Payment Disruptions An Exploratory Approach

1. Payment Disruptions An Exploratory Approach

2. Discussion Topics • Type of Disruption • Current State • Future State • Catalysts and Tipping Points • Win/Loss: Economic impacts on the primary players • ACI Point-Of-View • Can we trigger this disruption • Reacting to the disruption • Impact of disruption on UP Strategy • Size of the new market created/old market destroyed • Creation of Proof Points • Creation of C-level Payment Insights

3. Type of Disruption: Radical change in checkout experience Acquiring Bank Issuing Bank Networks Processors 3rd Party Providers Merchant Consumer • Current State: Traditional POS at checkout • Future State: Traditional POS disappears – each smartphone becomes part of the checkout experience

4. Catalysts and Tipping Points Apple’s Mobile POS Schematic Apple’s Bar coded products Mobile POS for iTunes - EasyPay Card Holder Merchant Issuing Bank Acquiring Bank Apple has created a Mobile POS.for payments through iTunes called EasyPay. It turns any iPhone into a mobile credit and debit card terminal. This app can be used to buy ‘select accessories’ in the store by scanning the item’s barcode, making the purchase using a credit card associated with an iTunes account, and walking out.

5. While Starbucks and Square both rely on users to supply a separate credit card for payments, EasyPay links directly to your already-supplied Apple ID/iTunes credit card, charging your account directly for purchases Instead of having to deal with an often-overburdened Specialist, the customer can just launch the app, scan the barcode on any available product, enter the Apple ID password, and walk out with a purchased item. Catalysts and Tipping Points

6. Catalysts and Tipping Points For now, use of iTunes as a traveling wallet is modest; customers can use it to buy the cheaper accessories in an Apple store The phone’s location tracker has to be on, so Apple can verify that you are in one of its stores Apple may create a new service that would embed various payment methods in the iPhone and Apple may build a checkout system that turns every iPhone into a POS device Apple could make deals with major FI’s to allow account to account transfers. Extending this to the broader retail space could result in displacement of the traditional payment networks, drive interchange fees closer to zero and most importantly achieve a single message real time account to account transfer with real time settlement.

7. Future State Apple iTunes Acct Holder Merchant Acct to Acct Real Time

8. Innovation Management : Vision Creating a Product Roadmap that reflects superior products and an underlying mindset that is geared to keep ACI relevant and innovative in the payments domain. • Innovation management approach that forges stronger relationships with customers Customer Synchronous • Embedded Projects • C-level engagement • Innovation-oriented ACE • Technology Exploration • Business Scanning • Heat Maps/View Points Technology & Market Focused • Payments foresight to identify, create and leverage market disruptions • New Markets • New Products • New Business Models • Targeted Product Innovation to suit each P&L strategy 3 P&L Driven • Employee engagement • Line management driven • Talent & IP development • Innovation management that meaningfully impacts all the foundational elements (talent mgmt, IP, go-to-market, HR/Finance) on which the 3 P&L model is based Foundational Interlock

9. Payments Strategy Transformation of Transaction Origination  On-ramp to Payments Mobile  5 Billion concentrated units: Each on a potential POS device. Computers  3 Billion. Digital Merchants & Digital Wallets (Amazon, Google, PayPal, Apple). (a.) Traditional ATM’s / POS  5 Million.(b.) Mobile Outlets  5 Million. Bank Branches / Tellers  2 Million Western Union / MoneyGram, etc.  1 Million Strategic Implications: Combine Card / Mobile / DDA into Customer component so payment engine can still Route / Switch / Authorize based on new variables. Where we cannot control transaction origination point, move back one step in supply chain to run merchant processor systems (Chase Paymentech, FDC, Global Pay, Lynx, Nova, Vital, etc.). There being the new on-ramps to payment engines. 9

10. Payments Strategy – All Forms Mobile + Pre-Paid Wallet.. Enable Payment Engine to support Mobile Money. Create Mobile Pre-Paid Programs for mobile network operators. Mobile + Pre-Paid = Minutes. Bill-pay is based on Pre-Paid. Enable mobile carrier outlets as a merchant location for money transfer. Prioritize all forms Pre-paid Issuance& Activation. Target the Unbanked. Multiple Pre-Paid Formats. Promote Pre-Paid Issuance / Activation at POS. Cash Enable Teller transaction support in payment engine. Convert Cashto Other Forms. Elimination of Cash. Merchant Branded Pre-Paid. Enable conversion of P2P cash transactions into P2P (Pre-Paid or DDA). Pre-Paid issuance at ATM’s / Tellers. Value concentration is in Pre-Paid transaction path. Enable conversionof B2B cash transactions into B2B (Pre-Paid or DDA). Network Branded Pre-Paid. ID-based Payments. Single payment engine to multiple countries (India, China, etc.). Stimulate creation of domestic card association networks in India, China, Brazil, etc. Replicate Faster-Payments model into multiple countries. Mobile-based Credit: Bill-to-Mobile as a payment option. Pre-tran: Issuance on Mobile Wallet / Post-tran: Combined settlement. Country switch in India (NPCI), China, and others where fragmented EFT networks exist. Mobile – Merchant payment models based on Bill-to-Mobile. RGTS Solution - Globalization. Value concentration into the real-time transaction path. Centralized ACH Switches. Value concentrationinto the real-time transaction path. Transform ACH from batch to same-day-real-time. Mobile-Based-Credit: Issuance & Settlement. Messaging  Leverage SWIFT to broaden reach. Protect and grow existing base in PIN ATM, PIN Debit and Sig. Debit Market. Online Banking  Globalization. Trade / Supply-Chain payment management. Visa EU Switch. Merchant Retail. Embed real-time analytics into every payment engine. 10

11. Surround Cash Enable Payment Engine to support Mobile Money. Mobile Money: Cash is at the two end of the transaction & digital in the network. Therefore, the payment engine must support mobile money. Create Mobile Pre-Paid Programs for mobile network operators. Western Union, MoneyGram, etc. Enable mobile carriers’ outlets as a merchant location for money transfer. Prioritize all forms Pre-paid Issuance & Activation Cash  Pre-Paid  DDA  Credit is the natural evolution cycle. Makes all forms of Pre-paid issuance and activation of prime importance. Money Transfer Networks Western Union, etc. Mobile - Money Networks MPESA Promote Pre-Paid Issuance. Cash use at POS to purchase / activate Pre-Paid. Mobile Network Operations (Load) Cash Teller Convert Cash to Other Forms. 85% of transactions are still cash-based. This represents the biggest prospect as opposed to competing with a smaller share of Debit / Credit transactions. Currency Exchance ATM Enable Teller transaction support in payment engine. Cash Deposit, Withdrawal, etc. POS B2B P2P Pre-Paid issuance at ATM’s / Tellers. Cash In  Pre-Paid Out. Enable conversion of P2P cash transactions into P2P (Pre-Paid or DDA). Enable conversion of B2B cash transactions into B2B (Pre-Paid or DDA). 11

12. Surround Pre-Paid Mobile + Pre-Paid Wallet. Closed Loop or Open Loop (Mobile   Merchant Network) . Mobile + Pre-Paid = Minutes. Bill-pay is based on Pre-Paid. Card Association Networks – Visa, MasterCard, Amex, Discover, etc. Target the Unbanked. World population = 6 Billion (2 Billion Banked / 4 Billion Unbanked). Target is the 4 Billion Unbanked. Multiple Pre-Paid Formats. Health Cards, Payroll Cards, Fleet Services Cards, EBT (Gov’t.) Cards are all forms of Pre-Paid Cards. Merchant Gift Cards Payroll Cards Pre-Paid EBT (Gov’t.) Cards Mobile Top-up Elimination of Cash. Cash first transforms into some form of Pre-Paid making this the first frontier in the elimination of cash. Health Cards Fleet Svc. Merchant Branded Pre-Paid. As a $0 interchange alternative. • Value concentration in Pre-Paid transaction path: • Real-time Analytics • Fee Computation • Reward / Loyalty • Coupons / Ads Network Branded Pre-Paid. Physical & Virtual Cards. 12

13. Surround DDA Single payment engine to multiple countries (India, China, etc.). In-country debit networks that are Bank-owned – Replicate Interac model. Country switch in India (NPCI), China, and others where fragmented EFT networks exist. ID-based Payments. Financial inclusion, fingerprint authentication vs. PIN / Sig. / EMV in India. ACH Sig. Debit • Value concentration into the real-time transaction path. • Real-time analytics for all fraud types • Fee computations in real-time • e-Check  ACH Debit • ADS coupons in payment stream • Enhanced Authorization • Rewards / Loyalty in real-time • Intelligent routing to least cost networks • Real-time inventory management Wire Replicate Faster-Payments model. Into multiple countries (India, China, etc.) . PIN Debit Check Consumer Pre-tran: Issuance on mobile (Digital Wallet). Post-tran: Combined settlement for Debit, ACH, Check Payments, Data Mining and Analytics. ATM Online DDA Banking SWIFT, Corporate CMPS, Check RGTS Solution - Globalization. & other messaging Protect and grow existing base in PIN ATM, PIN Debit and Sig. Debit Market. Wire Centralized ACH Switches. ACH  SEPA as driver - enable cross-border. ACH Embed real-time analytics into every payment engine. Transform ACH from batch to same-day-real-time. Messaging  Leverage SWIFT to broaden reach. Merchant Retail. Interchange Innovation, Rewards, Line-item detail analytics. Online Banking  Globalization. 13

14. Surround Credit Stimulate creation of domestic card association networks in India, China, Brazil, etc. Compete with Visa / MC (Bank Owned). Mobile-based Credit: Bill-to-Mobile as a payment option. Card Association Networks – Visa, MasterCard, Amex, Discover, etc. Mobile – Merchant payment models based on Bill-to-Mobile. • Value concentration into the real-time transaction path. • Real-time analytics for all fraud types • Rewards / Loyalty in real-time • Coupons in payment stream • Real-time inventory management • Fee computations in real-time Credit Mobile Network Operations • Aspects of Mobile-Based-Credit: • Pre-transaction: Issuance on Mobile • Post-transaction: Net Settlements Domestic Card Association Networks • Trade / Supply-Chain payment management based on: • Established network association • AOD Model Visa EU Switch. Replicate success to other countries / regions. 14

15. Innovation Management : Strategic Objectives • MISSION STATEMENT • Be the leading provider of a unified payment solution A x B x C = D

16. Innovation Management : Mission OLD Establish a pervasive culture of Innovation at ACI such that our customers and the market associate innovation with the ACI brand. Strengthen ACI’s long term leadership in Payments through the systematic conversion of innovative product ideas into market leading solutions, services and business models. NEW

17. Innovation Management : Guiding Principles • Shift the focus of innovation management from one that was geared towards cultivating a culture of innovation and idea generation to one that has total focus on product innovation. • At the highest level demarcate all ideas that come into the Innovation Portal into 2 broad categories: Product and Non-Product • Non-Product Approach • Shift the responsibility of managing Non-Product ideas to the line managers. This will include idea evaluation, idea implementation and a reward mechanism for ideas that have been taken forward. • Create a management culture that finds capacity for management of non-product ideas within the bounds of their respective budgets. • Product Approach • Establish a system that will handle the vetting and investment needs for product innovation to operate at scale from incremental to game-changing ideas.

18. Innovation Management : Operating Framework (Non-Product) • All ideas (product and non-product) will be entered and tracked on the new Innovation Portal that is based on Saleforce.com • As soon as a non-product idea is posted, the line manager of the idea originator will be assigned as the owner of that idea • Idea owners have the responsibility to evaluate the idea based on an evaluation rubric to determine its intrinsic value and this serves as the filter to accept/reject ideas that come in. • The idea owner then has the responsibility of determining if the idea can be executed within his domain/business unit and if it cannot it is moved to a business unit where it can be executed and a new owner assigned • The owner is responsible for creating capacity to execute the idea, update the progress on the Innovation Portal and finally reward the idea originator through the Globoforce system. • Salesforce is used to generate monthly metrics by business unit and this data becomes part of the monthly ops review (ideas that month, ytd ideas, number accepted/rejected, number implemented) • Overall governance of this program resides with the operations council

19. Innovation Management : Operating Framework (Product) • All ideas (product and non-product) will be entered and tracked on the new Innovation Portal that is based on Saleforce.com • As soon as a product idea is posted it is classified into one of the following categories and assigned an owner who is expected to lead the vetting of the idea, its investment needs and eventual execution: • Game-Changing (owner: Ajit) • Product Incremental (owner: PLM) • Cross-Product Technology (owner: WA/Chief Architects) • M&A (owner: Maki) • The vetting and investment process is governed by the refined AIR/TRB charter • Game-Changing ideas will follow a path that will build-out the idea through creation of a payments point-of-view, investment logic and a demonstrable proof point. • Cross-Product Technology ideas will follow a path of a potential POC followed by a plan to include into one or more product roadmaps • Product Incremental ideas will follow a path of eventual inclusion in the current or a future period product roadmap • M&A ideas will be driven by the current M&A processes

20. Innovation Management : 2014 Roadmap

21. Innovation Management : 2014 Objectives and Key Results

22. Unleash Engineers … … and business will follow Complete freedom to the engineer • Communicate a clear mission for the organization • Focus on serving user needs Engineer rules • Bottoms-up organization • Process, Competitive Differentiation, Revenues, etc. will follow These are practices at Google • Not necessarily unique to Google – but, proven as it works so well for us • Many companies use comparable approaches to development

23. Necessary conditions to make an Engineer Tick Infrastructure Scaleable Infrastructure Scaleable Serving Capacity Singular Focus on the User Obsess About User Delight Practices Rethink development practices Engineers do it all Everything in the cloud

24. Scaleable Engineering Infrastructure Goal: Create very large scale, high performance computing infrastructure • Hardware + software systems to make it easy to build products • Focus on price/performance, and ease of use Enables better products • Allows rapid experimentation with large data sets with very simple programs allows algorithms to be innovated and evolved with real world data Scalable Serving capacity • Design to run on lots of cheap failure prone hardware • If a service gets a lot of traffic, you simply add servers and bandwidth. • Every engineer creates software that scales, monitors itself and recovers from ground up • The net result is that every service and every reusable component embodies these properties and when something succeeds, it has room to fly. Google • GFS, MapReduce and Bigtable are the fundamental building blocks • indices containing more documents • updated more often • faster queries • faster product development cycles • …

25. Engineers focus on Users … Blue ocean approach driven mostly by what users need • Continuous search for solutions to those needs that are poorly served or unserved. • Avoid solving problems that have been solved • Suppresses mediocrity, creating the space for creativity and innovation to naturally flourish. User experience focus • Focus on user experience – be obsessive • Make the product useful to everyone, not just the 'important' users / markets. • Revenue, brand and the usual sales concerns take a back seat to this focus • The result of this focus is a freeing up of the engineer to innovate • … 'lets beat competition', 'show me the money' are no longer constraining innovation

26. Rethink Development Practices Build on your own API • Develop the APIs first • Build your own application using the APIs – you know it works! • Take a call on which of these you would expose for external developers Sampling and Testing • Release early and iterate • Continuous User Feedback Public Beta • Open to all – not to a limited set of users • Potentially years of beta – not a fixed timeline

27. Engineers Do it All Complete Lifecycle Immersion • Engineers should innovate, prototype, build, deploy and support products and services entirely by themselves in small teams. • Deep visibility and understanding into all aspects of the product cycle results from this - imparting the ability to respond quickly to new needs and ideas. • InterGrouplets: Documentation, Fixit, Readability, Testing, etc. Fail Alright and Fail yesterday: • New products and ideas are staffed with the idea of failing fast - i.e. try out the core of the idea as fast as you can and try many of them • Failure has no stigma, but dragging on forever does

28. Everything in the Cloud Online Everything – even offline products cloud for permanent storage and where version updates can be delivered as needed without user interference • This removes the most significant barrier to innovation - fear - of mistakes. Engineers test their products, launch them quickly to early adopters who do more testing - more importantly give valuable feedback -> and the next iteration of this product then addresses this feedback. • Making products Online also eliminates the need for backward compatibility with platforms -> only a small set of browsers that users currently use, which frees up engineering from a) looking back all the time, b) worrying about 'what happens if' Shadow Applications • The final and most significant aspect of going online is having shadow products that • i) learn from user interaction, • ii) monitor and collect statistics about product effectiveness, • iii) Allow continuous, silent experimentation with the users where a small fraction of a percentage of the users may be at anytime using a new version of the product that is testing one or more specific hypothesis; hypothesis which verified will cause every user to get this new product within days if not hours

29. Global Development for Global Products Peer-2-Peer Dist. Development: No engineer is productive when he is not permitted to be innovative • Small teams: Solve problems for a global audience (many countries, languages and millions of users) • Forces out expensive shortcuts: add an engineer per country + language, add a manual labor force to weed out bad posts • Encourages innovation to solve the really hard problems via machine learning, statistical analysis, etc. • Engineers in each distributed centre develop their own competency Hire for fundamentals – not skills • Eng teams high on neurons + know how to implement their innovations • Product Managers should also be computer science educated • Process rigor to maintaining quality bar

30. More Necessary Conditions … Empowered with clear guidelines No bureaucracy Peer-2-Peer Model Environment for Innovation

31. Example Google

32. 1995: A research project for two engineers

33. We Have Just Begun Delivering on Our Mission Organizing the world’s information and making it universally accessible and useful

34. The Most Comprehensive Search Platform Google Video SearchThousands of TV programs and consumer-generated video Google WebSearchWorld’s most used web search Google Local Search Search for services near you Google News Search4000+ sources, continuous updates Google Image SearchMost comprehensive images search Google Search Appliance & MiniEnterprise /SMB website search solution Google Desktop Search Full text search over email, computer files, chats, web pages FroogleSearch 20M+ products from 150k sites Google Scholar Thousands of subscription-based scholarly and professional journals When a large North American partner removed the Google brand, its query volume dropped by 12%

35. A Deep Comprehensive Monetization Product Suite AdSense for Print Monetize offline content AdSense for SearchMonetize search results pages AdSense for ContentMonetize content pages AdSense for Error Pages Monetize DNS and keyword errors AdSense for Domains Monetize parked page inventory 80% of partners agree that Google delivers more $$ - European Partner Satisfaction Study, April 2005

36. Innovative Consumer Products Scholar Video Book Search Gmail & Talk Earth SMS Maps Orkut Local Desktop Sidebar Calendar Blogger Groups Picasa Google Mini “You have got to go to maps.google.com if you haven’t already…most beautifully drawn street map ever.” — David Pogue, New York Times

37. Secrets to Success Google News Google Scholar Much of Google Labs Core: search and ads Related: extensions of coresearch Exploratory Flat organizational structure

38. Thank You