Non-Bank Payment Disruptors. Competitors That Use Your Rails March 2, 2015 ICBA Live

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1 Competitors That Use Your Rails March 2, 2015 ICBA Live

2 Today banks still hold a majority share in Credit, Debit, ATM, and Treasury Management product revenue. Market Size 120 $ Payment Product Revenue (Bank vs. Non-Bank Revenue) 100 Bank Non-Bank 80 Non-banks appear to be capitalizing on these specific segments 60 $ Consumer, PLCC, & Small Business (Risk Adjusted) DDA $16.2 $15.1 $0.9 Treasury Management Debit Card $0.5 $9.3 Other Consumer $7.5 $1.9 ATM Deployment $4.7 $4.6 $7.1 $4.1 $0.2 $1.5 $2.2 Merchant Acquiring Commercial Credit (Risk Adjusted) Bill Payment Open-Loop Prepaid Source: Internal First Annapolis Industry Analysis

3 Market Characteristics However, banks payments franchise is increasingly threatened by non-bank disruptors in new areas. DDA Replacement E-commerce Payment Alternatives Banks Payments Franchise POS Network Alternatives Form Factor Adaptations Payment Service Providers (PSP)

4 Non-Bank Market Disruptors Market Characteristics Apple is well-positioned to be a key driver of mobile payments, with significant assets including a large and loyal customer base. 3,000 Registered Customers* (figures show million unique customers) V/MC (Banks) Apple MCX Google Softcard Amazon PayPal Sbux Apple has 800 million active itunes accounts, many with payment cards on file, and most U.S. accounts can be auto-enrolled in Apple Pay. Note: (*) Figures represent indicative number of unique and/or registered customers worldwide for the named company s core product. V/MC is global cards in force; Apple is itunes accounts; MCX is loyalty accounts of owner-merchants according to Forbes; Google is Gmail accounts; Softcard is active lines of service at owner-mnos; Amazon and PayPal are registered customers; Starbucks is est. unique customers.

5 Form Factor Adaptations Apple Pay launched in the U.S. market on October 20th, using tokenization and biometrics (i.e., TouchID) to support mobile NFC payments as well as remote, inapp payments. Apple Pay Process Flow: In-App Purchase Issuer Network Acquirer Merchant ios Secure Element Issuers provision persistent card tokens (device account number) to an encrypted secure element in the iphone. A transaction-specific cryptogram is created by the iphone s Secure Enclave processor and routed for authorization. Source: Company websites

6 Form Factor Adaptations Google Wallet provides payment channels compatible with any debit or credit card and every mobile carrier. Google Wallet Card Gift and Loyalty Card Storage Tap and Pay Source: Company website

7 Non-Bank Market Disruptors Merchant Customer Exchange (MCX) is a merchant-backed mobile payment network aiming to reduce transaction fees for merchants and enhance customer experience. MCX Participant Roles POS Network Alternatives? Merchant Platform Developer Acquirer & Processor ODFI Credit and/or Debit Issuer Payment acceptance Loyalty / rewards program enablement / redemption Main investors in MCX Software development Information transfer to FIS Platform management Payment processing Transaction risk scoring Payment guarantee Routing Settlement Customer service ACH origination Issue limited loop credit product(s) Support decoupled debit product(s) Not publicly addressed

8 Non-Bank Payments Disruptors E-Commerce Payment Alternatives PayPal is a global payments platform that connects people to their money and allows them to securely send money via PayPal balances, bank accounts, PayPal credit, and credit cards. ecommerce Express Checkout Venmo s Social P2P Platform Source: Company website

9 Non-Bank Payments Disruptors DDA Alternatives AMEX Bluebird is an example of an innovative new product that blurs the lines between traditional DDAs and GPR cards. American Express Bluebird Account can be originated via mobile Navigable home screen lets users: Deposit money (mrdc) and send and receive money View transaction history and manage subaccounts Customize bill payee icons Both Wal-Mart and Amex refrain from using the word "prepaid to describe Bluebird; it is referred to as a "checking and debit alternative." Source: Company reports, First Annapolis Consulting analysis

10 Non-Bank Payments Disruptors Klarna is an express checkout service that is popular among online and mobile merchants in Europe; the company recently announced that they would expand services to the U.S. Klarna Checkout Payment Service Providers Source: Company websites, Tech Crunch

11 Contact Information Thank you! First Annapolis Consulting M&A Advisory Services Three Park Place, Suite 200 Annapolis, Maryland Phone: (410) Fax: (410) Hugh Gallagher, Principal office: (410) mobile: (404)