REWARDS PUSHING PAST THE TIPPING POINT IN MOBILE PAYMENTS PRESENTED BY: JIM MAROUS MATT WILCOX CARLO CARDILLI

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1 REWARDS PUSHING PAST THE TIPPING POINT IN MOBILE PAYMENTS PRESENTED BY: JIM MAROUS MATT WILCOX CARLO CARDILLI

2 JIM MAROUS CO-PUBLISHER, THE FINANCIAL BRAND PUBLISHER, DIGITAL BANKING REPORT

3 REWARDS DRIVES GREAT DEMOGRAPHICS Major credit card usable anywhere Major debit or check card usable anywhere Prepaid card or payroll card usable anywhere Store-branded credit card Store-branded debit card good only at the merchant that issued the card Alternative online payment services such as PayPal or Amazon Payments Mobile device, using a mobile app Online credit service such as Bill Me Later 11% 13% 12% 29% 30% 25% 30% 16% 21% 22% 31% 31% 32% 34% 29% 29% 24% 28% 18% 24% 19% 19% 25% 29% 21% 39% 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 43% 48% 56% 67% 80% $100,000 and over $50,000 - $99,999 $25,000 - $49,999 Under $25,000 Percent of Consumers That Recieve Rewards Q33: Do you currently receive rewards such as points, airline miles, or cash back when making purchases using any of the following payment options? August 2012, n varies; Base: Consumers that have used a payment option by income Javelin Strategy & Research Page 3

4 REWARDS DELIVER VALUE Page 4

5 WITH REWARDS, CASH IS KING Cash back 43% Points redeemable in a specific rewards points catalog or specific online shopping mall 29% Coupon or voucher redeemable at a specific merchant Discounts redeemable at a specific merchant (percentage or dollar off purchases) Airline miles 17% 16% 16% Credit to statement 15% Hotel, vacation, or other travel-related points 12% Other 1% 0% 10% 20% 30% 40% 50% Percent of All Consumers Q35R: Considering the payment option you use most often for rewards, what types of rewards do you earn for your purchases? August 2012, n = 3,000 Base: All consumers Javelin Strategy & Research Page 5

6 REWARDS ARE A DESIRED MOBILE INNOVATION Page 6

7 MOBILE IN-APP REWARDS ARE DESIRED Page 7

8 MOBILE IN-APP REWARDS ARE DESIRED Page 8

9 MILLENNIALS WANT MOBILE REWARDS Page 9

10 HOW DO CONSUMERS WANT REWARDS is still the preferred method for receiving coupons by a wide margin. 44% percent of US shoppers say they prefer receiving offers and coupons via . Print mail is the second most-preferred method for receiving offers. 29% of US shoppers prefer this channel which is surprising considering the rapid increase in usage of digital devices. Location-based promotions triggered by walking past or entering a store still haven't taken off yet. Although many retailers are investing in technology, such as beacons which enable location-based marketing, only 3% of US shoppers currently prefer this method. Page 10

11 CONSUMERS OPEN TO GEO-REWARDS All mobile consumers 11% 22% 28% 11% 28% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Very likely Somewhat likely Neutral (neither unlikely nor likely) Somewhat unlikely Very unlikely Q54: If the retailers or restaurants that you select could send you coupons or promotional offers through your mobile phone based on your location such as near or inside a store how likely would you be to opt in to receiving these offers? June 2012, n= 3,492 Base: All consumers with a mobile phone 2012 Javelin Strategy & Research Page 11

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13 LARKY, FOURSQUARE AND LOOPT Page 13

14 NEW INDUSTRY DEVELOPMENTS On-the-Go approach to rewards burn structure (Amex with Uber) ATM redemption (Wells) Apple Passbook integration ibeacon and Geo-locational rewards Wearable reward push notifications (Lloyds) Financial product integration (Real Life Rewards, 5/3) Relationship Rewards (BofA Preferred Rewards) Page 14

15 MATT WILCOX SENIOR VICE PRESIDENT MARKETING STRATEGY AND INNOVATION PAYMENTS AND CHANNELS GROUP FISERV

16 CURRENT MARKET FOR REWARDS How do banks differentiate themselves from others when players like Apple dis-intermediate the shopping experience with Apple Pay? Only way a customer would chose to use your banks card in top of their wallet is if they are convinced the rewards are worth it. (Case in point AMEX, Delta Sky miles etc.). Rewards program incentivize and change customer behavior. An instant reward redemption experience similar to Apple Pay payment is crucial as the next steps for banks if they want their products to be used. Page 16

17 CAN REWARDS MONETIZE MOBILE PAYMENTS Yes! Without a successful rewards program, banks will see their roles relegated to just a utility provider. Rewards allow differentiation. Zions Amazing Rewards Program helped in identifying customers who use their Zions debit/credit card and where they spent the most (merchants) and the average ticket size as well the reward size. Convincing the merchants that the additional business generated due to this program helped in acquiring more merchant processing business. Another approach was to identify highly loyal customers using reward redemption data and target them for new product acquisition. Page 17

18 BEHAVIORAL MODELING Persuadable Will Buy if contacted Loyalists Will buy irrespective of contact Lost Causes Will not buy no matter what. Do Not Disturb Contact may cause adverse effect like account closing. Page 18

19 BEHAVIORAL SIGNALS Mobile Banking Logins Mobile Billpay Money Movement (ACH / Direct Deposit) Mobile Payment (Apple Pay, Google Wallet, Softcard) Loyalty, Rewards and Deals Redemption MIX OF PERSUADABLE & LOYALISTS VALUE SEEKERS Page 19

20 AMAZING DEALS MOBILE APP Page 20

21 REDEMPTION-BASED TARGETED MODELS Number of Redemptions x Value of Redemptions Number of Redemptions 10 and above Total Value of Redemptions more than $100 Customer Product Mix Customer Life Time Value Page 21

22 TARGET MODEL DIRECT MARKETING Number of Customer Targeted 10, Cost / Customer $2 $2 Number of responses Response Rate 2% 10% Total Revenue (Assume $100/response) $20,000 $20,000 Cost of Campaign $20,000 $2000 ROI $0 $18,000 Page 22

23 CARLO CARDILLI SENIOR BUSINESS LEADER BUSINESS DEVELOPMENT MASTERCARD

24 MASTERCARD LOYALTY SOLUTIONS A specialized MasterCard global business unit focused on Loyalty and Rewards initiatives with end-to-end services and capabilities that that help our customers profitably grow their business through the power of transactional data. 16 YEARS 17 COUNTRIES 240 PROGRAMS 13 LANGUAGES Integrated Innovative Invested Page 24

25 LOYALTY AND REWARDS EVOLUTION 1980s US legislation changes profit drivers for Debit rewards programs. Mobile & Point of Sale Rewards are developed. Launch of Online Travel Booking. Emphasis on gaming, social engagement and personalized offers. 2000s Debit Card and Relationship Reward programs become widespread. Retail rewards programs using SKU data. 1990s & Beyond Loyalty in the Digital Wallet. Global expansion. Continued regulation will drive new creative revenue sources. Open economy for blending reward programs. Greater customer centricity. Launch of Telecom & Casino Loyalty, Grocery & convenience store programs & Merchant Coalitions. Airline & Credit Card reward programs started and spread to Hotels and Car rentals Page 25

26 Annual Profit WHY REWARDS MATTER While technology and new channels such as mobile have evolved over time, we know with certainty that customers still love rewards. Points and cash back programs continue to be a key driver of card acquisition, usage and retention. Consistently over time, our research shows rewards portfolios outperform those without rewards With rewards Without rewards With complementary features like merchant funded offers & variety in reward choices, costs may be managed to drive profitability, even during times of economic and regulatory change Reduce cost of acquisition +28% Activation Rate Encourage activation +110% Spend Increase spend +22% Balance Increase borrowing Time -21% Losses Decrease losses -17% Attrition Higher retention Page 26 Profitability Over Time

27 CUSTOMER EXPERIENCE MANAGEMENT 73% Research shows that of cardholders would increase their purchases by 10% or more * if their customer experience were superior. Clearly indicating a direct link between the quality of the customer experience and spend. This is why we have focused our recent platform and process improvements around the cardholder experience online & offline. * 2010 Consumer Experience Study: Customer Experience Delivers Profitability, Strativity Group, Inc. Page 27

28 BANCO POSTA PoS in Sconti (IN) PoS not in Sconti (OUT) 100 Volumes on BancoPosta cards (Index) 18,3% 11,8% ,5% ,0% \ Before Sconti BancoPosta share of wallet Illustrative for Petrol H1 H2 12.6% 11.5% 12.9% 17.8% 18.6% 19.5% 21.0% 23.7% Program launch with massive acceleration campaign 5% 27.2% Massive acceleration campaign 5% 24.1% 23.8% 25.5% 25.8% 22.6% 23.6% 27.8% 26.2% 26.1% Targeted promotion 5% Massive acceleration campaign 5% Jul '10 Aug '10 Sep '10 Oct '10 Nov '10 Dec '10 Jan '11 Feb '11 Mar '11 Apr '11 May '11 Jun '11 Jul '11 Aug '11 Sep '11 Oct '11 Nov '11 Dec '11 Page 28

29 IMPACT OF PERSONALIZED OFFERS Significant GDV Lift Amongst Engaged Users 17% Engagement +15% GDV Lift +3% GDV Lift Regular Spenders With Cash Back Cash Back Recipients vs. Control Entire Significant Regular Cash Spender Back Funded Segment by vs. Merchants Control (not you) Source: MasterCard Advisors analysis of 621,000 enrolled cardholders of which 138,000 had one or more cash back events in test period, relative to 1,688,000 unenrolled cardholders in comparable spend cohorts. Page 29

30 SUPREENDA MAKES PRICELESS TANGIBLE Easy to understand, accumulate points, redeem and enjoy the benefits Launched in 2009, Surpreenda opened a direct channel to Consumers, generating preference Enroll Online Get points per transaction Buy 1 + points = Get 2 Priceless Moments Over 3 million cardholders registered Unique buy one and get one free value proposition Easy and valuable for the consumer Funded by merchants and partners The perfect win-win ecosystem for all parts: Consumers, Merchants, clients & Acquirers 19% Surprenda Portfolio Performance relative to non-surpreenda Cardholders 32% 8% 36% 30% 56% 56% 11% 13% Bllack+Platinum Gold Standard Spend Transactions Monthly Activity Page 30

31 CROSS-BORDER SPENDING REBATES 5% rebate offered to Chinese cardholders traveling to Hong Kong, Macau or Taiwan Customers earn 5% rebate for transactions in these regions 20% of registrants traveled and used their MasterCard Over half had not transacted in those regions in the year before the rebate program started Among cardholders that had previously travelled and used their MasterCard in these 3 regions, they increased their cross border spend 83% during the promotion period. Page 31