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The Future of Payments

Consumer Mobile Payment & Wallet Applications

April 2014


Contents

Mobile Payments Market Dynamics

mPayment Landscape and Ecosystem

Mooreland’s Perspective on NFC

mPayment Investment Activity

mPayment M&A Transactions

Mooreland Partners: Firm Profile

2


History of Unmet Expectations: Mobile payments have been talked about for over a decade, however, a lack of quality consumer technology has slowed adoption

Smartphone / Tablet as Catalyst: The proliferation of smartphones and tablets is creating opportunity for disruption across the entire payments landscape/ecosystems

Impact on the Whole Ecosystem: Payments are intertwined with both Banking and Retail solutions, so we need to examine all three segments to form a complete picture of the ecosystem

– mPayment: Solutions that enable the consumer to transact and make payments using their mobile device

– Retail 2.0: Solutions, sold to Merchants, that enable new ways to accept payments and converge online and offline commerce to “Omnichannel” commerce

– Digital Banking: Solutions, sold to banks, that enhance the “anywhere, anytime” consumer banking experience (includes online and mobile banking)

Mobile Payments: Market is accelerating the entire ecosystem is impacted

3

Retail 2.0

mPayment

Digital Banking

• Mobile Wallet • Merchant

Payment Apps

• Mobile Banking • Internet Banking • Mobile Money

Transfer • Remote deposit

capture

• Mobile POS Terminals • eCommerce Platforms • Cloud/Tablet-based

POS Solutions • Omnichannel

commerce

Dynamic Mobile Payments Ecosystem


Mobile Payments: Illustrative Timeline

4

While mobile banking began to gain traction nearly a decade ago…

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

mP

aym

en

ts

Becoming more Merchant-centric while credentials move from the

Secure Element to the Cloud

Ret

ail 2

.0 Moving

towards an Omni-channel SaaS solution hosted in the

cloud

Dig

ital

Ban

kin

g

Moving towards a completely

digital solution, where branches

are less important

…emerging retail solutions didn’t begin to establish themselves until ~2009 …

…and mobile payment adoption only began with the Starbucks App launch in 2011


Significant growth is expected across all three segments …

5

Banking: Innovation is driving continued growth in mobile banking adoption

mP

aym

en

ts

Ret

ail 2

.0

Dig

ital

Ban

kin

g

Retail: Massive opportunity as mPOS goes mainstream and OmniChannel disrupts

Mobile Payment: Innovations in Services and Contactless are accelerating growth

35 57

68 79 89 99

111

2010 2011 2012 2013 2014 2015 2016

mBanking adoption

in US (million users):

– 13% CAGR 2012-2017

Source: Fiserv, Javeline Strategy & Research

In the US (and other developed markets) mobile banking has become “table-stakes” and consumers are gradually shifting behavior to use this technology

Over 51% of mobile phone owners in US will use mBanking by 20161

Note 1: Javelin Strategy & Research forecasts

Source: IHL Consulting - Mobile POS Hype to Reality

2013 2017

380% CAGR

Use of handhelds for Mobile POS:

– 380% CAGR 2013-2017

Square’s innovation has lead to a number of new solutions that innovate in both use case and business model

Increased emphasis around Omni-channel commerce solutions is driving new product development at major POS and eCommerce platform vendors

Mobile merchandise purchase ($ in

billions):

– 38% CAGR 2012-2017

Contactless mobile payment is expected to hit $10 billion by 2018, representing a 35% CAGR over the next six years2

Loyalty, rewards, coupons, and mobile ordering services build a consumer value proposition and will drive adoption

$9 $20 $34

$51 $71

$97 $129

$168

2010 2011 2012 2013 2014 2015 2016 2017

Source: Gartner Note 2: Juniper Research forecasts


Mobile Wallet market now driven by greater consumer and merchant adoption …

6

Key trends

Wallet Providers: momentum shifting from Banks and Mobile Operators to Retailers as the issuers of payment applications

Wallet credentials: shifting from Device to Cloud (HCE), multi access platforms allow for cross-wallet synergies

Critical Features: Beyond Payments, Value Added Services (Loyalty / Fast Order/ Off-line Transactions / POS Integration) are critical for driving consumer adoption

Hype Cycle: Mobile Wallet … showing signs of moving up the Slope of Enlightenment

(1) Transparency Market Research: "Mobile Wallet Market - Global Industry Analysis, Size, Share, Growth and Forecast, 2012 - 2018“ (2) Juniper Research: “NFC Mobile Payments Market Update”

2007: mPesa O

Technology Trigger

Peak of Inflated Expectations

Trough of Disillusionment

Slope of Enlightenment

Plateau of Productivity

Visibility

O Jul. ‘12: Gartner Hype Cycle

Jul. ‘11: Gartner O O Sep. ‘11: Google Wallet Launch

Jan. ‘11: Starbucks Launch O

O Oct. ‘12: iPhone5 omits NFC

O Feb. ‘13: Mobile is 5% of Starbucks transactions

O Mar. ‘13: Paypal: mobile = 10% of their TPV

O Sep. ‘13: McDonalds testing a mobile app Nov. ‘12: ISIS pilots O fall flat

Time

O Mar. ‘14: Mobile reaches 14% of Starbucks txns


… resulting in various business models across the Mobile Wallet Landscape

Merchants are increasingly taking the lead role in mobile payment applications

7

Mobile Operators and Banks Merchants Consumer: Mobile

White Label Branded

Target Customer

Consumer: Internet

Paym

ent-

Focu

sed

So

luti

on

s

Loya

lty,

Pro

mo

tio

ns

and

En

gage

men

t-Fo

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http://www.google.com/url?sa=i&source=images&cd=&cad=rja&docid=wDZ_6OV7-lKh9M&tbnid=5rnzEFlVXp4TYM:&ved=0CAgQjRwwAA&url=http://www.swedroid.se/forum/showthread.php?t=60963&ei=YtEzUeSlKZLO0QGGkIHgBg&psig=AFQjCNHAey8CxilB6sr6YVkuC8HGIDLPHw&ust=1362436834898328

http://www.google.com/url?sa=i&source=images&cd=&cad=rja&docid=gS0fbHD74TwOhM&tbnid=lI0fVXLJGdzhzM:&ved=0CAgQjRwwAA&url=http://www.ebanking.cl/noticias/kuapay-el-sistema-de-pago-por-celular-que-quiere-debutar-en-chile-006174&ei=UCc0UcXyDou80AH4wIGIBg&psig=AFQjCNGfUE359hQ4WsGX1_dGECUk29N9bQ&ust=1362458832280856

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=CazzLb6iBKJBgM&tbnid=akJvZ7BgckrGDM:&ved=0CAUQjRw&url=http://www.forbes.com/sites/tomiogeron/2011/05/09/levelup-offers-with-american-express-eliminates-coupons/&ei=lrg0UYG2HMzx0wGSiYHoCA&bvm=bv.43148975,d.dmQ&psig=AFQjCNGHqQnB3cmwVbYn_l0CtkP7K60SQw&ust=1362496016655086

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=cYDamgMfD3-meM&tbnid=fir9C-igQJAqEM:&ved=0CAUQjRw&url=http://english.forum-smsc.org/&ei=U7YzUfurAbOC0QGWzoHoCQ&bvm=bv.43148975,d.dmQ&psig=AFQjCNE1qiMqwk685idbtqaIzcgoUGDk1Q&ust=1362429902378443

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=PuJuogp9pNz_4M&tbnid=IHSoMOSVYQ8M3M:&ved=0CAUQjRw&url=http://www.marketwire.com/press-release/paydiant-menusoft-systems-launch-integrated-mobile-wallet-pay-table-offering-restaurants-1760677.htm&ei=C1k1Ue-wGq2G0QGl_IGIBw&bvm=bv.43148975,d.dmQ&psig=AFQjCNEi49Ms7zQ4j4xVDuFq8uTD79C83Q&ust=1362537046539567

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=Lq_MBLGfOSVrEM&tbnid=GWHk0XLiH76R7M:&ved=0CAUQjRw&url=http://psssst.net/page/12/&ei=glk1Uee-Ge-70QG3k4HwDA&bvm=bv.43148975,d.dmQ&psig=AFQjCNGflacdbbXTLAzAmTjAB4IGCD73XQ&ust=1362537209003664


Mooreland’s Perspective: NFC adoption will accelerate in 2015

8

The Mobile Operator … Becoming Less Relevant due to HCE (“Host Card Emulation”)

– The Secure Element (SE) is the key asset controlled by the mobile operator

– Recent upgrade to Android enables the NFC antenna to be accessed by the OS directly, without the SE

– This allows over the top (OTT) payment apps to utilize NFC capabilities in conjunction with a cloud-based SE

The Mobile Operators can now be disintermediated from mobile payments

Apple … Waiting for the stars to align

– Has typically not enabled features unless they believe that there will be a great user experience

– Apple prefers to have total control, thus they have avoided the payments discussion with the mobile operators • Android is proving that NFC can be implemented without MNO involvement, critical for an Apple solution

Apple will likely enable NFC on all their phones beginning with the iPhone 6

The mobile operator creates friction in

the industry

There aren’t sufficient NFC enabled

payment terminals

It will never happen if it is not supported by

Apple

PERCIEVED ISSUES MOORELAND PERSPECTIVE

BENEFICIARIES: Merchant-Centric Wallet technology vendors with NFC capabilities, Cloud-based credential solutions

AT RISK: Companies without an EMV/NFC strategy, Mobile Operator-focused wallet vendors

EMV … Impacting both POS Terminals and Card Issuers – EMV is already driving a complete retrofit of merchant POS terminals

nationwide to accept NFC. • Expected to be 75% complete by 2015 and 90% complete by 2017

– NFC be driven by ISSUERS seeking a low-cost solution for providing their customers with EMV capabilities • Issuing new chip & pin cards will cost the industry ~$2.5 billion, while

enabling mobile apps will be virtually free

Issuers will choose NFC-based mobile apps for their EMV strategy, driving user adoption in 2015

275 416

575 797

939 1,170

2013 2014 2015 2016 2017 2018

34% CAGR

Source: HIS Inc., Feb-2014

Global NFC Handset Shipment (millions)


N/A

$23

N/A N/A $4 $8

$51

$31

$52 $39

$109

$42

$138

$263

$318

$100

0

5

10

15

20

25

30

35

40

45

50

$0

$50

$100

$150

$200

$250

$300

$350

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Investments <$100M ($ in millions)

Number of Investments

Investments in mPayments companies have grown significantly …

9

Mobile Payments 1999 – 2013 Financing Activity

Source: Capital IQ, 451 Group, and publicly available information. Note(1): Values based on public disclosed deal values

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

# Investments - 1 1 - 1 1 3 5 5 5 10 10 33 45 38

Total value ($M)1 N/A $23 N/A N/A $4 $8 $51 $31 $52 $39 $109 $142 $138 $263 $318

Investments ($ in millions)


$181 $96

$145 $244

$305 $240

$250

$795

$465

8

11

14

26

15

2009 2010 2011 2012 2013

… while M&A activity is just beginning to accelerate …

10

Significant Transactions Value ($M)

Number of Transactions

Transaction Value <$200M ($M)

Mobile Payments M&A Transaction and Marquee Deals 2009 – 20131

Source: Capital IQ, Group 451 Note (1): Deal values on disclosed valuation


…with recent M&A activity centered around filling technology gaps

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* Mooreland Estimate

Acquirer Target Category Date Transaction Size (EV) EV/Revenue

Feb-2014 Confidential Confidential

Oct-2013 NA NA

Aug-2013 $795m 3.0x

Jun-2013 $11m NA

Feb-2013 $175m 1.4x

Oct-2012 Confidential Confidential

Aug-2012 $26.2m 7.3x*

Jul-2012 $50m NA

Apr-2012 ~$250m* Confidential

Apr-2011 NA NA

Mobile Wallet Platform

Mobile Wallet Platform

Mobile Payments

Digital Wallet

TSM

P2P Payments

TSM

Wallet Platform

mPayments Software

Digital Wallet


Mooreland in Brief

Technology Focused Digital Media & Internet | Enterprise Software

Communications & Mobility | Industrial Technology

100% Partner Owned

Founded 2002 One Global P&L

Global Reach Serving European, North American, and Asian

markets from offices in Silicon Valley, New York, and London

Team of 40+ 13 Nationalities

10 Languages Spoken

49 Deals Since January 2012,

Ranked #1 in Mid-Market Technology M&A

Unrivalled Experience

1,000+ Deals Closed by Senior Bankers

12

Mooreland is one of the most active tech focused M&A advisory firms in the world – differentiated by deep sector knowledge, tier 1 buyer relationships, and a collaborative business model.

www.moorelandpartners.com

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