MOBILE PAYMENTS – IT’S PAYBACK TIME

Mobile Payments Entering the Mainstream

The rise of the social networks in the western world, followed by their flooding of online,

social and casual games has created a large and growing opportunity in the mobile

payments space. The desire to monetize these games as they started to gain industry

wide traction in 2009 led to the development of micro payments to suit social gaming

platforms. These payment systems had to be implemented as the likelihood of using a

credit card to transact on a micro transaction was unlikely. This then led to the

establishment and growth of a new age of mobile payment pure play providers.

There are around two billion people globally who have credit cards, but five billion with

mobiles – the mobile opportunity is larger and has the potential of cannibalising an

established payment method. The proliferation of mobiles across the emerging world

has also led to the uptake of peer to peer mobile payment services. These markets are

skipping a payment generation and aligning themselves with the western world. This

gives mobile payment providers a global landscape to penetrate.

Consolidation Wave Looming for Suppliers and Customers

The mobile payments landscape is attracting the attention of a large number of players

from different sectors, resulting in a fragmented market today with only a handful of

players with scale. We expect M&A to naturally follow, with market rumours that both

Google and Apple have been bidding for US mobile payments specialist Boku. The

French mobile payments business of online media group Hi-Media has also been

formally announced for sale, with the current market appetite and interest being a key

timing factor. It has been reported that Zong is pushing aggressively to expand its

partnership base, trying to connect in as many geographies as possible. In order to

expand globally, resources and the best management teams will be required. We

therefore believe that the weaker players with limited financial power will suffer.

Payment platforms naturally suffer from commoditization (to differing degrees), with

mobile payments being no different. However, in order to avoid this margin pressure,

scale along with direct operator relationships will be important. The transition from

purchasing digital goods through the mobile to physical products such as train / concert

tickets will also fuel consolidation amongst platform providers. Furthermore, merchants

such as Bigpoint and Habbo (both gaming companies) have had to partner with multiple

vendors in order to ensure that their payments solution has sufficient geographic

coverage for their user base. This offers a key opportunity for consolidation – merchants

are already pushing for this today.

In this report we aim to delve into both the remote mobile payments space, along with

the mobile banking / peer-to-peer space – arguably the most developed areas where we

expect to witness the greatest innovation and consolidation over the next few years.

SECTOR UPDATE MOBILE

Important disclosures appear at the back of this report. GP Bullhound LLP is authorised and regulated by the Financial Services Authority

GP Bullhound LLP

Market Fundamentals Advancing Growth

The mobile payments sector has emerged as a fast growing segment in the mobile data

industry, with volumes growing at a CAGR of 56%, from $108 billion in 2010 to $633 billion

in 20141

. This rapid growth has predominantly been fuelled by the social gaming

phenomena where revenues are generated from the sale of virtual goods, lead generation

offers, as well as advertising. Revenues from virtual goods accumulated to $510m in 2010

in the US alone, with revenues set to reach c. $650m in 2011 and over $790m in 20122.

E X H I B I T 1 - M O B I L E MA R K E T F U N D A M E N T A L S

Source: GP Bullhound

Technology and Consumer Behaviour Driving Diverse Mobile Use

There are a number of technology trends which have surfaced and resulted in a more

favourable environment for the development of mobile payment services.

Firstly, we can consider the rise of global mobile handset shipments, which is set to reach

1.8 billion in 2015, up from 1.3 billion in 2010, representing a CAGR of 6% (Exhibit 2).

E X H I B I T 2 – MO B I L E H A N D S E T S H I P M E N T S – W O R L D W I D E

Source: Portio Research Ltd.

1 Source: Portio Research Ltd

.

2 Source: eMarketer

1,166

1,308 1,375

1,482 1,600

1,688 1,752

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GP Bullhound LLP

The smartphone has also risen as the handset of choice. This has resulted in users having

access to Internet on the go and through high quality usable interfaces. The number of

global smartphone shipments is set to grow at a 2010 – 2012 CAGR of 45% (Exhibit ).

E X H I B I T 3 - S H I F T I N MO B I L E P H O N E T E C H N O L O G Y T O S M A R T P H O N E S

Source: Portio Research Ltd.

Market information also tells us that the number of mobile Internet users is set to exceed

the number of desktop Internet users by 2014 (Exhibit 4). Therefore, as people spend

more time browsing the Internet and transacting, the ability to be able to pay for goods and

services via mobile will become increasingly important.

E X H I B I T 4 - M O B I L E I N T E R N E T U S E R S O V E R T A K I N G D E S K T O P

Source: Broker Research

The iPhone and other smartphones have enabled the consumption of diverse media over

mobile, such as music, games, banking and shopping. It can be seen that iPhone and

other smartphone users represent 22% and 16% of total US mobile subscribers

respectively who are conducting personal banking on their mobiles (Exhibit 5). As the

emergence of viable mobile payment solutions occurs, we will see a large number of

subscribers using their mobile also for commerce.

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GP Bullhound LLP

E X H I B I T 5 - D I V E R S E C O N T E N T C O N S U M P T I O N O N MO B I L E D E V I C E S

Source: Broker Research

The emerging markets present a large and growing opportunity due to the sheer growth of

mobile subscribers (Exhibit 6). Africa and Middle East is set to grow at a 09-15 CAGR of

10.4%, as opposde to 2.0% in the western world. This proliferation has led to the uptake of

mobile related services such as peer to peer payments. It is very likely that these regions

may skip a payment generation. This will be especially true in emerging markets where

credit card fraud is a real issue. Mobile payment providers have a truly global

landscape to penetrate.

E X H I B I T 6 - M O B I L E S U B S C R I B E R S - R E G I O N A L

Source: Portio Research Ltd.

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2009A 2010A 2011F 2012F 2013F 2014F 2015F

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Asia Pacific Africa & Middle East Western Europe

Latin America Eastern Europe North America

GP Bullhound LLP

The development of infrastructure, along with the uptake of mobile devices has meant that

the mobile payments market now represents a compelling sector for investors and

strategics to monetize. This market is set to grow at a CAGR of 56% between 2010 and

2014 to represent a $633 billion opportunity by 2014 (Exhibit 7).

E X H I B I T 7 – MO B I L E P A Y M E N T V O L U M E S – W O R L D W I D E

Source: Portio Research Ltd.

The number of mobile payment users is set to grow at a CAGR of 43% between 2010 and

2014, representing 490 million users by 2014. This correlates to a penetration of 8% in

mobile payments in 2014, demonstrating the upside that still exists in this market place

(Exhibit 8).

E X H I B I T 8 – MO B I L E P A Y M E N T U S E R S A N D P E N E T R A T I O N – W O R L D W I D E

Source: Portio Research Ltd.

Certain commentators are predicting that companies which already have masses of stored

user payment information such as PayPal, Amazon and Apple are likely to dominate in

terms of market share. It is our belief however, that the early winners will be those pure

play companies who are specialized in the payments field with a strong installed direct

operator network. As we have witnessed in many other mobile sub sectors; establishing

and managing direct operator relationships and the associated revenue share, service

quality and end user data will be critical to establishing scale and profitability. When

payment transactions are concernced, time will be a critical factor affecting the user

experience. We note with interest that a number of the leading players, such as Zong,

69 108

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GP Bullhound LLP

Bango, Neomobile3

and Mindmatics, have a legacy business which has already

established much of the infrastructure required for a successful mobile payments

business. Those starting from scratch will have a steep learning curve ahead as they

establish their operator relationships.

Similarly to SMS, mobile payments might over time become a commodity leading to the

erosion of margins. Again, we believe only companies which have secured strong and

direct relationships with the operators, and are processing large volumes will be able to

defend their dominance and price points.

The mobile payments landscape is rapidly taking shape with numerous emerging venture

backed payment providers positioning against a small group of established players. All

participants are jostling to secure prominent and sustainable positions by diversifying their

offerings.

The mobile payments market consists of various subsectors with very different value

propositions to the end user. We have mapped out the key sub sectors in Exhibit 9.

E X H I B I T 9 - M O B I L E F I N A N C E T A X O N O M Y

Source: GP Bullhound

Remote Mobile Payment Providers – this involves using the mobile phone as a channel

to make payments online with the resulting charge applied to the end user’s mobile phone

bill, credit / debit card, specified account etc. This area has seen rapid growth due to the

ability to transact online without the need for a credit card, along with the boom of virtual

goods. Mobile payments in this space are generally used for micro transactions, i.e.

transactions below a unit value of ~€40. Key players in this space include Zong, Boku,

3 Neomobile is a current GP Bullhound client

Mobile BankingHandset Contact

Mobile Payments

Remote Mobile Payments

P2P Mobile Payments

Mobile Finance

Providers

/ Zetawire

GP Bullhound LLP

Neomobile, Mindmatics, PayPal Bump, ebay and Google checkout amongst others. This

area receives the most analsyst attention due to societies continuing fascination and

deeper integration into the Web 2.0 Digital Media landscape. There are a multitude of

untapped digital media monetization opportunities, which will ensure rapid growth for

players acting in this space.

Peer to Peer Mobile Payment Providers – involves sending money from one mobile

account to another. This has applications in emerging markets where it can be used as a

payment transfer method between individual buyers and sellers. Key players in this space

include Obopay, KushCash and Luup. It is our belief that strong double digit growth in this

sub sector will continue to be driven by the developing markets where the mobile offers the

only viable route for secure payments due to the great deal of credit card fraud.

Mobile Banking Providers – provide a new interface between customers and their bank

accounts, utilizing mobile phones in order to complete simple transaction requests such as

checking account balances and making payments. This has become popular in emerging

markets, specifically around preventing account fraud. Key players include Citi Mobile,

JPMorgan and Wells Fargo amongst others. Mobile banking has been slow to take off in

developed regions, but stands to gain in the emerging markets where often the best form

of identification for a banking customer is their mobile number, as opposed to their home

address.

In Store Mobile Payment Providers – This allows users to scan their mobile phones

against devices at a merchants’ points of sales terminal in order to finance the purchase of

physical goods. Key players in this space include Mocapay and Mobile Lime. The

convenience of this payment route from an end user perspective will further erode the

credit card foothold and will mark a key milestone in the maturity of the market – when a

consumer is frequently using their mobile device to purchase physical goods in tandem

with virtual ones. However, the expensive and current primitive development of technology

and services in this space means that this area of payments will require significant

investment over the coming years.

The micropayments market has seen the most media hype and attention, with companies

such as Zong, Boku, Neomobile, Allopass and Mindmatics offering a variety of services.

In most of Europe, mobile payment companies are only allowed to bill for digital items that

have a value of up to ~€40 – i.e. micropayments. The definition of “digital” goods however

is often pushed by mobile payment providers from the usual gaming virtual goods to items

such as concert and public transport tickets (i.e. into the realm of the credit card). Virtual

goods or items which have a marginal cost of production will remain popular for mobile

transactions. All of these payments go directly onto the consumer’s mobile phone bill, i.e.

constitute “on operator” billing.

As the market matures, will we ever be in a situation where one can buy anything, and

charge it to one’s mobile phone bill, e.g. a TV from Amazon? Can the mobile phone bill

merely become another means by which to do one’s shopping? A mobile operator would

ultimately require additional infrastructure both in forms of technology along with support

personnel and billing capabilities to be able to facilitate payments for larger items from a

variety of sources. Compliance, risk systems and regulation would be necessary to allow

GP Bullhound LLP

high value transactions to take place. Mobile operators are not however, likely to move

lightly into the business of physical goods, which is a substantial deviation from their core

business, unless the ultimate benefits far outweigh the operational, logistical and

regulatory challenges which lie ahead. However, the micropayment market does represent

a significant opportunity for operators who are looking to offer value added services due to

the slowdown in their core voice and traditional data business. In Sweden, ~40% of

operator revenue is currently generated from micropayment purchases of public

transport tickets. This is possible in Sweden, as the travel companies are being charged

~7% by the operators for this service (the cost is not passed onto the end users).

From a physical goods merchant’s perspective, the ultimate payout they receive would

have to be much higher than is currently on offer to entice them into offering customers the

mobile payments option. This however, we believe will happen over time with the western

world converging to the higher payout models of Asia.

We believe the only way for operators to be able to take a share of the macro payments

market would be through the establishment of a credit card like system between the global

operators. This nearly took place, where in February 2003, T-Mobile, Orange, and

Vodafone formed a new Mobile Payment Services Association (MPSA). This association

had the goal of delivering an open, interoperable and commonly branded solution for

payments via mobile phones, designed to work across all operator networks. In June

2003, the consortium re-branded itself as SimPay. In February 2005, Amena and

Proximus joined the consortium. SimPay planned to create a pan-European framework

whereby merchants and content resellers would be able to charge for products and

services directly to a subscriber's bill. However, in June 2005, SimPay decided, "following

the decision of one of its founding Members not to launch SimPay for the foreseeable

future,...not to pursue its activity on a pan-European scale as originally planned." Activities

were put on hold effective June 24, 2005. In spite of this, the UK SimPay founders

Vodafone, Orange, Three, o2 and T-Mobile started work in 2005 on a project called

"Payforit" which was launched in 2007 to provide similar services in the UK.

Regulators in developing countries appear to be more relaxed around mobile billing for

non-digital goods. Mindmatics issued a press release in 2010 stating that they can bill for

non-digital goods in 28 countries (mainly developing). However, there are currently no

practical applications for physical goods billing in those markets since operator payouts

are often well below 50%.

Social Networks Driving First Wave Growth in the Micropayment Market

Social network application developers have been successful at enticing users into their

service through free models (freemium), and creating revenue streams through selling

subscriptions and virtual goods. Given the reported conversion rate through mobile of up

to 10x that of credit cards, take up of the services by the merchants has been rapid. Before

the explosion of the social network and social gaming companies, mobile payments were

only used to pay for ringtones, logos and pictures, i.e. where the consumer was

purchasing mobile goods and services. With the success of online gaming and social

networks came the success of the mobile micro payments landscape which grew around

GP Bullhound LLP

the desire to purchase virtual goods. Early pioneers in this payment channel included

Zynga and Playfish.

It is clear that mobile micropayments will ultimately remain the dominant payment method

for social networks and gaming companies due to its ease of use, high conversion rates

and mobile savvy demographic.

While 2010 was shy of optimism, we see 2011 as the year when new payment channels

will start showing ROI on the hundreds of millions that have been invested so far.

Within the financial services industry, BNP Paribas and Visa launched a mobile

payment pilot in France to test contactless technology

Earlier last year, Barclays partnered with Orange to offer a mobile payments

service. In the US, AT&T, Verizon and T-Mobile partnered with Barclays and

Discover card to launch a mobile payments services

In 2009, Citi India launched a P2P pilot based on Nokia’s Obopay technology

Most recently (January 2011), Fifth Third Bank announced a partnership with

CashEdge to offer mobile payments to its customers. This service enables its

customers to make payments from their Fifth Third online banking account or cell

phone to any person who has an email address, a cell phone number or bank

account number. Fifth Third Bank envisages its customers will be using this

mobile payment service to pay babysitters, landlords and such like

While the technology has been around for more than a decade and the user perception

has remained the same, the threat of disintermediation cannot be discounted as new

entrants such as PayPal and Google make their way into mobile payments. As a result,

banks and telecom operators are taking a closer look at alternative payment technologies.

It is our belief that the credit card might ultimately suffer.

Japan and South Korea have been among the earliest adopters of mobile payments and

had their fair share of disappointments before mobile payments became popular only in

the past five years.

Retail financial markets are heavily regulated and more focused on ensuring privacy and

safety. On the other hand, the telecom sector is relatively young and in comparison a rich

source of technology innovation. Developed markets have reached saturation in both

sectors, hence it is important that the technology and service can foster new customers /

business lines without cannibalizing their existing revenue streams.

Market Potential

Emerging market leader Safaricom, a Kenyan mobile operator, posted 40% higher

revenue over last year on the back of mobile money initiatives like M-Pesa and M-Kesho.

M-Pesa was originally conceived by part owner Vodafone and the UK Government body

DFID as a micro-finance initiative for repaying P2P loans. The absence of a competing

payment infrastructure and having SMS technology, drove fast customer adoption which

spurred competition among African central banks to launch mobile payment services,

resulting in opportunities from mobile payment vendors like Fundamo, mBlox, Mi-Pay and

Sybase.

GP Bullhound LLP

In developed markets, online retailers such as Ocado, Argos, Nike and Net-A-Porter.com

have seen success with a mobile payment option for orders on their mobile sites. Mobile

ticketing has been used by event management, food, retail and transport companies, and

they are also starting to introduce mobile payments to provide a true on-the-go experience

to the customer.

Mobile Internet and SMS-based payments have achieved strong growth and penetration

owing to their ubiquity, implementation ease and the growth of mobile commerce.

Contactless mobile payments look promising; however, issues with technology

standardization, capital investment, competing infrastructure and security mean this does

not present a compelling business case to POS merchants as well as banks.

Technology & Security Developments Critical for Next Phase of Market Growth

SMS and mobile Internet payments do not store any user credentials on the mobile device.

Companies like mFoundry, Firethorn, Monitise and Boku enable mobile Internet or SMS-

based payments through either a preloaded money wallet or by linking payment

instructions to a bank or debit/credit account. These payment channels can be easily

integrated with the existing infrastructure, and do not require huge investments or any

significant change to the business process.

Contactless technology-enabled mobile phones store the application information and

user’s credentials on a secure element attached or embedded inside the device. SIM

vendors such as Gemalto, Oberthur and NXP are working closely with device

manufacturers like Nokia, Sagem, Samsung and Motorola on contactless enabled phones.

Nokia has promised that all of its future smartphones will be NFC-enabled. The

contactless value chain has also created space for companies like Venyon, Cassis and

ViVOtech, which provide OTA (“Over-the-air”) provisioning of NFC-enabled (“Near Field

Communication”) SIM phones. From the acquirer standpoint, contactless readers like Visa

PayWave and MasterCard Paypass are required to read the contactless device.

Mobile payments require additional security, authentication and fraud management

because the mobile device could be stolen or the network itself could be hacked.

Payments processors such as Equens, Vocalink and Metavante have developed mobile

payment platforms for both issuers and acquirers. The lack of critical mass has meant that

the price points for contactless payments will remain high and hence prohibitive.

Boundaries Blurring Between Key Players in the Ecosystem

GSMA has identified 79 live mobile money deployments worldwide, in reality it should be

double this number, since most bank-led deployments have not been counted. Successful

deployments in the UAE, UK, India and Central Europe have been missed. Telecom

operators followed closely by mobile payments technology vendors have been the most

active partners in consortia-led deployments. The global development organization GGAP,

supported by the World Bank and over 30 government development organizations, sees

mobile payments and banking as a necessary tool for bringing financial inclusion to the

billions of unbanked people across the globe.

It is becoming difficult to distinguish banks from telecom operators, and vice-versa.

Banxafe, supported by leading Belgian telecom operators and RaboMobiel, owned by

GP Bullhound LLP

Rabobank in the Netherlands, provides special SIM cards enabled with a banking account

that allows users to buy from vending machines, pay at restaurants or pay parking using

SMS or NFC. To overcome financial regulations, non-financial companies have been

known to buy banks. China Mobile bought Shanghai-based Pudong Bank to expand its

mobile payments business. Western Union and MoneyGram have found that working with

several telecom operators and merchants in emerging markets offers them a wider reach

and quickens the money remittance cash-out process.

Direct Billing – a Key Evolution in the Customer Experience

The arrival of the application stores provided consumers with access to a vast array of

digital content via a new channel. Direct billing which was pioneered a few years ago

essentially provides a real time payment experience with a great degree of flexibility. Since

Premium SMS (PSMS) is an offline model, which is essentially by nature a messaging

protocol, not a payments protocol, the direct billing method stands to gain as it gives the

user a similar experience to an ecommerce purchase online. It also gives the merchant a

real time experience which allows them to prevent bad debt which often accumulates

through PSMS payment methods. Direct billing can be seen as the evolution of micro

transactions going forward.

There are a number of drivers which will ultimately lead towards the increased traction of

direct billing methods. Firstly, operators would like to offer users a one click payment

experience similar to that which exists in application stores already. Operators also feel

they have been cut out of Apple’s value chain, and are simply being used to provide the

infrastructure. Therefore, mobile operators have seen wholesale revenues decrease on

both PSMS and WAP based billing, and are urgently seeking measures to strengthen their

position in the ecosystem. In order for direct billing to be a real challenger, it will essentially

need to evolve to accommodate the purchase of physical goods alongside digital goods.

Certain payment providers have charged €100 on a mobile phone bill and not had any

complaints from the regulator. Therefore, it is their view that the payments landscape will

evolve to allow for these higher value transactions. In the UK the operators allow billing of

physical goods already up to a limit of ~£30.

In the direct billing scenario, payment companies have successfully pushed for higher

operator payouts due to the lack of revenue leakage which occurs through PSMS.

Consumer Uptake - Credit Cards are Not Always the Answer

Credit card details are considered as highly confidential, and with online credit card fraud a

real possibility, entering one’s details for micro transactions has not been popular. There is

also a time value associated with transacting using a credit card, as it means reaching for

one’s wallet etc. Being able to complete transactions by entering your mobile number is

quick and easy, and generally distracts a person from thinking too hard about the

particular buying decision – the goods in question are of a low value. The easier it is to

make a purchase, the more likely it is that people tend to spend on impulse.

Moreover, the target demographic for mobile payments include both young persons who

currently do not have credit cards, along with those who have credit problems. There are

GP Bullhound LLP

around two billion people globally who have credit cards, but five billion globally

have mobile phones.

Users are already accustomed to being charged on their mobile phone bill, or buying credit

in the shop, i.e. associating payments with their mobile. Therefore, using their mobile

number to then make payments should come as a natural extension.

Higher Conversion Rates Driving Merchant Behaviour

One of the key selling points for merchants to entice them into the mobile payments space

is the higher conversion rates, i.e. users who successfully transact. Merchants GP

Bullhound have spoken to discussed conversion rates of 5-10x higher when

offering mobile payment methods as opposed to traditional credit card input.

Conversion rates are also linked to operator coverage. A mobile payments company can

only offer coverage of a user base that is accessible through their operator relationships.

This is a key point for merchants to bear in mind when choosing a payment provider.

Sustainability of Revenue Model

The mobile payments value chain can be thought of as shown in Exhibit 7. The mobile

payments provider ultimately connects the merchant with the end user, handling all the

complexity associated with multiple aggregator / merchant partners on one side, and

multiple mobile operators on the other side. The operator payout differs greatly depending

on the geography, as it is directly linked to the mobile market dynamics of the country in

question.

Speaking with a number of mobile payments providers, it is clear that the operator

recognizes the fact that they need to increase payouts both in order to remain competitive,

and also to promote growth of the volume of mobile payments which will ultimately benefit

their own income. Developed market operators have seen a decline in their core voice and

basic data business, pushing them towards looking at mobile payments offerings seriously,

and being dynamic with payouts which have reached ~85% already in some regions. The

developed mobile markets in Asia already have payout ratios around the 90% region and it

is likely that western developed markets will reach the same level over time.

E X H I B I T 3 – MO B I L E P A Y M E N T S V A L U E C H A I N

Source: GP Bullhound

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GP Bullhound LLP

Revenue Share in Developing Markets following a Similar Path to the Western Markets

In the developing markets such as India and Brazil, mobile operators are spoilt by

increasing mobile penetration and growth of both basic voice and data services. The value

added services market is not one they appear to place focus on, due to the ever increasing

revenue streams and high margins they are already generating. The incremental benefits

of offering value added services do not outweigh the implementation of such services, and

operators are also not currently prepared to share their margins on these products.

Operator payouts in these markets tend to be sub 50%, thus detracting merchants from

using such services. Individual market dynamics also need to be taken into consideration

when offering mobile payment services, with markets such as Brazil imposing additional

government taxes, which mean the operators need to offer higher payouts in order to

attract merchants.

As the subscriber base of operators increases, and price competition occurs in the

market (as has been seen in developed regions already), emerging market operators

will look to offer alternative services and mobile payments will become a key focus

area.

Innovation Required to Avoid Commoditization

Like any payments business, mobile payment companies will see their margins come

under pressure over time unless they have a clearly differentiated offering.

In order to win in the long term, providers will need to have direct operator relationships

and a large volume of transactions going through their platform, or offer a value add

service on top of the payments piece. We are seeing a number of the leading players

offer integrated services where they combine the core offering with consultancy,

user acquisition and service design to lock in clients and enhance margins.

Consolidation in the mobile payment market is accelerating. VC-backed company Boku

continues to fuel its growth with the acquisitions of Paymo and Mobillcash. The deals were

largely a way for Boku to gain customers and technology and expand its global footprint. It

is critical for mobile payments companies to achieve critical mass in order to emerge from

the plethora of rivals to establish themselves as credible leaders. Rumours have also

surfaced that Boku was in the middle of a bidding war from giants Apple and Google for a

reported five times revenue.

The mobile payments business of online French media group Hi-Media has also been

formally put up for sale, with the current market appetite and interest being a key factor in

the timing of the sale. While consolidation is currently happening at a micro level, we

expect that the two or three leaders of the space will ultimately be acquired by a larger

strategic acquirer (e.g. Obopay/Nokia).

While Apple is managing its development through its iTunes platform, it is our belief that

other players such as Google, Nokia, RIM, Microsoft, Palm and Facebook will be more

likely to acquire than build so as to catch-up with Apple.

GP Bullhound LLP

Neomobile acquired Onebip

Neomobile acquired Onebip to strengthen their position in the m-commerce space. By

integrating Onebip, a leading m-payment solution for game publishers, social networks

and online merchants, Neomobile becomes a “one stop shop” for web merchants in the

mobile world. The acquisition will create one of the Top 3 mobile commerce players in

Europe. Onebip offers a user friendly mobile payment solution to monetize digital goods

and services. Onebip also allows users (more than 2 million accounts as of transaction

date) to make online payments through mobile carrier billing as a powerful and simple

alternative to the credit card or other payment options. The technology developed by

Onebip coupled with Neomobile’s relationships with mobile carriers, especially in key

European and LatAm markets, will deliver value to international merchants.

PayPal acquires Fig Card

PayPal recently acquired Fig Card Corporation (April 2011), cementing its focus on mobile

within the payments landscape. Fig Card Corporation provides mobile payment solutions

for merchants in the United States. Its solutions allow customers to purchase goods using

their mobile phones. The company was founded in 2010 and is based in Boston,

Massachusetts. According to the PayPal blog, they were attracted to Fig Card since it had

"developed an extremely easy way for merchants to accept mobile payments in stores by

using a simple and very low cost USB device that plugs into the cash register or point-of-

sale terminal." Once the merchant added the USB device, the customer simply needed the

app to make a mobile payment.

Google

Google has made further inroads into the mobile commerce space with the acquisition of

Canadian start-up Zetawire. Zetawire offers an NFC-based wallet service called Walleto,

and was acquired in August 2010. Although the acquisition was small, it plays into a much

larger market. Google also acquired California based Jambool in August 2010 for $70

million. Jambool provides a virtual economy by offering a payment API that provides a way

to enable micropayments in an online game or social network application.

Google has interests in mobile advertising with Admob; transaction processing with

Google Checkout and Location Based Services with applications such as Google Maps,

Places and Latitude. We see Google acquiring further assets to orchestrate its offering for

the mobile device.

Nokia acquires Obopay India

In December 2010, Nokia announced the acquisition of Indian mobile payments solution

provider Obopay India. This is following on from an acquisition of a 38% strategic stake in

the US topco Obopay, which was completed in March 2009. Obopay helps consumers and

businesses to purchase, pay, and transfer money through their mobile phone, using

Obopay's mobile application, text message, mobile Web, widget, or Obopay.com. The

company has raised $137 million in funding to date.

GP Bullhound LLP

The acquisition follows on from a strategic relationship in India which was developed over

the years, where Obopay was able to utilize Nokia’s long term relationships with banks,

telecom providers and merchants in order to offer their service.

Sybase acquired PayBox Solutions

In December 2008, Sybase completed the acquisition of German mobile payment software

provider PayBox for $11.4m. PayBox allows users to purchase goods and services online

using their mobile, as well as conduct mobile banking and mobile peer to peer money

transfer. The price tag again is small for a company of Sybase’s size, but the strategic

value is large. Sybase will be able to use its existing mobile infrastructure to expand and

explore the field of mobile payments. Sybase are looking to become a major enabler of

mobile commerce.

Belgacom acquired Tunz

In March 2009, Belgacom completed the acquisition of a 40% stake in Tunz, the Belgian

based mobile payments solutions system. Belgacom in combination with Tunz went on to

launch a combined micro payment brand called pingping which went live in March 2009.

Belgacom provides the national infrastructure for the service, with Tunz being responsible

for the technology.

GP Bullhound LLP

Selected Private Placements

Date Target Investor(s) EV ($m) Target Business Description

May-11 NeoMedia Technologies Yorkville Advisors, LLC 0.5Provides a suite of softw are and hardw are for applications in

mobile marketing, couponing, ticketing and payments

May-11 Pagatech Goodw ell Investments - A consumer mobile payments service

May-11 Mobio Identity Systems, Inc. - 3.7Develops and markets identity-based mobile payment

solutions

Apr-11 Fig Card Corporation PayPal - Mobile payment solutions for merchants

Apr-11 PayCommerce Inc. - - Cloud-based universal business payment solutions

Apr-11 My Mobile Payments Limited - 11.3 Mobile payment services in India

Apr-11 C-SAM - 15.0 Mobile payment technology solutions

Apr-11 MobileBest - 50.0 E-payment applications

Mar-11Shanghai Handpay Information

TechnologyJunsan Capital - Mobile e-commerce and mobile payment solutions

Mar-11 Uphill AinaCom -Payment solutions for car w ash, ticket printer, vending

machines, parking, and door opening applications

Mar-11 ViVOtech Incorporated Motorola Solutions Venture Capital - Develops NFC payment softw are and hardw are

Feb-11 Mobile Commerce Ltd. Fiserv - Mobile banking and payment services

Feb-11 Rfinity Horizons Ventures 4.0 Designs and develops mobile payment transaction systems

Feb-11 NOW! Innovations Estonian Development Fund 2.1Provides digital permit and mobile payment solutions for the

parking and transport sectors

Feb-11 PaydiantNorth Bridge Venture Partners; General

Catalyst Partners7.6 Mobile payment solutions

Jan-11 Ezuza - 0.8 Mobile payment solutions

Dec-10 Mint Wireless Ltd. - 0.5Offers softw are applications enabling a mobile business to

process credit cards and other forms of payment

Nov-10 Fig Card Corporation - 1.0 Provides mobile payment solutions for merchants in the US

Nov-10 Vipera Plc - 1.6Provides softw are that enables mobile access to personal

f inancial services

Oct-10 Pin-Pay SAL Middle East Venture Partners -Designs and develops technology for mobile payment and

mobile banking solutions

Sep-10 XIPWIRE, Inc. - 0.5 Operates an online mobile payment platform

May-10 Boku Andreessen Horow itz -Provides online payments services to pay for virtual and

digital goods w ith the mobile phone

Apr-10 Zong Matrix Partners 15.0 Offers One-off Payment Service

Mar-10 Palmpay China - 5.0Provides mobile payment gatew ay services and diversif ied

mobile value-added services in China

Jan-10 Parkmobile USA Fontinalis Partners, LLC -Offers electronic parking services including cashless mobile

payments

GP Bullhound LLP

Selected M&A

Date Target Acquirer EV ($m)

EV/LTM

Revenue Target Business Description

Apr-11 Fig Card Corporation PayPal - - Mobile payment solutions for merchants in the US

Mar-11 Onebip Neomobile - -Mobile payment provider for online game publishers, social

netw orks and w eb merchants

Mar-11 Uphill AinaCom - -Offers payment solutions for car w ash, ticket printer, vending

machines, parking, and door opening applications

Feb-11 Mobile Commerce Fiserv - - Provides mobile banking and payment services

Dec-10 Obopay Mobile Technology India Nokia Corporation - - Mobile payments solutions in India

Oct-10 iControl Mobile Payment Solutions RingGo - - Mobile payment to the parking industry

Oct-10 MobiCash Payment Solutions Labour Investment Holdings - - Provides mobile payment solutions through Mobipay brand

Aug-10 WiWallet Mobile Payments UCS Group 16.3 - Provides mobile payment platform solutions

Aug-10Multidisplay Comercio e Servicos

Tecnologicos Cielo SA; American BankNote 51.5 -

Develops mobile technological platforms, pre-paid cell phone

recharge and mobile payment platforms

Jul-10 Nimbus Systems Redknee Solutions 14.7 - Provides billing softw are and mobile payments solutions

Jul-10 Trivnet Gemalto 40.0 - Provides a transaction management engine

Jun-10 Kincaid Show Verde Unipessoal 9.8 -Provider of mobile payment solutions and value added

services (VAS)

Jun-10 LinQpay Stakool 0.5 - Provides global and mobile payment services

May-10 M2 Europe Muscato Group Inc. 2,026.8 - Provides prepaid card and processing solutions including

Apr-10 WIN plc IMImobile Europe 19.6 0.3xProvides content management, publishing services, hosted

mobile applications and mass market billing mechanisms

Apr-10 VeriFone Transportation Systems VeriFone Systems 33.3 -Provides mobile payment and transportation automation

solutions

Source: Capital IQ, GP Bullhound

GP Bullhound LLP

GP Bullhound is a research-centric investment bank headquartered in London.

Hugh CampbellFounder / Partner

Per RomanFounder / Partner

Manish Madhvani Founder / Partner

Christian LagerlingFounder / Partner

Alec DaffernerPartner / Head of US

Claudio AlvarezVice President

Antony NorthropSenior Advisor

Carl BergholtzVice President

Justine ChanAssociate

Amanjit DhamiAssociate

Remy ValetteAssociate

Sasha AfanasievaAssociate

Florent RouletAnalyst

Malcolm FergusonAnalyst

Guillaume BonnetonPartner

André ShortellPartner

Julien OussadonVice President

Frank SchmittDirector

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