U.S. Merchant Acquiring:

Pricing and Attrition Focus This report is based upon information we consider reliable, but its accuracy and completeness cannot be guaranteed. Information provided is not all inclusive. All information listed is as available. For internal use only. Reproducing or allowing reproduction or dissemination of any portion of this report externally for any purpose is strictly prohibited and may violate the intellectual property rights of The Strawhecker Group. All sales are final, nonrefundable, and nontransferable. © Copyright 2016. The Strawhecker Group. All Rights Reserved.

Questions?

2

Methodology All information in this eReport, except where explicitly noted otherwise, has been derived from The Strawhecker Group’s

proprietary database called AIM (Acquiring Industry Metrics).

The AIM Data Warehouse is a big data solution primarily leveraged by payments companies. The data warehouse

includes:

Leading payments companies are using the AIM Data Warehouse:

• 5 of the top 10 merchant acquirers

• 13 of the top 25 merchant acquirers

• Includes processors, acquirers, banks, and ISOs

Confidential. For discussion purposes only.

© Copyright 2016. The Strawhecker Group. All Rights Reserved.

Questions?Table of Contents

Contents Page

Executive Summary 4

SMB Industry Attrition and SMB Business Closures

5

Expected Future Margins for ISOs and Acquirers

12

Competition Impact on Sales and Customer Acquisition Costs

16

What Are Merchants Looking For In A Payment Processor?

22

The ISO Competitive Landscape 26

Future Interchange Fees 31

3Confidential. For discussion purposes only.

© Copyright 2016. The Strawhecker Group. All Rights Reserved.

Charts/Figures Illustrated

1. Account Attrition by Volume Tier (Q1 ‘13 – Q1 ‘16)

2. Volume Attrition by Volume Tier (Q1 ‘13 – Q1 ‘16)

3. Net Revenue Attrition by Volume Tier (Q1 ‘13 – Q1 ‘16)

4. Account Attrition by Industry (Q1 ‘13 – Q1 ‘16)

5. Volume Attrition by Industry (Q1 ‘13 – Q1 ‘16)

6. Net Revenue Attrition by Industry (Q1 ‘13 – Q1 ‘16)

7. SMB Exit Rates by Firm Size and Establishment Age

8. Total Net Revenue by Volume Tier (Q1 ‘12 – Q1 ’16)

9. Total Net Revenue by Industry (Q1 ‘12 – Q1 ’16)

10. Total Net Revenue $ per Merchant per Month (Q1 ‘12 – Q1 ’16)

11. Share of Total Net Revenue (Q1 ‘13 – Q1 ‘16)

12. Share of New Net Revenue Added by Tier (Q1 ‘13 – Q1 ‘16)

13. New Accounts Added by Volume Tier (Q1 ‘13 – Q1 ‘16)

14. Average Net Revenue BPS on New Accounts by Volume Tier (Q1 ‘13 – Q1 ‘16)

15. New Accounts Added by Sales Model (Q1 ‘13 – Q1 ‘16)

16. Average Net Revenue % on New Accounts by Sales Model (Q1 ‘13 – Q1 ‘16)

17. Account Attrition by Sales Model (Q1 ‘13 – Q1 ‘16)

18. Share of New Volume Added by Sales Model (Q1 ‘13 – Q1 ‘16)

19. Share of Attrited Volume by Sales Model (Q1 ‘13 – Q1 ‘16)

20. Share of Attrited Net Revenue by Acquirer Type (Q1 ‘13 – Q1 ‘16)

21. Share of New Net Revenue by Acquirer Type (Q1 ‘13 – Q1 ‘16)

22. Share of total Net Revenue by Acquirer Type (Q1 ‘13 – Q1 ‘16)

23. Gross Revenue Charged to Merchant by Industry (Q1 ‘12 – Q1 ‘16)

24. Total COS by Industry (Q1 ‘12 – Q1 ‘16)

The Strawhecker Group (TSG) is a management consulting company focused on the electronic payments industry. TSG works with clients from all aspects of the industry, including merchant acquirers, card networks, investment firms, banks, technology companies, and major merchants. The Electronic Transactions Association named TSG as Business Partner of the Year in 2010.

3.5+ MillionU.S. MERCHANTS INTSG’S ANALYTICS PLATFORM

40+OF THE TOP 50 ACQUIRERS SERVED

1,000+PROJECTS COMPLETED IN THE LAST THREE YEARS

20+ YearsAVERAGE ASSOCIATEEXPERIENCE

UP TO $2BSIZE OF COMPANIES

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Payments Strategy Consulting | Transaction Advisory | TSG Metrics

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