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The Disruptors

The Disruptors. Yobie Benjamin Chief Technology Officer Citi Transaction Services / Citi Enterprise Payments Institutional Clients Group June 2012. The Disruptive F orces. The Mobile Phone: a profound redefinition of human community .

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The Disruptors

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  1. The Disruptors Yobie Benjamin Chief Technology Officer Citi Transaction Services / Citi Enterprise Payments Institutional Clients Group June 2012

  2. The Disruptive Forces

  3. The Mobile Phone: a profound redefinition of human community 1.1 billion: Speakers of Mandarin – most common language 1.6 billion: Muslims – most common religion 2.4 billion: People with access to the internet 6.9 billion: World Population 4.4 billion: People with reliable access to electricity 5.2 billion: People with access to mobile phones 6.0 billion: People with access to clean water Access to mobile communications will soon be as common as access to drinking water – and will likely surpass it! Source: The Pew Forum 2011, Ethnologue 2005, The Economist 2010, International Telecommunications Union 2011, Water.org, internetworldstats.com

  4. Mobile Payments has already made tremendous progress, and will continue its strong growth • Mobile Payments growth is being fuelled by pervasive global access to mobile phones: • 5.9B mobile cellular subscriptions • 87% of all people have access to mobile phones Gross value of mobile payment transactions $ billions 545 122% p.a. 245 Today: 627M smartphone users, 11% of all active SIMs 2015: 1.5B smartphone users, 25% of all active SIMs 110 60 30 10 2010 2011 2012 2013 2014 2015 Top brands leading the way Source: IE Market Research Corporation 2011; Yankee Group 2011, Gartner Report 2011, Mobile Payments Today 2011, International Telecommunications Union 2011, Research & Markets 2011

  5. Mobile Payments today, and in the near future United States Europe Asia-Pacific Americas Mobile payments JV in Mexico with Citi/Banamex, America Movil and Banco Inbursa Google Wallet mobile payments Mobile payments JV Mobile payment service with HTC phones PayPal “Mobile Payments Standard” enabling merchants in Singapore Mobile payments JV with AT&T, Verizon & T-Mobile Mobile payments JV in Canada NFC Hub And more to come…

  6. Payments will look very different in 5 years Need content – top 5 predictions • Convergence of digital economy and bank grade mobile payments • Explosive innovation and adoption of all things mobile payments • Proliferation of payment wallets • Consumer shift from “e” to “m” commerce • Most mobile phones are smart phones and make payments as easy as calls • All major merchants accept mobile payments on web and POS • All transit systems installing mobile payments • Marketing shift to highly targeted mobile offers • Mobile wallet is on-boarding channel for many first time financial services consumers

  7. Mobile Payments: The opportunity The pay-offs are in: • Moving from physical to digital currency • Increasing the audience able to engage with this new economy • Leveraging “Big Data”: contextual, highly targeted offers Consumers Standardization Merchants Regulation Rapid Growth Ubiquity 2020 7 VeriFone Proprietary and Confidential – Do Not Distribute Outside the Company

  8. Mobile Payments: What’s holding us back? What’s in it for ME? What is the business case for investment: Senior Management? Boards? PE? What is the revenue model for providers: Banks? Telecos? Software? What is the value proposition for consumers? For merchants? We need clearly defined, sustainable business models with value drivers for all parties in the ecosystem

  9. Three disruptive macro forces Driving major change, particularly for Merchants, Banks, Telcos, Cable and Software Companies

  10. Devices… So Much Fun!

  11. “Hello World” - Goodbye Feature Phones!!!

  12. Plastic = Blockbuster | Phone Payments = Netflix

  13. Trending to the new reality

  14. 66% 1-3% 3-5% 97% 12-14% 80% 8-11% 93% 5-7% 92% Current state of payments: revenues are expected to exceed $1.3 T by 2015 ESTIMATES Global payment revenues have rebounded after declining by 5% from 2008-2009, $Billions, (2010) Global payments revenue regional breakdown 2 Percent, $ Billions, (2010) CAGR 2010-2015 Share in paper 3 % of transactions +5-7% North America -5% +6% Europe Asia Pacific A 1% change from paper to electronic delivers $30B of revenue Latin America 10-12% 98% Rest of the World Total Strong organic growth in payments revenues, driven by non-US markets 2008 2009 2010 2015 • Electronic migration enables us to: • Intermediate transactions • Create services-based businesses 1 “Institutional” revenues do not include interbank clearing and settlement 2 “Latin America” includes Mexico; “Rest of World” includes Africa, Russia, Turkey, and the Middle East 3 “Paper” is defined as cash and check payments, and includes both consumer and institutional transactions Source: McKinsey Global Payments Map

  15. 5B connected consumers – creating new distribution channels for banks, corporations and governments Implications Manufacturer Direct-to-Consumer % purchases - Nth America Survey • Mobile connectivity increases access to a global marketplace of 5+ billion consumers: • Corporates to consumers (increasing Direct-to-Consumer business models) • Governments to citizens • Aid agencies and NGOs to recipients • Companies are looking to exploit their distribution capabilities beyond current business models: • Digital companies with digital reach and digital goods • Mobile ecosystem companies • Global financial services solutions are needed to integrate payments capabilities: • While information flows freely across borders, cash does not • International financial flows is a complex, multi-party challenge; clearing and settlement requires international partners 17% 7% 5% 2008 2010 2006 Source: Forrester 2011 Confidential & Proprietary

  16. 5B connected consumers globally Banks today operate in only two dimensions - new opportunities require 3D thinking Global market Clients Banks B B C G Brand Banking licenses Global Corporations (i.e. digital goods and services) Consumer and corporate operations Payments and collection platforms Governments (i.e. tax collection, benefits payments, transit) Customer Relationships Regulated product design and delivery Banks risk disintermediation by technology companies if they do not leverage their vast assets and address the core needs of new business models

  17. Mobile phones: The new local bank? In developed countries, approximately 81% of adults are banked vs. 28% in developing in countries There are 5+ billion mobile phone users worldwide but only 1.8 billion bank accounts Russia • 69.0% • 94.5% UK • 91.0% • 92.4% China India US • 42.0% • 71.0% • 48.0% • 73.0% • 91.0% • 89.0% Africa • 20.0% • 53.0% Brazil • 43.0% • 96.0% 6.9 billion people 1.8 billion bank accounts 5.2 billion mobile users 2 - 3 billion underserved Gap Narrowing Gap Widening

  18. Mobile Money: 800MM potential accounts in 5 years, already 100+ services # Mobile Money accounts (MM) 807 +51% 684 499 326 199 107 2011 2012 2013 2014 2015 2016 Addresses the needs of 2.5B underserved consumers1 100+ services being launched Current accounts estimated at 100MM+ These accounts are currently mostly stored value accounts that allow person-to-person payments, are managed by MNOs, and are untapped by branded financial networks ¹Consumers in countries with large gaps between mobile and bank penetration; defined as mobile penetration >50% and banking penetration <50%; 72 countries qualify.

  19. Current Goal: Mobile Wallets that provide a full range of payments capabilities A full range of payments are needed to provide a “bank-like” experience Current mobile payments services are closed loop with limited functionality Salary pay/benefits Merchant pay Transfer from bank Bill pay International remittance Other Mobile Money services Cash-in MNO #1 MNO #1 Cash-out

  20. Emerging Markets: cost and distribution models drive ability to scale Banks face economic and access issues competing for the mass market & underserved /unbanked MNOs leverage their distribution infrastructure to deliver simple peer-to-peer and bill payments via pre-paid value transfers, limiting exposure & risk Key Issue: Risk Management must be industrial strength if payments are driven to open networks As financial resources are built, more sophisticated services are needed, leading to greater partnership opportunities for Banks & MNOs, and potentially, to increased friction Key Issue: Banks & MNOs will compete to optimize asset structures, customer data, and revenue flows

  21. MNOs: Advantages, up to a point Driven by complex products that leverage bank transaction and account systems MNOS have more efficient entry economics but plateau quickly, banks have financial sophistication but are unable to get early economics to work Comparative product value for MNOs and banks High P2P Money Transfer Cash-in Cash-out Bill Payment Salary Payment Int’l Transfer Retail purchase Cards Credit Savings Lending Security VAS Insurance Diminishing benefits as individual actors go beyond core product competencies Driven by simple products that leverage MNO airtime distribution infrastructure Complexity and Sophistication Service Evolution High Value line for MNOs Value line for banks Transactional Core Payments Core Banking

  22. Mobile payments and eCommerce will comprise an increasingly larger percentage of payments volumes 2010 2015 Mobile Payment Flows: $10B • Why? • Phone is a more powerful device than the PC • Knows who you are • Knows when you are in/near store • Knows your purchase/search history • Delivers instant gratification • 5x more phones than PCs • In store sales are still 19x greater than eCommerce CAGR: +122% Mobile Payment Flows: $545B eCommerce Flows: $1,700B eCommerce Flows: $3,420B CAGR: 15% Total Flows: Global Payment Flows : $516T Global Payment Flows: $780T CAGR: +9% SOURCE: Yankee Group, Dec 2010; Press search; McKinsey Global Payments Map

  23. Moving forward: our core challenges Consumers / Merchants Industries Policy Makers Growth of Mobile payments ecosystem requires collaboration across industries Consumer and merchant adoption will be driven by a clear set of value propositions and overcoming concerns Policy and rule uncertainty hold back setting of standards and scaling of adoption Shareholders Key enablers need confidence in the mobile payments ecosystem to fund the significant capital required to create scale

  24. The Mobile Evolution Plethora of new participants with innovative payment solutions, many of which fall outside of formal prudential and consumer regulation Virtual Currencies Payment Facilitators Stored Value Accounts Mobile Billing “Alternative” Payment Categories Many of the protections in place for traditional ‘bank-grade’ payments, are at best optional in the new models, and rarely auditable and enforceable

  25. Mobile Payments: Driving mass adoption Progress towards broad adoption will rest on establishing a set of guidelines that define the minimal rules of engagement for mobile payments. Opportunity Areas for Improvement We have a responsibility to ensure that the above conditions exist to promote competition and innovation, fostering convenience, accessibility and inclusion.

  26. Citi’s vision: To be the World’s Digital Bank Pursing a payments-led… • Leveraging: • Electronic information to deliver unique value propositions to clients • Global infrastructure • Collaborative working models • Bringing together: • Global payments business • Our banking licenses • Our brand • Strengths in regulatory and risk management and…Information-led business Proximity Payments Money Transfer P2P Ticketing / Parking Mobile POS Mobile Commerce Mobile Bill Pay

  27. Accelerating change and driving the future The future is now! The road to success: Offer solutions that deliver real value, ease of adoption and security to consumers and merchants Drive agreement among leading Banks, Telcos, Networks, Merchants and Hardware Manufacturers on a sustainable business model and standards Create open solutions, multi-industry partnerships with distinct roles, common objectives and shared risk and rewards Support from policy makers ensuring safety and soundness of the payments system and a level playing field among all participants, encouraging innovation and investment

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