CRYPTO-LOGICA FOR THE PAYMENT CARD INDUSTRY

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1 CRYPTO-LOGICA FOR THE PAYMENT CARD INDUSTRY Introduction Payment Card Industry 1. Three types of payment card transactions credit, signature debit, and PIN debit. 2. Two main payment card systems four-party system (Visa and MasterCard) and three-party system (American Express and Discover). (a) Four-party system includes the consumer (or cardholder), the bank that issued the payment card to the cardholder (or issuer), the retail merchant, and the retail merchant s bank (or acquirer). (b) Three-party system includes the cardholder, the retail merchant, and the network itself acting as both the issuer and acquirer. 3. Payment card transaction process: (a) Cardholder submits payment card to retail merchant for payment of goods and/or services; (b) Retail merchant swipes the payment card or manually enters the payment card data for processing; (c) Payment card processing company manages the complex routing of payment card data on behalf of the retail merchant; (d) Retail merchant bank s processor submits the transaction to the payment card network i.e., Visa, MasterCard, Discover; (e) Payment card network routes the transaction to the bank that issued the payment card to the cardholder; (f) Issuing bank approves or declines the transaction based upon the cardholder s available funds, and passes the transaction results back to the payment card network; (g) Payment card network relays the transaction results back to the retail merchant bank s processor; (h) Payment card processing company stores the transaction results and sends them to the cardholder and retail merchant to see; (i) Retail merchant delivers the goods and/or services to the cardholder; (j) Issuing bank sends the appropriate funds for the transaction to the payment card network, which passes the funds to the retail merchant s bank and deposits the funds in the retail merchant s account.

2 Merchant Acquiring Processing Merchant acquiring processors sell electronic payment acceptance, processing and supporting services to merchants and third-party resellers. These processors route transactions originated at the payment terminal at a merchant location or on a website to the appropriate payment networks for authorization, known as front-end processing, and then ensure that each transaction is appropriately cleared and settled into the merchant s bank account, known as back-end processing. Many of these processors also provide specialized reporting, back office support, risk management and other value-added services to merchants. Merchant acquirers charge merchants based on a percentage of the value of each transaction or per transaction. Merchant acquirers pay the network processors a routing fee per transaction and pass through interchange fees to the issuing financial institution. Vantiv Annual Report, 10- K (year ended December 31, 2012), Page 6 Payment Network Processing Payment network processors, such as Visa, MasterCard and PIN debit payment networks, sell electronic payment network routing and support services to financial institutions that issue cards and merchant acquirers that provide transaction processing. Depending on their market position and network capabilities, these providers route credit, debit and prepaid card transactions from merchant acquiring processors to the financial institution that issued the card, and they ensure that the financial institution s authorization approvals are routed back to the merchant acquiring processor and that transactions are appropriately settled between the merchant s bank and the card-issuing financial institution. Payment networks charge merchant acquiring processors and issuing financial institutions routing fees per transaction and monthly or annual maintenance fees and assessments. Vantiv Annual Report, 10-K (year ended December 31, 2012), Page 6 Issuer Card Processing Issuer card processors sell electronic payment issuing, processing and supporting services to financial institutions. These providers authorize transactions received from the payment networks and ensure that each transaction is appropriately cleared and settled from the originating card account. These companies also provide specialized program management, reporting, outsourced customer services, back office support, risk management and other value-added services to financial institutions. Card processors charge issuing financial institutions fees based on the number of transactions processed and the number of cards that are managed. Vantiv Annual Report, 10-K (year ended December 31, 2012), Page 7.

3 Key Players Leading Payment Card Brands 1. Visa 2. MasterCard 3. Discover 4. American Express 5. JCB Issuers Leading Issuers Number Cards (mil.) (Source: The Nilson Report Feb 2012) 1. Chase 2. Bank of America 3. Citibank 4. Discover 5. American Express 6. HSBC 7. GE Capital 8. Capital One 9. Wells Fargo 10. U.S. Bancorp Acquirers Leading Acquirers Transactions (mil.) (Source: The Nilson Report Nov 2012) 1. Bank of America 2. Vantiv 3. First Data 4. Chase Paymentech 5. Citi Merchant Services 6. WorldPay 7. Heartland Payment System 8. Global Payments 9. Evalon 10. Wells Fargo Merchant Ser. 12, , , , , , , , , ,779.7

4 Market Size Visa (Source: Visa 10-K, for fiscal year ended September 30, 2012) Total Dollar Volume, including payments and cash volume Global $6.3 Trillion U.S. $2.5 Trillion Payment Volume Global $3.9 Trillion U.S. $2.1 Trillion Cash Volume Global $2.4 Trillion U.S. $430 Billion Transactions Processed 53.3 Billion MasterCard (Source: MasterCard 10K, for the fiscal year ended December 31, 2012) Gross Dollar Volume Global $3.6 Trillion U.S. $1.2 Trillion Total Credit and Charge Programs Global $2.1 Trillion U.S. $562 Billion Total Debit and Prepaid Programs Global $1.5 Trillion U.S. $604 Billion Transactions Processed 34.2 Billion U.S. General Purpose Cards Through 3Q 2012 (Source: The Nilson Report November 2012) Brand/Card Type Dollar Volume (bil.) Transaction Volume (bil.) 1. Visa/Credit 2. Visa/Debit & Prepaid Total $ $1, $1, MasterCard/Credit 4. MasterCard/Debit & Prepaid Total $ $ $ American Express/Credit $ Discover/Credit $97.05 $3,

5 Payment Card Processing Costs 1 Interchange Rate 1. Interchange rate is established by the payment card association (Visa, MasterCard, Discover, etc.) and paid to the payment card issuer as compensation for risk and expenses incurred in providing lines of credit to cardholders 2. Represents approximately 70-80% of total payment card fees Dues & Assessments 1. Dues & Assessments are flat amount paid to the payment card association (Visa, MasterCard, Discover, etc.) for network infrastructure, marketing and branding, and establishment and maintenance of rules and pricing 2. Represents approximately 5% of total payment card fees Markup 1. Processor fees are paid to the acquiring bank and/or other intermediaries (processors, ISOs, gateways, etc.) that handles the transaction 2. Represents approximately 20%- 30% of total payment card fees Pricing & Revenue Model Pricing and Revenue Model of CryptoLogica s encryption technology % of transaction value (in Dollars) And/or 2. $ $0.005 per transaction 2 1 Generally, payment card processing costs account for approximately 2.5% of a consumer purchase transaction (Source: Heartland Payment Systems, 10-K, period ended December 31, 2012). Using Heartland s example, a consumer purchase transaction of $ will result in the merchant receiving $97.50 with the remaining $2.50 ( payment card processing costs ) being allocated as follows: Card Issuer - $1.87 (interchange fees); Visa/MasterCard $0.11 (dues & assessments); Visa/Mastercard - $0.02 (transaction fees); and Heartland - $0.50 (net revenue). 2 Based on the payment card processing business in general, a per transaction fee may be a more feasible approach rather than a fee based on transaction value.

6 Macro View Visa (Source: 10-K, for period ended September 30, 2012) Revenue as a percentage of Dollar Volume (Global) Dollar Volume (Global) Fee Percentage of Dollar Volume Revenue $6,300,000,000, % $ 315,000, % $ 378,000, % $ 441,000, % $ 504,000, % $ 567,000, % $ 630,000, $ 15,750, $ 31,500, $ 63,000, $ 94,500, $126,000, $ 157,500, $ 18,900, $ 37,800, $ 75,600, $ 113,400, $151,200, $ 189,000, $ 22,050, $ 44,100, $ 88,200, $ 132,300, $176,400, $ 220,500, $ 25,200, $ 50,400, $ 100,800, $ 151,200, $201,600, $ 252,000, $ 28,350, $ 56,700, $ 113,400, $ 170,100, $226,800, $ 283,500, $ 31,500, $ 63,000, $ 126,000, $ 189,000, $252,000, $ 315,000, Revenue as a percentage of Dollar Volume (U.S.) Dollar Volume (U.S.) Fee Percentage of Dollar Revenue $ 2,500,000,000, % $ 125,000, % $ 150,000, % $ 175,000, % $ 200,000, % $ 225,000, % $ 250,000, $ 6,250, $ 12,500, $ 25,000, $ 37,500, $ 50,000, $ 62,500, $ 7,500, $ 15,000, $ 30,000, $ 45,000, $ 60,000, $ 75,000, $ 8,750, $ 17,500, $ 35,000, $ 52,500, $ 70,000, $ 87,500, $ 10,000, $ 20,000, $ 40,000, $ 60,000, $ 80,000, $ 100,000, $ 11,250, $ 22,500, $ 45,000, $ 67,500, $ 90,000, $ 112,500, $ 12,500, $ 25,000, $ 50,000, $ 75,000, $ 100,000, $ 125,000,000.00

7 Macro View Visa (cont d) (Source: 10-K, for period ended September 30, 2012) Revenue on a per Transaction Fee basis Total Number of Transactions (Global) Transaction Fee Revenue 53,300,000,000 $ $ 53,300, $ $ 106,600, $ $ 159,900, $ $ 213,200, $ $ 266,500, $ 2,665, $ 5,330, $ 10,660, $ 15,990, $ 21,320, $ 26,650, $ 5,330, $ 10,660, $ 21,320, $ 31,980, $ 42,640, $ 53,300, $ 7,995, $ 15,990, $ 31,980, $ 47,970, $ 63,960, $ 79,950, $ 10,660, $ 21,320, $ 42,640, $ 63,960, $ 85,280, $ 106,600, $ 13,325, $ 26,650, $ 53,300, $ 79,950, $ 106,600, $ 133,250, Macro View MasterCard (Source: 10-K, for period ended December 31, 2012) Revenue as a percentage of Dollar Volume (Global) Dollar Volume (Global) Fee Percentage of Dollar Volume Revenue $ 3,600,000,000, % $ 180,000, % $ 216,000, % $ 252,000, % $ 288,000, % $ 324,000, % $ 360,000, $ 9,000, $ 18,000, $ 36,000, $ 54,000, $ 72,000, $ 90,000, $ 10,800, $ 21,600, $ 43,200, $ 64,800, $ 86,400, $ 108,000, $ 12,600, $ 25,200, $ 50,400, $ 75,600, $ 100,800, $ 126,000, $ 14,400, $ 28,800, $ 57,600, $ 86,400, $ 115,200, $ 144,000, $ 16,200, $ 32,400, $ 64,800, $ 97,200, $ 129,600, $ 162,000,000.00

8 Macro View MasterCard (cont d) (Source: 10-K, for period ended December 31, 2012) Revenue as a percentage of Dollar Volume (U.S.) Dollar Volume (U.S.) Fee Percentage of Dollar Volume Revenue $ 1,200,000,000, % $ 60,000, % $ 72,000, % $ 84,000, % $ 96,000, % $ 108,000, % $ 120,000, $ 3,000, $ 6,000, $ 12,000, $ 18,000, $ 24,000, $ 30,000, $ 3,600, $ 7,200, $ 14,400, $ 21,600, $ 28,800, $ 36,000, $ 4,200, $ 8,400, $ 16,800, $ 25,200, $ 33,600, $ 42,000, $ 4,800, $ 9,600, $ 19,200, $ 28,800, $ 38,400, $ 48,000, $ 5,400, $ 10,800, $ 21,600, $ 32,400, $ 43,200, $ 54,000, $ 6,000, $ 12,000, $ 24,000, $ 36,000, $ 48,000, $ 60,000, Revenue on a per Transaction Fee basis Total Number of Transactions (Global) Transaction Fee Revenue 34,200,000,000 $ $ 171,000, $ $ 205,200, $ $ 239,400, $ $ 273,600, $ $ 307,800, $ $ 342,000, $ 8,550, $ 17,100, $ 34,200, $ 51,300, $ 68,400, $ 85,500, $ 10,260, $ 20,520, $ 41,040, $ 61,560, $ 82,080, $ 102,600, $ 11,970, $ 23,940, $ 47,880, $ 71,820, $ 95,760, $ 119,700, $ 13,680, $ 27,360, $ 54,720, $ 82,080, $ 109,440, $ 136,800, $ 15,390, $ 30,780, $ 61,560, $ 92,340, $ 123,120, $ 153,900, OBJECTIVE: The objective of this business model is to have CryptoLogica s encryption technology incorporated and integrated into the payment card processing industry. As noted in footnote 1, the average processing fee is approximately 2.5% of the transaction amount. This business model would allow CryptoLogica s encryption technology to be included as a fractional amount of the 2.5% processing fee. Conservative estimations of the amount of revenue that can be generated is reflected herein above.

9 Micro View Vantiv (Source: 10-K, for period ended December 31, 2012) Financial Highlights Statement of Income Data % of Revenue (net of interchange fees) $ per Transaction (net of interchange fees) Revenue 3 $1,863,239, $ Network fees & other costs 4 $840,597, $ Sales & marketing 5 $280,644, $ Other operating costs 6 $158,374, $ General & administrative $118,231, $ Depreciation & amortization $160,538, $ Income from operations $304,855, $ Total Transactions Transaction Fee Revenue 15,362,000,000 $ $ 76,810, $ $ 92,172, $ $ 107,534, $ $ 122,896, $ $ 138,258, $ $ 153,620, The Nilson Report February The Nilson Report November 2012 Reference List 3. Heartland Payment Systems, Inc. 10-K, Fiscal Year Ended December 31, MasterCard Incorporated 10-K, Fiscal Year Ended December 31, Vantiv 2012 Annual Report (including 10-K, Fiscal Year Ended December 31, Visa Inc. 10-K, Fiscal Year Ended September 30, Vantiv generates revenue primarily by processing electronic payment transactions i.e., credit, debit and ATM card transactions. Vantiv s stated revenues are net of interchange fees (which typically accounts for approximately 75% of payment card fees). 4 Network fees and other costs consist primarily of charges incurred by Vantiv which it passes through to its clients, including Visa, MasterCard and other payment network fees, card production costs, telecommunication charges, postage and other third party processing expenses. 5 Sales and marketing expense primarily consists of salaries and benefits paid to sales personnel, sales management and other sales and marketing personnel, advertising and promotional costs and residual payments made to ISOs, agent banks and other third party resellers. 6 Other operating costs primarily consist of salaries and benefits paid to operational and IT personnel, costs associated with operating Vantiv s technology platform and data centers, information technology costs for processing transactions, product development costs, software consulting fees and maintenance costs.

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