Dinosaur Banks Still Rule Payments?

1. Dinosaur Banks Still Rule Payments? Robert Blair • Other trademarks, service marks and trade names referenced are the property of their respective owners.

2. Agenda Are millennials ruining everything? Why are people talking about FinTech? This doesn’t relate to Corporate Finance, does it? The Low Down on P2P payments

3. “Given their willingness to trust newer companies, the financial rise of ‘Millennials’ presents an opportunity for disruptive forces to reengineer the financial system. Goldman Sachs 2015 Money Survey Almost no economic moat is safe as their influence continues to expand…reputations of more established companies are viewed as challenged by this generation.”

4. Why The Hype? most diverse 18-35 years of age high student debt $1T outstanding $700B purchasing power most educated in US 1.65 M bachelor degrees 83% sleep w/mobile 92MM bigger than boomers Source: MasterCard, Millennials and Diversity 2013, various

5. Agents of Change 60% expect user experience to be consistent across channels 33% believe they won’t need a bank in 5 years 18% switched banks in last 12 months All 4 of the leading banks are among the 10 LEAST loved brands 84% say user generated content & reviews influence their decisions 71% would rather "go to a dentist” than listen to what their banks are saying 50% are counting on tech companies to overhaul banks Sources: Goldman Sachs Global, Pew Research, The Financial Brand, Adweek 2014, Disruption Index 2014

7. Higher Expectations speed: 1 hour & same day delivery A money transfer takes 3 days, but I can get toothpaste in an hour? total transparency I know where my pizza is, what about my money? added value: beating the line I can beat the line at Starbucks & Disney, why not at the bank? simple: mobile approvals I can approve a big invoice on my phone, why not a wire?

8. Commerce > Payments Purchase intent is the influence of what and where something is purchased. Info to support all parties to the transaction. Data is used to support decisions and influence the next transaction. Before Purchase Influence howthe purchase is made. This is where most bank and traditional payment providers play… a.k.a. payment rails. After Purchase COMMERCE EXPERIENCE During Purchase

9. Whose Burning Platform?

10. Why Are People Talking About FinTech? New entrants will continue to challenge traditional financial services providers forcing them to innovate and adopt new technology, or risk being “left out”. 3 Compliance Remainsa Key Concern 1 Continued Disruption of Financial Services In 2014, Payments and Bank Technology accounted for 83% of total FinTech Investment dollars 2 Demand for Data in Every Decision FinTech Investors have increased 4 times since the end of 2010 4 Arms Race Between Old & New Fin Services Q1 2015 894 2010 223 400% increase over ~ 4 Years Payments & Banking Tech Lead Growth in FinTech Investment ($BN) Increase in FinTech Investors FinTech Investment has experienced a period of “hyper-growth” since 2012 and is expected to push $50BN in 2020E ~18% CAGR 123% CAGR

11. Paper To Electronic Shift Continues! Paper based transactions continue to decline as card and ACH build off of a strong and rebounding economy. Lockbox and check processing transactions will continue to decline. SOURCE: McKinsey U.S. Payments Map, Release Q1-2015

12. Continued Adoption - ePayments And Mobile Organizations’ Plans to Implement Mobile Payments Over the Next Three Years (% of Organizations) Likelihood of Converting Major Suppliers to B2B ePayables 77% 55% 12 Source: 2013 Electronic Payments Survey, AFP

13. Competing Internal Priorities Cost is the number one factor driving electronic payments. Transaction Cost Savings Transitioning from Paper to Electronic Source: Aberdeen Group, May 2012 Source: 2013 Electronic Payments Survey, AFP

14. Non-Bank Providers – Payments & e-Invoicing NOT EXHAUSTIVE Small Business Focus Mid & Large Focus

15. Top Of Wallet Game Has Become Complex Additional Plays: Traditional Plays: 4% Top of merchant Top of physical wallet 11% Top of Phone/Browser • Acquisition • Multi-purpose usage plays, i.e. rewards • Balance growth • Partnerships • Technology/Integration • Incentives/relationship rewards • Multi-channel communication • Data • Acceptance Top of device (Internet of Things) Mobile Proximity 92% Wearables Devices 91%

16. Investments In Digital Commerce Merchant Acquirer Network Issuer Cardholder Third-party Wallets Merchant Wallets Network Wallets Issuer Wallets Personal Financial Mgmt. / Loyalty Third-party Money Movement POS In-App &/or Browser

17. What Is At Risk? Payments revenue eroding thru “Tender Steering”, competing offers/value Brand Takes a Back Seat Trust in non-banks growing >50% of PayPal B2C transactions don’t use a debit/credit card* 5% discount using ACH 2011 2014 2011 2014 Trust banks Trust in non banks (e.g., Apple) Top of Merchant - Partnership Bank brands are not displayed and genericized @ checkout *Javelin, 2015 *comScore Q42015 Visa & MC /PayPal deal assists in removing some of this risk.

18. P2P • P2P industry is fragmented • For banks, P2P provides limited direct revenue benefits • Clients engaged in P2P tend to be more profitable • P2P has become more competitive/defensive, particularly among younger/mobile-centric clients • SunTrust doesn’t offer real-time or mobile-based services Real time services offered at no cost to user P2P payments are person-to-person payments via a cellphone or email address; lately, they’ve been catching on because consumers can easily send or receive money anytime via their smartphone or online for a low, or no, fee.

19. How did this all start? Blockchain technology was created in tandem with BitCoin, the cryptocurrency, in 2008. • The Basics • Software derived digitally (Cryptocurrency) and online payment system • Requiresno central authority • Transactions recorded in a decentralized public ledgerdistributed globally • Public ledger is immutable and transparent • Runs on a distributed networkmade up of ‘miners’ who run nodes and maintain the public ledger

20. What Is Blockchain? Is It BitCoin? DISTRIBUTED SECURE AUTOMATED SHAREDPUBLICLY* TRUSTED *Banks are primarily working toward permissioned “private” blockchains

21. Distributed There is no central authority required to approve transactions and set rules; each node is equal, and the more nodes, the more robust the network. CENTRALIZED DECENTRALIZED DISTRIBUTED A ‘Node’ EXAMPLE OF A BLOCKCHAIN NETWORK REGIONAL CHECK CLEARING IN THE 1990s

22. Implications For Financial Services In trading and payments, a central authority has been required to connect nodes and establish rules – performing “clearing and settlement;” clearing houses and exchanges. Banks have legacy systems and maintain large rosters of employees to process. Costs Speed Transparency Capital

23. Sample Use Cases* Payments Secure Records Trade Clearing and Settlement Smart Contracts • Reduce correspondent • bank needs • International payments • Direct clearing • Micropayments • Real estate • Transfer title • Release escrow • Peer-2-Peer insurance • Healthcare records sharing • Intellectual property • Nasdaq: 0 day settlement for private companies

24. Banks are still the trusted & regulated underpinning for commerce Dinosaurs ROCK!