2012 GLOBAL PREPAID SIZING STUDY, COMMISSIONED BY MASTERCARD: A LOOK AT THE POTENTIAL FOR GLOBAL PREPAID GROWTH BY 2017 Significant prepaid growth is expected at an annual rate of 22% through 2017 Meeting the needs of the underserved remains a key driver of prepaid growth globally Prepaid is also a payment solution that meets the needs of the general population, including banked consumers in developed markets Commercial prepaid programs Flexible Solutions for Business Expenses Governments around the world are increasingly driving financial inclusion * $822B THE PROJECTED GLOBAL PREPAID OPPORTUNITY BY 2017 EXECUTIVE SUMMARY THE POTENTIAL FOR PREPAID REMAINS STRONG The prepaid opportunity continues to grow around the world and is expected to reach US$822 by 2017. The popularity of prepaid is driven by its unique and practical ability to solve for almost any payment need. It democratizes electronic payments for those outside the traditional banking system and provides a transparent, cost-effective alternative to cash and checks for both governments and businesses. Prepaid also serves the needs of banked consumers who find it an ideal payment tool for segmenting spend such as travel and online shopping. *Does not include NFC figures JULY, 2012
2012 MASTERCARD GLOBAL PREPAID MARKET SIZING STUDY Forward-Looking Statements The information presented in this document is intended solely for informational purposes and not as individually-tailored advice or specific recommendations for any particular action or investment and should not be relied upon, in whole or in part, as the basis for decision-making or other purposes. This document contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on current data, assumptions, and expectations about future events which reflect the best judgment of The Boston Consulting Group and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by these materials. You should review and consider the information contained in our filings with the SEC regarding these risks and uncertainties. All information contained herein, including all forecasts, projections or indications of financial opportunities, are provided on an "as is" basis. You are solely responsible for your use of this information, as well as any decisions made or actions taken in response to such information and MasterCard disclaims any obligation to publicly update or revise any forward-looking statements or information provided in this document. Methodology The 2012 Global Prepaid Sizing Study, looking at 35 countries and 20 verticals, was developed utilizing a robust and tested methodology. The study begins by defining 20 distinct and mutually exclusive verticals, which together capture the full set of Gross Dollar Volume (GDV) spend in each geographic market reviewed. The next phase is to determine a vertical size, calculating the total payment flows through each vertical (e.g., corporate payroll is all money flows to working individuals in a certain country) through rigorous sets of foundational data from central banks, government censuses and economic databases. Then, determination is made for the maximum penetration or product ceiling that prepaid could reach within the vertical (e.g., total unbanked and underbanked populations in a certain country). Talking with a wide range of experts in the field, leveraging secondary research and utilizing internal data, the study then identifies the current vertical GDV for the baseline year. The study's proprietary model projects out the GDV for each year between the baseline and 2017 based on the expected growth curve. After the model projections are completed, a series of data sense checks are performed including detailed bottoms up program level build ups per vertical and country, extensive data triangulation and feedback loops with a wide range of prepaid experts before the study is completed. Note: All charts and graph information supplied, unless otherwise indicated, are by Boston Consulting Group, January 2012. 2
The potential for prepaid remains strong The market for open loop prepaid cards is projected to grow at an annual rate of 22% through 2017. Corporate Payroll, Government Benefits, and General Use are projected to continue leading the market in 2017 representing 63% of the global open loop opportunity. ESTIMATED OPEN LOOP PREPAID GROWTH (2010-2017) Canada $2 B US $152 B 38% 16% Canada $19 B US $421 B 37% Europe $28 B 27% Europe $149 B 51% % 26% MEA MEA $3 B $46 B AP AP $10 B $54 B While the U.S. market continues to present the largest opportunity, the rest of the world is accelerating at a rapid pace. In fact, by 2017 we expect to see a more balanced global share, with the rest of the world representing almost half of the global open loop opportunity. 2010 LAC $15 B LAC $133 B 2017 CAGR 2010 2017 $191 Corporate Payroll $177 Government Benefits $152 General Purpose Reloadable $56 Consumer Travel $55 Healthcare Account U.S. 421 ROW 148 USA 73% ROW 27% CAGR ROW 32% USA 16% 51% 17% 32% KSA/UAE 13 Russia 16 Canada 19 India 23 U.K/Ireland 31 Italy 41 Mexico 46 Top five product categories projected to represent 77% of the overall prepaid opportunity in 2017 Brazil 65 Total: $210 B Total: $822 B In addition to the U.S., eight markets are expected to play a key role in driving the growth of prepaid through 2017: Brazil, Mexico, Italy, U.K./Ireland, India, Canada, Russia and KSA/UAE. 3
Meeting the needs of the underserved remains a key driver of prepaid growth globally With no banking relationship or credit check required, prepaid cards have the potential to bring the safety and convenience of electronic payments to many of the world s over 2.5 underserved adults. 1 In emerging markets, driven by distrust of financial institutions, lack of affordable banking options, and unavailability of banking infrastructure, underserved individuals transact in cash and receive wages and government benefits outside of the banking system. In developed markets, high banking fees, lack of steady income, and the availability of alternative financial services such as check cashing and walk-in bill pay facilities all serve to encourage financial exclusion. For many consumers, this is the costly and inefficient reality. Companies are driving financial inclusion whether mandated by the government or motivated by sound business judgment by converting cash and checks to electronic payouts for their underbanked employees. This is driving the Corporate Payroll opportunity which is projected to reach $191 globally by 2017. Prepaid cards enable both commercial and government entities to increase financial inclusion while reducing processing costs and carbon footprint and increasing efficiency and risk management. The increasing availability of General Purpose Reloadable (GPR) cards at retail POS further adds to the migration of cash to electronic payments and gives underserved populations the ability to shop and pay bills online, remit funds home where local laws allow, and even earn rewards and savings otherwise reserved for banked individuals. PERCENT OF ADULTS WHO LACK ACCESS TO FINANCIAL SERVICES BY REGION 1 High-income OECD countries 60 million adults (Members of Organization for Economic Co-operation and Development) 8% Latin America 250 million adults 65% Central Asia & Eastern Europe 193 million adults 49% Middle East 136 million adults 67% East Asia, Southeast Asia 876 million adults 59% South Asia 612 million adults 58% 25.6% U.S. households (close to 30 million) that are either unbanked or underbanked Source: FDIC National Survey of Unbanked and Underbanked Households, 2009 45% The compounded annual growth rate (2010-2017) for corporate payroll prepaid cards in UAE largely driven by the UAE Ministry of Labour Decree that requires all business institutions registered with the Ministry of Labour to transfer salaries of all their employees through the Wages Protection System (WPS) Total 2,455 million adults 53% Sub-Saharan Africa 326 million adults 80% 1 McKinsey and Financial Access Initiative, Half the World is Unbanked, October 2009 4
Prepaid also meets the needs of the general population, including banked consumers in developed markets The growth in the prepaid opportunity is not attributed solely to meeting the needs of the underserved. In fact, approximately 48% of the global open loop opportunity lies within the general population driven by a new attitude towards money management among banked consumers who are looking to segment their spend on top of their existing payment cards. 2017 TOP PROJECTED PRODUCT CATEGORIES FOR GENERAL POPULATION NEEDS Open Loop GDV ($B) 16% The percent of the total European consumer prepaid opportunity that is projected to be driven by online shopping or e-commerce Consumer Travel Healthcare Accounts Gift $31 $56 $55 $395 Online Consumer Incentive $25 $23 Prepaid remains a smart cash and check replacement for mass market categories such as meal vouchers and transit as well as a complementary light banking product for banked consumers, giving them a bank account in their pocket. This is especially relevant for Europe where a large amount of the population is banked. The projected 2017 prepaid opportunity to serve the specific needs of the general population Further, an increased focus on budgeting and security for both travel and online payments has elevated the relevance of prepaid among banked consumers who want to segregate their spending for better control. For travelers seeking a safer alternative to cash and a more convenient alternative to travelers checks, prepaid satisfies the needs of both leisure and business travelers. Additionally, technology, innovation and adoption especially in mobile are presenting unprecedented opportunities for prepaid. Depending on the market, these opportunities can further extend the attractiveness of prepaid to banked customers. 2017 ESTIMATED OPEN LOOP CONSUMER TRAVEL GDV BY MAJOR MARKET Open Loop GDV ($B) U.S. U.K./Ireland 7.5 15.4 Germany Brazil 4.5 4.2 Australia France Canada Russia 2.9 2.7 2.1 1.8 5
Commercial prepaid programs Flexible Solutions for Business Expenses Whether replacing paychecks, meal vouchers or healthcare reimbursements, prepaid creates efficiencies, transparency and employee satisfaction. With a prepaid card, companies both small businesses and large enterprises have a cost-effective, efficient solution to replace antiquated paper-based payments and that allows them to more effectively control business spending and create a better experience for their employees. This includes the distribution of employee benefits and compensation such as payroll, healthcare, employee incentives and vouchers, as well as other business payments (i.e., consumer rebates, insurance claims payments). Prepaid also helps to deliver better compliance, reduce fraud and increase employee and customer satisfaction. Unlike cash and checks, prepaid offers enhanced spend control features as well as tracking and reporting capabilities. It also complements credit and debit products and is suitable for all employees no need to extend a credit line or give a card to an employee who may not otherwise qualify for a credit or debit product because of their job function, credit status or location. Prepaid is also environmentally friendly as it greatly reduces the amount of paper necessary. Given this, it is not surprising that the total commercial prepaid opportunity is projected to experience a significant growth in the next few years, reaching $325 globally by 2017. Corporate payroll comprises the largest segment of this category, projected to total $191. In 2010, corporate payroll was estimated at $33 this represents a CAGR of 26%, higher than the overall prepaid segment growth rate of 22%. 2017 ESTIMATED OPEN LOOP COMMERCIAL & CORPORATE PAYROLL As health care costs rise, increasing number of employers are adopting a consumer-directed approach to health care, shifting more of the costs to the employee in the form of higher deductibles and larger copayments. As a result, employees are relying on tax-advantaged programs such as Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs), to defray these additional out-ofpocket expenses $52 The projected size of the U.S. healthcare market by 2017 Representing 7% of the total Commercial category opportunity Other Commercial 41% $191 B Corporate Payroll 59% 77% Total: $325 B 6
Governments around the world are increasingly driving financial inclusion Citizens in countries around the world receive social benefits and disbursements from government agencies. Whether the benefit is social security, supplemental income, food, healthcare or child subsidies, transportation vouchers, veterans, social security or any other government payouts, prepaid cards remove the laborious, costly and complex practices related to disbursing funds while also fostering financial inclusion. Prepaid programs offers government agencies the ability to be better stewards of public funds and better serve their constituents by delivering a streamlined process with improved cost-savings, control mechanisms, higher-quality data helping to reduce fraud and error, and expanded user functionality. 21% The projected 2010-2017 CAGR growth for the global government benefits opportunity. The segment is projected to increase from $47 in 2010 to $177 in 2017. We are also seeing governments turning to electronic payments as a way to combat grey economies, further underscoring the potential opportunity for prepaid. In Italy in December 2011 as part of a wide-ranging emergency decree, a cap on cash payments over 1,000 was issued by the Prime Minister. Italy is described as losing more than 100 in unpaid taxes every year, equating to a loss of approximately 1,700 per capita. According to ABI, the country s banking association. It also loses 10 every year from increased security and labor needed to process cash transactions. 1 Additionally, governments around the world are demanding better financial transparency by mandating electronic payments to replace inefficient paper-based systems for distribution of government-sponsored payments. 2017 ESTIMATED OPEN LOOP GOVERNMENT WELFARE & BENEFITS GDV BY MAJOR MARKET U.S. 120 11% ROW 19 Russia 2 India 2 Italy 5 23% Canada 8 U.K/Ireland 9 66% Mexico 16 1 http://www.businessweek.com/magazine/italys-cap-on-cash-payments-12082011.html 7
Technology is a key driver of prepaid innovation and adoption around the world. Prepaid plays a growing role in emerging payments. Today, prepaid is an enabler of mobile payments, for example, helping more and more consumers around the world take advantage of the enormous benefits of electronic payments. This is driven by the flexibility of prepaid, which enables the development of features and benefits that can meet the needs of end-users in almost any payment situation. Prepaid is also less dependent on legacy infrastructure, opening the door to innovation and growth. Both traditional issuers and non-traditional players offer innovative programs with enhanced functionality that is driving adoption and making consumers lives easier. Prepaid offers many opportunities for growth as evidenced by the significant opportunity projected around the world, driving a future beyond cash. 2012 MasterCard. Proprietary and Confidential. All rights reserved. 8