant beneficiaries

of the mobile payments market in EM (c.6% of their EM revenue stream) due to their

strong distribution presence. Ventures like M-Pesa provide enough evidence of the

significant opportunity related to tapping unbanked customers in EM due to high

mobile penetration. The need for fraud/risk management and compliance with local

regulations may however force the mobile carriers to partner with financial institutions

and/or technology partners.

Retail- Our retail analysts believe that mCommerce will be a major driver of

incremental eCommerce in Europe and we estimate €65 bn European mCommerce

opportunity by 2017 representing 31% of eCommerce sales. While two third of the

mCommerce opportunity is related to share gains from offline, online segments, a

third of the opportunity is incremental mobile related opportunity.

Among other verticals, we believe that media/Internet will be the most impacted,

however incremental revenue opportunities from opportunities like mobile advertising

(€4.6 bn by 2017) are unclear as other ecosystems vie for their share of the revenues.


European payments landscape is highly fragmented, characterised by presence of many

local champions, but limited pan European/global vendors. An emerging class of mobile

payment vendors in addition to the increasing involvement of existing mobile, retail

vendors is further adding to the dynamics. With vendors trying to develop and extend their

own ecosystems, the landscape is in a state of flux and most incumbents and emerging

vendors are either acquiring or organically investing to remain relevant. We expect

acceleration in M&A as a result as highlighted by recent acquisitions of Ogone, Datacash.

In this context, we highlight Monitise (Mobile money platform), Wirecard

(eCommerce/mCommerce platform) and Gemalto (TSM) as strategic vendors in the

European payments landscape. Additionally, we expect companies to actively seek

partnerships or forger alliances to extend their presence across ecosystems.



Investment conclusions

In context of Europe, vendors are significantly smaller in size versus the US, however we

see attractive investment opportunities across the spectrum and favor stocks exposed to

structural themes (mobile platform technology, TSM, eCommerce/mCommerce) and

differentiated positioning in the market namely Monitise (CL Buy), Gemalto (Buy) and

Wirecard (CL Buy). Ingenico (Buy) is well positioned for the attractive EMV opportunity in

the US and EM although the competitive landscape is intensifying with potential mid to

long term implications. We see AtoS (Buy) as a special situation with scope for significant

value creation with the payments business ‘carve out’. All the European payment vendors

have good industry positioning on basis of their niche and differentiated presence in the

high growth payments market and are well positioned on our GS SUSTAIN framework.

Our US analysts believe that global scale and acceptance remain significant barriers to new

entrants and hence are positive on Visa (CL Buy) and Mastercard (Buy).

We are now Buy rated on all the stocks. We upgrade Wirecard to Buy (from Neutral) and

add it to the Conviction List and upgrade Ingenico to Buy (from Neutral) and reiterate our

ratings on Monitise (CL Buy), Gemalto (Buy) and AtoS (Buy). Beyond the European

payments vendors, additional beneficiaries include SAP (Mobile, Analytics), Opera (mobile

advertising), Millicom (EM money transfers), ASOS (retail) and US payment networks. Non-

beneficiaries to this theme include De La Rue, internal IT, non-prime real estate and

traditional advertisers.

September 4, 2013

Europe: Technology

Goldm

an Sachs Global Investm

ent Research

6

Exhibit 1: Tech sector is the main beneficiary of the disruption caused by mobile money

Impact of the mobile money and broader industry trends on various ecosystems

Source: Gartner, IDC, Goldman Sachs Global Investment Research.

Verticals Sector Impact Stock Impact

Incremental IT spend (Outsourcing, Platforms) +4.1 Positive

Micro merchants (mPOS services) +2.9

Disruptive technologies/business models +0.3

TSM opportunity +0.7

Incremental R&D, S&M costs ‐2.0

+8.0 ‐2.0

Small negative

Regulations‐ Loss of Interchange Fees ‐4.0

Disruptive technologies/business models ‐0.3

mPayments (Bill payments, Money transfers) +0.9

Micro merchants (Interchange fees) +0.6

Broader restructuring efforts +30.2

‐2.7 +30.2

mPayments (EM Money transfers and others) +3.7 Small Positive

DM customer retention +0.9

Incremental IT spending ‐0.7

TSM opportunity ‐0.7

+3.7 ‐+0.5

Regulations‐ Gain from Interchange Fees +4.0 Positive

(Positive both for traditional, online retailers) Incremental IT spending ‐1.0

mcommerce (Incremental) +21.6

mcommerce (share shifts) +43.2

Offline commerce ‐43.2

+4.0 ‐1.0 +21.6

Other verticals Positive

Media/Internet Mobile advertising +4.6

Traditional media ‐4.6

Micro merchants (Other related services) +2.2

+2.2

Net impact of mobile money +15.2 +26.8 +21.6Share shift due to mobile money +8.8 +43.2

Mobile Money‐ Broader implications on related European ecosystems

Beneficiaries‐ Monitise, AtoS, Wirecard Non‐Beneficiaries‐De

La Rue

Beneficiaries‐ AtoS, Monitise,

Gemalto, Ingenico,

Wirecard Non‐Beneficiaries‐Internal IT

Beneficiaries‐ Millicom, Vodafone, Telefonica, Telenor

Revenue impact is small in context of total

European Banks revenues (0.5%) but significant opportunity to mitigate losses through cost

savings

Tech is the net beneficiary as it helps retool the end markets to reduce costs and create omnichannel

presence

EM Money transfers is the key opportunity. Improving customer

retention through wallets is focus in DM.

Increase/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)

Technology

Beneficiaries‐ Opera software, Digital agencies; Non‐Beneficiaries‐Outdoor, Print

media

Beneficiaries‐ ASOS, Kinnevik, Ocado,YOOX

Non‐Beneficiaries‐Traditional

retailers, Non prime real estate

owners

Online advertising giants will extend out their

reach into madvertising opportunities

Banks

Mobile carriers

RetailMobile commerce (@7%

EBITDA margins) is becoming a major driver

of incremental ecommerce



Exhibit 2: Upgrading Wirecard to Buy and add to Conviction List, and upgrade Ingenico to Buy; reiterate ratings on

Monitise (Buy*), Gemalto (Buy), AtoS (Buy) Rating, 12 month price target changes

Source: Goldman Sachs Global Investment Research.

Exhibit 3: High smartphone penetration aligned with untapped EM markets will accelerate growth of ‘mobile money’

Opportunities related to mobile money, non-cash transactions US$

Source: Visa, RBS, Goldman Sachs Global Investment Research.

Payments PT PT changeCoverage Old New Core M&A Blended Core M&A Blended Timeframe %

AtoS Buy Buy 70.0 70.0 85.0 85.0 12 months 21%%u/d 25% 25% 51% 51%

Gemalto Buy Buy 90.0 90.0 115.0 165.0 125.0 12 months 39%%u/d 3% 3% 32% 90% 44%

Ingenico Neutral Buy 59.0 59.0 82.0 82.0 12 months 39%%u/d 12% 12% 55% 55%

Monitise Buy* Buy* 54.0 74.7 60.0 93.6 114.9 100.0 12 months 67%%u/d 17% 62% 30% 102% 148% 116%

Wirecard Neutral Buy* 24.0 24.0 36.0 42.6 38.0 12 months 58%%u/d 1% 1% 52% 80% 61%

Average %u/d 12% 62% 14% 59% 106% 65% 45%

* On the conviction list

Rating Old PT (2014 based) New PT (2015 based) ValuationMethodology

15.4x P/E (from 13.5x)

Core: 14x EV/EBITDA (from 12x)

12x EV/EBITDA (from 11.3x)

Core: 5.7x EV/Sales

Core: 30x P/E (from 24x)

M&A: 4x EVSales

M&A: 7xEVSales

M&A: 7xEVSales

• DM, China smartphone penetration will reach 80% by 2015 (GS)

• 2.5 bn underbanked worldwide,1.7 bn of which have access to a mobile phone (Visa)

• c.$11 trillion cash/check opportunity with $5T DM, $6T EM) (Visa)

• Mobile banking logins are 6x per week per customercompared to 1x for online banking (RBS)

• EU payment and terminal transactions reach c.€3 trillion by 2017 (c.19% of nominal GDP)

• mcommerce will be 31% of total ecommerce by 2017

• 13% adoption of secure mobile payment solutions on handsets globally by 2017 (€1 activation fee)

• US EMV card penetration to reach 60% penetration by 2017 up from 30% in 2012



Exhibit 4: Clash of the ecosystems - banks face a much tougher landscape as they try to extend their strength in

traditional banking into the payments and commerce segments Various ecosystems in the payments value chain encompassing banking, payments and commerce


Mobile Banking

Mobile Payments

Mobile Commerce

Mobile Money

Software vendors

Financial Institutions

Payment Processors

Hardware vendors

Telcos RetailPayment Network

CustomerGovernment /Regulator Merchant



Smartphones, Millennials driving mobile money revolution

Explosive growth in smartphone adoption is driving significant innovation and

disrupting the way money is transferred and transacted in its various forms (banking,

payments, commerce). With estimated 70% smartphone penetration by 2015 and

consumers led by the Millennial generation on an average spending c.10% of their

free time on mobile, growth of ‘mobile money’ will only accelerate over the next few

years. Various end markets are responding by reprioritising their technology

investments in favor of mobile to capitalise on the various revenue opportunities it

offers and to potentially use mobile technologies to reduce costs.

Exhibit 5: Mobile is emerging as the fastest growing money channel Payments wave chart


Broader industry trends are transforming the payments landscape With handling cash becoming more and more of a complex exercise and newer mobile

technologies evolving and developing into credible revenue models, the ongoing shift to

non-cash economy will only accelerate. As per the World Payments Report 2012 (WPR,

Source: Capgemini, RBS, Efma), non-cash payments grew at a healthy 8% in 2011. With

smartphone penetration expected to reach c.70% by 2015, we believe mobile will play a

transformational role in diminishing the role of cash in transactions. In developed markets,

this would be led by newer technology/business models like mPOS (mobile point of sale

terminals), which can help tap micro merchant market and mobile wallets which can

integrate convenience shopping with loyalty programs. In emerging markets, we expect

tapping the unbanked customer base to the dominant theme. With an estimated $11 trillion

(source: Visa) opportunity to convert cash/cheques in developed markets ($5 tr) + emerging

markets ($6 tr), we see this as a significant opportunity for growth of mobile money.

Proximity payments

Form:

Advantages:

Challenges:

Commodities

Exchange mechanism

Storage, security

Coins, notes, cheques

Conveneince

Security, Acceptability

Debit, Credit, prepaid

Conveneince

Security, Eonomic viability for micro merchants

NFC, Cloud based

Conveneince, Newer revenue streams

Security

Barter Cash, Cheques Cards Mobile

Exchange payments

1800s 1920s 2010s

Denomination payments

Paperless payments



We highlight the following broader industry trends accelerating the growth of ‘mobile

money’:

Ubiquity of smartphones - high penetration of smartphones in developed markets

and accelerating adoption in emerging markets is helping target newer customers and

creating additional business models like couponing, advertising thereby disrupting the

payments landscape. Our Commtech analysts forecasts a 30% CAGR in global

smartphone unit growth over 2012-15E driven by 42% CAGR in emerging markets.

Geographically, they forecast smartphone penetration to reach close to 90% in US and

Western Europe by 2015 with China expected to have 500mn smartphone users by end

of 2013. Additionally, they believe that other emerging markets (EM) will surpass China

and the developed markets (DM) to become the largest smartphone market in 2013.

Mobile has already emerged as the fastest growing payments channel in comparison

to offline and online. We expect significant growth of mobile money in developed

markets as consumers increasingly adopt mobile solutions including mobile banking

and NFC based payments. In emerging markets, we expect both increasing adoption of

smartphone penetration and development of newer business models like m-PESA to

drive growth of mobile money.

Millennial generation emerging as the key influencers- Millennial generation (18-34

years) characterised by high mobile device per capita have emerged as the most

influential segment impacting consumer and enterprise decisions. While cash/cheques

were the mainstay of transactions for the baby boomers generation and generation X

rode the card revolution, Millennial generation is driving the mobile payments era.

According to the Telefonica-Financial Time Millennial Survey, 76% of the Millennials

own a smartphone and c.75% of the global Millennials consider themselves to be on

the cutting edge of technology.

Regulatory support Regulations like SEPA (Single Euro Payments Area) have already

been solid drivers for adoption of online, mobile payments. According to the European

Commission (EC), EU payment market is fragmented and expensive with a cost of

more than 1% of EU GDP or c.€130 bn per year and standardisation of mobile

payments can result in a 68% increase in transactions. The EC has recently proposed

the new revised Payments Services Directive (PSD) which aims to standardise

payments across card, internet and mobile payments and align charging practices

across the EU. Additionally, the EC has recently introduced new proposals for

regulating interchange fees for card based payment transactions which would set a

cap at 0.2% of the value of the transaction for debit cards and 0.3% for credit cards,

which it believes will help improve cards acceptance. In addition, we believe the

decision by key payment networks to enforce EMV requirements at merchants (EMV

terminals) and banks (chip and pin cards) will have a sizeable impact on the Point of

Sale (POS) landscape. US as a market still significantly lags many developed markets

in EMV penetration and is currently losing $16 bn per year through fraud (reinsured

thereby entailing costs to the payment networks). This in our view provides a

meaningful upgrade opportunity for POS terminals and security solution providers like

Gemalto and Ingenico.



Exhibit 6: Increasing smartphone penetration is driving

very large shifts in the payments landscape GS analysts forecast 30% CAGR in smartphone units over

2012-15E

Exhibit 7: Other EM to surpass DM and China as the

largest smartphone market in 2013E making unbanked

customers a huge revenue opportunity Smartphone shipment and penetration in DM, China, and

non-China EM during 2009-2015E

Source: Gartner, Global Mobile, World Bank, and Goldman Sachs Global Investment Research.

Source: Gartner, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research estimates.

Exhibit 8: Internet banking and online shopping are

among the top 10 activities by Millennials Top 10 activities of Millenials

Exhibit 9: We expect the shift to non-cash transactions to

accelerate driven by mobile payments, EM Non cash transactions in billions (2001-10)

Source: Visa (Connecting with the Millennials- A Visa Study)

Source: World payments report 2012, Capgemini Analysis

298

471

680

1,001

1,241

1,456

73%

58%

44%47%

24%

17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

200

400

600

800

1000

1200

1400

1600

2010 2011 2012 2013E 2014E 2015E

Smartphone shipments (mn) %yoy

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

Smar

tpho

ne s

ubs

pene

trat

ion

Smar

tpho

ne s

hipm

ent (

mn)

Developed market (LHS) China (LHS)Other emerging markets (LHS) Developed market (RHS)China (RHS) Other emerging markets (current, RHS)Other emerging markets (previous, RHS)

12%

13%

23%

23%

40%

37%

38%

37%

41%

48%

53%

56%

60%

61%

62%

63%

66%

70%

72%

82%

Study/do homework

Online shopping

Download music

Internet banking

Use online social networking sites

Use instant messaging or chat room

Share/send pictures

Search for information

Surf the Internet

Send/receive emails

Computer activities Mobile activities

50.6

77.6 81.4 80.8

112.8 116.6

7.7

24.3 27.1

10

28.7 33.1

0

20

40

60

80

100

120

140

Europe2001

Europe2009

Europe2010

NorthAmerica2001

NorthAmerica2009

NorthAmerica2010

MatureAPAC2001

MatureAPAC2009

MatureAPAC2010

BRIC2001

BRIC2009

BRIC2010

5.5%

4.9%

4.2%3.4%

15.5%11.7%

14.1%15.5%

CAGR5.4%

CAGR4.2%

CAGR15.0%

CAGR14.3%



Clash of the titans: Technology is the net beneficiary

With mobile driving large shifts in every aspect of the payments value chain, the

traditional business models are being challenged and are creating a new set of

winners and losers. This report examines the broader impact of mobile money on the

four key end markets where we believe that the impact will be most felt namely

technology, banks, telco and retail. We see technology as the net beneficiary of the

emergence of mobile money and estimate incremental revenue opportunity of €8 bn

by 2017 in Europe. We believe that the argument for disintermediation of banks for

payments in developed markets is overdone and expect telcos to successfully tap

into an attractive EM money transfers opportunity owing to their strong customers’

base. We believe that the true potential of mobile money will only be realised with a

greater collaboration of various ecosystems including financial institutions, channels

(telcos, retail), technology providers (industry standards) and government

(regulations) is achieved.

Clash of the titans- collaboration is the key to monetisation

Similar to shift from on-premise to online, emergence of mobile money will have

significant impact on related ecosystems and at a much accelerated pace owing to a high

penetration of smartphones. Based on our end market analysis, we believe that mobile

money will create incremental €15 bn revenue opportunity and drive revenue share shifts

of €8.8 bn across ecosystems by 2017. While we do not see significant cost benefits from

growth of mobile money, mobile technologies can play a key role in banks broader

restructuring efforts to reduce their overall costs by c.8%. Our key end market conclusions

are as follows:

Technology- Technology sector will be the net beneficiary of growth of mobile money

as companies retool themselves to mobile as the growth channel. We identify IT

outsourcing and micro merchants as the key incremental opportunities and estimate a

€8 bn revenue opportunity by 2017.

Banks- banks have traditionally dominated the banking segment however they face a

more intense landscape (mobile and retail ecosystems) as they extend into the

payments and commerce segments. While technology is perceived as a key risk for

banks related revenue opportunities, our end market analysis and discussions with

industry participants indicates Regulation poses much more significant risks.

Mobile carriers/telcos- we believe that Mobile carriers will have nominal revenue

opportunity related to mobile money in DM, however they can use mobile wallets for

improving customer retention by integrating loyalty programs with convenience

shopping. Ventures like M-Pesa provide enough evidence of the significant opportunity

related to tapping unbanked customers in EM due to high mobile penetration.

Retail- our retail analysts believe that mCommerce will be a major driver of

incremental eCommerce in Europe and we estimate €65 bn mCommerce opportunity

by 2017 representing 31% of eCommerce sales in Europe.

Among other verticals, we believe that media/Internet and transportation will be the

most impacted, however incremental revenue opportunities and share shifts in these

verticals from opportunities like madvertising (€ 4.6 bn) and ticketing (€ 0.7 bn) are

unclear as other ecosystems vie for their share of the revenues.



Exhibit 10: Mobile money landscape spans key ecosystems- financials, mobile, retail

Mobile money landscape


Compared to traditional systems, the mobile money value chain is more complicated due

to the additional role of mobile device manufacturer and mobile carriers. We believe that

government and regulatory support are also key to the process and it is important to

ensure that industry standards, regulations develop in parallel with ecosystems, customer

and technological developments to truly monetise the mobile money opportunity. We

highlight France and South Korea (Dominant mobile carrier SK Telecom closed network) as

two of the countries which stand out as the best examples of success of payments driven

by collaboration of various ecosystems, however it has been difficult to extend these

ecosystems into other countries due to a lack of network presence in other countries. In our

view, country success cannot be exploited across boundaries without the networks or the

global tech vendors primarily OEMs. In context of Europe, regulations like SEPA (Single

Euro Payments Area) and Payments Services Directive (PSD) aim to standardise payments

across card, internet and mobile payments and align charging practices across the EU and

hence expect them to be incrementally supportive for growth of mobile money.

Mobile Banking Mobile Payments Mobile Commerce

Mobile Money

Software vendors

Financial Institutions

Payment Processors

Hardware vendors

Telcos RetailPayment Network

CustomerGovernment /Regulator

Merchant

Informational• Alerts• Account

balance

Transactional• Bills

payment• Brokerage

P2P• Money

transfer• Money

remittances

B2B• Replace cash

in supply chain

C2B• Mobile online• At store (Proximity payments)

September 4, 2013

Europe: Technology

Goldm

an Sachs Global Investm

ent Research

14

Exhibit 11: Mobile money-€15 bn incremental revenue opportunity and €8.8bn of revenue share shifts

Technology beneficiaries- Monitise (CL Buy), Wirecard (CL Buy), other verticals- Millicom (Telcos) and ASOS (retail)

Source: Goldman Sachs Global Investment Research, Gartner, IDC, Company data

Payment Networks‐ Visa,Mastercard, Unionpay

Impact of

Mobile

Printing, cash handling‐ De La Rue

Potential Beneficiaries

Technology Telcos RetailBanks Other verticals

Increased volume of transactions driven by online, mobilemCommerce opportunities

Technology outsourcing by end markets, Security solutions,Value added + information based services

Micro merchant opportunity , madvertising, Ticketing

Omnichannel, price transparency, low store investments

Payments value chain

Ecommerce vendorsASOSYOOXZalandoOcado

Banks with better mobile offerings

DM‐ customer retention, value added services, EM‐payments, customer retention

POS manufacturers‐ AtoS, Ingenico

Mobile technology providers‐ Monitise, SAP Telcos with high EM presenceVodafone,TeliaSonera

Telefonica, Millicom

Disintermediation by newer business models, Pressure on Interchange fee, customer churn

Intensifying competitive landscape, disintermediation by newer models, regulations, limited scale

Regulatory issues, disintermediation, low customer loyalty

EM mobile payments (Money transfers)

€3.7bn

Incremental IT spending‐ €4.1bn

Disruptive technologies, €0.3 bn

Mobile advertising€ 4.6bn

mCommerce€65 bn

ATM makers‐Wincor NixdorfPotential revenue losses

TSM Opportunity, €0.7 bn

Disintermediation, intensifying competitive landscape

Lack of collaboration between ecosystems

Loss from changes in Interchange fees €‐4bn

Smartcard, TSM‐ Gemalto, Oberthur, G&D

Processors, Acquirers ‐Wirecard, AtoS

DM customer retention € 0.9bn

Bill payments, money transfers €0.9 bn

Handset makers‐ Apple, Google

Micro merchants Interchange fees, €0.6 bn

Mobile advertising, € 4.6bn

New entrants‐ Square, iZettle

Digital agencies WPP,Publicis

Broader restructuring€27.2 bn

Micromerchants (mPOS, Analytics), €2.9 bnMicro merchants

€ 2.2bn



Banks: Regulation is a key concern; disintermediation concerns by

tech appear overdone

Banks are facing the 'perfect storm' due to ongoing top line, cost and capital pressures

aligned by toughening regulatory environment in developed markets. In emerging markets,

newer technology providers/business models like mPESA are intensifying the competitive

landscape. According to Capgemini’s World Retail Banking Report 2012, within the next six

months, 10% of retail banking customers surveyed will likely leave their bank and an

additional 41% of customers are unsure whether they will stay or go.

Banks have traditionally dominated the retail banking processes; however they face a more

intense landscape (mobile and retail ecosystems) as they extend into their dominance in

the payments and commerce segments. In spite of continuing concerns around

disintermediation of banks and growing relevance of non-financial institutions in emerging

markets, we believe that banks will remain an integral part of the payments landscape

owing to high barriers to entry (regulatory hurdles to new entrants) and high consumer

retention. We believe that vast majority of mobile payments volume will be driven by

traditional card products, either through mCommerce or through NFC and hence will

benefit banks. Though telcos are clearly accelerating investments in the mobile segment,

we believe that they will have to partner with banks to tap the unbanked opportunity in EM

due to regulatory support as evidenced in countries like India (banks have exclusive access

to interbank mobile payment system IMPS), Nigeria etc. However these opportunities for

banks are not for granted and banks have to proactively invest to provide their customers

with multiple channels with seamless integration to retain customers. Among European

banks, operators such as Barclays are proactively investing in mobile technologies.

Exhibit 12: Trust, regulation are banks key strengths in the mobile money landscape

Analysis of Banks key attributes


Based on our end market analysis, we believe that mobile money will impact the revenue

streams for banks in the following ways:

Interchange fee (IF) Regulations- we estimate a revenue loss of c.€4 bn by 2017 (vs.

2012) from changes to interchange fees as proposed by the European Commission

(EC). This is small compared to the broader revenue base of European banks (-0.6%)

and hence we see a nominal impact on European banks from changes proposed by the

EC. The EC expects €3 bn annual cost savings for large merchants from operational

savings related to phase 1 of the IF regulation (capping cross border IF, allowing choice

of IF for cross border transactions) and €6 bn annual cost savings for all card accepting

Opportunities

• Improve returns, reduce costs by reducing branches, automation

• Differentiation vs. other banks

• EM- Tapping unbanked customers through partnership with telcos

Threats

• Disintermediation by other ecosystems in payments

• Loss of market share to peers

Strengths

• High customer retention owing to trust

• Regulatory support for banking system

Weakness

• Regulations like Durbin agreement impact interchange fees

• High investments in existing infrastructure

• Structural pressure on revenues impacting overall spending

Disruption

Convenience

Lower costs



merchants from operational savings related to phase 2 of IF regulation (capping IF for

debit and credit cards at maximum 0.2% and 0.3% of the transaction value).

Disruptive technologies/business models- while technology has long been perceived

as a key risk for banks related revenue opportunities, our end market analysis and

discussions with industry participants indicates regulation posing a much more

significant risks. We forecast revenue loss of c. €0.3 bn by 2017 (vs. 2012) from new

disruptive technologies.

Mobile payments (bill payments, money transfers) - we forecast revenue opportunity

of c. €0.9 bn by 2017 (vs. 2012) from new disruptive technologies (details in mobile

carriers section).

Micromerchants interchange fees- we forecast revenue opportunity of c.€0.6 bn by

2017 (vs. 2012) as technology vendors tap into the yet untapped segment.

While we do not see significant direct cost benefits from growth of mobile money, mobile

technologies can potentially play a key role in broader restructuring efforts at banks to

reduce their overall costs by c.8%.

Exhibit 13: Regulation is the key risk to banks revenues; mobile technologies provide scope for cost restructuring Impact of mobile money on banks- Illustrative example

Source: IDC, Gartner, Goldman Sachs Global Investment Research.

Exhibit 14: Banks- regulation is the primary risk; impact of technology shifts is more gradual

Impact of mobile money on various revenue streams of banks



Small negativeRegulations‐ Loss of Interchange Fees ‐4.0Disruptive technologies/business models ‐0.3mPayments (Bill payments, Money transfers) +0.9Micro merchants (Interchange fees) +0.6

Broader restructuring efforts +30.2

‐2.7 +30.2

Beneficiaries‐ Monitise, AtoS, Wirecard Non‐Beneficiaries‐De

La Rue

Banks

Revenue impact is small in context of total

European Banks revenues (0.5%) but significant opportunity to mitigate losses through cost

savings

Mobile Money‐ Broader implications for BanksIncrease/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)

Total revenues

Non-InterestIncome

Fees and commissions

Net InterestIncome

Other non interest income

Credit/Debit card fees

Other fees and commissions

Limited Impact

Potential meaningfulImpact

Potential Interchange fee impact -€4 bn

DM payment fee revenues (Bill Payments) €0.9 bn

Potential Micro merchantopportunity €0.6 bn



Exhibit 15: High customer retention is banks key strengthPercentage of customers with positive experience who have

trust and confidence in their banks

Exhibit 16: Banks are one of the highest spenders on IT

IT spending as % of group revenues by vertical

Source: Capgemini World Retail Banking Report, 2013

Source: Gartner

Exhibit 17: Banks can reduce costs by promoting mobile

as a channel to service customers Average transaction costs by channel, US$

Exhibit 18: Banks are investing heavily on mobility

solutions Banks and securities spending on Mobility solutions, 2013

Source: Diebold

Source: Gartner (Note: Only a portion of consulting, development and integration and other applications software revenue is specific to mobile but growth rates are indicative of the market segment growth)

Reduction in interchange fees is the key revenue risk

On July 24, 2013, European Commission (EC) proposed a revised Payments Services

directive and a regulation on Multilateral Interchange Fees (MIFs) for EU payments

framework. European Commission (EC) proposes an initial 0.2% ceiling on debit card fees

and 0.3% cap on credit cards for cross-border transactions during a 22-month transition

period. The EC estimates that a cap will slash total debit card fees across the EU from

around €4.8 billion to €2.5 billion, and credit card fees from €5.7 billion to €3.5 billion.

Following are the key events leading to the proposal:

14 May 2013 : Visa Europe proposes to reduce credit cards related interchange fees to

0.3% (lasting for four years)

92.8%

92.1%

91.3%

89.8%

89.6%

86.7%

83% 84% 85% 86% 87% 88% 89% 90% 91% 92% 93% 94%

Middle East & Africa

Central Europe

Asia-Pacific

Latin America

North America

Western Europe 8%

7%

4%4%

3%

2%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Software,Internet

Banking,Financialservices

Telcos Industryaverage

Transportation Retail andwholesale

IT spe

nding as % of reven

ue

$3.00

$0.65

$0.08$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Branch ATM Mobile, onlinechannels

Average transaction

cost, $



2012: Mastercard lost a challenge to an EU ban on its cross border card fees at EU

general court

8 Dec 2010 : Visa Europe settled with the EC to reduce debit cards related interchange

fees to 0.2% (in 9 countries)

2009 : Mastercard settled with EC to reduce credit cards related interchange fees to

0.3% and debit cards related Interchange fees to 0.2%

We estimate a potential revenue loss of c.€4 bn by 2017 (vs. 2012) from changes to

interchange fees as proposed by the European Commission (EC). Our analysis is based on

the following key assumptions:

Value of the transactions through EU payment and terminal transactions will grow at

7% for 2013 in line with 2011, but will accelerate to 8% over 2014-15 and to 9% and

10% respectively in 2016E and 2017E driven by improving macro and increasing use of

card, online, and mobile payments. Depending on the pace of growth of mobile

payments, our assumption may prove to be conservative.

We assume credit/debit cards mix to reduce from 36%/64% mix (source: European

Commission) by c.2% on an annual basis till 2017. This is to account for financial

reforms which are limiting overdraft fees and protecting consumers and consumers

increasingly shifting preference to debit cards to avoid debt.

While changes to IF proposed by the EC have not yet been passed into law, for analysis

purpose we assume the new interchange fees (0.3% for credit cards, 0.2% for debit

cards) to be implemented from 2016 onwards.

We have assumed European banks revenues to grow at 2.7% over 2016-17E in line

with the 2015 growth rate of 2.7% as estimated by our European Banks analysts.

Exhibit 19: We estimate 36% potential downside risk to existing IF revenues of banks from new EC proposals Analysis of impact of proposed changes to interchange fees

Source: EU payment and transaction services (ECB); European Commission, Goldman Sachs Global Investment Research.

European Banks Interchange fees, €bn 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

EU payment and terminal transactions, €bn 1,629 1,782 1,915 2,058 2,203 2,379 2,569 2,800 3,080

yoy ‐1% 9% 7% 7% 7% 8% 8% 9% 10%

Mix by value

Credit cards 42% 40% 38% 36% 34% 32% 30% 28% 26%

Debit cards 58% 60% 62% 64% 66% 68% 70% 72% 74%

Interchange fee

Credit cards 0.78% 0.78% 0.78% 0.78% 0.78% 0.70% 0.60% 0.30% 0.30%

Debit cards 0.39% 0.39% 0.39% 0.39% 0.39% 0.35% 0.30% 0.20% 0.20%

Interchange fee

Credit cards, €bn 5.3 5.6 5.7 5.8 5.8 5.3 4.6 2.4 2.4

Debit cards, €bn 3.7 4.2 4.6 5.1 5.7 5.7 5.4 4.0 4.6

Interchange fees, €bn 9.0 9.7 10.3 10.9 11.5 11.0 10.0 6.4 7.0

yoy 5% 8% 6% 6% 5% ‐5% ‐9% ‐36% 9%

Impact from changes to Interchange fee, €bn ‐4.0

2017E vs. 2012 ‐36%

Accumulated loss of Interchange fees 2012‐17E ‐8.7

European Banks revenues, €bn 613.6 580.7 578.2 573.7 591.3 607.2 623.5 640.3

yoy 0.0% ‐5.4% ‐0.4% ‐0.8% 3.1% 2.7% 2.7% 2.7%

Impact of changes in IF on total EU banks revenues ‐0.6%



Disintermediation concerns on banks by disruptive technologies/business models are overdone

We believe that continuing concerns around disintermediation of banks by disruptive

technologies in developed markets is overdone and that banks will remain an integral part

of the payments landscape owing to high barriers to entry (regulatory hurdles to new

entrants) and high consumer retention. Banks remain in a highly defendable position as

changes at the POS, new entrants, and mobile payments options do not currently pose a

threat as most large scale funding mechanisms are currently based on deposit funding and

hence the banks. We believe new entrants will need to ride on existing payment rails to

reach scale, resulting in incremental volume for the networks and banks.

Though non-financial entities (example m-PESA) have seen fast growth partly attributed to

the lack of a regulatory environment for mobile financial services. This situation is slowly

changing as more regulators in EM countries like India, Nigeria are becoming aware of this

issue and putting in place regulations to ensure sustainable growth and align mobile

payment systems with existing financial systems. In a number of countries like India,

Nigeria, Ghana, Colombia and South Africa, financial regulators are reluctant to grant

mobile money licenses to mobile carriers, thereby forcing them into partnerships with

banks to tap the emerging markets opportunity.

In developed markets, historical examples continue to indicate that though technologies

can be disruptive and reduce the role played by banks, need for risk management,

regulatory control, funding and interoperability invariably brings in the role of banks.

Below, we consider a scenario of disruption of banks revenue streams by disruptive

technologies/business models. In this context, we assume that new disruptive

technologies/business models will be twice as disruptive (c.4% of European payments

volume) as Paypal (c.2% of global payments transaction volume), which is widely

considered as the most disruptive payments vendor in the last 10 years. On this basis, we

estimate incremental negligible revenue loss (€0.3 bn) for the European banks.

Other disruptive technologies/business models include Square, iZettle which have growth

rapidly initially focusing on the micro merchants market and MCX (Merchant Customer

Exchange, US) which aims at creating a merchant network to eliminate role of networks.

There is no specific European equivalent of MCX.

Exhibit 20: Paypal processes only c.2% of the global payments volume

Payments volume (US$ bn) of global payment networks updated

Source: Paypal, Visa, MasterCard.

Paypal as % of total payments network 2006 2007 2008 2009 2010 2011 2012Paypal payments volume 36 47 60 72 92 119 145yoy 33% 27% 19% 28% 29% 22%

Visa Inc. payments volume 2,127 2,457 2,727 2,793 3,273 3,768 3,936yoy 16% 11% 2% 17% 15% 4%

Visa Europe payments volume 1,400 1,542 1,711 1,764 1,934 2,198 2,317yoy 10% 11% 3% 10% 14% 5%

Total payments network volume 5,681 6,519 7,210 7,222 8,176 9,506 yoy 15% 11% 0% 13% 16%

Paypal as % of Visa volume 1.0% 1.2% 1.4% 1.6% 1.8% 2.0%Paypal as % of networks 0.6% 0.7% 0.8% 1.0% 1.1% 1.2%



Exhibit 21: We estimate €0.3 bn incremental revenue headwinds from disruptive technologies/business models Analysing revenue impact of disruptive technologies/business models on banks revenue streams


Mobile technologies provide scope for significant cost restructuring measures

As evidenced by strategies adopted by banks in Spain, Australia and US, we believe that

banks will adopt various revenue, cost strategies to compensate for the loss of interchange

fees. We believe that these strategies will not be mutually exclusive and will be

implemented in parallel as part of the broader restructuring initiatives. Some of the

possible strategies include:

New annual card fees/raising existing fees- this measure failed in US however

achieved some success in Spain, Australia,

Reduce perks, benefits associated with cards,

Review bank expansion plans and operational models, opting to better use technology.

Additionally increased volumes driven by higher adoption of online, mobile payments can

to an extent compensate for the lost interchange fees.

In addition to reviewing the fees they charge consumers, most US retail banks are also

reviewing their branch/employee cost base as part of their broader restructuring efforts.

Taking advantage of the growth of mobile technologies, banks like Wells Fargo, PNC are

shrinking the size of their branches and introducing the concept of mini branches with

significantly reduced number of teller positions and some relationship/consultant positions.

These mini branches could be relatively paperless and feature large screen ATMs and offer

image deposits, instant issue debit cards and e-receipts. Staff will use smartphones, tablets

to serve customers. The companies expect the size of these mini branches to be a third of

existing branch sizes. According to research conducted internally by Wells Fargo, 80% of

customer transactions do not require employee assistance, but 70% of customers still

visited a branch every six months.

We consider a potential scenario for European banks, where banks can use mobile

technologies to reduce the number of branches and employee headcount as part of

broader restructuring efforts. Based on our analysis, a c.5% reduction in branches and a

c.10% reduction in employee base over 2012-17 could result in gross cost savings of €30 bn

for banks. We consider a potential scenario for European banks, where banks can use

% mix, 2017

2017 Interchange fee, €bn 7.0 Credit cards 26%

Blended Interchange fee 0.23% Debit cards 74%

Interchange Fee

Credit cards 0.30% 0.27% 0.24% 0.22% 0.20% 0.18% 0.16% 0.14% 0.13%

Debit cards 0.20% 0.18% 0.16% 0.15% 0.13% 0.12% 0.11% 0.10% 0.09%

Blended Interchange fee 0.23% 0.20% 0.18% 0.16% 0.15% 0.13% 0.12% 0.11% 0.10%

European Interchange Fee risks (€bn)

0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -10%

0.23% 0.0 -0.1 -0.1 -0.2 -0.3 -0.3 -0.4 -0.5 -0.6 -0.6 -0.7

0.20% -0.7 -0.8 -0.8 -0.9 -0.9 -1.0 -1.1 -1.1 -1.2 -1.3 -1.3

0.18% -1.3 -1.4 -1.4 -1.5 -1.5 -1.6 -1.7 -1.7 -1.8 -1.8 -1.9

0.16% -1.9 -1.9 -2.0 -2.0 -2.1 -2.1 -2.2 -2.2 -2.3 -2.3 -2.4

0.15% -2.4 -2.4 -2.5 -2.5 -2.6 -2.6 -2.7 -2.7 -2.8 -2.8 -2.9

0.13% -2.9 -2.9 -2.9 -3.0 -3.0 -3.1 -3.1 -3.1 -3.2 -3.2 -3.3

0.12% -3.3 -3.3 -3.3 -3.4 -3.4 -3.4 -3.5 -3.5 -3.6 -3.6 -3.6

0.11% -3.6 -3.7 -3.7 -3.7 -3.8 -3.8 -3.8 -3.9 -3.9 -3.9 -4.0

0.10% -4.0 -4.0 -4.0 -4.1 -4.1 -4.1 -4.1 -4.2 -4.2 -4.2 -4.3

% Technology/Business model disruption (Technology risk)

Ble

nded

Inte

rcha

nge

fee

(Reg

ulat

ion

risk)



mobile technologies to reduce their number of branches and employee headcount as part

of their broader restructuring efforts. Based on our analysis, a c.5% reduction in branches

and c.10% reduction in employee base over 2012-17 can result in gross cost savings of €30

bn for banks. We would expect banks to spend an equivalent of c.10% (i.e. €3 bn) of the

savings on IT/mobile technologies. This most likely will come from repriortisation of

existing IT budgets and therefore we expect European bank IT budgets will be broadly

stable. Additionally, they believe that banks may even insource some of these projects

owing to their strategic importance and in-house expertise.

Compared to the US (75-85K branches), Europe has a significantly higher number of

branches at around c.220K and hence the branch reduction programmes we have assumed

in Europe may prove to be conservative. For 2012, we have assumed bank staff reduction

of 2.3% which is an average reduction over 2009-11. For 2013-17E, we have assumed staff

reduction which is an average of previous three years. Given that customers still prefer

having local branches for banking, we have assumed only c.50% reduction in number of

branches relative to the number of reduction in banks staff for each of the years.

Exhibit 22: Banks can potentially offset IF impact by reducing costs as part of the broader cost restructuring Analysis of broader cost restructuring efforts at banks enabled by IT/mobile technologies

Source: ECB, Goldman Sachs Global Investment Research.

2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E 2012‐17ENumber of Branches EU 27 (in 000's) 216 230 234 238 233 231 224 221 219 217 215 213 211EU 27 1.7% 6.4% 1.8% 1.9% ‐2.2% ‐0.9% ‐3.1% ‐1.1% ‐1.0% ‐0.9% ‐1.0% ‐1.0% ‐1.0% ‐4.8%

Number of banks staff EU 27 (in 000's) 3,151 3,185 3,243 3,264 3,162 3,079 3,045 2,976 2,917 2,865 2,807 2,753 2,700EU 27 1.9% 1.1% 1.8% 0.6% ‐3.1% ‐2.6% ‐1.1% ‐2.3% ‐2.0% ‐1.8% ‐2.0% ‐1.9% ‐1.9% ‐9.6%

Number of employees per branch 14.6 13.9 13.9 13.7 13.6 13.3 13.6 13.4 13.3 13.2 13.1 12.9 12.8yoy 0% ‐5% 0% ‐1% ‐1% ‐2% 2% ‐1% ‐1% ‐1% ‐1% ‐1% ‐1%

Average cost of a branch ($) 2,500,000Average cost of a branch (€) 1,923,077Average cost of an employee (€) 30,000

Total cost savings from broader restructuring measures driven by technology, business model changes (€ bn)

0% -2% -4% -6% -8% -10% -12% -14% -16% -18% -20%0% 0.0 1.8 3.6 5.4 7.1 8.9 10.7 12.5 14.3 16.1 17.9

-1% 4.3 6.0 7.8 9.6 11.4 13.2 15.0 16.8 18.5 20.3 22.1

-2% 8.5 10.3 12.1 13.9 15.7 17.4 19.2 21.0 22.8 24.6 26.4

-3% 12.8 14.6 16.3 18.1 19.9 21.7 23.5 25.3 27.1 28.8 30.6

-4% 17.0 18.8 20.6 22.4 24.2 26.0 27.7 29.5 31.3 33.1 34.9

-5% 21.3 23.1 24.9 26.6 28.4 30.2 32.0 33.8 35.6 37.4 39.1

-6% 25.5 27.3 29.1 30.9 32.7 34.5 36.3 38.0 39.8 41.6 43.4

-7% 29.8 31.6 33.4 35.2 36.9 38.7 40.5 42.3 44.1 45.9 47.7

-8% 34.1 35.8 37.6 39.4 41.2 43.0 44.8 46.6 48.3 50.1 51.9

-9% 38.3 40.1 41.9 43.7 45.5 47.2 49.0 50.8 52.6 54.4 56.2

-10% 42.6 44.4 46.2 47.9 49.7 51.5 53.3 55.1 56.9 58.7 60.4

Gross savings for Banks, €bn 30.2

2009 2010 2011 2012 2013E 2014E 2015EEuropean banks cost base, €bn 395.3 388.5 403.4 377.6 377.8 373.0

yoy -1.7% 3.8% -6.4% 0.0% -1.3%

Gross cost savings from broader restructuring measures driven by technology, business model changes (€ bn) 30.2% reduction in cost base 8.1%

Ban

k br

anch

es re

duct

ion

(%)

% Employee reduction



Mobile carriers: Customer retention in DM; unbanked customer in

EM

Mobile money landscape is more complicated than traditional systems owing to a more

active role of mobile carriers and OEMs. While telcos had no stake in the traditional value

chain, the emergence of the mobile as the primary growth payments channel is creating

interesting newer revenue opportunities. We expect telcos to successfully tap into an

attractive EM money transfers opportunity, however in our view there are limited revenue

opportunities in DM due to high competition and lack of differentiation. As always we

expect developed markets mobile carriers to derive limited benefits from overlaying

services. European telcos like Vodafone, Millicom, Telefonica have been proactively

investing in technology and emerging markets, to tap mobile money related opportunities

however risks of disintermediation by technology vendors and banks remain significant.

Need for fraud/risk management and technology to further drive these initiatives invariably

brings in the role of banks and technology vendors. Additionally low customer loyalty

remains a key challenge. However increased scope for their role in the burgeoning mobile

payments space should not be underestimated as they remain an integral part of the

mobile money landscape and have strong distribution strength in emerging markets.

Developed markets- Given the strong payments infrastructure (financial services

infrastructure, regulations); we see no significant revenue benefits for mobile carriers from

payments opportunity in developed markets. While European Mobile carriers see a

possible revenue opportunity in growth of mobile money in developed markets, we believe

that mobile wallets by Mobile carriers may become generic and hence see limited revenue

benefits. However, we believe that owing to their presence in the mobile money value

chain and by integrating various customer loyalty schemes and commerce initiatives with

convenience shopping, they can marginally improve their customer retention in developed

markets. Additionally, they can benefit through carrier direct billing efforts and charging

banks and other enterprises for information, advertising based revenues. Mobile carriers

are also actively collaborating to create broader commerce networks like Weve (UK telcos

JV- Vodafone, Telefonica, EE) and ISIS (US telcos- AT&T, Verizon, T Mobile) to achieve this

and are targeting retailers and advertisers. While the benefits of technology and combined

customer database (c.15 mn for Weve) are clear, monetisation remains to be proven.

Emerging markets- According to the World Bank, 48% of the world’s population does not

have access to basic financial services such as a bank account highlighting the significant

revenue opportunity from this segment. Hence, we see a clear revenue opportunity for the

European Mobile carriers to tap the unbanked customers owing to their strong distribution

strength and underpenetrated banking customer base. Additionally, payment schemes also

help improve customer retention in emerging markets. Gartner, forecasts mobile payments

in emerging markets (APAC, Eastern Europe, Middle East, Africa) to grow at 32% CAGR to

$480 mn by 2017E ($119 mn in 2012). According to GSMA, currently there are 150 live

mobile money deployments and an additional 110 deployments are being planned (source

GSMA, January 2013). M-Pesa (JV between Vodafone, Safaricom) in Kenya remains the

number one example in this regard with over 18 million active customers transferring up to

$1.2 bn per month. We see Millicom as a clear beneficiary of its high presence in EM.

In emerging markets, there is more differentiation and there are fewer competitors hence it

makes it easy to capture value. While this is largely an unregulated market currently, we

expect the increased regulatory environment to come into place over the next few years as

evidenced by newer regulations controlling activities of non-financial services entities in

India and Nigeria. Hence we believe that telcos will have to increasingly partner with

technology vendors or financial institutions to tap this opportunity. We note that major

European telcos are partnering with technology/banking providers like Wirecard given their

strong technology knowhow and ownership of banking licenses in some key geographies

like Germany, UK.



Additionally, we believe that same mobile money schemes cannot be replicated into other

countries without significant customisation as evident by lack of good growth of M-Pesa

and other schemes beyond their core geographies.

Exhibit 23: Telcos are an integral part of the mobile ecosystem Analysis of European Mobile carriers key attributes


Exhibit 24: EMs present Mobile carriers with significant revenue opportunity Impact of mobile money on mobile carriers


Opportunities

• Significant revenue opportunity through payments in EM

• Improving customer retention through mobile wallets thereby reducing customer related costs (retention, acquisition)

• Additional revenues through ads etc.

Threats

• Mobile wallets become generic

• Regulations

• Low ROI

Strengths

• Integral part of the mobile ecosystem

• High distribution presence in emerging markets including Asia, Africa, LatAm

• Better EM differentiation

Weakness

• Low customer retention

• Need for significant investments

• High competition in DM

• Low network differentiationDisruption

Investments

Regulations


mPayments (EM Money transfers and others) +3.7 Small PositiveDM customer retention +0.9Incremental IT spending ‐0.7TSM opportunity ‐0.7

+3.7 ‐+0.5

Mobile carriersBeneficiaries‐ Millicom, Vodafone, Telefonica, Telenor

EM Money transfers is the key opportunity. Improving customer

retention through wallets

Mobile Money‐ Broader implications for TelcosIncrease/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)



Exhibit 25: European telcos have high customer churn

Customer attrition in various markets

Exhibit 26: Customer costs are a significant portion of

costs for European telco majors like Vodafone Customer costs in £ mn (includes acquisition costs and

retention costs)

Source: Vodafone

Source: Vodafone

Exhibit 27: Significant gap between mobile and banking

penetration creates attractive opportunities

Mobile penetration (%), access to financial services (%)

Exhibit 28: M-PESA has seen strong growth over the

years supporting growth of other non-financial initiatives

M-PESA active customers

Source: GSMA Mobile Money Tracker

Source: Safaricom

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Q310/11

Q410/11

Q111/12

Q211/12

Q311/12

Q411/12

Q112/13

Q212/13

Voda

fone

‐Customer chu

rn by marlet

Germany UK Turkey Italy

Spain India Vodacom

19.5%

20.5%

20.0%

19%

19%

19%

20%

20%

20%

20%

20%

21%

8,500

8,600

8,700

8,800

8,900

9,000

9,100

9,200

9,300

9,400

9,500

9,600

FY11 FY12 FY13

Customer costs (£ mn) Customer costs as % of sales

0%

20%

40%

60%

80%

100%

120%

140%

160%

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Mobile

Fin

ancia

l

Tanzania Nigeria Kenya Morocco Ghana South AfricaCote d'IvoireNamibia Algeria Gambia Botswana Gabon

2.08

6.18

9.48

13.8

14.91

17.11

197%

53%46%

8%15%

0%

50%

100%

150%

200%

250%

0

2

4

6

8

10

12

14

16

18

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

M-PESA customers (mn) %yoy growth



Exhibit 29: Emerging markets provide an attractive opportunity for European mobile carriers List of European telcos initiatives

Source: Company data

EM unbanked customers represent the key revenue opportunity for European Mobile carriers

Based on our end market analysis, we believe that unbanked customer opportunity in the

emerging markets is the clear revenue opportunity for European Mobile carriers and

represents a €3.7 bn revenue opportunity. Our estimates are based on the following:

Gartner forecasts global payments transaction volume to grow from $163 bn in 2012 to

$721bn by 2017E. This includes opportunities related to merchandise purchases,

ticketing, money transfers, bill payments, air time pop ups and others. Excluding

merchandise purchases (to avoid duplication in retail segment), mobile transaction

volume will grow from $129 bn in 2012 to $553 bn by 2017E. 20% of this volume comes

from North America which does not represent opportunity for European telcos. APAC

represents c.28% of the opportunity. Based on GDP, we estimate c.8% is related to

developed markets like Japan which is not a European Mobile carriers revenue

opportunity.

Emerging markets comprising of Eastern Europe (c.2%), Middle East (c.4%), emerging

APAC (c.20%), Africa (c.26%) and Latin America (c.6%) represent c.59% of the global

transaction volume which provides revenue opportunity for the European mobile

carriers. Depending on the transaction range, mobile payment services charge in the

range of 1%-2% of the transaction fees. Assuming an average of 1.5% transaction fees,

it implies a revenue opportunity of €3.7 bn for European telcos, which represents

c.6.3% of the European telcos EM revenues by 2017E.

Developed market opportunity is limited to Western Europe which represents 14% of

the global transaction volume, assuming a similar average of 1.5% transaction fee; it

represents a €0.9 bn revenue opportunity. However we believe that owing to the

strong infrastructure support in developed markets, these opportunities will largely be

a banks related revenue opportunity.

According to Gartner, Telcos spend 4.1% of their revenues on IT. Assuming similar

ratio for incremental IT related spend by European telcos, additional €3.7 bn revenues

from EM represents a nominal €0.2 bn incremental revenue opportunity for technology

vendors. Additionally, we expect a significant reprioritisation of budgets by European

Mobile carriers in favor of mobile money related investments.

Telco provider Partners Initiative Comments

Telefonica Monitise Mobile payments & Commerce services Initial focus on UK

Bango BlueVia Payment Create an enhanced direct-to-bill payment experience for mobile app stores

Mastercard Wanda

Wanda will provide mobile payment solutions to over 87mn Movistar customers

in the 12 markets where it will operate.

Vodafone Visa, Gemalto NFC payments - Wave and pay scheme Initial launch in Germany, the Netherlands, Spain, Turkey, and the UK

Orange Mastercard Mobile payments Initial focus in Spain

Visa Orange money Launching in Botswana

Facebook, Bango internet+ solution Simple and secure system (Two clicks)

Telenor Fortumo Mobile payments

significant part of Telenor’s c.150 mn subscribers come from EMs

in Asia and Central and Eastern Europe

Millicom Tigo cash Focus in Africa

Deutsche Telekom B+S Card Service, Intercard NFC-based mobile payment Initial focus in Germany

Mastercard, Wirecard MasterCard PayPass, DT mobile wallet Rolling out to c.93 mn European subscribers



Exhibit 30: European Mobile carriers are major beneficiaries of money transfers in EM (€3.7 bn opportunity in 2017) Analysis- EM revenue opportunity for European mobile carriers

Source: Gartner, m-PESA, Goldman Sachs Global Investment Research.

Marginal improvement in customer retention is the key DM opportunity

Based on our end market analysis, we believe that European Mobile carriers can realise

€0.9 bn customer related cost savings by increased investments in mobile money

initiatives like wallets etc. Our estimates are based on the following assumptions:

As per compiled data from various European telcos, customer churn reduces from 14%

(average of 17% related to mobile, 11% related to fixed) to 10% with increased

bundling of packages. Given that mobile wallets by telcos can potentially become

generic and are not as valuable as services like TV or broadband are, we assume

mobile wallets by European telcos manage to achieve 50% of the benefits related to

attrition reduction i.e. 1.8% (50% of reduction from 14% to 10%).

Worldwide mobile payment market, $bn 2010 2011 2012 2013E 2014E 2015E 2016E 2017E2012‐17E CAGR

Merchandise Purchases 9.2 19.8 33.8 50.5 71.0 96.6 129.0 168.3 38%

Ticketing 0.2 0.5 0.9 1.5 2.3 3.4 4.8 6.8 51%

Money Transfers 40.0 74.3 118.0 168.0 230.3 302.4 391.3 497.1 33%

Bill Payments 2.9 5.0 8.1 11.7 16.3 21.6 28.8 36.8 35%

Airtime Top‐Ups 0.5 1.0 1.6 2.5 3.6 5.0 6.6 8.5 40%

Other 0.2 0.6 0.8 1.2 1.6 2.1 2.8 3.9 37%

Total Mobile payment transactions, $bn 52.9 101.1 163.1 235.4 325.2 431.1 563.4 721.4 35%

Total Mobile Payments, $bn (ex‐merchandise purchases) 43.7 81.3 129.3 184.8 254.2 334.5 434.3 553.1 34%

% of global payments transactionsNorth America 9% 13% 15% 16% 17% 18% 19% 20%Asia/Pacific‐ Japan 11% 10% 9% 9% 9% 8% 8% 8%EM (Rest of APAC, Eastern Europe, Middle East, Africa) 70% 66% 64% 63% 62% 61% 60% 59%Western Europe 10% 11% 12% 13% 13% 13% 14% 14%

Mobile Payments, $bn (ex‐merchandise)‐ EM 30.7 53.7 82.8 116.3 157.3 203.1 259.1 324.1

Mobile Payments, $bn (ex‐merchandise)‐ DM (W Europe) 4.2 8.9 15.4 23.1 32.9 44.8 58.9 76.2

Payment fee revenues, $bn (1.5% of transaction)‐EM 0.5 0.8 1.2 1.7 2.4 3.0 3.9 4.9

Payment fee revenues, $bn (1.5% of transaction)‐DM 0.1 0.1 0.2 0.3 0.5 0.7 0.9 1.1

EM opportunity‐ European mobile carriers

Payment fee revenues, $bn (1.5% of transaction)‐EM 0.5 0.8 1.2 1.7 2.4 3.0 3.9 4.9

EUR/USD 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3

Payment fee revenues, €bn (1.5% of transaction)‐EM 0.4 0.6 1.0 1.3 1.8 2.3 3.0 3.7

European mobile carriers EM revenues 58.7

EM payment feeas % of total European mobile carriers EM revenues 6.4%

IT spending by telcos as % of total revenues 4.1% 4.1% 4.1%

Estimated incremental IT spending by MNOs/Telcos 0.2

DM opportunity‐ European banks

Payment fee revenues, €bn (1.5% of transaction)‐DM 0.0 0.1 0.2 0.3 0.4 0.5 0.7 0.9

EUR/USD 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3

Payment fee revenues, €bn (1.5% of transaction)‐DM 0.0 0.1 0.1 0.2 0.3 0.4 0.5 0.7

Payment fee revenues, €bn (1.5% of transaction)‐ EM+DM 0.4 0.7 1.1 1.6 2.2 2.9 3.7 4.6



Our European telco analysts forecast European Mobile carriers revenues of €258.7 bn

by 2017. Assuming 20% (in line with Vodafone) of this is spent on customer related

costs (includes customer retention costs, customer acquisition costs); it implies c.

€51.7 bn customer related costs.

We have assumed customer churn for European Mobile carriers at 33% based on

Vodafone customer attrition. Assuming churn reduction of 1.8%, it would imply

customer related cost savings of €0.9 bn.

Exhibit 31: Improved customer retention is the key benefit from mobile money related

investments in developed markets Analysis- DM revenue opportunity for European mobile carriers

Source: Company data, Goldman Sachs Global Investment Research.

Retail: mCommerce accelerating growth of eCommerce

Our retail analysts believe that eCommerce is the most disruptive factor in the retail

industry today and expect acceleration of share gains from store based retail driven by

shrinking store-based retail footprints, favorable demographics, mobile commerce, and

faster growing emerging markets. Based on our US analysts’ proprietary global

eCommerce model, our retail analysts forecast global eCommerce over the next three

years to exceed industry consensus forecasts, growing at 17% annual growth rate (see

Global Ecommerce to accelerate, June 4, 2013).

We identify retail as one of key verticals which will be impacted by changes in the mobile

money landscape as they remain core to the commerce network. As the retailers try to

establish omnichannel, establish price transparency and avoid intermediation, we expect

them to invest heavily in the technology sector and leading online vendors like ASOS to

benefit as a result of their strong presence in the online segment. Some retailers, such as

Tesco in the U.K., Carrefour in France and Starbucks in the U.S., are launching their own m-

European Telcos customer churn1P mobile 1P fixed 2P 3P 4P

Swisscom 13% 12% 13% 7% 5%Telekom Austria 12% 10% 2%TDC 21% 16% 13% 11%FT 21% 7%Average customer churn 17% 11% 10% 10% 8%Reduction in customer churn from 1Package‐>2Package ‐3.5%Reduced customer churn with Mobile Wallets ‐1.8%

European MNOs, in €bn 2013E 2014E 2015E 2016E 2017E

European MNOs revenues 363.8 361.7 363.8 366.1 368.2

European MNOs operating costs 256.1 255.0 256.4 258.2 259.8

Customer costs as % of operating costs 20%

European MNOs customer costs 51.2 51.0 51.3 51.6 52.0

European MNOs customer churn 33.1%

Estimate reduction in customer churn ‐1.8%

Potential cost benefits from churn reduction, € bn 0.9

as % of total European mobile carriers revenues 0.2%as % of total European mobile carriers operating costs 0.4%as % of European MNOs mobile carriers customer costs 1.8%



wallet or contactless-card-based loyalty and payment initiatives to better target customers

and benefit from the strong growth of the mobile commerce segment. Vendors like Ocado

derive more than 30% of their checkouts from mobile apps on smartphones and this

number increases to 40%-45% if tablets are included. We believe that retailers are more

likely to partner with technology vendors like Wirecard, AtoS or Mobile carriers to help

them better understand mobile ecosystems, take care of technical aspects of wallets and

customer support.

Software and IT services vendors like SAP and Capgemini are collaborating to develop

high end analytical applications on SAP’s HANA platform to help large retailers and

consumer product companies to deal with huge amounts of data from internal systems

(POS data) and external systems (social media data, market data). Capgemini’s offerings

include modules like Affinity Basket Analysis and Next Best Action, which aim to help

retailers react more quickly to trends, competitor sales and adapt their up/cross sell and

markdown strategy using predictive analytics capabilities based on a broad set of

customer-centric information including point-of-sale data.

While propositions from European Commission are still in the proposal stage, we estimate

c.€4 bn loss of interchange fees will directly benefit retailers.

Exhibit 32: Retail sector is at the core of the eCommerce opportunity

Analysis of European retailers key attributes


Exhibit 33: mCommerce is an incremental driver of eCommerce growth in Europe

Impact of mobile money on retail


Opportunities

• Improve returns, reduce costs by reducing brick and mortar shops

• Significant differentiator for market share wins

• Additional revenue streams through ads, information sharing etc.

Threats

• Regulations

• Disintermediation by otherecosystems

Strengths

• Integral part of commerce opportunity

• Ability to create omni channel presence

Weakness

• More prone to disruption due to innovative technology, business models

Disruption

Security

Technology


Regulations‐ Gain from Interchange Fees +4.0 Positive(Positive both for traditional, online retailers) +0.0 Incremental IT spending ‐1.0 0

mcommerce (Incremental) +21.6mcommerce (share shifts) +43.2Offline commerce ‐43.2

+0.0+4.0 ‐1.0 +21.6

Retail

Beneficiaries‐ ASOS, Kinnevik, YOOX Non‐Beneficiaries‐Traditional

retailers, Non prime real estate

Mobile commerce (@7% EBITDA margins) is

becoming a major driver of incremental ecommerce

Mobile Money‐ Broader implications for RetailIncrease/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)



Exhibit 34: Mobile traffic is growing at 3x faster than web

visits % visits from mobile devices

Exhibit 35: Smartphones disrupt the brick & motor

shopping Activities performed in a retail store with Smartphone

Source: ASOS

Source: Comscore

Exhibit 36: Retailers can reduce their costs by reducing

floor space

Change in western Europe 2011 vs. 2004 and 2030 vs. 2011

Exhibit 37: Price comparison, couponing are top focus

items for the customers

Customers mobile shopping preferences

Source: Goldman Sachs Global Investment Research, Euromonitor.

Source: Federal Reserve 2012.

We estimate c.€65 bn European mCommerce opportunity by 2017E

Based on views of our retail analysts, we estimate a c.65 bn European mCommerce

opportunity by 2017E. While two thirds of this revenue opportunity will be derived from

share shifts from offline and desktop, a third of this is expected to be incremental volume.

Key assumptions include:

EuroMonitor forecasts European e-commerce sales of $269 bn by 2017E

Our US retail analysts forecast, US mCommerce to grow at 34% CAGR over 2012-17E

and be 31% of eCommerce sales by 2017 (see Global Ecommerce to accelerate, June 4

2013). In line with these assumptions, we forecast European mCommerce to c.31% of

e-commerce by 2017E implying a revenue opportunity of €65 bn.

Retail sector spends 1.5% of their revenue stream on IT spending. Assuming retail

sector spends 1.5% of their mCommerce revenues on mobile/IT related spending, it

represents a €1 bn revenue opportunity for technology vendors. Additionally, an

42.5%

34.9%

32.7%

30.4%

22.4%

18.5%

18.1%

15.4%

10.2%

5.6%

Took picture of a product

Texted or called friends/ family about a product

Sent picture of a product to family/friends

Scanned a product barcode

Compared product prices

Food coupons or deals

Found store location

Researched product features

Checked product availability

Purchased goods or services (online)

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

2011 vs. 2004 2030 vs. 2011



analysis of data to better understand behavioral patterns of customers is growing in

importance every day, given we believe that segments like mPOS will not remain

limited to just providing equipment to enable transactions but extend more

importantly into analysing the data from those transactions.

Exhibit 38: mCommerce represents c.€65 bn revenue opportunity in Europe Analysis- European mCommerce opportunity

Source: Euro Monitor, eMarketer, Goldman Sachs Global Investment Research.

Global E‐commerce, $bn 2011 2012 2013E 2014E 2015E 2016E 2017E 2012‐17EE‐commerce 447.0 521.0 609.0 717.0 830.0 949.0 1,074.0 16%E‐commerce as % of GDP 0.7% 0.8% 0.9% 1.0% 1.1% 1.2% 1.3%M‐commerce 24.0 57.0 117.0 183.0 260.0 351.0 423.0 49%M‐commerce as % of E‐Commerce 5.4% 10.9% 19.2% 25.5% 31.3% 37.0% 39.4%

US E‐commerce, $bnE‐commerce 154.0 177.0 206.0 238.0 272.0 309.0 348.0 14%E‐commerce as % of GDP 0.9% 1.0% 1.2% 1.3% 1.4% 1.5% 1.7%US E‐commerce as % of global 34% 34% 34% 33% 33% 33% 32%M‐commerce 14.0 25.0 39.0 53.0 71.0 92.0 109.0 34%US M‐commerce as % of global 58% 44% 33% 29% 27% 26% 26%M‐commerce as % of E‐Commerce 9.1% 14.1% 18.9% 22.3% 26.1% 29.8% 31.3%

Europe E‐commerce, $bnE‐commerce 152.4 162.5 183.4 204.5 226.1 247.7 268.8 11%E‐commerce as % of GDP 0.8% 0.8% 0.9% 1.0% 1.2% 1.3% 1.6%M‐commerce as % of E‐Commerce 9.1% 14.1% 18.9% 22.3% 26.1% 29.8% 31.3%M‐commerce 13.9 22.9 34.7 45.5 59.0 73.7 84.2 30%FX: EUR/USD 1.3 1.39 1.29 1.30 1.30 1.30 1.30 1.30M‐commerce (€ bn) 10.0 17.8 26.7 35.0 45.4 56.7 64.8 29%yoy 79% 50% 31% 30% 25% 14%

2011 2012 2013E 2014E 2015E 2016E 2017EEMEA retail IT spending (Gartner) 32.1 33.3 33.8 34.6 35.5 36.4 37.4

yoy 4.0% 1.5% 2.4% 2.6% 2.5% 2.8%

IT spending as % of retail opex 1.8%IT spending as % of retail sales 1.5% 1.5%

Assuming retail sector spends incremental 1.5% of sales for retooling for omnichannel presence

Incremental IT spending by Retail, €bn 1.0



Other verticals

Among other verticals, we believe that media/Internet will be the most impacted however

their revenue share in the attractive mobile advertising segment (€4.6 bn by 2017E) is

unclear as other ecosystems vie for their share. According to Gartner, mobile advertising

revenues are expected to reach $4.4 bn by 2016. By assuming, a 2017 growth rate to be

similar to 2016, we believe that European mobile advertising will be a $6 bn market (FX of

USD/EUR 1.3 implies €4.6bn market opportunity).

Exhibit 39: Among other verticals, we believe that media/internet will be the most impacted however their revenue

share in mobile advertising segment is unclear Mobile advertising forecasts, 2012-17E

Source: Gartner, Goldman Sachs Global Investment Research (2017 estimate).

Exhibit 40: Mobile advertising is new revenue growth

opportunity Mobile advertising, US$ mn

Exhibit 41: High growth location based services is a

potential area of conflict Location based services, US$ mn

Source: Gartner

Source: Gartner

Technology sector: Net beneficiary of the growth of mobile money

Based on our analysis, the technology sector will be the net beneficiary of the changes

brought in by mobile money as companies in various end markets retool themselves to

reduce cost and provide an omnichannel experience. We identify IT outsourcing and micro

merchants as the key incremental opportunities and estimate a €8 bn revenue opportunity

by 2017. Our estimates assume that European payment vendors under our coverage can

capture c.30% of this opportunity.

Mobile advertising revenues, ($ bn) 2010 2011 2012E 2013E 2014E 2015E 2016E 2017ENorth America 0.4 1.7 3.2 3.8 4.7 6.6 8.9 11.9Western Europe 0.3 0.8 1.6 1.9 2.4 3.3 4.4 6.0Asia/Pacific 1.1 2.4 4.3 4.9 5.5 7.3 9.5 12.2Rest of the World 0.1 0.3 0.6 0.8 1.0 1.3 1.8 2.4Total 2.0 5.2 9.8 11.4 13.5 18.6 24.6 32.5FX 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3European mobile advertising, €bn 0.2 0.6 1.2 1.5 1.8 2.5 3.4 4.6

1.1

2.4

4.34.9

5.5

7.3

9.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2010 2011 2012E 2013E 2014E 2015E 2016E

Mob

ile adv

ertising, $

mn

Rest of the World Asia/Pacific

Western Europe North America

0.71.0

1.3

1.8

2.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2011 2012E 2013E 2014E

Consum

er location

based

services, $ m

n

"Consumer location based revenues"

2011‐15E 34% CAGR



Compared to core banking solutions where replacing legacy infrastructure/software is a

concern for banks shifting to packaged core banking solutions, mobile solutions carry no

legacy and are increasingly critical to serve customers and hence get a disproportionate

share of shrinking IT budgets. Our industry checks indicate that apart from outsourcing,

mobile payments is the only area of IT spending which is growing in the financial services

market. We expect large banks with substantial customer bases to continue to make

significant organic investments in establishing mobile infrastructure; however we see tier

2/3 banks mostly outsourcing platform development to vendors like Monitise. Additionally,

as discussed in earlier sections we believe that the technology sector will be a beneficiary

of mobile opportunities related spending by banks (platform development, outsourcing,

mini branches), telcos (EM payment platforms, TSM) and retail sectors (mCommerce

platforms).

We believe the upcoming deadline for migration to comply with Single Euro Payments

Area (SEPA) regulations in Europe provides a potential impetus towards incremental

spending on IT and especially associated services in the region. As such we see an

incremental opportunity, with potential beneficiaries being the European technology

vendors. We note that the deadline is mandated by legislation, suggesting this can provide

a meaningful impetus to technological migration.

Exhibit 42: Technology- Enabler of mobile money landscape

Key attributes of technology vendors


Exhibit 43: Tech is the net beneficiary Impact of mobile money on tech


Opportunities

• Newer opportunities related to IT spending

• Additional revenues through ads, information based services.

Threats

• Remain as enablers than participants in the payments chain

• Clash of the ecosytems limiting participation

Strengths

• Integral part of the mobile payments value chain

• Other sectors are dependent on Technology for transformation

Weakness

• Fragmented landscape

• Most relationships are b2b than b2c exception being mobile handset/O/S makers

Disruption

Regulations


Incremental IT spend (Outsourcing, Platforms) +4.1 PositiveMicro merchants (mPOS services) +2.9Disruptive technologies/business models +0.3TSM opportunity +0.7

Incremental R&D, S&M costs ‐2.0+8.0 ‐2.0

Mobile Money‐ Broader implications for TechnologyIncrease/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)

Technology

Beneficiaries‐ AtoS, Monitise,

Gemalto, Ingenico,

Wirecard Non‐Beneficiaries‐

Tech is the net beneficiary as it helps retool the end markets to reduce costs and create omnichannel

presence



Exhibit 44: We estimate €8 bn incremental revenue opportunity for technology vendors from mobile money related

opportunities Analysis- revenue opportunities of technology sector

Source: Gartner, Goldman Sachs Global Investment Research.

Based on our end market analysis, we believe that mobile money will impact the revenue

streams for technology in the following ways:

IT spending/mobile technologies- we estimate incremental €4.8 bn revenue

opportunity for the technology vendors from retooling and enabling various end

markets to benefit from growth of mobile money. We see growth opportunities for

technology vendors which specialise in outsourcing (AtoS, Capgemini),

Platforms/processing (Monitise, Wirecard, Ingenico, AtoS Worldline), Analytics (SAP)

and Security (Gemalto, Ingenico) as a result.

Disruptive technologies/business models- we forecast revenue gains of c.€0.3 bn by

2017 (vs. 2012) from new disruptive technologies (discussed in banks section).

Micromerchants interchange fees- we forecast revenue opportunity of c. €2.9 bn by

2017 (vs. 2012) from micro merchants related opportunity.

As the tech vendors capitalise on the revenue opportunities related to mobile money, we

estimate c.25% of this revenue streams to be spent on R&D and S&M related expenses.

Disruptive technologies (€0.3 bn)

SAP Gemalto Monitise Monitise

Ingenico

EMEA IT Spending, € bn 2011 2012E 2013E 2014E 2015E 2016E 2017E2012‐17 CAGR

Banking 75.7 78.7 79.5 81.6 84.0 86.9 90.0 3%Telecommunications 53.2 55.2 55.6 57.0 58.9 60.6 62.8 3%Retail 32.1 33.3 33.8 34.6 35.5 36.4 37.4 2%Total IT spending by key verticals 160.9 167.2 168.9 173.2 178.4 183.9 190.3 3%yoy 3.9% 1.0% 2.5% 3.0% 3.1% 3.5%

Mobile money related IT spending, € bnBanking 3.0 Telecommunications 0.2 Retail 1.0 TSM opportunity 0.7 Incremental IT spending by key verticals 4.8

Technology market opportunity

Incremental IT spending (€4.8 bn)‐ Banks, Telcos, Retail Micro merchant

opportunity (€2.9 bn) Additional revenue sources

(€4.6 bn)

OutsourcingAtoS

Capgemini

PlatformsMonitise

Wirecard, Ingenico, AtoS Worldline

Security‐TSM, EMV

Advertising CouponingAnalytics Monitise,Ingenico, AtoS

Worldline,Wirecard, Sage

iZettle, SumUp



Micro merchants: Significant untapped opportunity

Costs of accepting payment cards include fixed costs (POS, phone lines) and variable costs

(per transaction fees, etc.). Therefore, any cost-benefit analysis centers on two issues: (1)

incremental sales volume generated, and (2) profit from those sales after transaction costs.

Micromerchants have largely been an untapped segment due to the high costs of

transactions relative to the incremental revenues generated. However, US mobile point of

sale vendors (mPOS) like Square have championed the concept of using mobile point of

sale terminals (mPOS) to target the micromerchant segment by significantly reducing the

set up costs benefiting from developments in mobile technologies. In Europe, a similar

effort is being lead by vendors including iZettle, SumUp and Payleven. Global POS leader

Ingenico and other European payments vendors Monitise, Wirecard, AtoS have also

launched their own offerings in the space.

We believe that mobile point of sale (mPOS) devices provide an incremental opportunity

for certain European payments vendors, including Monitise (CL-Buy). While these have

been cited as a threat for traditional payment terminal vendors such as Ingenico (Buy), we

do not see this as a near term risk, although we are cognisant of the need to monitor

technological evolution of these closely.

We forecast €5.7 bn European micro merchants related revenue opportunity by 2017 with

key beneficiaries being technology vendors/mPOS (€2.9 bn), banks (€0.6 bn) and other

members of the payments value chain (€2.2 bn). Key assumptions of our analysis:

According to European Commission, there are c.23mn micro merchants in Europe of

which 4.6mn are in UK (Source: Department for Business Innovation & Skills).

Average sales turnover of a UK micro merchant was £136.2K in 2012 (€156.7K,

assuming £/€ 1.15). We assume sales turnover of a European micro merchant is c.85%

of an UK micromerchant (loosely based on UK GDP per capita vs. European GDP per

capita). Additionally, we have assumed that this grows at UK GDP growth rate till

2017E (in line with our economists).

We have assumed that the impact of the changes to interchange fees will be seen from

2016 onwards i.e. 0.2% IF on debit cards and 0.3% on credit cards.

Based on the above assumptions, interchange fees will be a €6.5 bn revenue

opportunity by 2017. On a conservative basis, assuming a conversion of c.10% of the

micromerchants implies a revenue opportunity of €0.6 bn for banks.

Mobile POS vendors like iZettle charge 1.5%-2.75% as transaction fee. On an average,

we assume it is 2%, implying a revenue opportunity of €5.7 bn if 10% of the

micromerchant opportunity is tapped. Assuming 0.23% goes to banks as interchange

fees (€0.6 bn), 1% goes to mPOS vendors (€2.9 bn), 0.77% (€2.2 bn) will go to other

vendors in the payments value chain.



Exhibit 45: We forecast €5.7 bn revenue opportunity related to European micro merchants Analysis- European micro merchant opportunity

Source: UK BIS, European Commission, Company data, Goldman Sachs Global Investment Research.

TSM: Securing the integrity of mobile payments

Trusted Service Manager (TSM) constitutes a key enabling technology for mobile

payments in our view, based on its role in ensuring banking-grade security in the mobile

environment. Moreover, we see potential for its application to non-payment verticals. We

estimate TSM will become a €0.7 bn market by 2017, even based on modest consumer

uptake of associated mobile payments solutions, and we view Gemalto (Buy) as the prime

beneficiary, with almost 20% of its incremental profits for 2012-17 to come from this source.

While TSM is currently at the start of a rollout phase, and adoption rates of TSM-enabled

payments approaches are as yet unknown, we have analysed the market based on plans

announced by telcos and banks, and pricing assumptions from our company discussions.

While we see clear potential for multiple technological approaches to mobile payments to

proliferate, in practice we believe an approach based on embedding payment credentials

within a silicon chip (“secure element” – either a separate chip in the phone or in a SIM)

will be one of the most prominent. As such, we view TSM as a key enabler. The purpose of

TSM platforms is to address the need for a mechanism whereby highly sensitive

credentials required to authenticate transactions at the point of sale can be transmitted

remotely over the air into such chips, given the phone in question cannot be preloaded

with these before the consumer decides which payment apps and providers to use. The

credentials involved include the keys to the bank, the user’s account identification and

other details e.g. spending limits, all of which could be targets of fraud/theft.

European Micromerchants opportunity 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Total SMEs in Europe (mn) 23.0

Total Micro merchants (mn) 21.4

UK 4.6

Rest of Europe 16.8

Average turnover (in € mn)

UK 0.16 0.16 0.16 0.17 0.17 0.17

Rest of Europe 0.13 0.13 0.14 0.14 0.14 0.15

as % of total

Credit card spending 34% 32% 31% 32% 31% 30% 29% 28% 27% 26%

Debit card spending 66% 68% 69% 68% 69% 70% 71% 72% 73% 74%

Interchange fee

Credit cards 0.78% 0.78% 0.78% 0.78% 0.78% 0.78% 0.70% 0.60% 0.30% 0.30%

Debit cards 0.39% 0.39% 0.39% 0.39% 0.39% 0.39% 0.35% 0.30% 0.20% 0.20%

UK 3.2 2.9 2.5 1.5 1.6

Rest of Europe 10.0 9.1 7.9 4.8 4.9

Micromerchants opportunity‐ Banks, €bn 13.2 12.0 10.4 6.3 6.5

yoy ‐9% ‐13% ‐39% 2%

Micromerchants opportunity‐ Technology, €bn 26.0 26.5 27.1 27.8 28.6

Assuming modest success (10%) in tapping the micro merchant opportunity

Banks Interchange fees (€ bn), 0.23% blended rate 0.6

Incremental technology revenues (€ bn), 1% fee 2.9 Mobile POS vendors charge 1.5%‐2.75% for transactions (Average 2%)Revenue opportunity for other vendors in the value chain (=2%‐1%‐0.23%) 2.2



Exhibit 46: High level summary of TSM market assumptions TSM market overview

Source: Goldman Sachs Global Investment Research, Company data.

Our expectation that the global TSM market can grow at a 57% CAGR for 2012-17E to

reach a value of roughly €0.7 bn, encapsulates the following core assumptions:

Penetration of NFC SIM cards within the base of mobile subscribers globally within key

geographies to reach 26%. While there is no technological requirement for TSM

services to be linked to use of NFC specifically (and indeed secure chips could be

substituted for SIMs), our NFC SIM card forecasts act as a proxy for deployment by

telcos of secure elements (within mobile devices) on which payment and other

credentials may be stored. Further, there is no need for NFC to be the transmission

mechanism to the reader: the point is that these are secure containers whose contents

must be managed by TSM, even if e.g. Bluetooth were the transmission mechanism.

We assume roughly 40% of telco subscribers on average who are covered with such

cards actually activate at least one payment or other application at some point (even if

not frequent users of it thereafter). We assume 30% of users covered with such cards

activate some kind of payment app, and that 10% activate some kind of other services

app e.g. for transport, retailer loyalty, ticketing, enterprise access etc.

As such, we assume that in total only 10% of the approx. 5.6 bn mobile subscribers in

key geographies globally will activate some kind of TSM managed app by 2017,

whether related to payment or other verticals.

We assume that by 2017 TSM vendors will on average be able to extract just over €1

per activated user globally (including all TSM revenue streams e.g. system setup,

licenses, activation fees, maintenance etc.). This compares to the €4 per user that we

estimate GTO currently charges for an NFC-ready LTE/4G SIM card (which we estimate

will be closer to €2 by 2017, due to double digit declines on hardware ASPs).

Global TSM market summary 2012 2013E 2014E 2015E 2016E 2017E

Global mobile subscribers - key geographies (mn) 3,302 3,675 4,092 4,536 5,035 5,589

Cumulative global subs market subs covered with NFC SIM cards (mn) 6 69 221 498 901 1,456

% penetration of NFC SIM cards within mobile subs base (%) 0% 2% 5% 11% 18% 26%

Global subs actively using NFC SIM based mobile banking services (mn) 0 5 31 106 238 441

% of NFC SIMs where users actively using mobile banking services (%) 0% 7% 14% 21% 26% 30%

Global subs actively using NFC sim based transport/loyalty services (mn) 0 1 9 34 87 142

% of NFC SIMs where users actively using transport/loyalty services (%) 0% 1% 4% 7% 10% 10%

Global subs actively using NFC SIM based banking/other services (mn) 0 5 40 140 325 583% of NFC SIMs where users actively using banking/other services (%) 0% 8% 18% 28% 36% 40%

% of global handsets where NFC SIM based banking/other services used (%) 0% 0% 1% 3% 6% 10%

TSM revenues per active user (€) n/a 22.5 5.6 2.5 1.5 1.2

Global NFC based services projects activated per year 0 33 56 58 62 68

Global NFC based services projects installed base 0.0 33 89 147 209 276

TSM revenues per project (€mn) n/a 3.5 2.5 2.4 2.4 2.4

Global TSM market revenues (€mn) 71 118 223 348 494 675



Key risks: Complex landscape and execution are the key challenges

We take a positive view on tech sector’s role as an enabler and beneficiary of growth of

mobile money. However with the payments landscape becoming increasingly complex, we

believe that challenges remain high as well. In our view, following are the key risks for the

technology sector:

Complex ecosystem- with the ever increasing list of technology vendors in the

payments landscape, we believe differentiation remains key to success. Lack of

differentiation could lead to technology vendors’ role being reduced to that of enablers

than are beneficiaries of the growth of mobile money. Additionally, we believe that the

fast moving and complex payments landscape necessitates continual investment. Even

though we have modeled continued R&D investments for the European technology

payment vendors, new technologies or customer demands can drive these costs up,

demanding incremental organic and inorganic investments. This in turn could affect

the profitability of the small vendors and pose execution risks.

Execution- mobile money projects are heavily dependent on strong execution owing

to involvement of multiple ecosystems and related regulations. Poor execution could

have disproportionate negative implications.

Competition from other verticals- the broader mobile banking/payments/commerce

landscape remains very dynamic with the space currently going through a hyper cycle.

With many companies growing in this environment, it is yet less clear who is the

winner. We believe that the technology payment vendors could face competition from

in-house IT developments in banks and financial institutions, telecom carriers etc.

Security- data security and fraud prevention would be key points of discussions

involving moving into newer payments model like mobile. Customer apprehensions

around secure mode of transactions can potentially slowdown the adoption of mobile

payment solutions which will limit the revenue potential of tech payments vendors and

pose downside risks to our view and forecasts.

Changes in regulation- regulations like SEPA (Single Euro Payments Area), directives

from European Commission (EC), Payments Services Directive (PSD) etc., have already

been solid drivers for adoption of online, mobile payments. However, any changes to

these and regulatory interventions driven by security concerns and customer

protection can negatively affect faster adoption of mobile payment solutions.

Macro slowdown/ slower than expected take-up of mobile payments solutions in

Emerging Markets - In many African countries, mobile penetration is higher than

financial inclusion which provides a significant opportunity for tech payment vendors.

The story is quite similar in many other emerging nations which explain vendors like

Monitise signing deals in India and China. Any slowdown in the take-up of mobile

payment solutions in emerging markets has been driven by lack of customer interest,

inefficient broadband connectivity or governmental regulations pose downside risks to

future revenue streams for the payment vendors. Additionally a global macro

slowdown would adversely affect broader tech spending and re-prioritisation of newer

payment channels by the stakeholders.


While the mobile money opportunity is growing at an explosive rate, so is the stakeholder

list with both incumbents and newer vendors staking their claims in this business

opportunity. Given that no one entity controls all aspects of the m-payment ecosystem,

enforcing standards that cover consumer and merchant technologies, hardware and

software remains a challenge. Compared to traditional systems, mobile payments value

chain is more complicated due to the additional role of mobile OEMs and mobile carriers.



The European payments landscape is highly fragmented characterised by the presence of

many local champions, but limited pan European/global vendors. Emerging class of mobile

payment vendors in addition to the increasing involvement of existing mobile, retail

vendors is further adding to the dynamics. Specifically, in Europe the complexity is further

enhanced due to country specific ecosystems and the active role played by respective

governments and regulations. With most big vendors in the financials, telco, retail

ecosystems trying to develop and extend their own ecosystems, the landscape is in a state

of flux and most incumbents and emerging vendors are either acquiring or organically

investing to remain relevant. We believe the payments vendors appeals to a range of

ecosystems including, technology, banks, retail and transport and hence expect

consolidation to accelerate over the next few years as the vendors acquire to consolidate

their ecosystems. We highlight recent acquisitions of Clarimail by Monitise, mFoundry by

FIS and Ogone by Ingenico in this regard.

Exhibit 47: Payments landscape- fragmented and increasingly complex owing to multiple ecosystems

European payments landscape (with select US vendors)

Source: Company data, Goldman Sachs Global Investment Research

CONSUMERS

MERCHANTS

Bank Credit Cards

American Express,

CapitalOne, Discover

TSMGemalto, Oberthur,

G&D

eWalletsV.me, Google,

Apple Passbook

Telco WalletsVodafone,

O2, Orange Money

DM JVs

Weve (UK mCommerce,ISIS (US telcos

EM JVs

M‐Pesa,M‐Shwari,

Tigo, Vodafone‐

Business Credit Cards

Tesco, BestBuy, Wal‐mart,

Target, Sears

DM JVsMCX (US)

Flash ‘N Pay

Wallets

Oyster (UK), Touch & Travel

(Deutsche Bahn), ATM

(Barcelona)

BanksTechnology Retail OthersTelcos

NetworksVisa,

Mastercard, American

Express, JCB, UnionPay

Point of Sale TerminalsSquare, iZettleAtoS,

Ingenico,

Technology providers

SAP, Monitise, Gemalto

Payment processors

AtoS, Wirecard,Ingenico , First data,Optimal payments,

AcquirersAtoS, Global payment, First data, Wirecard

BanksBarclays, RBS, HSBC

Carrier BillingBangoBoku

ACH based systemsPaypal

Alipay, BPay

September 4, 2013

Goldman Sachs Global Investment Research

Exhibit 48: Explosive growth of mobile mMobile payments technology vendors lands


money has spurred rapid growth of mobile payments tscape

Europe: Technology

39

echnology vendors



Exhibit 49: c.$56 bn spent since 2007 on M&A in the payments space with higher multiples paid for recent transactions;

we expect M&A to accelerate Historic M&A in the payments landscape, 2005-13E

Source: Company data, Bloomberg, Goldman Sachs Global Investment Research.

Date Acquirer Target SegmentTransaction size (EV)

EV/Sales Multiple

Mar‐13 ACI Worldwide Online Resources Corporation Online banking and bill pay solutions $20mn 1.3xFeb‐13 TSYS NetSpend Prapaid cards $1,400mn 4.0xFeb‐13 LineData Services CapitalStream (HCL Technologies) Credit lifecycle management $45mn 1.5xJan‐13 FIS mFoundry Mobile Payments $165mn NAJan‐13 Ingenico Ogone Payment service provider $484mn 8.6xJan‐13 Digital River, Inc. LML Payment Systems, Inc. Payment processing solutions $67mn 2.1xDec‐12 Sberbank Yandex Money Online payments $60mn 6.4xDec‐12 Monitise Mobile Money Network Mobile Commerce $24mn NADec‐12 Vantiv Litle & Co. Payment processing solutions $361mn 1.3xOct‐12 Electronic Funds Source, LLC T‐Chek Systems, Inc Payment processing solutions $303mn 6.1xOct‐12 Global Payments Inc Accelerated Payment Technologies Electronic transaction processing $413mn NASep‐12 MasterCard DataCash Group plc Multi‐channel payment services $489mn 8.2xJul‐12 Apple AuthenTec Biometric security and authentication solutions $356mn 5.1xJul‐12 PayPal Card.io Mobile Payments NA NAJul‐12 FleetCor Technologies, Inc. CTF Technologies Inc. Fuel payment processing $166mn 3.1xJul‐12 Cielo S.A. Merchant e‐Solutions, Inc. Payments solutions $614mn 5.0xJun‐12 Monitise Clairmail Mobile Payments $174mn 10.0xFeb‐12 ACI Worldwide S1 Corporation Integrated financial solutions $422mn 1.8xDec‐11 Advent International Oberthur Technologies Digital Security $1,495mn 1.4xNov‐11 BankServ FundTech Payments solutions $283mn 2.0xNov‐11 Wirecard AG Systems@Work Pte Ltd Enterprise payment gateway $60mn NANov‐11 BankServ Point Transaction Systems AB Retail payment and gateway provider $1,047mn 4.0xNov‐11 Bankers’ Almanac Accuity, Inc. Payment routing $515mn 5.0xNov‐11 VeriFone Global Bay Mobile Payments $28mn NASep‐11 Fiserv, Inc CashEdge, Inc. Payment processing solutions $465mn NAAug‐11 VeriFone Hypercom Payment security provider $485mn 1.4xJul‐11 PayPal Zong Inc Mobile Payments $240mn NAMar‐11 Visa PlaySpan Online currency $190mn NAFeb‐11 Fiserv M‐Com Mobile Payments NA NAJan‐11 NEOVIA Optimal Payments Online payments $48mn NADec‐10 Google Zetawire Mobile Payments NA NASep‐10 Apollo Management Evertec, Inc. Billing and Payment Solutions $640mn NASep‐10 Fifth Third Processing Solutions, LLC National Processing Company Payment processing services $620mn 2.2xAug‐10 AtoS Venture Infotek Payment processor $100mn 3.3xAug‐10 Bain Capital and Advent International RBS payments unit Payment processor $3,200mn NAJul‐10 Visa CyberSource Online payment processing $1,698mn 6.6xJun‐10 Gemalto Cinterion Wireless M2M application $212mn 1.0xApr‐10 Total System Services, Inc. First National Merchant Solutions Payment processor $150mn 3.2xNov‐09 American Express Revolution Money Online payments $305mn NAOct‐09 FIS Metavante Technologies, Inc. Payment technology $4,575mn 2.7xSep‐09 The Western Union Company Custom House, Ltd. Payment Solutions $371mn 3.7xFeb‐09 Accuity CB.Net Reference data provider NA NAJan‐09 MasterCard Orbiscom Payments solutions $100mn NASep‐08 Gemalto Keycorp (Multos business) Digital Security $22mn 1.0xAug‐08 Great Hill Partners LLC CAM Commerce Solutions, Inc. Payment processing solutions $140mn 4.1xMay‐08 Heartland Payment Systems Inc. Alliance Data’s Network Services Payment processing solutions $76mn 0.6xFeb‐08 Intuit, Inc. Electronic Clearing House Inc Payment processing solutions $135mn 1.8xDec‐07 QUALCOMM, Inc. Firethorn Holdings LLC Mobile Payments $210mn NADec‐07 Fiserv, Inc CheckFree Corp Payment processing solutions $4,369mn 4.5xNov‐07 Dubai International Financial Centre SmartStream Technologies Transaction lifecycle management solutions $200mn 4.3xNov‐07 CyberSource Corporation Authorize.Net Corporation Payment gateway solutions $546mn 4.6xSep‐07 Kohlberg Kravis Roberts & Co (KKR) First Data Corporation Payment Solutions $27,040mn 3.8xAug‐07 First Data Corp PolCard S.A Merchant transaction acquirer $325mn 6.9xMay‐07 Welsh, Carson, Anderson & Stowe TransFirst, LLC Transaction processing services $683mn NADec‐05 Axalto Gemplus Digital Security $1,530mn 1.4x

Average deal multiple 3.7xHigh 10.0xLow 0.6x



European payments: Buy the tech beneficiaries

Based on our end market analysis, we believe that the technology sector will be the net

beneficiary of the changes brought in by mobile money as companies in various end

markets retool themselves to reduce cost and provide an omnichannel experience. We

identify IT outsourcing and micro merchants as the key incremental opportunities and

estimate in total a €8 bn European revenue opportunity by 2017. Our estimates assume

that European payment vendors under our coverage can capture c.30% of this opportunity.

Exhibit 50: Upgrading Wirecard to CL Buy and Ingenico to Buy; reiterate ratings on Monitise (Buy*), Gemalto (Buy),

AtoS (Buy)

Rating, 12 month price target changes


European payment vendors: AtoS, Gemalto, Ingenico, Monitise, Wirecard

Among our European technology coverage universe, we identify the following assets as

the direct beneficiaries of the growth of mobile money. We are now Buy rated on all the

five vendors.

AtoS (Buy) – AtoS is a European leader in IT services (Outsourcing, Systems

integration). Atos Worldline is the payments division of AtoS group. Atos’

management team announced that it intends to ‘carve out’ Worldline, we believe this

will unlock shareholder value. The three main divisions of Atos Worldline are as

follows:

o Merchant Services & Terminals- €353 mn in 2012- Caters to merchants (SMB),

large retailers and online merchants and offers services like commercial

acquiring, online services, private label cards and Terminals.

o Mobility & e-Transactional service- €341 mn in 2012- Caters to public entities,

transport companies, healthcare organisations, Telecom and media

companies and offers services like e-Consumer, mobility, e-Government

collection, e-Ticketing.

o Financial Processing & Software Licensing- €375 mn in 2012- Caters to

financial institutions and offers services like acquiring processing, issuing

processing, online banking and payment software licensing

Gemalto (Buy) – Gemalto is a global digital security vendor and provides solutions

including silicon based secure payment cards (EMV cards), SIM cards (3G/4G/NFC),

secure passports (with secure chips in them) and Trusted Service Manager (TSM).

Payments PT PT changeCoverage Old New Core M&A Blended Core M&A Blended Timeframe %

AtoS Buy Buy 70.0 70.0 85.0 85.0 12 months 21%%u/d 25% 25% 51% 51%

Gemalto Buy Buy 90.0 90.0 115.0 165.0 125.0 12 months 39%%u/d 3% 3% 32% 90% 44%

Ingenico Neutral Buy 59.0 59.0 82.0 82.0 12 months 39%%u/d 12% 12% 55% 55%

Monitise Buy* Buy* 54.0 74.7 60.0 93.6 114.9 100.0 12 months 67%%u/d 17% 62% 30% 102% 148% 116%

Wirecard Neutral Buy* 24.0 24.0 36.0 42.6 38.0 12 months 58%%u/d 1% 1% 52% 80% 61%

Average %u/d 12% 62% 14% 59% 106% 65% 45%

* On the conviction list

Rating Old PT (2014 based) New PT (2015 based) ValuationMethodology

15.4x P/E (from 13.5x)

Core: 14x EV/EBITDA (from 12x)

12x EV/EBITDA (from 11.3x)

Core: 5.7x EV/Sales

Core: 30x P/E (from 24x)

M&A: 4x EVSales

M&A: 7xEVSales

M&A: 7xEVSales



Ingenico (Buy) - Ingenico provides payment terminals (for accepting card based

payments), which it sells either direct to merchants or via third parties such as banks.

Increasingly it sells transaction services (<30% of the business). It is globally diversified,

with presence in both DM and EM.

Monitise (CL Buy) – Monitise is a UK based leader in mobile money platform and

solutions. We see it as a structural winner in the mobile money space and believe that

its strong relationship with Visa (significant customer, shareholder, JVs) provides

unique advantage.

Wirecard (CL Buy) – Wirecard is a Germany based European technology leader in the

eCommerce segment. It provides technology solutions for payment processing and

issuing products and is fast expanding into Asian markets.

Incorporating end market analysis into our estimates

Based on our end market analysis, we make changes to our 2013-15 estimates and add

2016-17 estimates. We believe that the European payment vendors will derive benefits

from growth in investments related to mobile money and estimate that European payment

vendors under our coverage can capture c.30% of this €8 bn opportunity.

Our key action items include the following:

We raise our 2014, 2015 PF EPS estimates by 4% and 5% respectively. We are now 7%,

10% ahead of PF EPS on 2014, 2015 respectively.

We introduce 2016, 2017 estimates to better reflect the mid-term structural growth

potential of these payment vendors. We estimate payments peer group to grow at 13%

CAGR over 2012-17E, with Monitise significantly outgrowing the group at 50% CAGR

as it is a mobile money pure play.

We shift our valuation timeframe to 2015 to better capture the structural growth

opportunities related to payments and incorporate M&A into our price target

methodology framework for Gemalto and Wirecard. We already have M&A in our price

target methodology for Monitise.

On an average, our 12-month price targets increase by 45% and we now have 65%

upside potential for payment assets.

We upgrade Wirecard to Buy and add to the Conviction List (Neutral), Ingenico to Buy

(Neutral). We reiterate our ratings on Monitise (Buy, on the Conviction List), Gemalto

(Buy) and AtoS (Buy).

Beyond the European payments vendors, additional beneficiaries of the mega trend

include: SAP (mobile analytics), Opera (mobile advertising), Sage (SMB payments),

Millicom (EM money transfers), ASOS (retail). Non-beneficiaries include: De La Rue,

internal IT, non-prime real estate and traditional advertisers.

European payments vendors are well positioned on our GS

SUSTAIN framework

We roll out our long-term forecasts based on our end market analysis. We believe vendors

exposed to structural themes like mobile money stand to benefit versus peers and hence

forecast European payment vendors to grow at 13% CAGR over 2013-17E vs. c.8% for the

European technology universe. Within the payment vendors, we expect Monitise to grow

substantially ahead of the group at 50% CAGR over 2013-18E.

Over the past several years, we believe European payment vendors have made significant

strides in improving industry positioning through substantial R&D investments and

capturing EM growth, we expect this to accelerate over the next few years.



On the cost front, vendors like Gemalto and Wirecard has brought forward their

investments to benefit from the burgeoning mobile money space. However, we expect

investments to normalise from 2015 onwards and forecast expanding margins. We believe

owing to their niche and differentiated positioning (excluding in payment processing);

European payment vendors should enjoy good pricing power.

We believe that mobile platform, TSM, EMV and micromerchant segments have strong

growth potential and traditional payment processing having low pricing power. Hence, we

see Monitise (mobile payments platform), Gemalto (TSM), Wirecard (eCommerce) as

structural growth assets in the space. In considering our long-term forecasts, we see

several notable trends. Central to our view is the ability of well positioned companies to re-

deploy cash at close to/higher than group average returns.

Companies on our Conviction Buy List, Monitise, Wirecard, are Q1 positioned in our GS

SUSTAIN framework. Additionally, Gemalto which we identify as a structural growth asset

is Q1 positioned. Ingenico is Q2 positioned reflecting strong near term growth although we

are cognisant of medium- to long-term risks from mPOS. AtoS is Q3 positioned owing to

the significant IT services segment which carries limited pricing power and has low growth.

Exhibit 51: We forecast the mobile money opportunity for technology vendors to grow at

46% CAGR over 2013-17E European incremental mobile money opportunity for technology vendors, € bn


1.2 2.0

2.9

3.9

4.8

0.5

0.8

1.4

1.9

2.9

0.1

0.1

0.1

0.2

0.3

‐

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2013E 2014E 2015E 2016E 2017E

Disruptive technologies Micro merchants Incremental IT spending by key verticals



Exhibit 52: We believe technology vendors will be the

major beneficiary of the micro merchants opportunity European micro merchant opportunity, € bn

Exhibit 53: We estimate TSM opportunity to grow at 55%

CAGR over 2013-17E TSM opportunity, € bn



Exhibit 54: We estimate €8 bn incremental revenue opportunity for technology vendors from mobile money related

opportunities Analysis- revenue opportunities of technology sector

Source: Gartner, Goldman Sachs Global Investment Research.

0.3 0.50.8

1.41.9

2.9

0.10.1

0.2

0.3

0.4

0.7

0.2

0.4

0.6

1.0

1.5

2.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2013E 2014E 2015E 2016E 2017E

Other vendors Banks Technology

53% CAGR 2013‐17E

0.1

0.2

0.3

0.5

0.7

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2013E 2014E 2015E 2016E 2017E

55% CAGR 2013‐17E

Disruptive technologies (€0.3 bn)

SAP Gemalto Monitise Monitise

Ingenico

EMEA IT Spending, € bn 2011 2012E 2013E 2014E 2015E 2016E 2017E2012‐17 CAGR

Banking 75.7 78.7 79.5 81.6 84.0 86.9 90.0 3%Telecommunications 53.2 55.2 55.6 57.0 58.9 60.6 62.8 3%Retail 32.1 33.3 33.8 34.6 35.5 36.4 37.4 2%Total IT spending by key verticals 160.9 167.2 168.9 173.2 178.4 183.9 190.3 3%yoy 3.9% 1.0% 2.5% 3.0% 3.1% 3.5%

Mobile money related IT spending, € bnBanking 3.0 Telecommunications 0.2 Retail 1.0 TSM opportunity 0.7 Incremental IT spending by key verticals 4.8

Technology market opportunity

Incremental IT spending (€4.8 bn)‐ Banks, Telcos, Retail Micro merchant

opportunity (€2.9 bn) Additional revenue sources

(€4.6 bn)

OutsourcingAtoS

Capgemini

PlatformsMonitise

Wirecard, Ingenico, AtoS Worldline

Security‐TSM, EMV

Advertising CouponingAnalytics Monitise,Ingenico, AtoS

Worldline,Wirecard, Sage

iZettle, SumUp



GS SUSTAIN is our long-term investment framework for identifying companies well

positioned to sustain high returns on capital relative to peers. It combines financial analysis

of companies’ returns with the structural drivers of those returns (‘industry positioning’).

Among our European Technology coverage, we view European payment vendors as being

fundamentally well positioned on our GS SUSTAIN framework owing to their exposure to

structural growth, niche positioning and improving cash returns.

We capture the industry drivers for the sector through our industry positioning metrics:

Segment growth: We weight each company’s segment exposures and blended

expected revenue growth based on industry forecasts that determine the attractiveness

of the categories. We forecast mobile money related opportunity for technology

vendors to grow at 46% CAGR over 2013-17E. However given all the payment vendors,

excluding Monitise, are not pure play vendors their growth rates are lower.

Relative market share: We analyse companies’ market shares in each of the

categories/segments in which they participate to determine potential scale and pricing

power, and whether these segments are concentrated or fragmented. We calculate a

relative market share score, which is defined as the company’s market share relative to

that of the top three players in the segment.

o AtoS Worldline- Outsourcing and processing platforms for banks is a very

fragmented market c.5% market share for Worldline in Europe and c.25%

relative market vs. top 3 vendors. Owing to market fragmentation, its core

segments like financial processing are price sensitive and dependent on

volume for growth. However mobility and merchant services have good

pricing dynamics.

o Gemalto has by far the best execution track record in terms of digital security

implementations on a global basis. It also has over c.50% market share in the

emerging TSM segment and c.45% market share in its two largest segments.

o Ingenico has c.40% market share in the POS segment and has significantly

gained market share over the recent quarters. We believe that near term

concerns around market share loss to mPOS vendors are overdone and

continue to see it benefiting from EMV deployment in US.

o Monitise has a relatively small market share in the market due to its limited

history however we believe that its strong mobile money platform and

customers references will enable it to track strong growth over the next few

years.

o We forecast Wirecard to have c.37% relative market share versus the top three

vendors in the eCommerce technology vendor segment. While pricing

pressure continues, volume growth substantially negates the impact and we

forecast Wirecard to continue to gain market share in the segment.

Expected company organic revenue growth. We use our forecasts for each company

over the next three calendar years, as these capture factors such as any expected

market share gains/losses or company-specific fundamental strengths/weaknesses.

o We estimate AtoS Worldline business growth to accelerate from 5% in 2013 to

9% by 2017E benefiting from increased focus following managements ‘carve

out’ and macro. We estimate Worldline to be 15% of revenues and 35% of

operating profits by 2017 compared to 12%/27% of revenues/operating profits

in 2012.

o We believe Gemalto will be a continuing beneficiary of digital security

solutions like EMV and emerging TSM opportunity (36% CAGR over 2013-17E)

and forecast 12% group revenue CAGR over 2012-17E. We estimate TSM to be

6% of revenues by 2017E, driving 13% of incremental growth over the period.

We expect TSM to become increasingly profitable as it gains scale. We



estimate TSM EBIT margins to expand from 0% in 2013 to 26% in 2017, with

TSM driving 19% of group incremental profit growth from 2013-17.

o We believe that Ingenico is a key beneficiary of the shift to EMV technology in

US and we estimate group revenues to grow at 12% CAGR over 2013-17E. We

expect North America revenues at Ingenico to grow at a 16% CAGR from 2013-

17, driving 12% of incremental group revenues over the period.

o Given Monitise is the only pure mobile money play, we forecast Monitise

revenues to grow significantly above peer group at 50% CAGR over FY2013-

18E.

o We forecast Wirecard to grow at 20% CAGR over 2012-17E benefiting from

acceleration in eCommerce/mCommerce and expanding presence in emerging

markets like Asia. We expect incremental revenues from Asia to be of higher

margin profile than group profits due to low cost base in Asia and benefits

from replication of core platform.

Risk adjustment. We measure risk associated with each company’s ability to maintain

its market position and returns, as well as deliver on growth. The two metrics we use

for software assets like Monitise, Wirecard and AtoS Worldline are: (1) percentage of

recurring revenues, to determine revenue predictability and cash flow; and, (2) product

diversification (the number of different products/categories in which the company

participates), to assess risks to the delivery of growth. For hardware assets we use (1)

long term R&D/sales, as a proxy for each company’s ability to innovate and (2) an

adjustment factor to reflect productivity of R&D spend (ranging from 0.8 to 1.2).

o We estimate AtoS Worldline revenues to be c.70% recurring owing to its good

revenue visibility in the Mobility and Financial processing segments.

Additionally, we see three revenue streams from Merchant services &

Terminals, Mobility & e-Transactional services and Financial Processing &

Software Licensing to provide multiple revenue streams.

o Gemalto had an average R&D/sales ratio for 2005-12 of 6%, with a productivity

factor of 1.2. Such a productivity factor is at the top end of scores for hardware

assets within our European coverage, and reflects Gemalto’s success in being

first to market versus its competitors on the latest products within its key

verticals. Nevertheless, an overall 7% risk adjustment score suggests Gemalto

is in the lower half of the ranking of companies within our European hardware

coverage.

o Ingenico had an average R&D/sales ratio for 2005-12 of 8%, with a productivity

factor 1.2. Such a productivity factor is at the top end of scores for our

hardware coverage, and is based on Ingenico’s proactive approach to

developing point of sale solutions that accommodate a broad array of

payment interfaces and mobility requirements. Overall, its risk adjustment

score of 9% puts it towards the middle of the ranking of hardware assets

within our European coverage.

o Given the growing importance of the user generated revenues for Monitise,

we estimate c.62% of revenues to be having high revenue visibility. We expect

Monitise to participate across mobile banking, mobile payments and mobile

commerce segments.

o We forecast c.70% of revenues representing the payment processing and risk

management segment to be carrying high revenue visibility. Payment

processing segment also has better margin profile than group level.



Exhibit 55: European payments vendors are well positioned on our GS SUSTAIN framework Our tech coverage Universe- cash returns in context of strategic positioning


0%

25%

50%

75%

100%

0% 25% 50% 75% 100%

Bel

ow A

vera

ge <

===

CR

OC

I per

cent

ile==

=> A

bove

Ave

rage

Below Average <=== Industry positioning percentile ===> Above Average

AIXGn.DE

ALUA.PA

ARM.L

ASMI.AS

ASML.AS

AMS.S

CSR.L

ERICb.ST

GTO.ASIMG.L

IFXGn.DE

INGC.PA

LOGN.S

NOK1V.HE

PIC.L

SPT.L

STM.PA

TCH.PA

TOM2.ASWLF.L

DAST.PA

AVV.L

FDSA.L

SAPG.DE

SOWG.DE

BLNX.L

NEKG.DETEMN.S

SGE.L

OPERA.OL

MCRO.L

UNI4.AS

IFSb.ST

EXAH.AS

TCY.L

CAPP.PA

ATOS.PA

IDR.MC

TIE1V.HE

HEXAb.ST

MONI.LSDL.L

INXN

WDIG.DE



Exhibit 56: Payment asset valuations are still attractive relative to our growth framework and vs. history Current PEG (Y axis) vs. 2010-12 trailing observed PEG (x axis) for growth stocks in our coverage


0.00x

0.25x

0.50x

0.75x

1.00x

1.25x

1.50x

0.00x 0.25x 0.50x 0.75x 1.00x 1.25x 1.50x 1.75x 2.00x 2.25x 2.50x 2.75x

PEG Current (2

014)

Average trading PEG 10‐12

ARM.L, Q1 IP, Q1 CROCI, 32% EPS CAGR (12‐15E)

IMG.L, Q1 IP, Q2 CROCI, 19% EPS CAGR (12‐15E)

GTO.AS, Q1 IP, Q2 CROCI, 27% EPS CAGR (12‐15E)

INGC.PA, Q2 IP, Q2 CROCI, 29% EPS CAGR (12‐15E)

TCY.L, Q2 IP, Q3 CROCI, 21% EPS CAGR (12‐15E)

WDIG.DE, Q1 IP, Q2 CROCI, 22% EPS CAGR (12‐15E)

INXN, Q1 IP, Q3 CROCI, 19% EPS CAGR (12‐15E)

AVV.L, Q1 IP, Q1 CROCI, 24% EPS CAGR (12‐15E)

BLNX.L, Q2 IP, Q1 CROCI, 31% EPS CAGR (12‐15E)

DAST.PA, Q1 IP, Q1 CROCI, 16% EPS CAGR (12‐15E)

HEXAb.ST, Q1 IP, Q4 CROCI, 19% EPS CAGR (12‐15E)

OPERA.OL, Q1 IP, Q1 CROCI, 33% EPS CAGR (12‐15E)

SAPG.DE, Q1 IP, Q1 CROCI, 15% EPS CAGR (12‐15E)



Exhibit 57: Payment vendors are well positioned with respect to industry positioning in our GS SUSTAIN framework European Tech GS SUSTAIN framework- Wirecard, Monitise, Gemalto are best positioned payment vendors


A B A * BCAGR Company Top 3 Positioning 2012-15E Sales Growth R&D / Sales Productivity R&D R&D

Company Market Growth Percentile Market Share Market Share Percentile Percentile Sales CAGR Percentile 2005-12 Factor Productivity Percentile Percentile QuartileAixtron 7% 43% 40% 100% 70% 54% 13% 79% 14% 0.8 10% 41% 59% Q2 IPASM International NV 8% 52% 25% 95% 50% 52% 10% 63% 15% 1.2 18% 88% 72% Q2 IPASML Holding NV 10% 72% 75% 95% 100% 95% 14% 86% 15% 1.2 18% 70% 97% Q1 IPAMS AG 12% 86% 13% 53% 47% 72% 8% 56% 18% 1.0 17% 52% 61% Q2 IPCSR plc 13% 88% 26% 60% 79% 93% 1% 13% 23% 0.8 18% 94% 56% Q2 IPInfineon 8% 56% 12% 40% 54% 56% 6% 52% 16% 1.2 19% 100% 68% Q2 IPSTMicroelectronics 8% 56% 19% 48% 65% 68% 3% 25% 22% 0.8 18% 76% 43% Q3 IPWolfson Microelectronics Plc 10% 72% 4% 50% 20% 38% 12% 75% 23% 0.8 17% 58% 50% Q3 IPAlcatel-Lucent 4% 11% 6% 77% 15% 13% -3% 4% 15% 0.8 12% 47% 6% Q4 IPEricsson 5% 40% 31% 62% 93% 70% 3% 34% 15% 1.2 18% 82% 52% Q2 IPGemalto 11% 79% 50% 85% 97% 97% 12% 77% 6% 1.2 7% 17% 86% Q1 IPIngenico SA 7% 47% 40% 85% 86% 72% 12% 72% 8% 1.2 9% 29% 70% Q2 IPLogitech 5% 22% 30% 54% 95% 43% -1% 9% 6% 1.2 7% 11% 15% Q4 IPNokia 8% 54% 12% 59% 43% 45% -4% 2% 13% 0.8 10% 35% 22% Q4 IPPace 2% 6% 20% 54% 61% 27% 3% 36% 7% 1.0 7% 23% 27% Q3 IPSpirent Communications Plc 9% 61% 38% 96% 68% 81% 3% 20% 17% 1.0 17% 64% 45% Q3 IPTechnicolor 1% 4% 31% 73% 77% 22% -1% 6% 4% 0.8 3% 0% 2% Q4 IPTomTom 0% 0% 38% 76% 88% 0% -5% 0% 8% 0.8 7% 5% 0% Q4 IP

A B A * BCAGR Company Top 3 Positioning 2012-15E Sales Growth Recurring Product Risk Assessment

Company Market Growth Percentile Market Share Market Share Percentile Percentile Sales CAGR Percentile Revenues Diversification Percentile Percentile Percentile QuartileARM Holdings plc 15% 93% 45% 90% 90% 100% 18% 88% 65% 4.0 92% 71% 100% Q1 IPImagination Technologies 14% 90% 20% 80% 45% 77% 14% 81% 40% 1.0 0% 14% 79% Q1 IPSAP (Ordinary Share) 9% 70% 20% 49% 75% 88% 10% 65% 56% 4.0 92% 67% 88% Q1 IPHexagon AB 8% 50% 20% 45% 81% 77% 8% 59% 39% 3.0 69% 37% 63% Q2 IPDassault Systemes 9% 63% 13% 28% 84% 90% 11% 68% 66% 4.0 92% 73% 90% Q1 IPAveva 9% 68% 9% 22% 72% 86% 19% 93% 69% 2.0 38% 61% 95% Q1 IPNemetschek 5% 25% 1% 28% 9% 15% 5% 43% 47% 1.0 0% 20% 25% Q4 IPMonitise 42% 100% 0% 5% 11% 34% 56% 100% 62% 3.0 69% 59% 77% Q1 IPSage Group 5% 25% 6% 44% 31% 31% 4% 38% 66% 1.0 0% 41% 36% Q3 IPUnit 4 5% 25% 3% 44% 13% 25% 9% 61% 54% 2.0 38% 40% 40% Q3 IPExact Holding 5% 25% 1% 44% 2% 6% 3% 31% 68% 1.0 0% 44% 18% Q4 IPIFS 5% 25% 2% 44% 6% 11% 5% 45% 34% 1.0 0% 7% 20% Q4 IPOpera Software 23% 97% 8% 48% 34% 63% 32% 97% 28% 2.0 38% 17% 81% Q1 IPBlinkx 22% 95% 5% 50% 25% 47% 22% 95% 0% 1.0 34% 14% 54% Q2 IPSoftware AG 0% 2% 4% 55% 18% 4% 5% 40% 40% 2.0 38% 27% 13% Q4 IPTemenos 5% 25% 12% 41% 56% 36% 6% 47% 44% 1.0 0% 18% 38% Q3 IPFidessa 5% 38% 11% 31% 63% 50% 6% 50% 84% 3.0 69% 83% 47% Q3 IPSDL 7% 45% 8% 46% 36% 40% 2% 18% 66% 2.0 38% 54% 34% Q3 IPMicro Focus 3% 9% 5% 50% 27% 18% 0% 11% 55% 2.0 38% 43% 11% Q4 IPCapgemini 4% 13% 2% 13% 29% 29% 3% 29% 51% 3.0 69% 50% 31% Q3 IPAtos 4% 13% 1% 13% 22% 20% 3% 22% 72% 3.0 69% 80% 29% Q3 IPTieto 4% 13% 0% 13% 0% 0% 1% 15% 40% 2.0 38% 29% 4% Q4 IPIndra 4% 13% 0% 13% 4% 9% 3% 27% 32% 2.0 38% 19% 9% Q4 IPTelecity 12% 81% 5% 24% 40% 61% 11% 70% 90% 1.0 0% 58% 75% Q1 IPInterxion 12% 81% 4% 23% 38% 59% 14% 84% 95% 1.0 0% 60% 84% Q1 IPWirecard 11% 77% 12% 37% 59% 84% 18% 90% 71% 1.0 0% 50% 93% Q1 IPAtos Worldline 9% 65% 7% 25% 52% 65% 7% 54% 70% 3.0 69% 76% 65% Q2 IP

Softw

are

----- Company Growth Profile ---- ----- Risk Assessment -----

IT S

ervi

ces

----- MARKET POSITION -----

IP

--- Blended Industrial Positioning --

--- Blended Industrial Positioning --

Sem

is

----- MARKET POSITION ----- ----- Company Growth Profile ---- ----- Risk Assessment -----

Com

mte

ch a

nd H

W



Exhibit 58: Reflecting thematic views into estimates- our estimates assume that European payment vendors

under our coverage can capture c.30% of this opportunity. European payment vendors revenues, 2012-17E


Exhibit 59: Our estimate changes reflect our positive view on mobile money, however near

term EPS growth may be impacted by investments to drive structural growth Estimate changes


Total Revenues (€ mn) 2012 2013E 2014E 2015E 2016E 2017EIncremental

2012-17E

ATOS.PA Atos 8,844 8,796 9,059 9,404 9,786 10,192 1,348

GTO.AS Gemalto 2,236 2,505 2,795 3,130 3,506 3,927 1,691

INGC.PA Ingenico SA 1,206 1,400 1,590 1,790 1,970 2,170 964

MONI.L Monitise 69 117 184 277 402 570 501

WDIG.DE Wirecard 395 474 567 678 816 990 596

12,750 13,292 14,195 15,278 16,479 17,850 5,100

Newer opportunity revenues (€ mn) 2012 2013E 2014E 2015E 2016E 2017EIncremental

2012-17E

ATOS.PA AtoS Worldline 1,069 1,126 1,208 1,318 1,439 1,575 506

GTO.AS Gemalto 648 722 806 916 1,030 1,147 498

INGC.PA Ingenico SA 225 307 388 483 584 699 474

MONI.L Monitise 69 117 184 277 402 570 501

WDIG.DE Wirecard 395 474 567 678 816 990 596

European Payments coverage 2,406 2,747 3,153 3,672 4,271 4,981 2,575

Incremental benefits to Technology vendors 7,958

% benefit to European payments vendors 32%

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

Ingenico 1% 1% 1% 5% 5% 6% 7% 17% 20%

Wirecard 0% -1% -2% -2% -2% -1% -1% -2% -3%

Gemalto 1% 0% 1% 1% 0% 0% -3% -3% -1%

Average 1% 0% 0% 1% 1% 1% 1% 4% 5%

Sales EBIT PF EPS



Exhibit 60: We forecast payment vendors to grow above tech peer group European payment vendors - key KPIs


Exhibit 61: Our forecasts are above consensus

Our estimates vs. Bloomberg consensus

Source: Bloomberg, Goldman Sachs Global Investment Research.

Exhibit 62: We are valuing payment vendors at premium/in line to historical multiples European payment vendors- price target methodology (all price targets are 12-months)

Source: I/B/E/S, Datastream, Goldman Sachs Global Investment Research.

Payment Vendors Reporting

Currency 2013E 2014E 2015E 2016E 2017E 2013E 2014E 2015E 2013E 2014E 2015E 2016E 2017E 2013E 2014E 2015E 2016E 2017E 2013E 2014E 2015E 2016E 2017E

Atos EUR 8,796 9,059 9,404 9,786 10,192 886 1,018 1,088 660 731 788 849 911 4.37 5.12 5.49 5.92 6.33 11% 10% 10% 10% 10%

Gemalto EUR 2,505 2,795 3,130 3,506 3,927 417 525 597 360 448 522 604 697 3.27 4.44 5.27 6.32 7.74 14% 17% 18% 20% 20%

Ingenico SA EUR 1,400 1,590 1,790 1,970 2,170 280 335 383 240 290 334 368 404 2.63 3.40 4.07 4.80 5.76 15% 15% 17% 17% 17%

Monitise GBP 75.2 124.4 189.8 283.7 401.6 -17.0 7.0 35.6 -30.3 -9.7 14.9 39.6 73.2 -1.79 0.02 1.74 3.36 5.21 -3% 9% 19%

Wirecard EUR 474.0 566.9 677.7 815.5 990.3 125.0 156.9 192.8 101.8 134.2 169.1 210.9 261.7 0.74 0.96 1.21 1.53 1.96 19% 20% 21% 21% 22%

Margins

Atos 10.1% 11.2% 11.6% 7.5% 8.1% 8.4% 8.7% 8.9%

Gemalto 16.6% 18.8% 19.1% 14.4% 16.0% 16.7% 17.2% 17.7%

Ingenico SA 20.0% 21.1% 21.4% 17.1% 18.2% 18.7% 18.7% 18.6%

Monitise -22.6% 5.6% 18.8% -40.2% -7.8% 7.9% 14.0% 18.2%

Wirecard 26.4% 27.7% 28.4% 21.5% 23.7% 24.9% 25.9% 26.4%

Average 10.1% 16.9% 19.9% 4.1% 11.6% 15.3% 16.9% 18.0% 11% 14% 17% 17% 17%

Median 16.6% 18.8% 19.1% 14.4% 16.0% 16.7% 17.2% 18.2% 14% 15% 18% 19% 19%yoy growth

Atos -0.5% 3.0% 3.8% 4.1% 4.2% 12% 15% 7% 14% 11% 8% 8% 7% 14% 17% 7% 8% 7%

Gemalto 12.0% 11.6% 12.0% 12.0% 12.0% 14% 26% 14% 18% 24% 17% 16% 15% 24% 36% 19% 20% 22%

Ingenico SA 16.0% 13.6% 12.6% 10.1% 10.2% 25% 20% 14% 27% 21% 15% 10% 10% 36% 29% 20% 18% 20%

Monitise 108% 65% 53% 49% 42% 63% -141% 410% 85% -68% -253% 165% 85% -18% -101% 8687% 93% 55%

Wirecard 20.1% 19.6% 19.5% 20.3% 21.4% 14% 25% 23% 9% 32% 26% 25% 24% 9% 30% 25% 27% 28%

Average 31% 23% 20% 19% 18% 26% -11% 94% 30% 4% -38% 45% 28% 13% 2% 1751% 33% 26%

Median 16% 14% 13% 12% 12% 14% 20% 14% 18% 21% 15% 16% 15% 14% 29% 20% 20% 22%

EBITDA (ex-SBC, ex-exceptionals) EBIT (ex-SBC, ex-exceptionals)Total revenues PF EPS CROCI

2013E 2014E 2015E 2013E 2014E 2015E

Atos 0% 1% 2% -2% 4% 3%

Gemalto 2% 2% 4% -1% 7% 10%

Ingenico SA 1% 3% 4% 15% 18% 24%

Monitise 3% 10% 19% 22% 102% 148%

Wirecard 1% 2% 4% -2% 1% 5%

Median 1% 2% 4% -1% 7% 10%

GS vs. Consensus

PF EPSRevenues

Price Target Methodology

EV/EBITDA based valuation EV/EBITDA based valuation

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

Atos 17.2x 14.6x 13.7x 7.5x 6.1x 5.4x 0.8x 0.7x 0.6x 17.2x 14.6x 13.7x 7.5x 6.1x 5.4x 0.8x 0.7x 0.6x

Gemalto 33.0x 24.2x 20.4x 19.9x 15.8x 13.9x 3.3x 3.0x 2.6x 38.2x 28.1x 23.7x 22.1x 17.5x 15.4x 3.7x 3.3x 2.9x

Ingenico SA 31.3x 24.2x 20.3x 16.6x 13.8x 12.1x 3.3x 2.9x 2.6x 31.3x 24.2x 20.3x 16.6x 13.8x 12.1x 3.3x 2.9x 2.6x

Monitise NM NM NM NM NM NM 8.8x 5.5x 3.9x NM NM NM NM NM NM 8.8x 6.0x 3.9x

Wirecard 39.6x 28.5x 25.3x 25.1x 20.4x 16.8x 6.7x 5.7x 4.8x 39.6x 31.1x 25.3x 25.1x 20.4x 16.8x 6.7x 5.7x 4.8x

Core valuation

30%, 7x CY14EVSales

P/E based valuation EV/Sales based valuation

Blended valuation

P/E based valuation EV/Sales based valuation

30%, 7x FY14EVSales

20%, 4x CY14EVSales

M&A valuation



Exhibit 63: We believe that historical valuation does not capture structural growth from mobile payments Historical valuation


Exhibit 64: Payment vendors are attractively valued in context of the strong growth prospects

Growth screen: EPS CAGR vs. current PEG


Historical Valuation Current Valuation (on 2014E) EVEBITDA based valuation EVSales based valuation

P/E EV/EBITDA EV/Sales Mean Low High Mean Low High

Atos 11.2x 4.5x 0.5x 8.1x 2.7x 21.4x 0.6x 0.3x 1.0x

Gemalto 18.9x 12.0x 2.2x 6.9x 1.3x 13.7x 1.1x 0.3x 2.3x

Ingenico SA 14.8x 10.5x 2.2x 10.4x 4.2x 21.6x 1.1x 0.5x 2.1x

Monitise NM NM 4.3x NM NM NM 4.8x 0.0x 13.8x

Wirecard 24.8x 16.5x 4.5x 11.1x 0.0x 23.4x 2.9x 0.0x 5.0x

Average 17.4x 10.9x 2.7x 9.1x 2.0x 20.0x 2.1x 0.2x 4.9x

Median 16.9x 11.2x 2.2x 9.3x 2.0x 21.5x 1.1x 0.3x 2.3x

y = ‐0.1381x + 0.3596R² = 0.3633

10%

15%

20%

25%

30%

35%0.4x 0.6x 0.8x 1.0x 1.2x 1.4x 1.6x

EPS CA

GR (201

2‐15

)

PEG Current (2014)

ARM.L, Q1 IP, Q1 Returns,32x 2014 P/E

IMG.L, Q1 IP, Q2 Returns,15x 2014 P/E

GTO.AS, Q1 IP, Q2 Returns,20x 2014 P/E

INGC.PA, Q2 IP, Q2 Returns,14x 2014 P/E

TCY.L, Q2 IP, Q3 Returns,19x 2014 P/E

WDIG.DE, Q1 IP, Q2 Returns,25x 2014 P/E

INXN, Q1 IP, Q3 Returns,26x 2014 P/E

AVV.L, Q1 IP, Q1 Returns,19x 2014 P/E

BLNX.L, Q2 IP, Q1 Returns,24x 2014 P/E

DAST.PA, Q1 IP, Q1 Returns,22x 2014 P/E

HEXAb.ST, Q1 IP, Q4 Returns,16x 2014 P/E

OPERA.OL, Q1 IP, Q1 Returns,17x 2014 P/E

SAPG.DE, Q1 IP, Q1 Returns,14x 2014 P/E



Exhibit 65: Global payment vendors Key Valuation comparables


Exhibit 66: Global payment vendors KPIs


Comp GroupShare Price Market Cap

(USD)EV(USD)

LT EPS growth PEG based on

30/08/2013 2013 2014 LT EPS growth 2013 2014 2013 2014 2013 2014

European NamesAtos €56.2 6,354 5,659 12.9x 11.0x 32% 0.3x 5.7x 4.8x 0.6x 0.5x 11.4x 6.9xIngenico SA €52.8 4,084 4,042 17.9x 13.8x 29% 0.5x 11.4x 8.9x 2.2x 1.8x 24.5x 14.5xGemalto €87.07 9,803 9,043 26.7x 19.6x 27% 0.7x 16.5x 12.3x 2.7x 2.3x 13.7x 11.8xMonitise 46.25p 555 853 NM NM NM NM 47.8x 6.0x 4.1x NM NMWirecard €23.675 3,444 3,304 32.1x 24.5x 23% 1.1x 20.8x 16.5x 5.3x 4.5x NM 55.8xEdenred €22.66 6,750 6,703 24.1x 21.0x 13% NM 16.1x 14.6x 6.0x 5.5x 16.7x 13.7xAverage 22.4x 17.2x 28% 0.7x 13.6x 18.1x 3.4x 2.6x 16.6x 22.2xMedian 22.3x 16.7x 28% 0.6x 13.9x 12.3x 2.7x 2.3x 13.7x 13.2xPrepaidHigher One Holdings, Inc. $7.42 359 429 11.8x 10.6x 8% 1.4x 9.3x 6.8x 2.1x 1.6x 11.3x 9.6xGreen Dot Corp. $22.96 1,020 661 19.3x 17.2x 6% NM 6.7x 4.6x 1.2x 0.7x 2.9x 1.5xAverage 15.5x 13.9x 7% 1.4x 8.0x 5.7x 1.6x 1.2x 7.1x 5.6xMedian 15.5x 13.9x 7% 1.4x 8.0x 5.7x 1.6x 1.2x 7.1x 5.6xOther Processesing/FIG TechFidelity National Information Svcs. $44.46 13,085 16,678 15.6x 14.0x 12% 1.1x 9.0x 8.1x 2.7x 2.5x 14.2x 22.4xFiserv, Inc. $96.27 12,929 15,314 20.6x 17.1x 9% 1.9x 10.3x 8.9x 3.2x 2.9x 15.8x 14.8xAverage 18.1x 15.5x 11% 1.5x 9.6x 8.5x 3.0x 2.7x 15.0x 18.6xMedian 18.1x 15.5x 11% 1.5x 9.6x 8.5x 3.0x 2.7x 15.0x 18.6xMerchant AcquirersEvertec Inc. $23.87 1,884 2,521 16.1x 13.4x 21% 0.6x 15.1x 12.4x 6.9x 6.4x 30.5x 17.3xGlobal Payments Inc. $47.65 3,652 4,177 14.1x 13.1x 6% 2.3x 7.7x 6.7x 1.6x 1.4x 5.5x 10.8xHeartland Payment Systems, Inc. $36.95 1,383 1,323 15.2x 13.3x 24% 0.5x 6.4x 5.4x 2.2x 1.8x 8.8x 7.3xTotal System Services, Inc. $27.67 5,222 6,177 19.0x 15.9x 14% 1.1x 13.4x 11.3xVantiv, Inc. $26.41 5,607 6,607 16.9x 14.8x 20% 0.7x 12.6x 10.1x 6.0x 4.9x 13.7x 12.0xAverage 16.3x 14.1x 17% 1.1x 10.4x 8.6x 4.2x 3.6x 14.4x 11.7xMedian 16.1x 13.4x 20% 0.7x 10.1x 8.4x 4.1x 3.3x 13.4x 11.3xPayment NetworksMastercard Inc. $606.08 73,851 67,674 23.2x 19.4x 19% 1.0x 14.0x 11.5x 8.3x 6.8x 20.3x 15.9xVisa Inc. $174.42 113,547 110,776 23.0x 19.4x 19% 1.0x 13.9x 11.5x 9.0x 7.6x 97.9x 19.9xAverage 23.1x 19.4x 19% 1.0x 13.9x 11.5x 8.7x 7.2x 59.1x 17.9xMedian 23.1x 19.4x 19% 1.0x 13.9x 11.5x 8.7x 7.2x 59.1x 17.9x

Overall Average 19.0x 15.8x 18% 1.0x 11.4x 11.7x 4.0x 3.3x 20.3x 15.5xOverall Median 17.9x 14.8x 19% 1.0x 10.8x 8.9x 2.7x 2.5x 13.7x 12.0x

P/E EV/SalesEV/EBITDA EV/FCF

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

European coverageAtos -0.5% 3.0% 3.8% 10.1% 11.2% 11.6% 7.5% 8.1% 8.4% 14% 17% 7% 11% 10% 10%Gemalto 12.0% 11.6% 12.0% 16.6% 18.8% 19.1% 14.4% 16.0% 16.7% 24% 36% 19% 14% 17% 18%Ingenico SA 16.0% 13.6% 12.6% 20.0% 21.1% 21.4% 17.1% 18.2% 18.7% 36% 29% 20% 15% 15% 17%Monitise 108.4% 65.4% 52.6% -22.6% 5.6% 18.8% -40.2% -7.8% 7.9% -18% -101% 8687% -3% 9% 19%Wirecard 20.1% 19.6% 19.5% 26.4% 27.7% 28.4% 21.5% 23.7% 24.9% 9% 30% 25% 20% 20% 21%AtoS payments 5.4% 7.3% 9.1% 14.9% 15.9% 17.6%Edenred 2.9% 7.3% 11.3% 36.9% 38.0% 39.8% 33.8% 35.0% 36.9% 2% 14% 19% 24% 23% 26%

US coveragePrepaidHigher One Holdings, Inc. 11.9% 8.2% 7.1% 24.2% 25.8% 26.7% 20.1% 21.6% 22.4% -10% 13% 7% 19% 27% 28%Green Dot Corp. -0.2% 7.3% 9.3% 15.9% 15.8% 16.1% 11.6% 11.5% 11.8% -18% 7% 13% 70% 71% 75%

Other Processesing/FIG TechFidelity National Information Svcs. 5.2% 5.8% 5.9% 30.5% 30.8% 31.1% 23.8% 24.5% 24.8% 19% 17% 15% 10% 10% 11%Fiserv, Inc. 10.1% 4.7% 4.8% 32.6% 34.1% 35.0% 30.0% 30.6% 31.5% 16% 12% 11% 12% 12% 13%

Merchant AcquirersEvertec Inc. 7.0% 7.8% 7.7% 49.8% 52.6% 55.1% 41.3% 45.8% 48.8% 32% 17% 14% 16% 30% 31%Global Payments Inc. 9.3% 8.1% 8.5% 21.6% 21.4% 20.3% 19.2% 19.3% 19.1% 4% 12% 12% 18% 17% 18%Heartland Payment Systems, Inc. 11.4% 6.4% 6.7% 9.5% 9.5% 9.6% 5.8% 6.1% 6.4% 23% 3% 9% 19% 21% 21%Total System Services, Inc. 6.1% 9.0% 6.0% 28.5% 28.6% 29.5% 22.4% 23.7% 24.7% 10% 13% 11% 16% 16% 16%Vantiv, Inc. 18.7% 11.4% 11.3% 49.3% 50.1% 50.0% 32.2% 34.7% 35.9% 36% 25% 18% 16% 15%

Payment NetworksMastercard Inc. 9.2% 12.9% 12.9% 58.1% 58.6% 59.0% 54.9% 55.9% 57.0% 14% 19% 18% 99% 113% 129%Visa Inc. 11.8% 12.4% 12.1% 64.6% 66.8% 67.9% 61.2% 63.1% 64.1% 21% 19% 16% 20% 30%

CROCITotal revenues, yoyEBITDA (ex-SBC, ex-exceptionals)

marginsEBIT (ex-SBC, ex-exceptionals)

margins PF EPS, yoy



Wirecard (WDIG.DE): Multi-channel platform growth; up to CL Buy

Source of opportunity

We upgrade Wirecard to Buy (from Neutral) and add it to our

Conviction List. We raise our 12 month blended price target to €38 (was

€24). We believe the stock’s outperformance can continue as the

company maintains its strong revenue growth momentum, successfully

penetrating mCommerce, and following a period re-investment,

delivering operating margin expansion in years ahead. We forecast a

20% revenue CAGR from 2012-17E, above consensus estimates of 18%,

driving a 5-year PF EPS CAGR of 24%. Following a period of re-

investment we forecast EBITDA margins to rise from 27.7% in CY12 to

29.9% by CY17. In our view Wirecard’s multi-channel presence across

on-line, off-line and mobile, and strong proven technology platform

(notable for fraud prevention/risk management) and product portfolio

positions it very well to capture growth across both eCommerce and

mCommerce. Specifically we believe there is a €65 bn mobile

commerce related opportunity for Wirecard spread across mobile

carriers, retailers and other verticals. Geographically we expect

Wirecard to augment its strong presence in Germany and across

Europe with continued expansion in Asia where it is now generating

transaction volume of 1.8 bn as of 2Q13. In our view deal win

momentum in recent quarters illustrates that Wirecard is taking the

right steps in capturing the mobile opportunity while managing

potential cannibalisation to its existing online/eCommerce revenues.

We believe there is the potential for additional value if Wirecard is

successful in fully capitalising the opportunity relating to mobile. The

key medium/long term risk remains deciphering pricing pressure

against volume growth. We believe Wirecard’s channel and product

footprint together with its two banking licenses (in Germany and UK)

are sources of competitive advantage which strengthen its strategic

appeal, hence our decision to incorporate an M&A weighting in our

price target.

Catalyst

Wirecard is due to report its 3Q13 results on November 19. Wirecard

CEO Dr. Markus Braun is due to present at the GS Corporate

Conference in Munich on September 24. In the intermediate term we

expect positive ongoing news flow with regard to new deal wins with

mobile carriers, retailers and in other verticals for Wirecard’s payment

processing platform.

Valuation

Our new 12-month blended price target is €38, based on a 70%

weighting to our core valuation of €36/share valuing Wirecard on 30x

(from 24x) 2015E PF EPS (1.2x PEG, 21% PF EPS CAGR over 2013-17)

reflecting strong medium-term growth potential and a 30% weighting to

our M&A valuation of €42.6/share (7x 2015 EV/sales, mid-point of

strategic M&A).

Key risks

Higher/lower-than-expected volumes/fee margins, M&A approach,

mobile related growth, merchant chargebacks, increased investments.

Source: Company data, Goldman Sachs Global Investment Research, FactSet.

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the investment

profile measures please refer to the

disclosure section of this document.

Wirecard (WDIG.DE)

Europe Technology Peer Group Average

Key data Current

Price (€) 24.11

12 month price target (€) 38.00

Upside/(downside) (%) 58

Market cap (€ mn) 2,659.5

Enterprise value (€ mn) 2,554.1

12/12 12/13E 12/14E 12/15E

Revenue (€ mn) New 394.6 474.0 566.9 677.7

Revenue revision (%) 0.0 0.0 0.0 0.0

EBIT (€ mn) New 93.6 97.8 130.6 156.0

EBIT revision (%) 0.0 0.0 0.0 0.0

EPS (€) New 0.66 0.70 0.92 1.10

EPS (€) Old 0.66 0.70 0.92 1.10

EV/EBITDA (X) 14.5 21.1 16.8 14.6

P/E (X) 23.7 34.7 26.1 22.0

Dividend yield (%) 0.6 0.6 0.8 1.0

FCF yield (%) 2.6 0.4 0.7 1.2

CROCI (%) 20.8 20.1 20.5 20.7

320

330

340

350

360

370

380

390

400

410

16

17

18

19

20

21

22

23

24

25

Sep-12 Dec-12 Mar-13 Jun-13

Price performance chart

Wirecard (L) FTSE World Europe (EUR) (R)

Share price performance (%) 3 month 6 month 12 month

Absolute 8.4 20.1 41.6

Rel. to FTSE World Europe (EUR) 8.2 15.2 25.5

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/02/2013 close.



Wirecard: Our thesis in six charts

Exhibit 67: We forecast 20% organic revenue growth in

the next five years (2012-17E)…

Revenues (€ mn) and org revenue growth (%yoy, ex-fx)

Exhibit 68: …with EBITDA margins reaching c.30% by

2017E EBITDA ex-exceptionals (€ mn) vs margins

Source: Company data, Goldman Sachs Global Investment Research. Source: Company data, Goldman Sachs Global Investment Research.

Exhibit 69: We expect Wirecard to augment its strong

presence in Germany and Europe with continued

expansion in Asia Revenues by geography, 2012

Exhibit 70: We expect PP&RM and A&I segments to grow

at c.20% revenue CAGR in 2012-17E Revenues by segment, 2012



Exhibit 71: Given strong revenue growth, WDI trades at a

premium to history on P/E… WDI historical 2-yr fwd P/E

Exhibit 72: …and EV/sales WDI historical 1-Yr fwd EV/sales

Source: Datastream, I/B/E/S.

Source: Datastream, I/B/E/S.

82 134197

229 272 325

395474

567

678

816

990

67%64%

35%

18%16%

19%

13% 15%19% 20% 20% 21%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

200

400

600

800

1000

1200

2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Revenu

e grow

th (%

yoy, org ex‐fx)

Revenu

es (E

ur,m

n)

Revenues (Eur,mn) Revenue growth (%yoy, org ex‐fx)

20 3552

61 7390

109125

157

193

239

29624.0%

26.2% 26.6% 26.6% 27.0% 27.6% 27.7%26.4%

27.7% 28.4% 29.4% 29.9%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0

50

100

150

200

250

300

350

2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

EBITDA margin

EBITDA, ex‐ecep

tion

als (Eur,m

n)

EBITDA, ex‐eceptionals (Eur,mn) EBITDA margin

Germany, 49%

Europe, 45%

Others, 7%

Payment

Processing & Risk

Management

(PP&RM), 71%

Acquiring &

Issuing (A&I),

36%

Call Center &

Communication

Services

(CC&CS), 1%

WDI 2-Yr fwd P/E

6

8

10

12

14

16

18

20

22

24

26

28

30

32

2006 2007 2008 2009 2010 2011 2012 2013

1Jan2006 2Sep2013

First LastHigh Low

Mean Std

18.0701 25.161516Mar06 20Nov0830.9057 7.157617.1796 4.7978

evsales for wdig.de as of Aug 31 2013

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

2006 2007 2008 2009 2010 2011 2012 2013

1Jan2006 2Sep2013

First LastHigh Low

Mean Std

2.3034 4.580414May08 8Oct08

5.0339 0.94133.2843 0.8863

Average: 3.3x

Average: 17.2x



Monitise (MONI.L): Platform strength underestimated; CL Buy


We reiterate our CL-Buy on Monitise and believe the stock is at a

positive inflection point. We believe new product launches and major

customer and contract wins in the past 12 months lend significant

credibility to its technology platform which also increases its strategic

appeal and paves the way for a 50% revenue CAGR over the next 5

years with a clear path toward 25%+ EBITA margins. Given increased

conviction, we raise our 12m price target to 100p. With a potential

addressable market of €22 bn and assuming Monitise can execute, we

see scope for additional valuation re-rating with our scenario analysis

suggesting a risk/reward of 10:1 at current levels.

Catalyst

MONI is due to report FY13 results on September 5 where we expect it

to demonstrate a significant acceleration in 2H13 organic growth to

65% yoy. We also expect positive FY14 revenue growth guidance and a

re-affirmation of a breakeven/profitability time-frame in line with

consensus. With a strong pipeline we expect continued positive news

flow around new contract and customer wins as well as strategic

partnerships.

Valuation

Our new 12-month blended price target is 100p (from 60p) as we shift

our valuation methodology to CY15 estimates from CY14. We derive

our price target by assigning a 70% weighting to our core EV/sales-

based valuation of 94p/share, valuing Monitise on 5.7x CY15E EV/sales,

representing a c.10% discount to US SaaS vendors with a similar

growth and earnings profile (high growth & recurring revenues, low

profitability). We also incorporate a 30% weighting for our M&A

valuation of 115p/share, valuing the stock at 7x FY15E EV/sales, mid-

point of the global software deal range (normalized).

Key risks

Visa relationship, competition, management changes, customer

concentration, integration/execution related to M&A (Clairmail), lack of

scale and execution affecting expansion, delayed ramp-up of user

revenues.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Monitise (MONI.L)


Key data Current

Price (p) 47.25

12 month price target (p) 100


Market cap (£ mn) 366.6

Enterprise value (£ mn) 563.5

6/12 6/13E 6/14E 6/15E

Revenue (£ mn) New 36.1 75.2 124.4 189.8


EBIT (£ mn) New (16.4) (30.3) (9.7) 14.9

EBIT revision (%) 0.0 0.0 1.1 5.7

EPS (p) New (2.11) (2.75) (0.82) 0.76

EPS (p) Old (2.77) (2.60) (0.83) 0.72

EV/EBITDA (X) NM NM NM 24.5

P/E (X) NM NM NM 61.9

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) (8.5) (9.2) (2.5) 1.0

CROCI (%) (14.4) (9.8) 2.8 14.0

320

350

380

410

440

470

25

30

35

40

45

50



Monitise (L) FTSE World Europe (GBP) (R)


Absolute 11.2 30.3 47.7

Rel. to FTSE World Europe (GBP) 12.0 27.7 22.6




Monitise: Our thesis in six charts

Exhibit 73: We forecast 50% organic revenue growth in

the next five years (FY14-18E)… Revenues (£ mn) and org revenue growth (%yoy)

Exhibit 74: …as the proportion of user revenue growth

increases to c.80% of mix by FY16 Mix of development, user generated and license revenues

Source: Company data, Goldman Sachs Global Investment Research. Source: Company data, Goldman Sachs Global Investment Research.

Exhibit 75: We expect improved profitability driven by

increasing user generated revenue mix User generated revs as % of total revenues vs. gross margins

Exhibit 76: We expect EBITDA/cash breakeven by FY14 as

a result Cash flow from operations vs. EBITDA (adjusted)

Exhibit 77: MONI trades at a discount to high growth

SaaS companies on EV/sales MONI vs. high growth SaaS companies, 1-yr fwd EV/sales

Exhibit 78: Our M&A based valuation is at the mid-point

of global software historical range MONI historical EV/sales

Source: Datastream, I/B/E/S. Source: Datastream, I/B/E/S.

0 1 3 6 1536

75124

190

284

402

571

99%

217%

68%

126%

151%137%

50%

65%53% 49%

42% 42%

0%

50%

100%

150%

200%

250%

0

100

200

300

400

500

600

20

07

20

08

20

09

20

10

20

11

20

12

20

13E

20

14E

20

15E

20

16E

20

17E

20

18E

Org

. re

v.

gro

wth

, %

yo

y

Rev

enu

es,

UG

BP

mn

Revenues Org. rev growth

7%18%

47%54%

35%

51%

69%76% 81% 85% 88%

100%

66% 40%

24%

46%

65%

49%

31%24% 19% 15% 12%

27%42%

29%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

User generated revs Development revs License revs

7%

18%

47%

54%

35%

51%

69%

76%81%

85%88%

57.8%56.1%

63.2%61.5%

66.4%

68.9%

74.6%

76.8%78.3%

79.5% 80.3%

50%

55%

60%

65%

70%

75%

80%

85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20

08

20

09

20

10

20

11

20

12

20

13E

20

14E

20

15E

20

16E

20

17E

20

18E

Gro

ss M

argin

s

Use

r gen

erat

ed r

evs

as %

of

tota

l

User generated revs - % of total Gross margins

-9 -11 -11-14 -12 -12

-21

9

35

61

99

158

-8-12

-11 -13 -12-10

-17

7

36

65

102

165

-50

0

50

100

150

200

20

07

20

08

20

09

20

10

20

11

20

12

20

13E

20

14E

20

15E

20

16E

20

17E

20

18E

GB

P m

n

Cash flow from ops EBITDA ex-excep ex-SBC

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

Jan-

08

Ap

r-0

8

Jul-0

8

Oct

-08

Jan-

09

Ap

r-0

9

Jul-0

9

Oct

-09

Jan-

10

Ap

r-1

0

Jul-1

0

Oct

-10

Jan-

11

Ap

r-1

1

Jul-1

1

Oct

-11

Jan-

12

Ap

r-1

2

Jul-1

2

Oct

-12

Jan-

13

Ap

r-1

3

MONI US SaaS companies average evsales for moni.l as of Aug 31 2013

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul

1Jan2008 2Sep2013

2008 2009 2010 2011 2012 2013

First LastHigh Low

Mean Std

13.4242 5.3666 2Jan08 8Apr0913.4242 0.02804.6412 2.0307

Average: 4.6x



AtoS (ATOS.PA): Attractive value creation opportunity in

Worldline; Buy


We believe the market is underestimating the scope for value creation

through the ‘carve out’ of AtoS’ payments business, WorldLine. Our

sum of the parts valuation suggests an Atos group valuation of €85-

€101, by ascribing a global payments peer group average valuation

multiple to Worldline (2.8x 2015E EV/sales and 14x 2015E EV/EBIT

respectively).The payments business is the centre piece of the group

and currently generates €1 bn in revenues and 14.7% EBIT margins (vs.

€7.8 bn in revenues and 5.4% margins for the remainder of the group).

The Worldline business plays across three main streams in the

payments landscape: (1) Back end processing (35% of Worldline

revenues) which we estimate will grow at a stable c.5% revenue CAGR,

but generate a healthy c.19% EBIT margin); (2) merchant acquiring (33%

of Worldline revenues) which we estimate will grow c.6% CAGR and

generate a 20% margin; (3) mobile technologies (32% of Worldline

revenues), which we estimate will grow at a 13% CAGR and generate a

16% margin. Following the ‘carve-out’, we believe more dedicated focus

and increased partnerships should result in organic growth for the

WorldLine entity to increase gradually from c.5% currently to 9% by

2017 driven by the merchant acquiring and mobile solutions business.

We expect Atos to be a beneficiary in the outsourcing and platform

categories for the tech sector, representing a potential addressable

market of up to €4 bn. More strategically, we would not be surprised if

management utilises the balance sheet to undertake additional M&A to

expand both geographic and solution footprint of WorldLine as well as

an eventual potential IPO to crystallise further value. In our view, AtoS’

management has a strong track record of value creation as evidenced

by the successful acquisition, integration and synergy realisation from

the Siemens IT Services business. We make nominal changes to our

estimates.

Catalyst

Atos is due to report 3Q sales on October 25. We also expect an analyst

day focusing on the company’s payment business, Atos Worldline,

during 4Q, where we expect the company to spotlight the breadth of its

payments portfolio and the scope for growth acceleration as the

business is split into a separate entity with renewed focus.

Valuation

Our 12 month price target is €85 (was €70), valuing AtoS at 15.4x CY15

P/E (was 13.5x), at a premium to its historical P/E mean (2003-13) of

11.5x. Our price target is supported by our sum-of-the-parts valuation of

€85-€101, which is in our view better captures the value creation

opportunity from carving out the Worldline business.

Key risks

Integration/execution risks (M&A); macro and management changes.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Atos (ATOS.PA)


Key data Current

Price (€) 56.68





12/12 12/13E 12/14E 12/15E

Revenue (€ mn) New 8,844.3 8,795.8 9,058.8 9,403.7


EBIT (€ mn) New 580.0 660.3 731.2 787.8

EBIT revision (%) 0.0 0.0 0.0 0.0

EPS (€) New 2.48 3.67 4.64 5.16

EPS (€) Old 2.48 3.67 4.65 5.20

EV/EBITDA (X) 5.4 5.8 4.8 4.3

P/E (X) 18.8 15.4 12.2 11.0

Dividend yield (%) 0.4 0.6 1.2 1.8

FCF yield (%) 6.2 3.1 4.2 5.5

CROCI (%) 10.4 10.7 9.9 10.1

320

330

340

350

360

370

380

390

46

48

50

52

54

56

58

60



Atos (L) FTSE World Europe (EUR) (R)


Absolute 0.5 0.3 21.8

Rel. to FTSE World Europe (EUR) 0.4 (3.7) 7.9




Atos: Our thesis in six charts

Exhibit 79: We expect Worldline to be 15% of Atos

revenues medium term…. Worldline/IT Services revenue mix (2012-17E)

Exhibit 80: …driving revenue growth improvement… Worldline/IT Services revenue growth (2013-17E)

Source: Company data. Source: Company data, Goldman Sachs Global Investment Research.

Exhibit 81: …and operating margin expansion Worldline/IT Services operating margins (2012-17E)

Exhibit 82: We expect highest growth in mobility and e-

Transactional services Worldline revenue segments



Exhibit 83: AtoS trades at a discount to US payments

peers on 2-Yr fwd P/E… AtoS vs. US payment peers, 2-yr fwd P/E

Exhibit 84: …and 1-Yr fwd EV/Sales AtoS vs. US payment peers, 1-yr fwd EV/sales


12% 13% 13% 14% 15% 15%

88% 87% 87% 86% 85% 85%

0%10%20%30%40%50%60%70%80%90%

100%

2012 2013E 2014E 2015E 2016E 2017E

Worldline IT services

5.4%

7.3%

9.1% 9.2% 9.4%

‐1.4%

2.4%3.0% 3.2% 3.3%

‐0.5%

3.0%3.8% 4.1% 4.2%

‐2%

0%

2%

4%

6%

8%

10%

2013E 2014E 2015E 2016E 2017E

Revenu

e grow

th (%

yoy)

Worldline IT services AtoS (Group)

14.7% 14.9% 15.9%17.6% 18.6%

20.0%

5.4% 6.4% 6.9% 6.9% 7.0% 6.9%

6.6% 7.5% 8.1% 8.4% 8.7% 8.9%

0%

5%

10%

15%

20%

25%

2012 2013E 2014E 2015E 2016E 2017E

Ope

rating

margins (%

)

Worldline IT services AtoS (Group)

353 371 393 420 450 481

341 368 412 474 545 627375 387 403423

444466

0

500

1000

1500

2012 2013E 2014E 2015E 2016E 2017E

Revenu

es, EURm

n

Financial Processing & Software Licensing

Mobility & e‐Transactional services

Merchant Services & Terminals

0x

5x

10x

15x

20x

25x

30x

35x

2006 2007 2008 2009 2010 2011 2012 2013

ATOS TSS HPY GPN

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

2006 2007 2008 2009 2010 2011 2012 2013

ATOS TSS HPY GPN



Exhibit 85: Our new 12 month price target of €85 is derived from our SOTP analysis AtoS SOTP analysis


European Payment peersEV/2014E

SalesEV/2014E EBITDA

EV/2014E EBIT

EV/2015E Sales

EV/2015E EBITDA

EV/2015E EBIT Sales EBITDA EBIT EPS

WDIG.DE Wirecard 4.4x 16.4x 19.2x 5.6x 21.0x 24.2x 20% 18% 19% 18%INGC.PA Ingenico SA 2.0x 9.6x 11.0x 1.9x 9.2x 10.4x 14% 20% 21% 28%WING.DE Wincor Nixdorf 0.7x 7.2x 10.3x 0.7x 7.2x 10.1x 4% 5% 7% 9%GTO.AS Gemalto 2.5x 13.2x 16.0x 2.4x 12.5x 14.8x 12% 18% 24% 27%MONI.L Monitise 4.2x 50.0x 284.3x 3.0x 17.9x 26.6x 59% ‐230% ‐203% ‐181%EDEN.PA Edenred 6.7x 17.7x 19.2x 7.0x 17.5x 18.9x 7% 9% 10% 12%Median 3.3x 14.8x 17.6x 2.7x 15.0x 16.8x 13% 14% 14% 15%

US Payment peersEV/2014E


EV/2014E EBIT

EV/2015E Sales

EV/2015E EBITDA


FIS Fidelity National Information Svcs. 2.8x 9.0x 11.3x 2.8x 8.9x 11.2x 4% 5% 6% 11%FISV Fiserv, Inc. 3.0x 9.2x 12.0x 3.0x 8.9x 11.1x 5% 6% 9% 12%EVTC Evertec Inc. 6.9x 13.5x 20.7x 6.9x 12.7x 18.3x 6% 13% 24% 20%GPN Global Payments Inc. 1.6x 7.8x 9.8x 1.6x 7.5x 9.3x 6% 4% 5% 8%HPY Heartland Payment Systems, Inc. 2.3x 7.0x 10.4x 2.3x 6.7x 9.7x 7% 7% 13% 19%TSS Total System Services, Inc. 2.0x 7.5x 10.7x 2.0x 7.1x 10.0x 13% 12% 14% 19%VNTV Vantiv, Inc. 5.5x 11.4x 15.7xWEX WEX Inc. 4.3x 8.8x 10.5x 4.4x 8.8x 10.1x 8% 11% 16% 11%FLT FleetCor Technologies, Inc. 7.8x 13.8x 15.8x 7.5x 13.1x 15.2x 14% 17% 17% 18%CIEL3.SA Cielo 7.0x 13.2x 14.8x 6.7x 12.9x 14.5x 3% ‐1% ‐1% ‐3%Median 3.6x 9.1x 11.7x 3.0x 8.9x 11.1x 6% 7% 13% 12%

Payment peersEV/2014E


EV/2014E EBIT

EV/2015E Sales

EV/2015E EBITDA


European payment vendors 3.3x 14.8x 17.6x 2.7x 15.0x 16.8x 13% 14% 14% 15%US payment vendors 3.6x 9.1x 11.7x 3.0x 8.9x 11.1x 6% 7% 13% 12%

Global Payment vendors 3.5x 11.9x 14.6x 2.8x 12.0x 14.0x 9% 10% 13% 13%AtoS Worldline 7% 14%

Worldline 1,208 192 1,318 232Payments peer group 3.5x 14.6x 2.8x 14.0xImplied EV for Worldline 4,201 2,811 3,730 3,238

IT Services peers 2014E 2015EEV/2014E


EV/2014E EBIT

EV/2015E Sales

EV/2015E EBITDA


CAPP.PA Capgemini 0.7x 6.9x 8.7x 0.7x 6.8x 8.6x 2% 6% 7% 11%TIE1V.HE Tieto 0.6x 4.5x 7.1x 0.6x 4.6x 7.0x ‐1% 1% 3% 50%Median 0.7x 5.7x 7.9x 0.7x 5.7x 7.8x 1% 4% 5% 30%

Atos IT Services 7,851 539 8,086 556IT services peer group 0.7x 7.9x 0.7x 7.8xImplied EV for Atos IT Services 5,199 4,242 5,464 4,325

Total implied EV 9,400 7,053 9,194 7,563(Add) Net Debt ‐1,176 ‐1,176 ‐1,683 ‐1,683(Add) Minorities 37 37 40 40(Add) Pension liability 736 736 736 736MV 9,803 7,455 10,101 8,470No. of shares O/S (diluted) 99.0 99.0 100.0 100.0Implied valuation per share 99.0 75.3 101.0 84.7% Upside/Downside 75% 33% 78% 49%

2014E 2015E

2012‐15 CAGR

2012‐15 CAGR

2012‐15 CAGR

2014E

2014E

2014E

2015E

2015E

2015E

2014E 2015E

2012‐15 CAGR



Gemalto (GTO.AS): Digital security provider for mobile payments;

Buy


We remain confident in in our estimated double-digit top-line growth

trajectory for Gemalto in 2013-15, based on our continued expectation of

accelerating LTE and NFC SIM card product cycles, and positive view on

the company’s ability to benefit from the rollout of EMV technology in

the US. We also highlight GTO’s strong competitive positioning overall,

with dominant shares in concentrated markets. Looking further out, we

believe multiple remote management software platform opportunities

remain firmly in place, both within the mobile carriers segment, but also

in security, where we expect initiatives to expand to new verticals e.g.

employee authentication for corporates. Moreover, our incremental

analysis of the longer term Trusted Services Manager (TSM) opportunity,

which factors in applications not only within payments, but also other

verticals, suggests this can become a market worth c.€700 mn, even with

only 10% adoption on handsets within five years. While we make only

minor changes to 2013-15 EPS (1%-3%), we estimate TSM will drive

almost 20% of GTO’s incremental adjusted EBIT for 2012-17.

Catalyst

As such, we expect GTO to provide investors with a bold, but credible,

four-year forward (2017) profit plan at its CMD on September 5,

underpinning our thesis of secular growth opportunities. Given GTO has

exceeded its initial targets in previous plans one year ahead of schedule,

we anticipate it may cite an adjusted EBIT (PFO) target of €550 mn-

€600 mn for 2017 (vs. our 2016 estimate of €605 mn).

Valuation

Based on our valuation framework for growth assets, our 12-month price

target rises to €125 (from €90), as we roll forward our target multiple to

2015, and apply a target multiple of 14x EV/EBITDA (12x). Additionally,

we apply a 20% M&A weighting, based on a takeout multiple of 4x

EV/sales, in line with historical transactions in the space. While we do not

see M&A as a base case, it is possible given strength in TSM implies

potential strategic asset status. Our price target thus implies a PEG of

0.8x on 2014, broadly in line with historical trading PEG.

Key risks

Slower than expected rollouts of LTE/4G, NFC and EMV technology.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Gemalto (GTO.AS)


Key data Current

Price (€) 87.37





12/12 12/13E 12/14E 12/15E

Revenue (€ mn) New 2,235.9 2,505.0 2,795.0 3,130.0


EBIT (€ mn) New 266.4 334.9 431.0 505.0

EBIT revision (%) 0.0 1.5 (1.6) (2.5)

EPS (€) New 2.63 3.27 4.44 5.27

EPS (€) Old 2.63 3.37 4.57 5.35

EV/EBITDA (X) 12.1 16.5 12.3 10.0

P/E (X) 21.6 26.8 19.7 16.6

Dividend yield (%) 0.5 0.4 0.4 0.4

FCF yield (%) 3.3 3.8 5.6 6.0

CROCI (%) 14.3 13.8 16.9 18.3

320

330

340

350

360

370

380

390

55

60

65

70

75

80

85

90



Gemalto (L) FTSE World Europe (EUR) (R)


Absolute 35.2 24.9 38.7





Gemalto: Our thesis in six charts:

Exhibit 86: GTO has top-quartile industry positioning

given dominant share allows in concentrated markets

Industry positioning vs. CROCI percentiles for EU Tech (%)

Exhibit 87: Over time GTO has diversified its business,

reducing volatility of earnings streams

GTO EBIT by segment (€ mn)



Exhibit 88: GTO is well positioned to benefit from a

LTE/4G ramp that is more powerful than was seen for 3GGlobal LTE units (mn)

Exhibit 89: GTO mix shifting to software as infrastructure

is rolled out to manage mobile payments credentials GTO group hardware vs. software mix (%)



Exhibit 90: We expect margins to continue expanding in

all of Gemalto’s key segments…

Segmental EBIT margins (%)

Exhibit 91: … driving expanding cash return on cash

invested vs. historical levels and a multiple rerating

Gemalto CROCI (%)



0%

25%

50%

75%

100%

0% 25% 50% 75% 100%

Bel

ow A

vera

ge <

===

CR

OC

I per

cent

ile==

=> A

bove

Ave

rage


AIXGn.DE

ALUA.PA

ARM.L

ASMI.AS

ASML.AS

AMS.S

CSR.L

ERICb.ST

GTO.ASIMG.L

IFXGn.DE

INGC.PA

LOGN.S

NOK1V.HE

PIC.L

SPT.L

STM.PA

TCH.PA

TOM2.ASWLF.L

DAST.PA

AVV.L

FDSA.L

SAPG.DE

SOWG.DE

BLNX.L

NEKG.DETEMN.S

SGE.L

OPERA.OL

MCRO.L

UNI4.AS

IFSb.ST

EXAH.AS

TCY.L

CAPP.PA

ATOS.PA

IDR.MC

TIE1V.HE

HEXAb.ST

MONI.LSDL.L

INXN

WDIG.DE

-50

-

50

100

150

200

250

300

350

400

450

2008 2009 2010 2011 2012 2013E 2014E

Mobile Op Profit Secure Transactions Op Profit Security Op Profit

0

50

100

150

200

250

300

YR1 YR2 YR3 YR4 YR5

Subs

crib

ers

(mn)

LTE subs

WCDMA subs

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2008 2009 2010 2011 2012 2013E 2014E

Hardware % of Group Sales

Software % of Group Sales

-28%

-23%

-18%

-13%

-8%

-3%

2%

7%

12%

17%

22%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Mobile Comm. Margins Secure Transactions Margins Security Margins

0%

5%

10%

15%

20%

25%

2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

CROCI (%)

average historicCROCI



Ingenico (INGC.PA): Growth driven by EM rollout and regulation;

up to Buy


We upgrade Ingenico to Buy (from Neutral) based on a more positive

view on profit growth and returns. In tandem with our European

Payments report published today Monetising mobile money, we analyse

its competitive advantage, and risks, especially around mobile POS

terminals. While the market is focused on concerns about barriers to

entry, we believe recent consolidation leaves Ingenico with a strong

share in a quasi-duopoly market structure, suggesting sound second-

quartile industry positioning. As such, it is a beneficiary of regulatory

change around the EMV standard and EM terminals rollouts, allowing for

double-digit revenue growth in 2012-17E.

Catalyst

We raise our revenue estimates by 1% for 2013-16. Our adjusted EBITDA

estimates rise 4%/5%/5% for 2013/14/15, as we assume moderate gross

margin expansion, as natural price deflation is offset by harnessing

purchasing scale, and better build-to-cost. We continue to take a

relatively conservative view on opex needs, given a rapidly changing

payments landscape. Our EBITDA estimates are 3%/8%/8% ahead of

Thomson Reuters consensus in 2013/14/15, given a more positive view

on operating leverage, suggesting the potential for continuing earnings

beats in coming quarters.

Valuation

Based on our EU tech growth-to-value framework, we raise our 12-

month price target to €82 (€59), driven by higher estimates, rolling

forward the multiple to 2015E (from 2014E) and using 12x EV/EBITDA

(was 11x) and higher net cash assumptions. This implies a PEG on 2015

of 0.6x, bringing our valuation into line with Ingenico’s historical 3-year

average. We now have a 12-month price target (from 6-month),

consistent with other European payment assets. Given >50% potential

upside, we upgrade to Buy.

Key risks

Worse traction in transaction processing; cannibalisation by mobile POS

in the long term; heightened investment requirements diluting cash

returns.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Ingenico SA (INGC.PA)


Key data Current

Price (€) 54.29





12/12 12/13E 12/14E 12/15E

Revenue (€ mn) New 1,206.4 1,400.0 1,590.0 1,790.0


EBIT (€ mn) New 189.2 240.0 290.0 334.0

EBIT revision (%) 0.0 5.4 5.4 5.8

EPS (€) New 2.19 2.96 3.84 4.59

EPS (€) Old 2.19 2.79 3.32 3.86

EV/EBITDA (X) 9.4 11.6 9.1 7.6

P/E (X) 17.2 18.3 14.2 11.8

Dividend yield (%) 1.9 0.5 1.4 2.3

FCF yield (%) 6.2 6.4 8.5 8.2

CROCI (%) 16.0 15.7 16.7 18.5

320

340

360

380

400

420

35

40

45

50

55

60



Ingenico SA (L) FTSE World Europe (EUR) (R)


Absolute 3.0 17.9 28.7





Ingenico: Our thesis in six charts

Exhibit 92: INGC.PA has solid second-quartile industry

positioning …

Industry positioning vs. CROCI percentiles for EU Tech (%)

Exhibit 93: … given strong market share in a quasi-

duopolistic market

Market shares by revenue, 2012 (%)

Source: Goldman Sachs Global Investment Research, company data


Exhibit 94: Low EM penetration levels and high R-Sqd.

with GDP/capita suggest terminal growth potential POS terminals per thousand pop (x-axis) vs GDP per capita

Exhibit 95: Ingenico can capitalise on the bankcard

segment opportunity in the US given EMV strength Overview of nr. of merchants in US market segments

Source: Euromonitor, IMF, Goldman Sachs Global Investment Research


Exhibit 96: We expect gross margins to continue

expanding albeit less than seen historically… Ingenico gross profit (€ mn.) and gross margins (%)

Exhibit 97: … driving EBIT margin expansion given

double digit revenue growth and operating leverage Ingenico revenues and adj. EBIT (€ mn.) and margins (%)



0%

25%

50%

75%

100%

0% 25% 50% 75% 100%

Bel

ow A

vera

ge <

===

CR

OC

I per

cent

ile==

=> A

bove

Ave

rage


AIXGn.DE

ALUA.PA

ARM.L

ASMI.AS

ASML.AS

AMS.S

CSR.L

ERICb.ST

GTO.ASIMG.L

IFXGn.DE

INGC.PA

LOGN.S

NOK1V.HE

PIC.L

SPT.L

STM.PA

TCH.PA

TOM2.ASWLF.L

DAST.PA

AVV.L

FDSA.L

SAPG.DE

SOWG.DE

BLNX.L

NEKG.DETEMN.S

SGE.L

OPERA.OL

MCRO.L

UNI4.AS

IFSb.ST

EXAH.AS

TCY.L

CAPP.PA

ATOS.PA

IDR.MC

TIE1V.HE

HEXAb.ST

MONI.LSDL.L

INXN

WDIG.DEIngenico,

39%

Verifone,

42%

Pax, 5%

Equinox, 2%

Small local

players, 12%

R² = 85%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

0 5 10 15 20 25 30 35 40

ChinaIndia

Indonesia

Malaysia BrazilMexico

Russia

S. Africa

UK

US

France

Australia

Italy

Canada

Mature country average

8,000k

750k

85k

125kTier one large

retailers

Tier two large

retailers

Tier three large

retailers

Bankcard segment

merchants

35%

36%

37%

38%

39%

40%

41%

42%

43%

44%

45%

-

100

200

300

400

500

600

700

800

900

1,000

2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

Gross profit gross margin (%)

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

Adj. EBIT Total revenues Adj. EBIT margin (%)



SAP (SAPG.DE): Mobility platform & analytics an ace in the pack;

CL Buy


Although SAP is not a direct participant in the mobile money value

chain today we believe it has some important technology capabilities

that should enable it to have a more prominent presence in the future.

We believe SAP has two important products of significant strength it

can leverage: the Sybase Unwired Platform (via the acquisition of

Sybase in 2010) and its real time analytics platform HANA. But most of

important of all in our view, SAP has the connectivity to enterprise back

end platforms that today drive over 60% of the world’s transactions. We

expect SAP to intersect the payments value chain likely initially through

partnerships leveraging its analytics prowess given less sophisticated

offerings by incumbent payment vendors in this domain. Given SAP is

the gatekeeper to the back end transaction system we believe it can

deliver advanced analytics solutions to retailers, banks and telcos. We

also believe SAP will organically invest around the Sybase Unwired

Platform (SUP) moving into providing security (e.g. at SAPPHIRE NOW

in 2013 SAP launched a simple and complete offering for mobile device

management for €1 per device per month), ad platforms and mobile

apps (both B2B and B2C). We believe SAP’s product capabilities will see

it not compete for merchant acquirer business, but rather build

complementary software based solutions. SAP believes in a multi-

channel approach and thus looks to leverage its capabilities in the core

banking market to provide both online and mobile banking solutions.

Finally, with regards to EMs, SAP believes it can use its SUP to build

mobile wallets – e.g. offer payroll and remittance services to the

unbanked population, potentially in partnership with telcos. As a result

we expect SAP to be a beneficiary of the €4 bn market opportunity we

have outlined in the outsourcing & platform segment for the tech

sector. We forecast SAP’s mobility business to grow at a 47% CAGR

from 2012-15 and expect its revenue (SSRS) contribution to increase

from 1% in 2012 to 3% by 2015E. We expect SAP to make acquisitions

on the periphery of the mobile money value chain which may

eventually make it a bigger challenger to incumbents. The recent

acquisition of Hybris, in the e-commerce segment, which if married

successfully with SAP’s mobility platform could carry interesting

implications longer term.

Catalyst

SAP is due to report 3Q results on October 21.

Valuation

Our 12-month, P/E-based price target is €77, valuing SAP at 19.5x 2014E

PF EPS of €3.94, in line with its historical mean valuation.

Key risks

Slower developed markets recovery; investments limiting operating

margin; lack of traction for newer products; integration/execution of

acquisitions, emerging market slowdown.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





SAP (Ordinary Share) (SAPG.DE)


Key data Current

Price (€) 56.11





12/12 12/13E 12/14E 12/15E

Revenue (€ mn) 16,221.1 17,195.3 19,358.2 21,383.1

EBIT (€ mn) 4,063.5 4,464.4 5,422.9 6,340.3

EPS (€) 2.37 2.73 3.28 3.83

EV/EBITDA (X) 12.9 12.4 9.9 8.1

P/E (X) 21.6 20.6 17.1 14.6

Dividend yield (%) 1.7 1.5 1.8 2.0

FCF yield (%) 4.8 4.1 7.1 8.0

CROCI (%) 21.9 20.0 25.2 27.8

CROCI/WACC (X) 2.6 2.3 2.9 3.2

EV/GCI (X) 3.2 3.2 2.9 2.6

320

330

340

350

360

370

380

390

52

54

56

58

60

62

64

66



SAP (Ordinary Share) (L) FTSE World Europe (EUR) (R)


Absolute (3.3) (7.0) 7.1

Rel. to FTSE World Europe (EUR) (3.5) (10.8) (5.1)




SAP: Our thesis in six charts

Exhibit 98: SAP has a history of major product cycles,

and HANA + mobile are likely to be the next leg up SAP group license revenues by product cycle, € mn

Exhibit 99: We expect slower license growth after a

disappointing 1H13 Organic license growth (ex-fx), 2010-15E


Exhibit 100: Our estimates assume a c.4% cost/head

increase Non-IFRS operating margin vs. cost/head – 2007-14E

Exhibit 101: SAP trades at a premium to MSFT, ORCL… 2-year forward P/E


Exhibit 102: … however SAP’s revenue growth is much

higher Revenue growth % yoy

Exhibit 103: SAP is outgrowing peers and therefore we

believe it deserves a premium valuation 2-year forward P/E vs. revenue CAGR


‐

1,000

2,000

3,000

4,000

5,000

6,000

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

E

2014

E

2015

E

SAP Licenses, €

mn

New products (HANA, Mobile) SAP core (ERP 6, BS) + BImySAP BS R3 & NDA

New Products (HANA, Mobile)

Business Suite + BI

mySAP

R3

R2

17%16%16%

25%

3%

13%

27%

17%

1%

20%

11%8%

5%

‐3%

1%

5%7%

10%11%13% 14%

18%

9%

18%

‐3%

‐29%

21%

16%

8%

2%

11%13%

‐45%

‐35%

‐25%

‐15%

‐5%

5%

15%

25%

35%

Mar‐10

Jun‐10

Sep‐10

Dec‐10

Mar‐11

Jun‐11

Sep‐11

Dec‐11

Mar‐12

Jun‐12

Sep‐12

Dec‐12

Mar‐13

Jun‐13

Sep‐13E

Dec‐13E

Mar‐14E

Jun‐14E

Sep‐14E

Dec‐14E

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

SAP Licenses yoy

growth (O

rgan

ic,ex‐fx basis)

0

50

100

150

200

250

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Mar‐07

Jun‐07

Sep‐07

Dec‐07

Mar‐08

Jun‐08

Sep‐08

Dec‐08

Mar‐09

Jun‐09

Sep‐09

Dec‐09

Mar‐10

Jun‐10

Sep‐10

Dec‐10

Mar‐11

Jun‐11

Sep‐11

Dec‐11

Mar‐12

Jun‐12

Sep‐12

Dec‐12

Mar‐13

Jun‐13

Sep‐13

E

Dec‐13E

Mar‐14E

Jun‐14

E

Sep‐14

E

Dec‐14E

Cost/H

ead (T EUR )

Ope

rating

Margins (e

x‐excep, ex Amor, ex SB

C)

Operating margins (ex‐excep, ex‐Amor, inc SBC) Cost/head

Our margin estimates assume c.4% CAGR increase in cost/head 2012‐2015E

0x

5x

10x

15x

20x

25x

30x

35x

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

SAP MSFT ORCL

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

25%

30%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E

2015

E

ORCL MSFT SAP

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

‐8.0% ‐6.0% ‐4.0% ‐2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

2 yr fw

d P/E

Revenue CAGR 2012‐14

ORCL 4.0%,10.5x

MSFT 4.4%,12.6x

SAP 10.9%,14.8x

CSCO 5.9%,10.4x

HPQ ‐6.3%,6.1x

IBM 0.0%,10.1x



Sage (SGE.L): 6m customer base ripe for payment monetisation;

Neutral

What’s changed

We analyse the potential monetisation opportunity for Sage in the

wider payments landscape given its growing presence in the space

through its offerings in North America (Sage Payment Solutions), South

Africa (NetCash) and Europe (Sage Pay).

Implications

We believe Sage is well positioned to capture potential monetisation

opportunities in the wider payments value chain given its strong

position as a provider of accounting and business management to over

6m SMB customers worldwide. Sage has built up a small but growing

presence in payments through the acquisitions of Verus and Protx (in

2006) and Netcash and Integral (in 2012). Sage’s payment offerings

capture a broad variety of applications and services including a

payment gateway that allows eCommerce and phone based payments,

card machine terminals, merchant services, fraud screening tools and

back end integration with accounting software. We believe Sage is still

early in the monetisation of its installed base, as it currently has only

200,000 customers (3% of the installed base) adopting its payments

solutions. We believe Sage can maintain 25%-30% growth for payments

as the Sage pay solutions are further integrated into new product

offerings such as Sage One (entry level) and Sage ERP X3 (mid market).

We also expect Sage to expand geographic footprint of payment

solutions from its current focus areas of UK, US, South Africa and

Ireland into mainland Europe. Specifically, based on our research we

believe Sage could actively participate in capturing the €2.9 bn m-POS

opportunity we have outlined in our report. With its captive base of

6 mn small and medium sized business worldwide, Sage is in a prime

position to integrate micro merchant payment solutions alongside its

accounting and HR software solutions. It also has the advantage of its

existing large scale customer support operation which it can leverage in

driving the cross selling. We also expect Sage to be actively involved in

the consolidation process as it may seek to add regional/technology

footprint in payments via M&A and partnerships

Valuation

Our 12-month P/E-based price target is unchanged at 366p, valuing

Sage on 14x 2014E PF EPS, in line with its historical mean valuation.

Key risks

(1) Continued weakness in the SMB segment; (2) faster improvement in

US business; (3) accretive/dilutive M&A; (4) competition from MSFT and

INTU.

Source: Company data, Goldman Sachs Research estimates, FactSet.

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Sage Group (SGE.L)


Key data Current

Price (p) 349.6

12 month price target (p) 366


Market cap (£ mn) 4,024.9

Enterprise value (£ mn) 4,383.3

9/12 9/13E 9/14E 9/15E

Revenue (£ mn) 1,340.2 1,377.2 1,363.7 1,419.3

EBIT (£ mn) 349.3 350.5 357.8 381.9

EPS (p) 19.57 9.20 22.72 25.98

EV/EBITDA (X) 10.8 11.6 10.6 9.5

P/E (X) 15.4 38.0 15.4 13.5

Dividend yield (%) 3.5 7.8 3.6 4.1

FCF yield (%) 6.9 7.8 6.4 7.7

CROCI (%) 13.0 14.2 12.2 12.8

CROCI/WACC (X) 1.4 1.6 1.4 1.5

EV/GCI (X) 1.6 1.8 1.6 1.5

320

340

360

380

400

420

440

460

480

500

300

310

320

330

340

350

360

370

380

390



Sage Group (L) FTSE World Europe (GBP) (R)


Absolute (9.0) (2.3) 12.2

Rel. to FTSE World Europe (GBP) (8.3) (4.3) (6.9)




Visa (V): CL-Buy on faster volume growth and capital allocation


Visa is on the Conviction Buy List and we continue to view the name as

one of the best positioned to benefit from positive long-term secular

trends in payments, including mobile payments, expanding acceptances

and emerging market exposure. Relative to the street our differentiated

view focuses on the contribution international markets volume growth as

well as faster than expected transaction growth as a result of new

mediums of purchase and expanding acceptance. We also note that

while potential US debit rule changes have weighed on sentiment risk

we view the impact to networks as manageable given several mitigating

factors.

With regards to mobile, our view is that currently no viable alternative

exists to replace the basic functions provided by the networks (i.e.,

authorisation, clearing, and settlement). While mobile remains a highly

fluid environment, Visa is well positioned to adapt to changes and is

investing in emerging technologies. We note Visa benefits from its

dominant industry position, a leading mobile wallet offering, and early

investments in NFC that will make disruption a substantial hurdle.

Ultimately we view the firm’s strong global acceptance lies in its

incumbent relationship with issuers and acquirers as a formidable

advantage relative to new entrants.

Catalyst

We see two key drivers behind our CL-Buy view on V: 1) international

growth remains an underappreciated driver of transaction and

volume growth. We see international generating 49% of V’s volume but

60% of growth in FY13. We also note that emerging markets have PCE of

10tn, and a CAGR of 10%. Moreover cash still represents 70% of all EM

transactions suggesting a long and significant ramp for international

payments. 2) Visa sits at the intersection of multi-channel payments

and expanding acceptance which position’s the firm to benefit from

faster than expected transaction growth. While E/M commerce users

are a smaller piece of overall transaction volume, the potential for

increased usage contribution is high due to the frequency of E/M

environments (e.g., iTunes). We note that US debit payment volume

ramp showed a similar trend in which smaller more frequent purchases

contributed favorably to overall growth. In summary, we believe that the

intersection of multiple long term secular trends will power the next leg

of EPS growth for V. We see the shares as attractive give a robust

earnings growth profile and would use recent weakness as a rare

opportunity to enter a best in class name.

Valuation

Our 12-month price target of $215 is based on a weighted average model

Including our sector-relative framework, CY2014E P/E, and EV/EBITDA.

Key risks

Better/worse than expected traction in new transaction processing

activities; potential cannibalisation by mobile POS terminals in the long

term; heightened investment requirements diluting cash returns.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Visa Inc. (V)

Americas Technology Peer Group Average

Key data Current

Price ($) 174.42

12 month price target ($) 215.00

Market cap ($ mn) 113,547.4

Dividend yield (%) 0.8

Net margin (%) 42.1

Debt/total capital (%) 0.0

9/12 9/13E 9/14E 9/15E

Revenue ($ mn) 10,421.0 11,813.9 13,278.6 14,983.5

EPS ($) 6.19 7.58 8.99 10.49

P/E (X) 18.3 23.0 19.4 16.6

EV/EBITDA (X) 11.2 14.6 12.1 10.1

ROE (%) 15.5 18.1 20.0 20.7

6/13 9/13E 12/13E 3/14E

EPS ($) 1.88 1.84 2.20 2.25

1,350

1,400

1,450

1,500

1,550

1,600

1,650

1,700

1,750

120

130

140

150

160

170

180

190

200

Aug-12 Dec-12 Mar-13 Jun-13


Visa Inc. (L) S&P 500 (R)


Absolute (3.7) 9.9 37.7

Rel. to S&P 500 (2.4) 2.0 18.0




Visa: Our thesis in six charts

Exhibit 104: PCE growth supports Visa’s attractive profileEM consumption likely to expand in double digits for years

Exhibit 105: But penetration is a larger source of growth Visa PCE penetration by region

Source: Company data.


Exhibit 106: Visa global payment volume mix by region

Int’l is expected to grow from 47% in F2012 to 51% in F2015

Exhibit 107: Visa’s connected network is its core

advantage Replicating V’s diverse connections has proved difficult



Exhibit 108: V transaction mix by area of purchase We see E/M transactions gaining share, albeit slowly

Exhibit 109: Potential impact from shift in US sig. debit Which could impact EPS -8% for V and +13% for MA.



12 13 13 13

89

10 10

0

5

10

15

20

25

2009 2010 2011 2012

PCE

for V

isa

Inc.

Cou

ntrie

s ($

T)

Emerging market PCEDeveloped market PCE

2021

23 24

PCE CAGR

6%

10%

3%

2021

23 24

PCE CAGR

6%

10%

3%

19%20%

22% 22%

6%7%

8%9%

0%

5%

10%

15%

20%

25%

2009 2010 2011 2012

Visa

a PC

E Pe

netr

atio

n

Visa PCE penatration in emerging markets

Visa PCE penatration in developed markets

57.5% 54.6% 52.5% 51.4% 50.7% 49.4%

42.5%

45.4%47.5%

48.6%

49.3%

50.6%

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

F2010 F2011 F2012 F2013E F2014E F2015E

V P

aym

ent

volu

me

mix

(%

)

International US

Global access

Interoperability

Complexity

Standardization VISA

Online/ecommerce

Mobile

payments/w

allet

mPOS

Mob

ile b

anki

ng

45.8% 45.6% 47.9%

49.6% 48.6% 48.0%

5.4% 5.9% 6.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

F2013E F2014E F2015E

% o

f tra

nsac

tions

Total transactions - Int'l Total transactions - US Total number of transactions E/M

V Downside MA upsideFY2015 2015

Total FY14E revenue $13,278.57 $10,645.85

Signature revenue $1,991.78 $1,064.58

Market share shift -$796.71 $796.71Percentage hit to revenue -6% 7%

After-tax earnings impact -$553.72 $549.73

EPS impact -$0.88 $4.77Percentage EPS impact -8% 13%



MasterCard (MA): Buy on faster volume growth and capital

allocation


We continue to rate MasterCard a Buy, like Visa we view the name as

well positioned to benefit from long-term secular trends in payments,

including mobile payments, expanding acceptances and emerging

market exposure,. MasterCard also uniquely has the potential for market

share gains (particularly in light of potential US debit rule changes).

With regard to mobile, MasterCard is well positioned, with similar

incumbent advantages to Visa. The firm is investing in NFC technology

(paypass), and has developed an emerging mobile wallet. Although the

mobile landscape remains very fluid, at this point we do not believe it is

likely that new entrants will bypass incumbent networks such as

MasterCard and Visa; barring eBay’s ACH-based option which does

bypass the networks.

Catalyst

Long term we view MA as one the most compelling names in our

payments coverage offering sustainable solid double digit sales growth

and high teens EPS growth. Relative to Visa we note that MasterCard has

somewhat higher exposure to credit (70% of global payments volume for

MA in 2013 vs. 63% for V). We note MasterCard also benefits from

greater international exposure, with a significant presence in Western

Europe (unlike Visa), and exposure to emerging markets. MasterCard

also has the potential to benefit from continued share gain prospects in

developed economies, notably Western Europe and potentially US debit

depending on the outcome of reform initiatives underway.

In particular, we highlight MA’s positioning in key emerging markets,

where its recent moves in markets such as China and Brazil give it access

to some of the largest and fastest growth electronic payment markets.

Looking out over the next several years, we believe that MA’s aggressive

diversification efforts will fuel a continued strong contribution from its

international segment. In addition, and consistent with our approach on

the V model, we are more optimistic about the mid- to longer term

transaction volume prospects for the model, which should likewise

benefit from the shift towards E/M payments.

Valuation

Our 12-month price target of US$690 is based on weighted average

model incorporating our sector-relative framework, CY14E P/E, and

EV/EBITDA

Key risks

Better/worse than expected traction in new transaction processing

activities; potential cannibalisation by mobile POS terminals in the long

term; heightened investment requirements diluting cash returns,

competition, and litigation.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Mastercard Inc. (MA)

Americas Technology Peer Group Average

Key data Current

Price ($) 606.08



Dividend yield (%) 0.3

Net margin (%) 39.0

Debt/total capital (%) 0.0

12/12 12/13E 12/14E 12/15E

Revenue ($ mn) 7,391.0 8,113.8 9,301.9 10,645.8

EPS ($) 22.04 26.14 31.17 37.00

P/E (X) 19.6 23.2 19.4 16.4

EV/EBITDA (X) 11.8 14.0 11.5 9.4

ROE (%) 43.3 44.0 44.1 40.9

6/13 9/13E 12/13E 3/14E

EPS ($) 6.96 6.91 6.03 7.35

1,350

1,450

1,550

1,650

1,750

1,850

1,950

400

450

500

550

600

650

700

Aug-12 Dec-12 Mar-13 Jun-13


Mastercard Inc. (L) S&P 500 (R)


Absolute 5.2 17.0 44.0

Rel. to S&P 500 6.6 8.6 23.4




MasterCard: Our thesis in six charts:

Exhibit 110: Global PCE growth and mix Debit/credit is expected to represent 43% of PCE by 2016

Exhibit 111: MasterCard’s digital network is growing MA’s PayPass is among the most robust digital offerings

Source: EIU, Euromonitor, Company data.


Exhibit 112: MA global payment volume mix by region Int’l is expected to grow from 63% in 2012 to 67% in 2015

Exhibit 113: Traditional four party open loop network The complexity of numerous interactions among divergent

parties makes disruptive displacement difficult



Exhibit 114: MA transaction mix by area of purchase We see E/M transactions gaining share, albeit slowly

Exhibit 115: New entrants straddle multiple points To date they have not taken significant share from networks



64% 52% 41%

13%15% 16%23%

33%

43%

0

10

20

30

40

50

60

2006 2011 2016E

Glo

bal P

CE

expe

nditu

re ($

tns)

Debit/Credit EFT Cash & Check

$30tn

$42tn

$53tn Digital Wallet Partners

Citi

BMO

Other Partners

Fifth Third Bank

Digital Acceptance

devices

NFC terminals

Cell Phones

Tablet and PC

Digital enables consumer

choice

MasterCard Network

39.7% 37.1% 36.4% 35.2% 34.4% 33.4%

56.5%60.3%

62.9%63.6%

65.6%

66.6%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2010 2011 2012 2013E 2014E 2015E

MA

pa

yme

nt v

olu

me

mix

(%

)

US International

Payee (Merchant)

Transaction Acquirer

AcquirerProcessor

Issuer Processor

Payer (Consumer)

Card Issuer

Network

Credit Debit Prepaid

Money Transfer

Emerging

Loyalty Risk Services Information Services

eCommerce Mobile Access

Supporting Value Added Services

39.6% 39.3% 38.8%

56.2% 56.1% 56.1%

4.2% 4.6% 5.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2013E 2014E 2015E

% o

f tra

nsac

tions

Total transactions - US Total transactions - Int'l Total number of transactions E/M

Software POS• Micros, Radiant, Elo, CAP

Software, Celerant/CAM, Retalix, Microsoft POS,

Hardware POS• VeriFone,

Ingenico, Toshiba Tec, NCR, Casio

Merchant acquiring • Global Payments, First

Data, Heartland, Vantiv, Evertec

Payment Networks• Visa,

MasterCard, American Express, Discover

PayPalSquare

GrouponIntuit



EBAY (EBAY): CL-Buy; Established leader in online & mobile

payments


EBAY is on the Americas Conviction Buy List and we continue to view it

as one of the best positioned to benefit from the accelerating growth in

ecommerce being driven by growth in mobile usage. While this growth

benefits both eBay’s marketplaces and payments business, PayPal has

greater market share in mobile than online, due to its ease of use and

key relationships like Apple. PayPal is in the early stages of building an

offline payments network through Discover and direct merchant

relationships that will allow users to pay via a PayPal card that defaults

to the funding option of the user’s choice. PayPal Here, the company’s

mobile card reader is expected to launch a chip and pin solution for

Europe later this year. Management is focused on driving consumer

adoption and adding merchant acquirers, with 2mn merchants targeted

by year end. More broadly, eBay is focused on improving the user

experience in both marketplaces and payments through investment in

search technology, mobile apps, merchant services, shipping, and trust

and safety. We believe this will drive accelerating growth in the second

half of 2013, serving as a catalyst for the stock.

Catalyst

There are three key components of our view on PayPal (1) Mobile.

PayPal had over 4 million sign-ups on mobile in 1H13 and expects to do

$20 bn in payment volume through mobile in 2013 (c.11% of total).

PayPal over indexes on mobile allowing it to take share as consumer

spending on Mobile grows. (2) Extending TAM. PayPal is currently

available on 68% of the top 100 retailers in the US but has lower

penetration amongst smaller retailers and overseas. PayPal also has

ample room to move into new addressable vertical markets, and it sees a

large opportunity to continue to extend credit which leads to higher

transaction margins, increased annual spend, a lower funding cost and

higher conversion rates and engagement. (3) Offline. PayPal expects to

expand its merchant coverage to 7+ mn in 2015 from 18,000 in 2012.

11,000 merchants in the UK signed up for PayPal Here’s chip and pin

device in the first four weeks of its offering.

Valuation

Our 12-month SOTP-based price target of $63 implies 12x 2014E

EV/EBITDA vs. the Internet median at 12x. Our target assumes a $33 bn

valuation for PayPal or 13X 2014E EV/EBITDA.

Key risks

Macro weakness; regulation; competition; take-rate pressures.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





eBay Inc. (EBAY)

Americas Internet Peer Group Average

Key data Current

Price ($) 50.32




Enterprise value ($ mn) 60,885.1

12/12 12/13E 12/14E 12/15E

Revenue ($ mn) New 14,071.0 16,261.8 18,918.1 21,703.0


EBIT ($ mn) New 3,007.0 3,437.8 3,988.3 4,745.7

EBIT revision (%) 0.0 0.0 0.0 0.0

EPS ($) New 1.99 2.20 2.55 3.03

EPS ($) Old 1.99 2.20 2.55 3.03

EV/EBITDA (X) 11.1 11.0 9.0 7.1

P/E (X) 21.2 22.9 19.8 16.6

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) 4.9 5.0 6.4 7.8

CROCI (%) 21.2 21.1 22.1 23.5

1,350

1,450

1,550

1,650

1,750

1,850

1,950

46

48

50

52

54

56

58



eBay Inc. (L) S&P 500 (R)


Absolute (5.8) (8.3) 6.0

Rel. to S&P 500 (5.7) (15.1) (9.1)




EBAY - Our thesis in six charts

Exhibit 116: PayPal total transaction volume and take

rate

$ bn and % of TPV

Exhibit 117: EBAY marketplaces GMV and yoy growth $ bn and yoy % change



Exhibit 118: PayPal total revenues and yoy growth $ mn and % change yoy

Exhibit 119: We expect PayPal’s share as a % of EBAY’s

total revenues to continue to increase

EBAY segmental revenue share



Exhibit 120: PayPal active registered accounts and yoy %

change Registered users (mn) and yoy % change

Exhibit 121: PayPal segment revenue split $ mn


Source: Goldman Sachs Global Investment Research, company data.

3.6%

3.7%

3.7%

3.8%

3.8%

3.9%

3.9%

$0

$50

$100

$150

$200

$250

2010 2011 2012 2013 2014

$ bn

TPV Take Rate

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2010 2011 2012 2013 2014

$ bn

Gross Merchandise Volume yoy % change

20.0%

21.0%

22.0%

23.0%

24.0%

25.0%

26.0%

27.0%

28.0%

29.0%

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2010 2011 2012 2013 2014

Revenues yoy % change

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Marketplaces PayPal Enterprise

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2011 2012 2013

Users yoy % change

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2010 2011 2012 2013 2014

Transaction Marketing Svcs & Other



Other key themes in take up of mobile money- NFC, EMV

We highlight other key themes in the technology sector which have meaningful

implications for the European vendors including NFC growth, EMV growth in US and

Trusted Service Manager opportunity globally.

NFC set to be one of the key drivers of mobile payments

Use of mobile phones is helping strong growth of proximity payments with two main

variants being quick response [QR] code and Near Field Communication [NFC]-based

systems. While barcodes are more popular now, they are largely a transitional technology.

This is not to say that barcodes will decline, merely that as NFC availability starts to catch

up, it will be a more popular method for proximity payments.

QR codes- QR codes make use of standard features of the modern smartphone, such

as a high-resolution digital camera for barcode reading. Example, Starbucks mobile

payment application, which utilises QR codes and barcode technology has gained

significant consumer traction since its January 2011 launch and has processed 45

million mobile payment transactions since launch and 19 mn in 2012 ytd.

NFC- may include special hardware support (as in the case of NFC) or Cloud Wallets

While the Near Field Communication (NFC) ecosystem has taken longer than initially

expected to develop, and various credible competing mechanisms for mobile payment

have become increasingly prominent, we believe it will ultimately play a meaningful role.

We believe certain conditions are now falling into place, which suggest NFC is likely to gain

meaningful adoption, even if the mobile payments landscape will fragmented for some

time. We believe Gemalto (Buy) will benefit as one of the providers of secure SIM cards

telcos favour for mobile payments.

NFC based mobile payments (tapping a phone on a terminal to conclude a transaction),

offers key advantages to consumers, financial institutions and retailers:

First, it is fast and convenient, enabling reduction in queue lengths at busy retailers.

Gemalto research has shown that a contactless EMV card transaction is 53% faster

than once made with a traditional credit card and 63% faster than using cash: we

expect a similar differential for NFC smartphones.

Second, NFC involves two-way communication with a payment terminal (facilitated by

an NFC radio incorporating a modem and antenna). As such, it offers scope for a

potentially more dynamic payments experience than e.g. barcode-based approaches,

as targeted offers may be pushed to the user rapidly as he/she approaches (or taps) the

point of sale terminal.

Third, while other approaches to mobile payments, such as QR codes, barcodes or

geolocation are relatively efficient and cost effective, we believe these may offer a less

secure approach and tend to be “close-loop”/tied to specific merchants as opposed to

offering broad interoperability. As such we see this as more of a transitional

mechanism, albeit one that could have the potential to retard the speed of adoption of

NFC based solutions.

In our view, the reasons NFC has not yet gained widespread adoption include:

First, NFC relies upon proliferation of handsets that have relevant radio technology,

which has been slower to occur than originally anticipated.

Second, payment terminals must be rolled out which are compatible with contactless

payments. Absent NFC compatible phones in consumers’ hands the case for retailer

adoption of such terminals was arguably unclear, while replacement cycles for POS

terminals tend to be multi-year.



Third, consumer education takes time. A key concern appears to be security, despite

the fact that, correctly implemented, there is nothing safer than paying using a phone,

as Monitise has explained, mobile payments may leverage secure smartcards, and

phones may be remotely de-activated.

Fourth, other mobile payment approaches e.g. QR codes, barcodes or location

awareness tend to be multiple times cheaper to implement, and allow NFC-

compatibility of the handset and POS terminal to be circumvented.

Finally, further developments are needed for ease of use. We note for example

Oberthur Technologies’’ technologies work with Authentec (later bought by Apple) to

integrate biometric authentication at the point of sale with NFC SIM products, but

further work is needed by tech players in this and other areas e.g. mobile wallet

interfaces.

Exhibit 122: Please indicate why you are not interested in using your mobile phone as a

replacement or substitute for a credit or debit card. Please select all that apply Responses to survey on mobile payments

Source: Smartphone Intelligence Survey, Compete.

However, we believe there are several reasons NFC technology is now likely to see more significant adoption in coming years:

NFC technology is starting to become a standard feature on mid and high end

smartphones. Over 160 NFC-enabled handsets models are now available,

according to NFC World. We estimate the cost of enabling NFC in a phone from a

bill-of materials standpoint is minimal: c.US$0.6-$0.9 compared to the e.g. US$500

unsubsidised retail cost of a mid-range smartphone. As such almost all major

phone OEMs (excluding Apple) have announced NFC handsets., including

Samsung, HTC, Nokia, ZTE, Huawei, Sony, LG and Blackberry. We note Samsung’s

alliance with Visa, whereby the latter’s payment app will be directly embedded

into a separate secure element on each of the former’s next generation phones.

Over 1 million NFC-enabled Android devices are shipped every week, and this

number is growing, according to Google I/O. We estimate

200mn/380mn/600mnNFC mobile devices will ship in 2013/14/15E, constituting

16%/24%/32% of mobile devices shipped (Informa estimates 302mn/633mn NFC

enabled handsets in 2013/2015).

Multiple telcos globally have announced NFC project deployments, including

Verizon, T-Mobile and Verizon in the US (ISIS joint venture), Softbank and KDDI in

Japan, Vodafone, Telefonica and Orange. Moreover, multiple countries are set to

go live with NFC projects, including the ISIS JV in the US, which will launch

nationwide by the end of 2013. Gemalto, which provides platforms for managing

17%

21%

26%

27%

39%

52%

56%

58%

I do not carry my mobile phone with me all the time

I'm not sure if I will need a data plan to use this

technology

I prefer to pay with cash

If my mobile phone battery died, I would not be able

to make payments

I am concerned there will be hidden fees for this

service that will show up on my monthly bill

I am concerned that if I lose my mobile phone,

people could access my bank accounts

I am concerned with the security around using my

mobile phone as a payment option

I prefer to only use my mobile phone for

communication



multiple mobile payment projects, expects a number of these to be switched on by

the YE13 (Oberthur believes the pilot phase of NFC is ending).

100% of major payment networks support NFC, including Visa, MasterCard

and American Express. By the end of 2013, Visa will have certified roughly 80

NFC devices, while network-driven NFC initiatives include Visa payWave and

Mastercard PayPass.

The merchant ecosystem is starting to respond to NFC and contactless

payments more broadly. There is increasing recognition contactless technology,

whether embedded in a payment card or handset, can help reduce improve

customer convenience and reduce queue times. As such, 25 of the top 100 retailers

in the US have deployed or are deploying contactless payment terminals; while

Aite Group estimates 1.3mn locations in the US will have contactless-ready

terminals by YE13. Several prominent multinationals such as McDonalds are

taking a proactive approach to deployment of contactless terminals while on a

more local level, the UK experience underscores the trend, with major brands

accepting contactless including Boots, WH Smith and Waitrose. Ingenico sees

merchants as increasingly keen to use NFC to push real-time targeted adverts.

Major payment terminal makers are now shipping POS devices with contactless

capabilities on board. As such, while only around 15%-20% of installed POS

terminals in the US (and globally) are NFC capable, we expect this to gradually rise.

For example, a central part of Ingenico’s strategy is to be able to accept mobile

contactless payments on its terminals. All its terminals now shipping are NFC

capable (even if not turned on), and 40% of payment terminals it shipped in 2012

were contactless enabled (30% in 2011). Verifone and Equinox have also confirmed

nearly all terminals shipped last year have functional capability to accept NFC or

contactless (although the merchant decides whether to turn this capability on).

Berg Insight predicts that 86% of POS terminals will be NFC-enabled in North

America by 2017, with 78% and 38% in the EU and rest of world respectively at

that point.

Major banks are putting resources behind contactless payments. Aside from

specific mobile-related initiatives e.g. by Barclays and Chase, multiple institutions

e.g. HSBC, Lloyds and Royal Bank of Scotland, have launched contactless card

payment card initiatives. For example, Visa states one in four cards in circulation in

the UK are contactless, while Eurosmart expects roughly 33% of payment cards

issued globally will be contactless in 2013. Secure EMV payment cards are

significantly underpenetrated in the US, but as these rollout over coming years, we

expect c.30% to be contactless. As contactless cards enter the hands of consumers,

we believe this further incentivises merchants to adopt payment terminals that are

contactless-read, thereby increasing the presence of NFC-ready infrastructure.



Exhibit 123: We expect continued ramp-up of NFC devices over time NFC penetration in devices


In practice, whether NFC based communication with the terminal or other techniques

become the most frequently seen approaches to mobile payments, we believe the practice

of embedding payment credentials (required to authenticate transactions) within a silicon

chip (secure element) in the handset will be one of the most prominent. We see Gemalto

(Buy), as a significant beneficiary of such an outcome.

We are cognisant such a method is by no means the only one: e.g. the MCX retailer

consortium, whose members process >$1 trillion of transactional volume per year, is

relying initially upon a cloud based solution, not chips. Moreover, the use of a cloud

based approach is not limited to closed-loop systems: PayPal, MasterCard (PayPass)

and Visa (V.Me) all have cloud based wallets.

Further, there is no reason in theory (albeit depending on regulation) that large

mobile/cloud ecosystem players such as Google, Amazon and Apple could not develop

scaled solutions which leverage existing cloud infrastructures, expertise and

aggregated user payment details.

In practice, however, it is likely the chip based approach will garner a meaningful

portion of the market, most likely via the chip being incorporated in SIM cards. First,

such an approach will tend to be one of the most secure i.e. less liable to hacking

(analogous to EMV payment cards). Second, while it is clearly possible for the secure

chip to be embedded directly within the handset (e.g. as Samsung is doing with its

latest smartphones, using Oberthur chips) or even for a micro SD to be used, telcos

will tend to prefer the SIM based approach. They are ultimately the ones subsidising

most handsets, and are keen to monetise user relationships by charging fees to third

parties wishing to place credentials within the SIM card.

40

100

200

380

600

802

1033

8%

15%

19%

29%

39%

47%

55%

0%

10%

20%

30%

40%

50%

60%

0

200

400

600

800

1000

1200

2011 2012 2013E 2014E 2015E 2016E 2017E

NFC smartphones/tablets shipped (mn) NFC as % of devices shipped (RHS)



Exhibit 124: The secure element may be located in either the handset directly, a removable

memory card, or directly in the SIM card; we think the latter will be the most common Three possible secure element configurations on NFC enabled phones


We see Gemalto (Buy) as the European vendor best placed to benefit from roll out

of secure SIM-based chip cards for NFC (and other mobile payments methods). As

such, we believe this can drive €100 mn (11%) of incremental revenues from 2012-

15E for the company. We believe GTO has invested significantly more than

competition such as Oberthur and Giesecke & Devrient in developing NFC-ready

SIM cards, as a function of its scale advantage, giving it a competitive advantage.

This is manifested in our view in roster of credible mobile payment project wins

with telcos where we see it as likely to provide these products (see Exhibit 8).

Competitors such as Oberthur appear to have announced fewer wins with large

telcos (although they will catch up).

We note, however, that while telco’s appear most keen to push payment solutions

based on NFC and SIM cards for now, Gemalto’s ability to benefit from mobile

payments is not totally reliant upon such an approach. It can benefit from mobile

payments rollouts whether or not the transmission mechanism to the terminal is

NFC. The value GTO provides is in its secure software for encrypting credentials,

and the transmission mechanism could equally be e.g. bluetooth. Further,

payment credentials do not have to sit in a SIM card. For example, Samsung’s

latest approach to payments is based upon credentials being embedded in a chip

with secure software on it that sits within the phone and which is separate to the

SIM (see Exhibit 7). While Oberthur Technologies is supplying the technology

solution in this case (we note GTO is engaged litigation with Google) there is no

reason GTO could not sell secure software to Samsung and others for use on

embedded chips.



Exhibit 125: Overview of telco mobile payment projects where Gemalto appears well placed to provide NFC SIM cards Overview of announced projects with telcos where Gemalto appears well placed to provide secure mobile payment SIM cards


NFC sim cards Announcement date Country/region deployed Mobile subs (mn) CommentsTelco

Softbank Jan-11 Japan 33.0 Cards & TSM trial announced

NTT Feb-11 Japan 61.0 Stategic cooperation announced

Turkcell May-11 Turkey 30.0 Cards announced

M1 Oct-11 Singapore 2.0 TSM announced

Singtel Oct-11 Singapore 3.5 TSM announced

Starhub Oct-11 Singapore 2.0 TSM announced

ISIS - ATT Dec-11 US 107.0 TSM announced

ISIS - Vz Dec-11 US 117.0 TSM announced

ISIS - TMo Dec-11 US 34.0 TSM announced

Orange France Jun-12 France 27.0 TSM and cards announced

Vodafone global Oct-12 Europe select geographies 95.2 TSM and cards announced

Germany 32.4 TSM and cards announced

UK 19.2 TSM and cards announced

Spain 14.4 TSM and cards announced

Italy 29.2 TSM and cards announced

Rogers Oct-12 Canada 9.4 Cards announced

DT global (ex US) Oct-12 Select geographies ex-US 76.0 Announced TSM & cards for Poland

Germany 37.0 Announced TSM & cards for Poland

Austria 4.0 Announced TSM & cards for Poland

Poland 16.0 Announced TSM & cards for Poland

Netherlands 5.0 Announced TSM & cards for Poland

Greece 8.0 Announced TSM & cards for Poland

Czech Republic 6.0 Announced TSM & cards for Poland

Telecom Italia Nov-12 Italy 32.2 TSM and cards announced

Feb-13 Brazil 70.0 TSM and cards announced

China Unicom Feb-13 China 220.0 Cards announced

KDDI Feb-13 Japan 40.0 Cards and TSM announced

MTS - Russia May-13 Russia 70.0 Cards announced

Telus May-13 Canada 8.0 Cards announced

Total subscribers of telco taking GTO product (mn) 1,037



Exhibit 126: We see Gemalto as well placed to benefit from the rollout by telcos of SIM cards for mobile payments Gemalto NFC / LTE (4G) SIM card revenue streams analysis


TSM: Securing the integrity of mobile payments

The central value proposition of the TSM (Trusted service manager) is ensuring sensitive

credentials are properly encrypted, securely transmitted (outside of human sight), and that

credentials and associated apps arrive in (and are removed from) the secure element in a

seamless fashion. Moreover, such credentials must be compartmentalised in the secure

element in such a way that no entity that has uploaded data can see information uploaded

by others, while transmission must not at any point be conducted by one actor in such a

way that data of other actors is rendered insecure.

LTE/NFC product uplift analysis 2011 2012 2013E 2014E 2015ETotal SIM card units GTO ex NFC (mn) 1,360 1,428 1,556 1,711 1,855 Regular SIM card units GTO ex NFC (mn) 1,353 1,386 1,493 1,620 1,687 Regular SIM card units growth (yoy) 2% 8% 9% 4%Market SIM card units growth (yoy) 5% 9% 10% 8%Cannibalisation rate by new LTE cards (%) 100% 100% 100% 100%

Regular SIM card ASP (EUR) 0.58 0.52 0.47 0.42 0.37

Regular SIM card revenues (EURmn) 790 721 699 689 631 Regular SIM card revenues (yoy) -9% -3% -1% -8%

4G market adds (mn) 60 125 225 420 4G unit market share (%) 70% 50% 40% 40%4G SIM card units GTO (mn) 7 42 63 91 168 4G SIM card units GTO (yoy) 530% 49% 45% 85%

4G SIM card ASP (EUR) 3.7 3.5 2.6 2.1 1.7 4G SIM card ASP (yoy) -4% -25% -20% -18%Implied multiple of regular SIM ASP 6.3x 6.7x 5.6x 5.0x 4.6xImplied multiple of Group card ASP 3.8x 3.5x 2.6x 2.1x 1.7x

4G SIM card revenues (EURmn) 24 147 164 192 291 4G SIM card revenues (yoy) 502% 12% 17% 52%

NFC market device unit adds (mn) 40 100 200 380 600 NFC SIM card based proportion (%) 6% 32% 40% 46%NFC SIM market share (%) 100% 80% 65% 50%NFC SIM card units (mn) 5.9 50.3 98.8 139.8 NFC SIM card ASP factor vs LTE (x) 0.5x 0.5x 0.5x 0.5xNFC SIM card add-on ASP (EUR) 1.9 1.4 1.2 1.0

NFC SIM card add-on revenues (EURmn) 0 11 72 115 133

Total SIM card units inc. NFC (mn) 1,360 1,434 1,606 1,810 1,995 Total SIM card units growth (yoy) 10% 5% 12% 13% 10%

Implied total SIM card ASP (EUR) 0.60 0.61 0.58 0.55 0.53 Implied total SIM card ASP (yoy) -9% 2% -5% -6% -4%

Total SIM card revenues (EUR mn) 814 879 935 995 1,055 Total SIM revenues growth (yoy) -4% 8% 6% 6% 6%

Total MC SW/servs revenues (EUR mn) 162 211 249 295 362Total MC SW/servs growth (yoy) 30% 18% 18% 23%

Implied total MC revenues (EURmn) 976 1,090 1,184 1,290 1,417 Implied total MC revenues (yoy) 12% 9% 9% 10%



Exhibit 127: TSM platforms help ensure secure transmission of sensitive credentials into

the secure element. TSM schematic overview


Although, in theory, it would be possible for each and every telco, bank, or other entity,

that wishes to upload information into the secure element to conclude bilateral agreements

with each and every other one, stipulating transmission must be done in a fully secure way,

this appears impractical: tens, hundreds or even thousands of such entities will participate

over time. Thus, TSM platforms act as a centralised mode of guaranteeing data

compromise will not occur and managing the chain of trust. Any stakeholder can be

confident in end-to-end integrity of its information.

In our view, the degree of success of TSM as a technology will not necessarily be tied to

consumer uptake of payments based on NFC (or even SIM card based implementations),

but rather that of a broad variety of mobile payment approaches that rely upon credentials

being securely stored in chips in the handset, whether SIM or separate chip. To the extent

that we are incorrect and the mobile payments landscape evolves in such a way that chip-

based applications are marginalised, this would reduce the TSM opportunity. Nevertheless,

we think it likely that TSM will end up playing at least a meaningful role in mobile

payments and, as we explain below, shall constitute a significant revenue opportunity.

TSM is more than merely a concept: multiple deals have now been signed with both telcos

and banks. Gemalto has signed projects with various telcos e.g. the ISIS JV (AT&T, Verizon,

T-Mobile etc), Vodafone, Deutsche Telekom, Softbank and KDDI. Meanwhile, Oberthur has

secured deals with SFR and Bouygues, and Giesecke & Devrient has a contract with

Telefonica. Blackberry’s solution (“Secure Element Manager”, SEM) is being employed by

Enstream, the mobile payments JV of Bell, Rogers and TELUS. While it had originally been

anticipated that TSM solutions would generally be limited to telcos, demand has also

materialised at large financial institutions who want their own licenses and to retain control

of their own TSM, rather than connecting via telcos. Thus, for example, Gemalto has won

deals with Chase, Barclays and China Union Pay and Oberthur Technologies is serving e.g.

Societe Generale.

TelcosRetailBanks GovernmentTransportcompanies

Other

SP TSM

SP TSM

SP TSM

SP TSM

SP TSM

SP TSM

SE TSM

SECURE ELEMENT

Telcos appRetail appBanks app Government app

Transport app

Other app

SE Issuer

SIM

Secure SD Card

Embedded Chip

Others

Mobile Phone

Wallet App

Onlineservices

Web based services

NFC contactless services

Proximity Infrastrcuture



Beyond payments, we note that TSM technology is starting to be to applied various new

verticals, further broadening the addressable market. Significant players in retail and

automotive have already signed deals, and we see an expansion in the opportunity set to

encompass multiple other areas including enterprise security. We factor these into our

TSM market analysis:

Retail – retailer demand for TSM platforms stems from a desire to have control of the

ability to monitor user purchasing behaviour and adapt marketing strategies

dynamically to the specific user, rather than surrendering this capability to Google or

other players. Gemalto has already signed up, Carrefour, a large player from France,

which wants to benefit from GTO’s technology so as to monetise mobile payments.

Automotive - Audi has signed a deal with Gemalto, as its TSM technology offers a

means whereby the firmware in the car can be securely and remotely managed over

the air without data being compromised, while also offering the ability to securely

store and transmit mileage data from the vehicle for insurance-related purposes /

charging.

Enterprise security – we believe that TSM may be applied over time to upload and

manage credentials within secure elements of phones of employees in large

enterprise; for example, rather that using RSA tokens, it would be more secure to store

keys for access to email systems and/or remote logins at major corporates on the

secure element (harder to crack).

Gaming – the process of users purchasing additional in-game functionality could be

managed seamlessly and securely via remote TSM systems.

Digital media - TSM transmission of secure signatures for digital media can in our view

become more widespread and help reduce piracy. Gemalto is already working with

Amazon to facilitate this on the Kindle (as well as providing services to ensure data

gets routed via the cheapest route on the network). GTO also provides certain

technology to Netflix.

We note that TSM systems are gradually being adopted in a broader range of geographies,

beyond traditional developed markets. Whereas the first implementations of TSM tended

to be skewed geographically towards the US (e.g. ISIS), Japan (e.g. KDDI) and Western

Europe (e.g. Barclays), TSM now appears likely to gain further traction over coming years

in EMs. For example, in China, Gemalto is working to architect a nationwide NFC

ecosystem (including TSM collaboration) with China UnionPay. This is the leading payment

scheme in the country (similar to VISA) with the world’s largest network of payment cards.

China had originally determined to pursue its own form of contactless mobile payments

technology, but the decision to switch to NFC (similar to the move made by Japan) is an

attempt to ensure Chinese travelers will be equipped to conduct mobile payments while

abroad.

It is clear multiple TSM implementations have moved beyond the pure trial stage, with real

monetary deals signed, and we see pricing models crystallising around two key

approaches. Gemalto, for example, which has secured the lion’s share of larger deals, has

contracts which involve significant monetary commitments of up to millions of euros per

month on a non-refundable basis. Such deals encompass either a capex or an opex

(Software as a Service – SaaS) approach, and we use these as a basis for analysing the

TSM opportunity.



Exhibit 128: Lifecycle of a TSM project Overview of TSM project lifecycle - Gemalto


The opex approach is more front-end-loaded and is based on an initial license for a

certain number of anticipated users (and future licenses once further user uptake

thresholds are met); the capex model sees less emphasis on up-front payments, and

sees revenues scale more gradually as incremental consumers activate the platform.

We see three key phases for TSM projects:

o The first phase, under both approaches, is typically a 9-12 month integration

phase, where back-office systems are set up and the TSM can only recognise a

small amount of revenues under IFRS, and sees lower margins.

o The second phase starts when the TSM system is switched on.

If the client opts for the capex model, they will pay for the license(s) at

this point, based on the number of initial adopting consumers

anticipated (e.g. for €5 mn for an initial license to encompass e.g. 5mn

subscribers). There will also be maintenance fees (and in parallel, one

typically should see the rollout of high-end LTE/NFC cards to telco

subscribers).

If opting for the opex/SaaS model the client will pay hosting fees from

switch-on onwards. This phase will typically last for another 18-24

months.

o The third stage begins typically at the 24 month mark:

Usually, under the capex model, extra fees will be paid for additional

license(s) if certain activated user thresholds are surpassed and/or

anticipated;

On the SaaS model there will be a fee for each user activated on each

particular payment/other app service (via downloading

apps/credentials).

Both approaches will also typically yield some revenues for periodic

updates (e.g. patches, security fixes) to the payment apps sitting in

the secure element on board the smartphone of the user.

It is apparent that regardless of ultimate consumer take-up, the provider will under the

capex approach get (a) initial set-up fees, and (b) a license fee when the system is

switched on (e.g. €5 mn), plus (c) recurring maintenance revenues and updates

revenues although, (d) further licenses, will depend on adoption levels.

Under the opex/SaaS approach the vendor will see (a) initial set-up fees (b) hosting

revenues and (c) updates revenues, irrespective of user adoption, although (d)

activation revenues will depend on user uptake.

Stage 1 Stage 2 Stage 3

Length of phase 9-12 months 18-24 months Undefined

Phase type System integration Post system activation User activation

Monetisation Low revenues and margin Higher revenues / margin High incremental margin/user

Capex vs Opex -Capex model yields: -Capex model yields: -Capex model yields:models integration/setup revenues a) license(s) (scaled to no. users) a) revenues when hit Xmn extra users

b) maintenance fees a) updates revenuesc) product rollout (NFC cards)

-Opex model yields: -Opex model yields: -Opex model yields:integration/setup revenues hosting revenues a) activation fee for every user

b) updates revenues



Exhibit 129: We expect the global TSM market to experience rapid growth on the way to a

yearly value of €675mn by 2017. TSM market revenues over time

Source: Goldman Sachs Global Investment Research

We see Gemalto as the vendor best placed to monetise the TSM opportunity, and our

assumption it can achieve €250 mn of revenues per year by 2017 implies roughly 37%

market share by that time (vs. our conservative estimate of 60% today). We do not believe

that such a long term share projection is overly aggressive, given GTO’s continuous re-

investments in TSM appear to be providing a competitive advantage, with the company so

far manifesting a significant lead technologically on TSM solutions and winning the

majority of announced large TSM deals with banks and financial players. The company has

been able to invest significantly for multiple years and leverage its scale for amortisation of

development costs. GTO has significantly greater scale than its main TSM competitors in

the established (adjacent) SIM card and payment card markets.

Exhibit 130: Gemalto is able to leverage its dominant

position in the concentrated SIM cards/services market…Share of SIM card market revenues, current (%) 2012

Exhibit 131: … and in the payment cards market to

amortise higher levels of R&D than competitors Share of payment card market revenues, current (%) 2012

Source: Goldman Sachs Global Investment Research. Note: G&D stands for Giesecke & Devrient

Source: Goldman Sachs Global Investment Research. Note: G&D stands for Giesecke & Devrient

71

118

223

348

494

675

-

100

200

300

400

500

600

700

800

2012E 2013E 2014E 2015E 2016E 2017E

TS

M O

pport

unit

y, €

mn

57% CAGR

Gemalto,

45%

Oberthur,

20%

G&D, 20%

Gemalto,

45%

Oberthur,

20%

G&D, 20%



Gemalto’s superior positioning for provision of TSM is evidenced in market share which

we estimate to be at least 60% today. While several competitors have multiple projects on

TSM, these appear to be with fewer institutions in general, whereas Gemalto has actively

pursued and won a large number of large-scale projects, e.g. ISIS (AT&T/Verizon),

Vodafone, Softbank. Chase, Barclays, Orange and Carrefour. We note that Gemalto has

traditionally viewed Ericsson as its main competition for TSM and LTE over-the-air

management of devices, but given it beat Ericsson in various bidding processes recently

for TSM, the two have actually teamed up and the latter will resell GTO’s technology.

We believe that in the long run it is realistic to assume that Gemalto will occupy a

leadership position (along with Oberthur and potentially a couple of others) in a relatively

concentrated market. We believe there is potential for up to four scaled players in TSM,

and see market fragmentation as unlikely based on the following points:

Only three or four players in the market currently have a significant track record of

managing sensitive credentials for banks and telcos.

Banks may not necessarily trust a startup’s ability to keep the virtual “keys to the cash

register” safe.

Typically banks/telcos will want to be convinced as to the longer term capital stability

of the TSM provider. TSM projects require the vendor to invest upfront and wait

several years until revenues can be harvested at higher margins. This may be hard for

newer, smaller entrants. Several smaller players have either failed already or will take

years to achieve sufficient scale.

Larger tech majors may not enter organically given the complexity involved and need

to build know-how in working with LTE/4G SIM cards; however they may partner with

existing players or look at M&A.



Exhibit 132: Gemalto has a broad array of TSM projects with major telcos Overview of Gemalto key TSM projects with telcos


Exhibit 133: Selected Gemalto TSM deals with financial institutions

Gemalto financial institutions TSM projects overview


Client Announcement Country/region deployed Mobile subs (mn)NTT Feb-11 Japan 61.0

Singapore Oct-11 M1 - Singapore 2.0

Singtel - Singapore 3.5

Starhub - Singapore 2.0

ISIS (AT&T/Verizon) Dec-11 ATT US 107.0

Vz US 117.0

TMo US 34.0

Orange France Apr-12 France 27.0

DT global (ex US) Oct-12 Select geographies ex-US 76.0

Germany 37.0

Austria 4.0

Poland 16.0

Netherlands 5.0

Greece 8.0

Czech Republic 6.0

Vodafone global Oct-12 Europe select geographies 95.2

Germany 32.4

UK 19.2

Spain 14.4

Italy 29.2

Telecom Italia Nov-12 Italy 32.2

Feb-13 Brazil 70.0

KDDI Feb-13 Japan 40.0

Softbank Jun-13 Japan 33.0

Subs of telco taking GTO TSM - core geographies (mn) 700

Subs of telcos taking GTO TSM - non-core geographies / unannounced deals (mn) 300

TOTAL SUBS OF TELCOS TAKING GTO TSM 1,000

Client Announcement Country/region deployedBarclays Jan-11 UK

JPMorgan Chase Feb-12 US

China UnionPay Feb-13 China

SIA May-13 Italy



As detailed in above exhibits, our TSM revenue assumptions for Gemalto are

predicated on the following assumptions.

Just over 1bn NFC-enabled mobile devices will be shipping per year by 2017

i.e. equivalent slightly over 50% of all smartphones shipping per year.

Roughly 50% of all NFC-enabled mobile devices will be equipped by that point

with SIM card based secure elements (or secure chips), as opposed to security

functionality relying purely upon the cloud.

Approx. 1.5bn telco subscribers globally will have devices with NFC SIMs

onboard, of which almost 0.8bn will be supplied by Gemalto (i.e. c.50%). This

compares to c1bn wireless subscribers in key geographies of telcos with

whom Gemalto has signed mobile payments deals (explicitly incorporating

NFC SIM card deals or where supply of such smartcards can in our view be

assumed). This would imply that 14% of global handset subscribers in key

geographies will have a Gemalto SIM card in their phone that is NFC capable

(vs. 26% penetration of the base for all providers combined).

We assume that of the installed base of NFC SIM cards that Gemalto rolls out,

50% of such devices will be managed by a TSM operating under the capex

(license-based) model and the rest under an opex (SaaS) model.

Capex (license) model:

We estimate 18% of the installed base of users covered with Gemalto’s NFC

SIM cards will have activated some kind of mobile payment application based

on a license based TSM by 2017. This equates to roughly 2.5% of the overall

handset subscriber base.

We assume that the license deals are structure in such a way that in 2013,

each million consumers who activate a license translates into €1 mn of license

fees. However, we model this degrading at a double digit rate over time as

TSM platforms scale up.

Maintenance fees, in our view, will equate to roughly 20% of the value of the

initial license. This is similar to SaaS deals for companies covered by our

European Software team.

Gemalto’s TSM project pipeline currently stands, based on our estimates, at

roughly 45 projects but we believe this can be replenished over time as deals

are delivered. We assume capacity for up to 50 projects at any one time, but

believe a run rate of up to 15 projects delivered per year (including both large

and small deals) is realistic. We assume that each delivered deal results in a

one off TSM setup fee of €4 mn currently: this is an average amount, with

much smaller deals being far below this. We assume this will fall at a 5%

CAGR from 2013-2017, as TSM platforms become more widespread.

Updates/change requests will be required for each and every active user e.g.

for security patches. We assume that these will be worth roughly €0.2 per

active user per year (i.e. significantly smaller than the fee per active user of

c.€1 determined by the license in 2013).



Exhibit 134: Gemalto TSM model: license based customers

Gemalto TSM model: license based customers assumptions and metrics


Opex (SaaS) model:

We assume that the one-time fee for setup of SAAS-based TSM projects will

be lower than that for license-based projects at €1mn per project.

We estimate 12% of the installed base of users covered with Gemalto’s NFC

SIM cards will have activated some kind of mobile payment application based

on a SaaS based TSM by 2017. This equates to roughly 1.7% of the overall

handset subscriber base.

The hosting fee per user will in our view be roughly €0.5 in 2013 (i.e. lower

than the €1 per active user on the license approach) and we assume double

digit yearly declines in pricing in future years.

We assume that each user that activates banking credentials i.e. a virtual bank

card will trigger a one off payment to Gemalto in 2013 of €1. We assume

double digit yearly declines in the value of such fees per activation over time.

We further assume that in 2013 each incremental SaaS based subscriber who

decides to activate banking credentials on their phone will only do this on

average only do this for one financial institutions payment app. However, we

believe that over time as mobile payments become more widespread, each

user will on average activate two such apps (by 2017).

Full License 2012 2013E 2014E 2015E 2016E 2017ESmartphones shipping per year 680 1,058 1,319 1,552 1,707 1,878 yoy growth (%) 56% 25% 18% 10% 10%NFC device shipping per year (mn) 100 200 380 600 802 1,033

% devices shipped per year with NFC functionality 15% 19% 29% 39% 47% 55%% of NFC devices driven by SIM cards 6% 32% 40% 46% 50% 54%

NFC SIM cards shipped per year market (mn) 6 63 152 277 402 555Subscribers in market covered with NFC SIM cards (cumulative, mn) 6 69 221 498 901 1456

% GTO share of yearly NFC SIM cards shipped 100% 80% 64% 50% 50% 50%

GTO NFC SIM cards shipped per year (mn) 6 50 97 140 203 280Subscribers covered with GTO NFC SIM cards (cumulative, mn) 6 56 153 293 495 775Gemalto NFC SIM telco current customers' subs total (core geographies) (mn) 1,000 1,000 1,000 1,000 1,000 1,000

% of subs covered of GTO's NFC SIM telco customers 1% 6% 15% 29% 50% 78%

Global handset market subs (mn) 3,302 3,675 4,092 4,536 5,035 5,589

% of global handset market subs covered with GTO NFC SIMs 0% 2% 4% 6% 10% 14%

License based cards % of total GTO NFC SIM cards shipped per year 50% 50% 50% 50% 50% 50%

NFC license based potential consumers adds / year (mn) 3 25 48 70 101 140NFC license based SIM covered consumer installed base (mn) 3 28 76 146 248 388Telco's expected NFC license based customer adoption / year (%) 7% 18% 29% 39% 50%Telco's expected NFC license based adds / year (mn) 2 9 20 40 70

Telco's expected NFC license based subs (cumulative, mn) 2 10 30 70 140Cumulative subs taking license as % of cumulative GTO NFC SIM cards covered base 3% 7% 10% 14% 18%Cumulative subs taking license as % of GTO TSM customers' total subs 0% 1% 3% 7% 14%

Cumulative subs taking license as % of total global handset subcriber base 0.0% 0.3% 0.7% 1.4% 2.5%Licence cost per consumer covered (€) 1.0 0.9 0.8 0.7 0.7License fees (€ mn) 2 8 16 29 46

Maintenance fees % of license value 20% 20% 20% 20% 20%

Maintenance fees (€ mn) 0 2 5 11 20

GTO TSM project pipeline (License-based and SAAS-based) 45 40 35 30 26 23New TSM projects signed up 15 20 20 21 22License based TSM projects delivered per year 15 15 15 15 15SAAS based TSM projects delivered per year 5 10 10 10 10GTO TSM license based projects setup one-time fee (€ mn) 4.0 3.8 3.6 3.4 3.3TSM integration/setup fees (€ mn) - License model 60 57 54 51 49

Installed base of NFC cards for licensing model (mn) 2 10 30 70 140Updates/change requests fee / year (€) 0.2 0.2 0.2 0.2 0.2

Updates/change requests revenues (€ mn) 0 2 6 14 28

Total license based TSM revenues (€ mn) 62 69 81 105 143



We factor in small update-related revenues for each consumer in the base with

SaaS based payments apps on their phone.

We assume that 10% of telco subscribers covered with Gemalto’s NFC SIM

cards will use non-payment related apps management by the TSM (equivalent

to 20% of telco subs covered with NFC SIMs managed on a SaaS TSM

platform). Examples include apps for public transportation, retailer loyalty

programs, hotel access keys, digital media and enterprise access.

Exhibit 135: Gemalto TSM model: SAAS based customers

Gemalto TSM model: license based customers assumptions and metrics


SAAS 2012 2013E 2014E 2015E 2016E 2017ESAAS based TSM projects delivered per year 5 10 10 10 10GTO TSM SAAS projects setup one-time fee (€ mn) 1.0 1.0 1.0 1.0 1.0

TSM integration/setup fees (€ mn) 5 10 10 10 10

NFC SIM cards shipped per year GTO (mn) 6 50 97 140 203 280SAAS based cards % of total GTO NFC SIM cards per year 50% 50% 50% 50% 50% 50%

NFC SAAS covered consumer adds per year (mn) 3 25 48 70 101 140

NFC SAAS SIM covered consumer installed base (mn) 3 28 76 146 248 388SAAS consumer installed base adoption of banking (%) 7% 15% 22% 25% 25%SAAS consumers in base with banking credentials on phone (mn) 2 11 32 61 95Cumulative subs taking SAAS as % of NFC SIM cards covered base 4% 7% 11% 12% 12%Cumulative subs taking SAAS as % of GTO TSM customers' total subs 0% 1% 3% 6% 9%

Cumulative subs taking SAAS as % of total global handset subcriber base 0.1% 0.3% 0.7% 1.2% 1.7%Hosting fee per user (€) 0.5 0.5 0.4 0.4 0.3Hosting fees (€ mn) 1 5 13 22 31

Extra SAAS consumers uploading bank credentials / year (mn) 2 9 21 29 34Fee per SAAS banking upload (€) 1.0 0.9 0.8 0.7 0.6Bank cards uploaded per user 1.0x 1.5x 2.0x 2.0x 2.0xBanking upload revenues via SAAS system (€ mn) 2 13 34 42 42

Consumers requiring bank related updates (mn) 2 11 32 61 95Fee per bank related phone update (€) 0.1 0.1 0.1 0.1 0.1Bank updates per year 2.0x 2.0x 2.0x 2.0x 2.0x

Bank updates revenues (€ mn) 0 2 5 9 12

SAAS consumer installed base adoption loyalty/transport/phys. access (%) 2% 8% 14% 19% 20%SAAS consumers in base with loyalty/transport/phys. Access on phone (mn) 1 6 20 48 76SAAS consumers uploading loyalty/transport/phys. access (mn) 1 5 14 28 28Fee per loyalty/transport/phys. access card upload (€) 0.2 0.2 0.2 0.1 0.1Loyalty/transports/phys access cards uploaded per user 1.0x 1.5x 2.0x 2.0x 2.0xLoyalty/transport/phys access card upload revenues (€ mn) 0 1 4 8 7

Consumers requiring loyalty/transport/phys. access related updates (mn) 1 6 20 48 76Fee per loyalty/transport/phys. access related phone update (€) 0.05 0.05 0.04 0.04 0.03Loyalty/transport/phys. access updates per year 2.0x 2.0x 2.0x 2.0x 2.0x

Loyalty/transport/phys. access updates revenues (€ mn) 0 1 2 3 5

Total SAAS based revenues (€mn) 9 32 68 95 107

TOTAL TSM REVENUES (€ mn) 50 71 100 150 200 250



Exhibit 136: We see Gemalto TSM revenues growing 5x between 2012 and 2017 Gemalto TSM revenues


Exhibit 137: Gemalto longer term revenues: segmental breakdown Gemalto segmental analysis


Integration and

prof services

revenues (€ mn)

Hosting and

maintenance

revenues (€ mn)

Licensing and

transaction fees

revenues (€ mn)

0

50

100

150

200

250

2013E 2014E 2015E 2016E 2017E

Revenue breakdown 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Mobile Comm. SIM cards 848 814 879 935 995 1,055 1,123 1,196 Mobile Comm. TSM - 20 51 72 100 150 200 250 Mobile Comm.other platforms/services 152 142 160 177 194 213 238 273

Mobile Comm. total 1,000 976 1,090 1,184 1,290 1,417 1,562 1,719

Secure Transactions EMV cards 374 432 453 522 593 684 766 854 Secure Transactions platforms/services 88 99 115 130 148 169 196 231

Secure Transactions total 462 531 568 652 741 853 962 1,085

Security ID cards 273 270 318 366 423 476 540 613 Security platforms/services 12 40 66 75 86 99 115 134

Security total 285 310 384 441 509 575 655 747

Machine to Machine 81 174 192 210 239 267 302 345 Other 33 9 2 18 16 18 25 30 Gemalto revenues 1,862 2,000 2,236 2,505 2,795 3,130 3,506 3,926

Smartcards/other revenues 1,610 1,699 1,844 2,051 2,266 2,500 2,757 3,038 Platforms & Services revenues 252 301 392 454 529 630 749 888

of which TSM revenues - 20 51 72 100 150 200 250 of which P&S revenues ex-TSM 252 281 341 382 429 481 549 638

Smartcards/other revenues % of group sales 86% 85% 82% 82% 81% 80% 79% 77%Platforms & services revenues % of group sales 14% 15% 18% 18% 19% 20% 21% 23%

Revenue growth yoy (%)Mobile Comm. SIM cards -4% 8% 6% 6% 6% 6% 6%Mobile Comm. TSM n/a 153% 42% 39% 49% 34% 25%Mobile Comm.other platforms/services -7% 13% 10% 10% 10% 12% 14%Mobile Comm. total -2% 12% 9% 9% 10% 10% 10%

Secure Transactions EMV cards 16% 5% 15% 14% 15% 12% 11%Secure Transactions platforms/services 13% 16% 13% 14% 14% 16% 18%Secure Transactions total 15% 7% 15% 14% 15% 13% 13%

Security ID cards -1% 18% 15% 16% 13% 13% 13%Security platforms/services 233% 65% 14% 15% 15% 16% 17%Security total 9% 24% 15% 15% 13% 14% 14%

Machine to Machine 114% 10% 9% 14% 12% 13% 14%Other -73% -76% 745% -11% 10% 42% 20%Gemalto revenues 7% 12% 12% 12% 12% 12% 12%



We believe Gemalto’s TSM activities will enjoy EBIT margins above the group

average by 2016/2017. We expect integration and professional services related (i.e.

system setup) margins to be a drag on overall TSM margins initially, given these are

hardware and people intensive. However, we expect margins to expand overall as licensing

and transaction fee revenues (i.e. user activation related with higher incremental gross

margin) scale over time.

Exhibit 138: We expect Gemalto to enjoy TSM margins above group average by 2016.

Gemalto TSM revenues and EBIT by sub segment


(€) 2012 2013E 2014E 2015E 2016E 2017E

TSM OUTPUT SUMMARY

Integration and prof services revenues (€ mn) 65 67 64 61 59

Hosting and maintenance revenues (€ mn) 2 12 31 59 96

Licensing and transaction fees revenues (€ mn) 4 22 54 79 95

Total TSM revenues for Gemalto (€ mn) 50 71 100 150 200 250

Gemalto group revenues (€ mn) 2,236 2,485 2,795 3,130 3,506 3,926 TSM as % of GTO group revenues 2% 3% 4% 5% 6% 6%

Integration and prof services EBIT (€ mn) 4 5 5 6 6

Hosting and maintenance EBIT (€mn) 0 3 8 15 24

Licensing and transaction fees EBIT (€mn) 1 5 19 36 48

Investments (€mn) -5 -6 -7 -10 -12

Gemalto TSM adj EBIT (€mn) -0 7 24 46 65

Integration and prof services margins (%) 5% 6% 7% 8% 9% 9%

Hosting and maintenance margins (%) 15% 20% 25% 25% 25% 25%

Licensing and transaction fees margins (%) 10% 15% 25% 35% 45% 50%

Investments as % of TSM revenues -7% -6% -5% -5% -5%

Gemalto TSM adj EBIT margins (%) 0% 7% 16% 23% 26%

Gemalto group adj EBIT (PFO) (€mn) 305 355 448 522 605 697 TSM as % of GTO group EBIT (PFO) 0% 2% 5% 8% 9%

Group adj. EBIT margins (%) 14% 14% 16% 17% 17% 18%

GTO TSM market share assumptionsTotal TSM market revenues (€ mn) 71 118 223 348 494 675 Total TSM market share 70% 60% 45% 43% 41% 37%



Based on our analysis, we believe TSM can drive 12%/17% of GTO’s incremental

revenues/EBIT from 2012-17, based on our longer term scenario analysis. On this

basis, we expect the company to provide a bold but credible longer term profit goal

at its upcoming investor presentation on September 5. We believe the company could

target adj. EBIT (PFO) of €550 mn-€600 mn by 2017, given the company typically in the past

has aimed to exceed its previous multi-year targets, normally one year ahead of schedule.

Exhibit 139: We believe TSM profit streams can drive 17% of incremental adj. EBIT between 2012-17

TSM revenues and EBIT in the context of longer term group metrics


EMV: Underpinning security in global payments

We highlight the global transition towards the Europay MasterCard & Visa (EMV), as one of

the key themes in the payments landscape, and identify Gemalto (Buy) and Ingenico (Buy)

as the two European vendors who stand to benefit the most. In particular, we believe that

the US, which significantly lags many other developed market regions in terms of EMV

penetration, is now on a clear path towards migration, and we see both of these two

companies well positioned to capitalise on this opportunity.

EMV involves adoption of “chip and pin” technology, whereby credentials are embedded

in chips on payment cards that are either inserted into, or tapped on, payment terminals

with EMV functionality. In contradistinction to magnetic stripe card technology that is

currently found in the vast majority of US payment cards, EMV cards are hard to hack and

dynamic data is used: each transaction carries a unique “stamp” which precludes

transaction data being fraudulently reused post theft of transaction data from a database

and card cloning.

While there is room for increases in penetration of EMV capable cards / payment terminals

in multiple geographies (44%/76% global penetration respectively ex-US), we see the

largest potential for proliferation in the US, where we estimate current penetration of only

2%/30%, given a historical lack of regulatory impetus. We believe the decisions by key

payment networks to enforce EMV requirements at merchants (EMV terminals) and banks

(chip and pin cards) will have a significant impact and are underpinned by robust logic.

There is currently $16bn of fraud per year in the US overall, which is being reinsured

(entailing costs to the payment networks). Given regulation is driving interchange fees in

the US down, payment networks’ desire to preserve margins implies a need to deal with

fraud by alternative means. As such, driving the adoption of EMV in the payments

ecosystem is a cost-effective means of achieving this.

CAGR CAGR Delta % of group delta2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2015E-17E 2012-17E 2012-17E 2012-17

Revenues 1,654 1,862 2,000 2,236 2,485 2,795 3,130 3,506 3,926 12% 1,690 YoY (%) -2% 13% 7% 12% 11% 12% 12% 12% 12% 12%3-year trailing uplift (%) 35% 41%CAGR 09-12 11%CAGR 12-16E 12%

PFO (adj. EBIT) 194 203 239 305 355 448 522 605 697 18% 392 PFO (adj EBIT) margin (%) 11% 12% 14% 14% 16% 17% 17% 18%PFO drop-through (%) 5% 25% 28% 20% 30% 22% 22% 22%3-year trailing uplift (%) 57% 70%3-year CAGR (%) 16% 19%CAGR 12-16E 19%PFO drop through 12-16E 24%

Mobile Comm. TSM - 20 51 72 100 150 200 250 38% 199 12%

TSM EBIT - (0) 7 24 46 65 65 17%TSM EBIT margin (%) 0% 0% 7% 16% 23% 26%



Exhibit 140: The US significantly lags other regions in terms of EMV adoption. Penetration of EMV payment cards


We believe the impetus toward US EMV adoption is strong and is intensifying.

Key payments ecosystem players in the US have implemented concrete incentive

structures for migration, which leads us to believe that the rollout of EMV cards will start in

late 2013, with higher volume rollouts in 2014/2015, with adoption of EMV capable

terminals continuing in coming years. Regulatory milestones include:

Counterfeit liability shift: Dates set by Visa, MasterCard an American Express for

fraud liability to shift to merchants without EMV in PoS terminals.

PCI audit relief: Dates set for lesser audit requirements from

Visa/MasterCard/AmEx for merchants that reach a certain threshold percentage of

transactions originating from EMV PoS terminals.

PCI account data compromise relief: MasterCard milestone for when merchants

are relieved of part of/all penalties for hacking if a certain percent of transactions

originate from EMV PoS terminals.

Acquiror/sub-processor compliance: Date when acquirors/acquiror processors

must be enabled to handle full chip data transactions for authorisations and, for

some payment brands, clearing and settlement.

38.0%

25.6%20.2%

80.6%

13.3%

0.1%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Can, Latam,

and Carrib

Asia Pacific

Africa & the

Middle East

Europe Zone 1

Europe Zone 2

US

Adop

tion

rate

of c

ards

for E

MV

(%)



Exhibit 141: Concrete incentive structures are now in place to drive adoption of EMV at US banks and merchants Milestones for adoption of EMV technology by Payment Network

Source: Smart Card Alliance, Goldman Sachs Global Investment Research.

Moreover, we believe fraudulent transactions may tend to migrate from countries where

there are payment safeguards (i.e. EMV) to countries with lesser safeguards (i.e. no EMV),

strengthening the case for EMV in the US. Some fraud activity has recently migrated from

countries (Canada/Mexico) that have recently experienced a shift toward chip & pin-based

payment card systems (EMV) into the US (where EMV adoption remains very low). This

continues the historic trend of fraud migrating from geographies where EMV technology is

in place to those lacking it e.g. from Malaysia to Thailand; UK to Europe; from

Canada/Mexico to the US.

We believe Gemalto (Buy) will be a significant beneficiary of the rollout of EMV payment

cards in the US. We note that the US constitutes roughly half of the global market for

payment cards, presenting a significant incremental opportunity. We expect Gemalto to

generate incremental revenues of US $157 mn between 2012-2017 based on the US EMV

card rollout, driving 9% of incremental growth.

Our key revenue assumptions for the US EMV card market as a whole are as follows:

We assume that given the US is a large market, it will take over six years from YE2013

to reach full penetration. We assume the market will see two phases of migration, with

the first lasting until 2016, by which time we expect 45% penetration (more

conservative than GTO’s expectation of 60%).

We do not believe our assumptions are overly aggressive, based on the experience of

EMV card migrations in other countries. In other smaller countries, typically it has

taken 3-5 years for penetration of EMV to be achieved once concrete decisions have

been taken to pursue EMV. Examples include Canada, where once there was a strong

commitment to adopt EMV from pivotal payments players, it took 4-5 years for full

adoption.

We do not believe there are currently any specific technical barriers to achieving EMV

penetration in the US. Indeed, we estimate that the current installed base of payment

terminals with EMV on board is c30% and we expect the existing estate of terminals to

migrate to EMV according to the usual replacement cycle over coming years (see

further below).

We assume blended ASPs of c.€2 in 2013, with 10% price erosion per year. Bulk

ordering of SIM cards by certain large banks may lead to relatively low ASPs for pure

entry level cards (€1). However, as in other countries, the US will see a significant

EMV Deployment milestones Key Dates Visa MasterCard Discover American Express

PCI Audit relief October, 2012 Y Y TBA NOctober, 2013 Y

PCI Account Data Compromise Relief75% - 50% October, 2013 N Y TBA N95% - 100% October, 2015 N Y TBA NAcquiror/Sub-Processor Compliance

April 2013 Y Y Y Y

Counterfeit Liability Shift (excl. fuel dispensers)

October 2015 Y Y TBA Y

ATM Counterfeit Liability Shift April 2013 N Y - cross border Maestro

TBA N

October 2016 N Y - all MasterCard branded products

TBA N

Lost of Stolen Liability Shift October 2015 N Y TBA NCounterfeit Liability Shift for Automated Fuel Dispensers

October 2017 Y Y TBA Y

Lost or Stolen Liability Shift for Automated Fuel Dispensers

October 2017 N Y TBA N



proportion of cards that are contactless (“tappable”), as issuers aim to avoid pre-

empting eventual consumer preferences for tapping with a mobile device or a card.

These have higher ASPs given capability to offer power usage without an onboard

battery. GS models 30% penetration of such cards, in line with Eurosmart forecasts for

2013. The trend toward contactless continues globally. Some countries like Poland

started migration to EMV incorporating contactless from the outset, while Europe, Asia

and LatAm are moving towards contactless.

The US market may also tend to see the greater incidence of personalisation than

average i.e. outsourced loading of user and bank credentials and data both onto the

physical card and of a virtual companion card in a user’s phone (boosting overall

ASPs). For now we assume 10% companion card penetration.

We assume Gemalto can achieve roughly 30% market share of US EMV cards:

GTO is likely to come up against both local competitors and its traditional competition,

G&D and Oberthur Technologies; the latter will fight intensively, given 80% of its

footprint is in US, UK and France. However, we think our assumptions are not overly

aggressive, viewed in the context of global value share of 45%.

Moreover, as Gemalto has a significantly larger R&D budget than other smarcard

players, as a function of its scale, we expect it to enjoy a technological advantage. We

note local players appear to have know how centred on plastic card components,

rather than necessarily expertise in working with EMV.

GTO may have a particular edge over competitors as integration of contactless via the

card and via the phone may become increasingly important. These are areas in which

it has gathered expertise through its strategic investments and involvement with the

ISIS mobile payments JV.



Exhibit 142: US EMV card migration modeling framework US EMV payment card overview


We also believe Ingenico (Buy) will benefit from the rollout of EMV technology in the US,

specifically EMV payment terminals. North America payment terminals constitute roughly

7% of Ingenico’s revenue base, and we estimate an 18% CAGR in 2012-17 for this segment,

which expect to drive 12% of incremental group revenue growth over this period. Our key

assumptions are as follows:

While the date of the counterfeit liability shift for non-fuel retailers is October 2015, our

checks with industry participants suggest that it is unlikely the full installed base of

point of sale (POS) terminals in the market will have been migrated to EMV by this date.

We assume the first stage of migration will see larger retailers adopting EMV given

greater exposure to fraud, with a second and subsequent wave encompassing smaller

retailers. Thus, we expect full migration (from estimated 30% current EMV penetration

levels) will take until 2017. We expect full migration will be quicker than for cards,

given that the US EMV card base penetration levels are currently lower than for POS

terminals.

This would in our view imply a replacement rate for the market’s existing terminal

estate largely in line with current levels which would therefore in our view be

supportive of current yearly US market revenues levels, rather than substantially

accelerating market growth.

However, we note that in addition to regular countertop POS devices, the US has a

large number of electronic cash registers (ECRs) found in venues such as restaurants

where payments are currently taken using magnetic stripe card swipers: employees

2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E Key assumptions

US population (census ests.) 316 319 322 326 329 332 335 337

Cards per person (implied) 3.2x 3.1x 3.1x 3.1x 3.0x 3.0x 3.0x 3.0x

Total cards in US (mn) 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

Percentage customers migrated (%) 2% 6% 15% 30% 45% 60% 75% 90% Migration by 2016 (%) 45%

New first time signup per year (mn) 20 44 86 150 150 150 150 150 Penetration limit (%) 90%

US EMV users (mn) 20 64 150 300 450 600 750 900

US EMV churners (mn) 0 0 50 100 150 200 250 300 Churn rate (years) 3

US EMV card units sold per year (mn) 20 44 136 250 300 350 400 450

Contact cards (% of total cards) 70% 70% 70% 70% 70% 70% 70% 70% Contact (%) 70%

Dual interface (% of total cards) 30% 30% 30% 30% 30% 30% 30% 30% Dual interface (%) 30%

Companion card (% of total cards) 10% 10% 10% 10% 10% 10% 10% 10%

Companion card (%) 10%

Contact cards per year (mn) 14 31 95 175 210 245 280 315

Dual interface cards per year (mn) 6 13 41 75 90 105 120 135 Contact ASP (EUR) 1

Companion card (mn) 2 4 14 25 30 35 40 45 Dual interface (EUR) 5

Companion card (EUR) 2

Contact cards market sales (EURmn) 14 28 79 133 146 156 162 167

Dual interface market sales (EURmn) 31 63 177 297 326 347 362 372 GTO market share (%) 30%

Companion card market sales (EURmn) 4 9 27 50 60 70 80 90 Px erosion per year (%) 10%

Total US market sales (EURmn) 49 100 284 480 532 572 604 629

102% 185% 69% 11% 8% 6% 4%

Implied GTO extra card sales (mn) 7 15 45 83 99 116 132 149

GTO incremental yearly sales US EMV (EURmn) 15 30 85 144 159 172 181 189

Implied ASP 2.2 2.1 1.9 1.7 1.6 1.5 1.4 1.3

GTO ST segment revenues GS (EURmn) 568 652 741 853 962 1,085

GTO ST division revenues GS (yoy) 7% 15% 14% 15% 13% 13%

GTO ST segment implied revenues ex US EMV (EURmn) 553 622 656 709

ST division implied revenues ex US EMV (yoy) 4% 12% 5% 8%

ST segment revenues from US EMV (EUR mn) 15 30 85 144

ST division US EMV revenues (yoy) n/a 102% 185% 69%



currently take the customer’s card away and swipe at the ECR. Such a setup will not be

compliant with EMV. As such, we expect that additional (wireless) POS terminal

devices will be required, which will help drive incremental market volumes. Moreover,

while today in a restaurant there may be e.g. one or two ECRs, in highly busy venues it

is likely there could be e.g. five new wireless POS terminal devices required per

location. We estimate that an extra 1.6mn such devices will be needed, which implies a

roughly 13% uplift to the current installed base of POS terminal devices (cf. Verifone

estimates up to 3mn). Wireless terminals tend to have higher ASPs.

As explained in our note Double digit growth driven by regulation and EM; up to Buy,

September 4, published in conjunction with this report, our estimates assume that

Ingenico can significantly grow share in the US, given its expertise in EMV technology,

given experience with earlier projects in Europe, and the opportunity to take share

from Equinox (subscale following its carve out from Hypercom) in the “bank card”

segment

Exhibit 143: North America market: overview of key our assumptions for Ingenico

North America POS terminal market overview


2012 2013E 2014E 2015E 2016E

N.America

USExisting base of terminals US market 12.0 12.0 12.0 12.0 12.0Base in market converted to EMV (%) 30% 45% 60% 75% 90%Existing base converted to EMV (mn.) 3.6 5.4 7.2 8.9 10.8Market replacement EMV terminals / year 1.8 1.8 1.8 1.7 1.9Implied replacement cycle vs original base (years) 6.9 6.7 6.7 6.9 6.3Additional w/less terminals in market 0.1 0.2 0.3 0.4 0.6Cumulative shipments wireless 0.1 0.3 0.6 1.0 1.6Uplift to existing installed base from wireless 1% 3% 5% 8% 13%Market Shipments / year (mn.) 1.9 2.0 2.1 2.1 2.5Ingenico Units / year (mn.) 0.22 0.35 0.50 0.64 0.76US ASP market ($) 250 240 231 222 217US ASP market (€) 192 185 178 171 167Market revenues (€mn) 356 370 364 366 425Market share yearly shipments INGC (%) 12% 18% 25% 30% 30%Total installed terminals in market 12.1 12.3 12.6 13.0 13.6INGC US terminals revenues (€mn) 43 65 89 110 127

11%CanadaMarket units / year 0.9 0.9 0.9 0.9 0.9Ingenico Units / year (mn.) 0.21 0.21 0.21 0.21 0.21Canada ASP market ($) 250 240 231 222 217Canada ASP market (€) 192 185 178 171 167Market revenues (€mn) 163 157 151 145 142Market share INGC (%) 25% 25% 25% 25% 25%

INGC Canada terminals revenues (€mn) 41 39 38 36 35

INGC NA terminals revenues 84 104 127 146 163N.A. Maintenance portion (%) 10% 10% 10% 10% 10%N.A. Maintenance revenues (€ mn) 9 11 13 15 17Total N.A. revenues (€ mn) 92 115 140 161 180Total N.A. revenues growth yoy (%) 24% 22% 15% 12%



Mobile Point of Sale (mPOS): Attractive growth opportunity

A key debate is whether third party mPOS solutions like Square, iZettle could negate the

need for traditional POS terminals. Such solutions typically include dongles with a card

“swiper” connected to smartphones. Certain such solutions involve minimal or no fees for

the hardware/setup up-front, with charges typically on a per transaction basis rather than

via fixed monthly fees (although sometimes with pay-monthly options). Given a skew

towards variable fees, such structures are more geared to micro-merchants in our view.

While we are certainly positive on the mPOS opportunity within the micromerchants

segment, and cannot rule out longer term risks to traditional terminals, we do not expect

these near term. For now, we see mPOS as a significant incremental opportunity for

various technology providers (including Ingenico) to target an untapped segment i.e.

micromerchants who might be disinclined to use traditional terminals given cost structures

(tending to rely more on cash).

Exhibit 144: We view the low end mPOS market as an incremental opportunity for POS

terminal makers for now and see niche applications for their high end, EMV compliant,

queue busting mPOS Overview of Ingenico mobile POS solutions


It appears unlikely medium- or large- sized merchants would rely predominantly on

dongle based mPOS for now. While we see a significant opportunity for such devices in the

micro merchant segment, we are unsure such devices would meet requirements for

robustness/reliability at the moment at larger merchants e.g. in merchant contexts where

there is a high velocity of transactions. Further, we are yet to see large adoption in such

contexts. For example, Square’s win at Starbucks was for a geolocation wallet, not a full

mPOS card solution (and did not replace regular terminals).

Typical mPOS fee structures appear less favorable for large volume retail for now,

whereas they may be more attractive to micro merchants conducting a lower value of

transactions. We believe the full cost of a mid-sized or larger retailer adopting mPOS needs

to be considered. For example, a micro merchant who processes only a few transactions

per day will be happy to use his existing smartphone to attach the mPOS dongle device; by

contrast in even a small shop, the merchant would likely want to have a dedicated

smartphone to attach the dongle to. This is an additional cost that needs to be factored in

(although we are cognisant the monthly cost of a suitable smartphone will continue to

come down over time).

iCMP iSMP ROAM swipe device



Further, mPOS solutions will need to be EMV capable, which may have ramifications in

terms of pricing. While EMV (“chip and pin”) terminals have not historically been required

in the US, there is now a transition underway driven by the major payment networks, and

an increasing global impetus towards this. We note Square, for example, is not EMV

certified and would need to achieve this to proliferate more broadly beyond the

micromerchant segment in Europe and other regions. We believe it is likely only a matter

of time before Square launches an EMV compliant solution for Europe (e.g. iZettle is EMV

compliant). However, in such a case it would likely need to integrate a separate pinpad, as

required by regulations, rather than a pure swiper. Arguably this would go some way

towards reducing the economic attractiveness to a regular merchant (rather than

micromerchant) of mPOS vs. lower-end traditional POS terminals (at least outside the

micromerchant segment). For example, latest chip and pin EMV ready solutions from

iZettle and PayLeven both cost £82.50 ex. VAT for the hardware in the UK (c.€115 incl. VAT)

vs. we estimate Ingenico ASP of c.€120 for low end countertop devices. Further, though

Visa wavers in favour of “chip and sign” are possible, the trend appears in favour of EMV

“chip and pin”.

We believe the payments market remains highly localised and that the proliferation of

new entrant mPOS vendors globally outside the micromerchant context could be to some

extent slowed down by this. Any POS device that is to be deployed by banks in the regular

merchant context must be certified by each bank it is connected to in each country, with

lengthy testing required and associated costs. Moreover, each financial institution will

request development of a variety of applications, and certain modifications.

That said, we see niche applications for higher end mPOS: e.g. Apple uses Ingenico’s (EMV

compliant) iSMP in its stores, and we estimate it has ASPs significantly above group

average. We doubt these will fully cannibalise existing countertops.

We note that Ingenico is also present in the micro merchant segment, through its ROAM

swipe devices (it recently announced an EMV chip and sign device). Customers include

Groupon and Vantiv. Revenues from ROAM were c.€10mn in 2012.

Exhibit 145: We believe third party mPOS offer capabilities which for now make them more suited to the micro

merchant segment than larger retailers (although functionality will likely evolve over time). Overview of capabilities of various payment devices

Source: Goldman Sachs Global Investment Research, company data; Note two tick denotes ubiquitous features; one tick moderately widespread features; no tick limited/no capabilities.

Ingenico regular POS

Ingenico ROAM swiper

Ingenico ISMP

Third party mPOS

Valu

e ad

ded

serv

ices

/ an

alyt

ics

Mag

strip

e

EMV

chip

and

pin

EMV

cont

actle

ss

Chi

p an

d si

gn

Bar

code

s

Cer

tifie

d by

num

erou

s ba

nks

glob

ally

Inte

grat

es n

umer

ous

reta

iler l

oyal

ty p

rog

Mob

ility

Mic

ro m

erch

ant -

tailo

red

fees

Med

ium

/larg

e m

erch

ant -

tailo

red

fees

Secu

rity

Num

erou

s pa

ymen

t sch

emes



Payments landscape: Attractive opportunities; complex landscape

Payments revenue opportunities - banking, payments, commerce

Business models have also evolved in parallel with technology further accelerating growth.

We categorise the payments related revenue opportunities into banking, payments and

commerce.

Exhibit 146: Payments related revenue opportunities can be categorised into banking,

payments and commerce segments Payments revenue opportunities

Source: Monitise, Goldman Sachs Global Investment Research.

Revenue opportunities associated with payments opportunities:

Banking- Banking includes core activities including taking deposits, account

management and transfers and includes financial ecosystem at the core. In spite of

continuing concerns around disintermediation of banks and growing relevance of non-

financial institutions in emerging markets, we believe that banks will remain core to

the payments landscape owing to strong regulatory support and high levels of trust

and stickiness associated with banks. We expect banks to invest in mobile technologies

to retool themselves to the burgeoning mobile banking/commerce segments in

developed markets and mobile payments segment in emerging markets. We see

meaningful outsourcing opportunities for technology vendors in the mobile banking

segment as the banks retool themselves to adapt to mobile.

Payments- Payments (in narrow sense compared to broader payments i.e. banking,

payments, and commerce) is the process of using a platform (offline/online/mobile) to

pay for a service and primarily includes the TMT ecosystem (payment networks,

hardware, software, telcos) at the core.

BankingMobile, fastest growing channel -------------------------------------

•Account management

•Account transfers

•ATM & Branch locator

•Alerts

•Business Banking

•Balance Enquiry

•Call agent

•Channel authentification

•Remote Deposit capture

•Personal Finance

•Transaction history

PaymentsWallets, Micromerchants (DM)

Unbanked customers (EM)

---------------------------------------

•Bill payment

• International remittance

•Stored value/Prepaid Account Reload

•Mobile Phone Top up

•NFC

•Credit card payment

•Point of sale

•Peer to Peer

•Charity donation

•Travel Money

Commercemcommerce driven by NFC, cloud based systems

----------------------------------------

•Online Checkout

•Merchandising recommendations

•Coupons

•Vouchers

•Data management and Analysis

•Loyalty and Rewards

•Geo-location

•Mobile Marketing

•Marketplace

• Instant Mobile checkout

•Offers



o Developed markets- Newer technology/business models like mPOS (mobile

point of sale terminals) can help tap micro merchant market and mobile

wallets can integrate convenience shopping with loyalty programs thereby

driving volume growth.

o Emerging markets- In our view, emerging markets mobile payment trends

are redefining the payments landscape owing to the significant untapped

market of 2.5 bn unbanked customers (source: Visa) and establishment of

stable business models like m-PESA (c.18 million active users currently). Non-

banking networks in EM like m-PESA are enabling person-to-person transfers,

bill payments and agent-based cash-in/out services. Additionally, newer

services like the Visa Mobile Prepaid product are bringing in new payment

functionality for retail/e-commerce as well as withdrawals from Visa-enabled

ATMs. According to Gartner, currently EM contributes most of the mobile

payment volume, with Asia and Africa representing 74% of users in 2012. As

the NFC related infrastructure is rolled out in developed markets, it expects

North America plus Western Europe to be c.33% of the transaction volume by

2017.

The fast growth of mobile payment services in EM can be partly attributed to

the lack of a regulatory environment for mobile financial services, which

means service providers can scale services at the expense of proper risk

control and fraud management. This situation is slowly changing, though, as

more regulators in EM like India, Nigeria are becoming aware of this issue and

putting in place regulations to ensure sustainable growth and align mobile

payment systems with existing financial systems.

The following points highlight the significant EM opportunity in our view:

According to Visa, around 2.5 bn adults lack access to formal financial services

with a high concentration in EM. BRIC nations having a significant percentage

of unbanked customers (China 61%, Brazil 57%, India 52%, Russia 31%). It

estimates that 1.7 bn will have a mobile phone but not a bank account in 2012.

According to Euromonitor, in India and Africa, over 90% of personal

consumption is cash-based.

Exhibit 147: Global mobile payment volume as % of total

global payment volume Based on our current forecasts for combined payment

volumes of American Express, Discover, MasterCard, and

Visa we estimate that mobile payments will make up 2.2% of

total payment volume by 2015.

Exhibit 148: APAC and Africa are likely to be the most

dominant mobile payments markets in 2017. Mobile payments by region (mn).

Source: Gartner, company data, Goldman Sachs Global Investment Research.

Source: Gartner

1.0%

1.3%

1.7%

1.9%

2.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

$0

$100

$200

$300

$400

$500

$600

2011 2012 2013 2014 2015

Glo

bal m

obile

pay

men

ts a

s a

% o

f tot

al

volu

me

Glo

bal m

obile

pay

men

ts (

$ bn

)

Global mobile payments % of total global payment volume

0

50

100

150

200

250

2010 2011 2012E 2013E 2014E 2015E 2016E 2017E

Mob

ile paymen

ts ($

mn)

Western Europe North America Asia/Pacific Eastern Europe

Middle East Africa Latin America



Exhibit 149: Money transfer in EM and mobile commerce

in DM will be top drivers of mobile transactions globally Mobile payment transactions by type

Exhibit 150: SMS (in EM) and mobile web (in DM) will be

the dominant technologies for mobile payments Mobile payments by technology

Source: Gartner

Source: Gartner

Exhibit 151: MOBILE CARRIERSs/Telcos are leading the investments in EM mobile money initiatives

Key mobile payments initiatives in emerging markets


Commerce- It is the act of buying or selling of products/services and has the retail

vertical at the core. mCommerce represents the next stage of evolution of the digital

shopping experience and is emerging as the fastest growth driver for Ecommerce in

Europe and worldwide. The value proposition for consumers is to make purchasing

faster and easier which potentially translates into increased purchasing and more

transaction fees for the payment networks and banks. Although a nascent consumer

form factor for global commerce, there has been a significant push across the

payments ecosystem to roll out NFC enabled smartphones, new digital wallets, drive

acceptance at the point-of-sale (POS), deploy new POS infrastructure and connectivity

to payment networks all intended to accelerate the rate of deployment and consumer

adoption of mobile commerce. Further, mobile services like price checking, loyalty

0

50

100

150

200

250

300

350

400

450

500

2010 2011 2012E 2013E 2014E 2015E 2016E 2017E

Mob

ile Paymen

ts, $mn

Merchandise Purchases Ticketing Money Transfers

Bill Payments Airtime Top‐Ups Other

0

50

100

150

200

250

300

350

2010 2011 2012E 2013E 2014E 2015E 2016E 2017E

Mob

ile Paymen

ts, $mn

SMS Mobile web USSD NFC

Payments Initiative Founded Geography Vendors Services Comments

M‐Pesa 2007 Kenya Vodafone, Safaricom Mobile payments 22 mn customers by end of March 2013

M‐Shwari 2012 Kenya Vodafone, Safaricom Savings, loans Ksh 976mn savings, Ksh 123 mn loans

Tigo 2010‐12 Africa, Latam Millicom Mobile wallet 17 mn customers by end of 2012

MTN Mobile Money Africa MTN Mobile wallet >10 mn customers

Orange Money Africa Orange Mobile payments 5.6 mn customers as of February 2013

Flous 2011 MEA and AsiaEtisalat, MasterCard, Oberthur

Technologies mCommerceIn 2012, $1.8bn of financial transactions were completed through Etisalat Commerce

m‐Commerce 2012 Nigeria Etilasat mCommerce potential customer base of over 180 million people in Nigeria

G‐Cash 1998 Philippines Globe Telecom Mobile wallet 30 million mobile subscribers for Globe Telecom

BebaPay Kenya Google Mobile paymentsService allows users to pay for transport by tapping an NFC card onto Andriod phone which acts as a card‐reader



rewards and research tools are increasingly blurring the lines of offline and online

consumer purchasing behavior.

Merchant discount rate (MDR) is the mainstay of the payments value chain however

newer revenue models (advertising, couponing) focusing on shifting the benefits from

back end to front end i.e. consumer are emerging, creating growth opportunities

beyond MDR. This is also resulting in further dilution of the boundaries between

payments and commerce. Additionally, value added services and information based

services are new revenue opportunities in the commerce segment as vendors look to

monetise retail sales data to gain insights into their customers behavior.

mCommerce represents the most significant payments related revenue opportunity in

the longer term however the landscape is more fluid and needs deeper collaboration

across ecosystems to realise its true potential.

Four party systems to remain the dominant payment systems

There are broadly three types of payment systems in practice today with four party

systems/open loop systems like Visa and Mastercard being the dominant systems.

Based on the number of parties involved, payment systems can be classified into:

Two party systems- The merchant issues the cards and also manages the systems.

These systems are rare in practice because of the multiple non-core activities a retailer

needs to perform and lack of network presence.

Three party systems- In three-party or closed loop systems, a single vendor issues

cards, manages the network and provides merchant card acceptance. Examples

include American Express, Discover.

Four party systems- Four party or open loop systems are the most dominant systems

owing to their strong network presence internationally. In this system, the payment

networks (Visa, Mastercard, JCB, Union Pay) license various banks to issue payment

cards. Merchant acquirers (subsidiaries of banks or third party vendors) collect the

Merchant Discount Rate (MDR) from the merchant and pass on the interchange fees,

network fees to the issuing banks and payment networks respectively.



Exhibit 152: Four party systems are the most dominant payment systems owing to their strong network presence Types of payments systems based on the number of parties involved


Issuer

Two party system‐ Cardholder, Merchant

Consumer Merchant

Submits card to merchant

Issuer approves purchaseand sends approval to Merchant

Consumer Issuer


Merchant approves transaction

Consumer Merchant


Three party system‐ Cardholder, Merchant, Issuer

Four party system‐ Cardholder, Acquirer, Merchant, Issuer

Merchant

Transaction data to issuer

Card network

Acquirer

Asks network to determine

cardholder’s bank

Network validates card features and forwards to Issuer

Approves purchaseNetwork sends approval

Sends approval to merchant



Exhibit 153: Traditional and new mobile payment systems continue to rely on existing four party system and MDR Broader payments value chain- traditional, paperless, mobile, P2P money transfers


MDR remains mainstay of the payments value chain

Merchant Discount Rate (MDR) is the per transaction fee paid by a merchant in exchange

for the ability to accept and generate sales from card-based transactions. MDR ranges

between c.1%-c.4% (mostly 1%-2%) depending on the interchange fees in the country, size

of the merchant and mode of payment (offline/online/mobile). It has several components:

(1) interchange fee (paid to the issuer), (2) acquiring fee (paid to the merchant acquirer),

and (3) network fee (paid to the card network) (4) transaction processing fee (paid to the

acquirer, payments processor).

Customer

Cheque

Cash

Family, Friends

Merchant

Acquiring bank

Payment Processor

Payment Network

Issuing bank

ACH

Emerging (Mobile)

Debit cards

Credit cardsE

lect roni c

Paper

Money transfer

POS

Acquiring bank

Clearing centre

Exchange centre

Issuing bank

Acquiring bank

Clearing & Settlement network

Issuing bankAccess

Channel(Online, mobile)

Payment Gateway(Acquirer, payment processing)

Payment Gateway(Acquirer, payment processing)

Traditional value chain

Paperless payments value chain

Money transfers



Exhibit 154: MDR is the key source of funds for the payments value chain Payments value chain- rough fee split across various participants


Interchange fees is the portion of the MDR which is paid to the issuing bank to

compensate for taking on itself the risk of default on the payment transaction. Interchange

fees vary dramatically across various countries in Europe depending on country

legislations and are on an average 70% of the MDR. New proposals by European

Commission aim to standardise the interchange fees across Europe and cap it at 0.2% of

the value of the transaction for debit cards and 0.3% for credit cards.

Consumer Merchant

Issuing banks Payment network

Acquiring banks

Goods and services

Capture & Authorisation

Transaction amount (minus interchange fees)

Merchant Receives€98

Authorization & Fraud

Clearing & Settlement Clearing & Settlement

Transaction amount (minus interchange fees)

Credit/debit card payment

Customer pays€100

Merchant service charge

€2.00

Interchange fee€1.00

Acquiring fee€0.55

Payment processor

Network fee€0.10

Transaction processing fee

€0.35

Barclays, HSBC, RBS, Llyods

Visa, Mastercard, UnionPay

Wirecard, AtoS, Ingenico (Ogone)

Barclays, HSBC, RBS, Llyods



Exhibit 155: Interchange fees varies significantly across various European countries Average domestic Multilateral Interchange Fees in the EUMember states

Source: European Commission.

Key participants in the payments value chain include:

1. Issuer is a financial institution that provides a customer with payment cards and

assumes responsibility for default, fraud in payment card transactions. They generate

revenues from interchange fee and related fees on credit and debit cards. In general,

card issuing banks also encourage card usage by providing cardholder rewards and

other incentive schemes. Examples include HSBC, Barclays, RBS. Banks typically get

the majority of the economics because they take on credit risk and some of the fraud

risk.

2. Merchants accept payment cards as a form of payment for products and services.

3. Acquirer The merchant acquirer/processor is authorised to connect merchant POS

systems to electronic payment networks and facilitate the clearing and settlement of

payments by transferring funds to merchants to cover card purchases.

Front-end transaction processing services include capturing transaction data at

the POS and routing it to the cardholder’s bank, which then verifies the card

information and authorises/declines the transaction.

Back-end processing services include clearing transactions, which involves the

payment processors transferring merchant data to payment networks that then

collect the funds from the issuing banks. The acquirer then assists in the

settlement of transactions, which ends with the merchant receiving funds from the

payment card purchase. Back-end processors accept settlements from front-end

processors and move the money from the issuing bank to the merchant bank. This

entails checking the details received by forwarding them to the respective card’s

issuing bank or card association for verification, and also carrying out a series of

anti-fraud measures against the transaction.

Prominent acquirers include subsidiaries of financial institutions like Barclays as well

as AtoS, Wirecard, Ingenico (Ogone). Increasingly banks in Europe are outsourcing

their transaction processing business to third-party firms like AtoS, given their: (1) lack

of processing technology, and (2) expertise in maintaining banking relationships with

merchants.



4. POS terminals/Payment Gateway- Point of sale (POS) terminals are physical or

virtual device used by the merchant to communicate information to the Acquirer’s

Front-End Network to complete a retail transaction.

Significant disruption After being relatively static for long, the POS (Point of Sales)

segment is seeing significant disruption across the board in terms of factor change

(plastic to mobile payments), new business models (loyalty, promotions, and location-

based offers) and expansion of electronic payment options to micro and small

merchants. While vendors like Square, iZettle have led the trend with mobile POS to

target micro merchants, the incumbents (Ingenico, AtoS) and mobile payment vendors

(Monitise) are catching up by launching their own offerings to extend their presence in

the value chain and makes themselves omnichannel. While we acknowledge that new

age mPOS vendors are driving significant disruption in the market and that long term

threats in the form of a combination of smart phone-enabled acceptance and tablet-

based POS devices are real, we believe that near term obsolescence concerns related

to traditional POS makers are overdone.

Key emerging vendors in the space include Stockholm based iZettle, Germany based

Payleven, Sumup, Jusp, mPowa.

Exhibit 156: mPOS vendors are disruptive but pose limited near term risks to traditional vendors Key emerging mPOS vendors


Micro merchants to large retailers: The SMB segment is currently ripe for adoption of

mPOS systems and has seen good adoption rates in the US and Nordics. However it is

early days, given big retailers in Europe are traditional POS solutions providers and they

still maintain direct relationships with retailers and have deep integration with retailers.

The US market has seen some early adopters like Nordstrom and Home Depot who are

using it to help their staff to better serve customers on the store floor, check inventory and

price, make suggestions, take orders and accept payment. These mobile POS functions are

not replacing normal cash registers and are an additional investment. Hence we do not see

this as a real threat to the traditional payment acquiring solution providers at this level.

New entrant models: Most new entrant models in the mPOS/alternative payments space

can be categorised into the following:

Partner models: These vendors work within the existing payments infrastructure.

Examples include UK Mobile carriersJV Weve, PayPal, Google and US telcos JV ISIS.

Aggregator model: These vendors are mainly focused on the payments economics and

compete with incumbents by directly signing up small merchants to accept electronic

payments. Examples include iZettle, Square, SumUp.

Vendor Geographies Rate charged Key comments

iZettle Sweden, Norway, Denmark, Finland,

UK, Germany, Spain, Mexico

1.5-2.75% €5mn investment by Banco Santander

Payleven Germany, Netherlands, Italy, UK, Poland, Brazil 2.70% Partnerships wih Apple, Telefonica

Sumup Germany, Austria, UK, Ireland 2.75% Received funding from Groupon, AmEx and BBVA

Jusp Italy 2.70% $6mn funding secured from VCs

mPowa UK NA

Signed white label deal with Potugal Telecom,

secured $76mn first round investment

Monitise UK, US, Canada, China, India, Indonesia NA Lloyds mPOS partnership



Integrator model: These are vendors with existing merchant relationships that can

bundle payments processing with other services. Examples include Groupon, LevelUp.

Exhibit 157: Most emerging European vendors are characterised as Aggregators

New entrant models- Partner, Aggregator, Integrator

Source: Goldman Sachs Global Investment Research (For details see: A closer look at the threats and opportunities posed by new entrants, December 12 2012).

5. Payment networks The payments card network connects the merchant side to the

bank side of the transaction, and performs the following key functions: (1) establish the

rules for participation in the network, (2) facilitate the authorisation and settlement of

electronic payments by transmitting critical transaction information between the

merchant acquirer and issuer, and (3) determine the interchange fee in compliance

with regulations set by EU member states and the European Parliament/Commission.

Network operators include MasterCard and Visa (“open-loop”) and American Express

(“closed-loop”).

Card associations Visa and MasterCard each comprise over 20,000 card issuing banks

globally. Networks take on minimal risk on transactions and thus get the smallest

share of the purchase volume. Visa and Mastercard have around 20 million payment

points globally. Our US analysts highlight the following key attributes of payment

networks (see A closer look at the threats and opportunities posed by new entrants,

December 12, 2012):

Highly defensible position- Payment networks remain in a highly defendable

position as changes at the POS, new entrants, and mobile payments options do

not currently pose a threat as most funding mechanisms are currently based on

credit- and debit-based accounts, and no mobile payment option aims to address

the core network function of authentication, clearing, and settlement services.

Given their essential role in payments and wide global merchant adoption, we

believe new entrants will need to ride on existing payment rails to reach scale,

resulting in incremental volume for the networks. DFS’ recent partnership with

PayPal highlights how the company can monetise its payment network payment

network by partnering with new entrants.

Long term risks- For the longer term we acknowledge that there are some risks

from new entrants and alternative payments that can take away volume from the

networks in particular we note efforts to move payment volume through the ACH

network (automated clearing house; essentially electronic checks), with PayPal’s

efforts the best known on this front. Given PayPal’s push into retail, ACH could

begin to take incremental share of volume, though we expect it to be modest. For

context, PayPal has been successful at migrating accounts to ACH funding online,

but traditional credit/debit cards still fund at least 50% of accounts. In addition, we

see the intersection of mobile payments and private label or decoupled debit

Partner Aggregator IntegratorRevenue model Broader commerce Payment economics Total revenue/client

Advertising, Loyalty

Per account basis (Issuers)

Target segments Large merchants Large merchants Large merchants

SMB Micro merchants SMB

Infrastructure Existing New + Existing New + Existing

Strengths Consumer relationships Focused on economies of scale Merchant relationships

Quickest to scale Most disruptive due to bundling

Weaknesses Revenue share complications Economics less benign to target SMB Opaqueness in pricing

Examples Weve (UK m-commerce JV) Paypal Groupon (Breadcrumb)

Google Wallet Square LevelUp

Paypal-Discover iZettle



(issued by or on behalf of retailers) as other options that could potentially take

away from credit and debit payment volume. However, we see the risk associated

with these payment alternatives as relatively modest given the size differential of

credit and debit which totals in the trillions of dollars.

Merchant Customer Exchange- Although still in its early days, MCX (Merchant

Customer Exchange) a merchant-backed mobile payments platform in US could end

up as new competition for networks to consider, especially given the relative size (90K

store, $1 trillion payments per annum) of merchants behind this venture include Best

Buy, CVS, Target, Wal-Mart and others. MCX has selected European TSM vendor

Gemalto to build the group’s mobile wallet.

In addition, with over 400 mn active accounts on iTunes with credit cards, Apple’s

efforts in mobile payments remain an important development for the payments

industry that could either be competitive, should they choose to move volume off of

existing payment rails, or additive, should they simply enable payments using the

existing payment infrastructure which is funded with existing credit and debit cards.

6. Automated Clearing House (ACH) is an electronic network for financial transactions.

ACH processes large volumes of credit and debit transactions in batches. The Payflow

ACH (Automated Clearing House) Payment Service enables merchants to electronically

collect payments from customers by directly debiting a customer's checking or saving

accounts. ACH credit transfers include direct deposit payroll and vendor payments.

ACH direct debit transfers include consumer payments on insurance premiums,

mortgage loans, and other kinds of bills. On the Internet, ACH is primarily used for

person-to-person (P2P), business-to-customer (B2C), and business-to-business (B2B)

payments. Examples of ACH based models include PayPal, Alipay (China) and BPAY

(Australia).

Non-MDR revenue opportunities: Focusing on the front end

MDR still remains the key source of funds for the payments value chain. The current

construct of the payments industry relies heavily on the four party system and the MDR

and hence any emerging technologies, business models have to either disintermediate any

of the existing vendors in the value chain or have to create alternate models including

value added/information based services. We believe that newer technology vendors are

incentivised to either target newer target customer (micro merchants) or enable new

revenue models for quicker uptake and accelerated growth.

Beyond MDR, we believe that the rapid growth of mobile technologies is creating the

following revenue opportunities which are meaningful our view. However some of these

services like Analytics may end being bundled with basis POS offerings to differentiate vs.

competition.

Mobile Advertising- Google Wallet

Managed services- IT services companies like AtoS

Value added services (Analytics, Loyalty)- iZettle, Square, Paypal

Information based services (Coupons)- Google, Groupon, Keypons, Yowza, gopons

Security- Trusted service manager opportunity- Gemalto, Oberthur Technologies, G&D



Exhibit 158: MDR continues to dominate the payments revenue model but newer models are emerging Payment revenue models-MDR and new revenue models

Source: Goldman Sachs Global Investment Research

SEPA- key regulation driving IT investments and mobile payments

We believe the upcoming deadline for migration to comply with Single Euro Payments

Area (SEPA) regulations in Europe provides a potential impetus towards incremental

spending on IT and especially associated services in the region. As such we see an

incremental opportunity, with potential beneficiaries being the European technology

vendors. We note that the deadline is mandated by legislation, suggesting this can

provide a meaningful impetus to technological migration.

The SEPA stands for the European Union payments integration initiative, and has

established clear deadlines for legal compliance, with the aim, set out by EU

governments in the Lisbon Agenda, March 2000, of making Europe more dynamic and

competitive. The ultimate goal of SEPA is to create a borderless payment environment

for Euro payments within participating countries. SEPA currently consists of the 28 EU

Member States plus Iceland, Norway, Liechtenstein, Switzerland and Monaco.

February 1, 2014 is the deadline in the Euro area for compliance with the core

provisions of this regulation. In non-euro area countries, the deadline will be October

31, 2016.

Key requirements of SEPA include: (1) consumers from a particular European country

must be able to use their home debit card anywhere in the Euro area. (2) Cross border

payment should be received within a guaranteed time, and banks will not be allowed

to make any deductions from the amount transferred. (3) Direct debits to one part of

the Euro area will be able to be made from anywhere in the Euro area. (4) Businesses

and individuals must be able to operate in such a way that it is no longer necessary to

hold separate bank accounts linked to local ACH clearing systems in each country

where business is done. Instead, businesses can manage payments in Europe and

collections out of just a few accounts or even a single account. (5) SEPA establishes a

single standard for multi-country payments using XML formatting. (6) IBANs will

become the sole payment account identifier for both domestic and cross-border Euro

credit transfers and direct debits in the Euro area. As such, companies need to begin

collecting and using IBANs now. (7) Businesses will only need one card payment

terminal to accept all SEPA-compliant cards (this aims to avoid the situation whereby

European businesses in one country lose sales because they do not have a terminal

that accepts the customer's domestic payment card and/or businesses have to pay

extra costs to operate additional terminals accepting foreign cards).

Money transferTraditional Alternate revenue models

Consumer-Merchant transactions

MDR Alternative

payment rail(ACH)

Advertising

Value addedservices

(Analytics, Loyalty)

Peer to peer payments

Trusted service

manager

Managedservices

Informationbased

services

Newer revenue models



Given mixed progress across Europe in terms of migration to the relevant new

standards, and based on the limited amount of time left before the migration deadline,

we believe that technology providers will be in demand to facilitate the relevant

changes. In June, the ECB published updated qualitative SEPA indicators to assess

SEPA preparedness.



Disclosure Appendix

Reg AC

We, S.K.Prasad Borra, Mohammed Moawalla, Alexander Duval, Simon F. Schafer, Jo Blackshaw, Julio C. Quinteros Jr., Tim Boddy, Frederik

Thomasen, Heath P. Terry, CFA, Andrew Lee, Franklin Walding and Gautam Pillai, hereby certify that all of the views expressed in this report

accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our

compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Investment Profile

The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and

market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites

of several methodologies to determine the stocks percentile ranking within the region's coverage universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate

of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend

yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for

in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.

GS SUSTAIN

GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list

includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and

superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate

performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the

environmental, social and governance issues facing their industry).

Disclosures

Coverage group(s) of stocks by primary analyst(s)

S.K.Prasad Borra: Europe-IT Services, Europe-Software. Mohammed Moawalla: Europe-Software. Alexander Duval: Europe-Communications

Technology, Europe-Semiconductor & Tech Hardware. Simon F. Schafer: Europe-Communications Technology, Europe-Semiconductor & Tech

Hardware. Julio C. Quinteros Jr.: America-ATM/POS and Self-Service, America-IT Consulting and Outsourcing, America-Transaction Processors. Tim

Boddy: Europe-Telecom Services. Frederik Thomasen: Europe-Pan-Euro Banks. Heath P. Terry, CFA: America-Internet. Andrew Lee: Europe-Telecom

Services. Franklin Walding: Europe-Food Retail, Europe-General Retail.

America-ATM/POS and Self-Service: VeriFone Systems, Inc..

America-IT Consulting and Outsourcing: Accenture Plc, Amdocs Limited, CGI Group Inc., CGI Group Inc. (US), CSG Systems International, Inc.,

Cognizant Technology Solutions, Computer Sciences Corp., Convergys Corporation, ExlService Holdings, Inc., Fidelity National Information Svcs.,

Fiserv, Inc., Genpact Ltd., Lender Processing Services, Inc., NeuStar, Inc., Performant Financial Corp., Sapient, Synchronoss Technologies, Inc.,

Towers Watson & Co., WNS (Holdings) Ltd., West Corporation.

America-Internet: AOL Inc., Amazon.com Inc., Bankrate, Inc., Demand Media, Inc., Expedia Inc., Groupon, Inc., HomeAway, Inc., IAC/InterActiveCorp,

LinkedIn Corporation, Millennial Media, Inc., Netflix, Inc., OpenTable, Inc., Orbitz Worldwide, Inc., Pandora Media, Inc., Priceline.com Incorporated,

RetailMeNot, Inc., Shutterfly, Inc., TripAdvisor, Inc., Trulia, Inc., ValueClick, Inc., WebMD Health Corp., Yahoo! Inc., Yelp Inc., Zillow, Inc., Zynga Inc.,

comScore, Inc., eBay Inc..

America-Transaction Processors: Automatic Data Processing Inc., Blackhawk Network Holdings. Inc., Equifax, Inc., Evertec Inc., FleetCor Technologies,

Inc., Global Payments Inc., Green Dot Corp., Heartland Payment Systems, Inc., Higher One Holdings, Inc., Mastercard Inc., MoneyGram International,

Inc., Paychex, Inc., Total System Services, Inc., Vantiv, Inc., Visa Inc., WEX Inc., Western Union Co..

Europe-Communications Technology: Alcatel-Lucent, Alcatel-Lucent (ADS), Ericsson, Ericsson (ADR), Gemalto, Nokia, Nokia (ADR), Spirent

Communications Plc, Technicolor, TomTom.

Europe-Food Retail: Ahold, Booker Group PLC, Carrefour, Casino, Colruyt, Delhaize, J Sainsbury, Jeronimo Martins, Metro, Morrison (Wm), Ocado

Group PLC, Sligro, Tesco.

Europe-General Retail: ASOS plc, Brunello Cucinelli, Burberry, Debenhams, Essilor, Geox, Hennes & Mauritz, Hermes International, Hugo Boss AG,

Inditex, Kering, Kingfisher, LVMH Moet-Hennessy Louis Vuitton, Luxottica (Italy), Marks & Spencer, Moleskine SpA, Mulberry Group Plc, Next,

Pandora, Prada SpA, Puma, Richemont, Salvatore Ferragamo SpA, Signet Jewelers, Sports Direct International Plc, Ted Baker, The Swatch Group

(Bearer share), Tod's, adidas.

Europe-IT Services: Atos, Capgemini, Indra, Interxion, Telecity, Tieto, United Internet, Wirecard.

Europe-Pan-Euro Banks: Alpha Bank, BBVA, BNP Paribas, BRE Bank, Banca Monte dei Paschi di Siena, Banca Popolare di Milano, Banco BPI, Banco

Comercial Portugues, Banco Espirito Santo, Banco Popolare, Banco Popular Espanol, Banco Sabadell, Banco Santander, Bank Handlowy, Bank Pekao,

Bank Zachodni WBK, Bank of Cyprus, Bank of Ireland, Bank of Piraeus, Bankinter, Barclays plc, CaixaBank SA, Commerzbank AG, Credit Agricole SA,

Credit Suisse, DNB, Danske Bank, Deutsche Bank, EFG International, Erste Bank, Eurobank Ergasias SA, HSBC, ING Groep N.V., Intesa Sanpaolo,

Julius Baer Group, KBC Group NV, Komercni Banka, Lloyds Banking Group Plc, National Bank of Greece, Natixis, Nordea, OTP Bank Plc, PKO BP,

Raiffeisen Bank International, Royal Bank of Scotland, SEB, Societe Generale, Standard Chartered, Svenska Handelsbanken, Swedbank, UBI Banca,

UBS, UniCredit, Vontobel.

Europe-Semiconductor & Tech Hardware: AMS AG, ARM Holdings plc, ASM International NV, ASML Holding NV, Aixtron, CSR plc, Imagination

Technologies, Infineon, Ingenico SA, Logitech, Pace, STMicroelectronics, STMicroelectronics (ADR), Wolfson Microelectronics plc.

Europe-Software: Aveva, Blinkx, Dassault Systemes, Exact Holding, Fidessa, Hexagon AB, IFS, Micro Focus, Monitise, Nemetschek, Opera Software,

SAP (ADR), SAP (Ordinary Share), SDL, Sage Group, Software AG, Temenos, Unit 4.

Europe-Telecom Services: BT Group, BT Group (ADS), Belgacom, Bouygues, Cable & Wireless Communications, Deutsche Telekom, Elisa

Corporation, Eutelsat Communications, Iliad, Inmarsat Plc, Jazztel, Kabel Deutschland AG, Liberty Global, Plc, Millicom International Cellular SA,



Mobistar, OTE, Orange, Portugal Telecom, Royal KPN NV, SES S.A., Swisscom, TDC A/S, TalkTalk, Tele2 (B), Telecom Italia, Telecom Italia (Savings),

Telefonica, Telefonica Deutschland, Telekom Austria, Telenet, Telenor, TeliaSonera, Vodafone, Vodafone (ADR), Ziggo, Zon Multimedia.

Company-specific regulatory disclosures

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this

compendium can be found in the latest relevant published research

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell

Global 31% 54% 15% 49% 41% 38%

As of July 1, 2013, Goldman Sachs Global Investment Research had investment ratings on 3,535 equity securities. Goldman Sachs assigns stocks as

Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for

the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.

Price target and rating history chart(s)

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this

compendium can be found in the latest relevant published research

Regulatory disclosures

Disclosures required by United States laws and regulations

See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager

or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-

managed public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs usually makes a

market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities.

The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts,

professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of

coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking

revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their

households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be associated persons of Goldman, Sachs & Co. and therefore may not be subject to NASD Rule 2711/NYSE

Rules 472 restrictions on communications with subject company, public appearances and trading securities held by the analysts.

Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in

prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs

website at http://www.gs.com/research/hedge.html.

Additional disclosures required under the laws and regulations of jurisdictions other than the United States

The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws

and regulations. Australia: Goldman Sachs Australia Pty Ltd and its affiliates are not authorised deposit-taking institutions (as that term is defined in

the Banking Act 1959 (Cth)) in Australia and do not provide banking services, nor carry on a banking business, in Australia. This research, and any

access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act, unless otherwise agreed by Goldman

Sachs. Brazil: Disclosure information in relation to CVM Instruction 483 is available at http://www.gs.com/worldwide/brazil/area/gir/index.html.

Where applicable, the Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 16 of CVM Instruction

483, is the first author named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: Goldman, Sachs & Co. has

approved of, and agreed to take responsibility for, this research in Canada if and to the extent it relates to equity securities of Canadian issuers.

Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the company of travel expenses for such

visits. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from

Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from

Goldman Sachs (India) Securities Private Limited; Japan: See below. Korea: Further information on the subject company or companies referred to

in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. New Zealand: Goldman Sachs New Zealand Limited and its

affiliates are neither "registered banks" nor "deposit takers" (as defined in the Reserve Bank of New Zealand Act 1989) in New Zealand. This research,

and any access to it, is intended for "wholesale clients" (as defined in the Financial Advisers Act 2008) unless otherwise agreed by Goldman

Sachs. Russia: Research reports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are information

and analysis not having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian legislation on

appraisal activity. Singapore: Further information on the covered companies referred to in this research may be obtained from Goldman Sachs

(Singapore) Pte. (Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted without permission.

Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial Conduct

Authority, should read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer

to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these risks warnings, and a glossary of certain financial

terms used in this report, are available from Goldman Sachs International on request.

European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available

at http://www.gs.com/disclosures/europeanpolicy.html which states the European Policy for Managing Conflicts of Interest in Connection with

Investment Research.

Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer registered with the Kanto Financial Bureau under registration number Kinsho

69, and a member of Japan Securities Dealers Association, Financial Futures Association of Japan and Type II Financial Instruments Firms

Association. Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific

disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese

Securities Finance Company.



Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy

or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as

a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a

global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage

group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment

recommendations focused on either the size of the potential return or the likelihood of the realization of the return.

Return potential represents the price differential between the current share price and the price target expected during the time horizon associated

with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each

report adding or reiterating an Investment List membership.

Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at

http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook

on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12

months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the

following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over

the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.

Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an

advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman

Sachs Research has suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis for

determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and

price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended

coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The

information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

Global product; distributing entities

The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs on a global

basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on

macroeconomics, currencies, commodities and portfolio strategy. This research is disseminated in Australia by Goldman Sachs Australia Pty Ltd

(ABN 21 006 797 897); in Brazil by Goldman Sachs do Brasil Corretora de Títulos e Valores Mobiliários S.A.; in Canada by Goldman, Sachs & Co.

regarding Canadian equities and by Goldman, Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman

Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul

Branch; in New Zealand by Goldman Sachs New Zealand Limited; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore)

Pte. (Company Number: 198602165W); and in the United States of America by Goldman, Sachs & Co. Goldman Sachs International has approved this

research in connection with its distribution in the United Kingdom and European Union.

European Union: Goldman Sachs International authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority

and the Prudential Regulation Authority, has approved this research in connection with its distribution in the European Union and United Kingdom;

Goldman Sachs AG and Goldman Sachs International Zweigniederlassung Frankfurt, regulated by the Bundesanstalt für

Finanzdienstleistungsaufsicht, may also distribute research in Germany.

General disclosures

This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we

consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as

appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large

majority of reports are published at irregular intervals as appropriate in the analyst's judgment.

Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have

investment banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research

Division. Goldman, Sachs & Co., the United States broker dealer, is a member of SIPC (http://www.sipc.org).

Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our

proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our

proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views

expressed in this research.

The analysts named in this report may have from time to time discussed with our clients, including Goldman Sachs salespersons and traders, or may

discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity

securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any

such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's

return potential relative to its coverage group as described herein.

We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in,

act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.

This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be

illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of

individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if

appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them

may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.

Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.

Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.

Investors should review current options disclosure documents which are available from Goldman Sachs sales representatives or at

http://www.theocc.com/about/publications/character-risks.jsp. Transaction costs may be significant in option strategies calling for multiple purchase

and sales of options such as spreads. Supporting documentation will be supplied upon request.

In producing research reports, members of the Global Investment Research Division of Goldman Sachs Australia may attend site visits and other

meetings hosted by the issuers the subject of its research reports. In some instances the costs of such site visits or meetings may be met in part or in

whole by the issuers concerned if Goldman Sachs Australia considers it is appropriate and reasonable in the specific circumstances relating to the

site visit or meeting.



All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all

research content is redistributed to our clients or available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our

research by third party aggregators. For all research available on a particular stock, please contact your sales representative or go to

http://360.gs.com.

Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY

10282.

© 2013 Goldman Sachs.

No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs Group, Inc.

Documents

Monetising mobile money - jrj.com.cnpg.jrj.com.cn/acc/Res/CN_RES/INVEST/2013/9/4/c3733... · 9/4/2013 · Goldman Sachs India SPL ... creating newer growth opportunities. With an