Mobile POS in Europe in 2012

CONFIDENTIAL: This mailer is solely for the use of the recipient. No part may be circulated, quoted, or reproduced without prior approval by First Annapolis Consulting, Inc.

Prepared for: A Recap on Mobile POS in Europe in 2012

Dramatic Activity, But No Clear Winners Yet

21 December 2012

Not For Redistribution

First Annapolis Consulting, Inc. | Confidential | 2

Mobile POS in Europe

21 December 2012

This report reviews what has happened with mobile card acceptance solutions in 2012. This document is an update to our first mailer from April 2012.

• Our April report defined "what is mobile POS?" and examined the positive and negative implications for acquirers

– "Mobile POS" refers to card acceptance tools which operate on consumer-grade mobile devices. • Includes simple "card terminal apps" or more complex

products, such as "tablet ePOS" and bespoke retailing apps for which payments is just a minor function.

– Mobile POS can dramatically expand acceptance, making cards practical for new kinds of merchants.

– Serving micro-merchants successfully requires innovation in the acquiring back office, not just a front-end product.

– Mobile POS is likely just an early step in a broader trend of innovative mobile commerce products.

• If you haven't seen it, download our prior report from http://www.slideshare.net/benbrownFAC/the-mobile-pos-opportunity-for-european-acquirers

http://www.slideshare.net/benbrownFAC/the-mobile-pos-opportunity-for-european-acquirers
















21 December 2012

Mobile POS solutions have appeared in Europe at a rapid pace this year.

May 2011 iZettle launches

in Sweden

May 2010 Square

launches in USA

Elavon offers mPOS in the UK

MasterCard issues mPOS

best practices

May June July Aug Sep Oct Nov Dec

StreetPay launches

in Germany

payleven launches

in Germany

WorldPay pilots "Pay as You Go"

Visa Europe updates mPOS best practices

JUSP (Italy) exits "stealth

mode"

O2 launches mPOS in UK

handpoint pivots to offer services direct to merchants

Intuit expands to UK from US

Adyen launches Shuttle mPOS

January 2012

SumUp launches

mPowa (UK) exists "stealth mode"

payleven expands globally

iZettle expands

to UK, DE

European Mobile POS Activity

Feb

Ingenico takes control of Roam Data

Mar

PayPal Here launches

(not in EU)

Apr



21 December 2012

Mobile POS offerings now exist (or are coming to market soon) across Europe.

• Mobile POS startups are moving very quickly to expand to more markets.

• Products are evolving beyond simple card acceptance apps, as they have in the U.S.

• Competition is likely to intensify in 2013 as traditional merchant acquirers start to offer mobile POS with improved back office processes.



21 December 2012

Early case studies demonstrate strong demand for mobile POS, even in highly developed cards markets.

0

10

20

30

0 2,000 4,000 6,000 8,000 10,000 12,000

Annual Transactions per POS Terminal

PO

S te

rmin

als

per

1,0

00

peo

ple

Finland

Holland Belgium

UK

Denmark

Canada

Sweden USA

Estonia

Australia

Hong Kong

France

Portugal

Mexico

Poland

Argentina

Spain

Japan

Germany

Brazil Italy

Greece Turkey

Taiwan

Russia

S. Africa

India China

Card Market Maturity

Existing Terminals ~200,000

New Mobile POS ~25,000

Market Expansion 12.5%

Existing Terminals ~10 million

New Mobile POS ~2.5 million

Market Expansion 25.0%

and others

• In 2012, iZettle expanded to Norway, Denmark, Finland, the UK, and Germany.

• iZettle signed 10,000 users at launch in Norway, an 8% expansion of that market.

• PayPal received 1,000 applications per hour the first day it offered mobile POS.

• In two months, PayPal signed 300,000 users across the US, Canada, Australia, and HK.

Source: First Annapolis Consulting estimates and analysis, company statements

• Square dominates the U.S. market with over 2 million users; Intuit (who just entered the U.K.) is a strong #2



21 December 2012

We project strong demand for mobile POS in Europe and around the world.

• Europe is still early in its development (for mobile POS) with about only 150,000 users across the EU

• Mobile POS in Europe is likely to grow rapidly, to about 3 million users by 2017

• The opportunity is spread across micro-merchants (who require a Square/iZettle-like solution) and traditional acceptors (i.e., larger merchants)

– Most players should focus on a particular merchant segment or product niche because business requirements and relevant distribution tactics are very different

• Mobile POS will cannibalize traditional POS terminals (and traditional acquiring services) to some degree

– Anecdotes suggest that up to 20% of SME attrition at traditional U.S. acquirers is now caused by Square

11

26

34

39

1 8

14

18

250 267

286 304

2011 2013 2015 2017

Addressable Market Actual Adoption Total Businesses

Global Adoption Forecast for Mobile POS Millions of Users (businesses, not units)

Source: First Annapolis Consulting estimates and analysis



21 December 2012

Mobile POS is evolving rapidly from a basic card acceptance tool to more complex propositions. We think tablet-based ePOS solutions will be a particularly important area in 2013.

• Winning products are likely to look quite different in a couple years than today's mobile POS offerings.

• Innovative products are increasingly integrated, towards both the merchant back office (e.g., ePOS and ERP software) and the consumer (e.g., mobile wallets and mobile ordering apps).

• In advanced forms, mobile POS is much more interesting to traditional acceptors – SMEs and large retailers.

Square App (Mobile Card

Terminal, Mag Stripe)

Square Register (Tablet ePOS)

iZettle (Mobile Card Terminal,

Chip-and-Signature)

payleven (Mobile Card Terminal,

Chip-and-PIN)

LevelUp (cloud-based Mobile POS)

Punchd (Mobile Loyalty)

Passbook (Mobile Coupons)

QuickBooks Tablet (ERP Software)

Pay with Square (Mobile Wallet)

GoPago (Mobile Ordering)

PayPal (Alternative Payments,

Cloud Wallets)

Likely Mobile POS Product Evolutions



21 December 2012

U.S. merchants are proving that mobile POS is far more than a micro-merchant phenomenon. We expect to see this same up-market trend flourish in Europe in 2013.

• Mobile POS is Apple's primary POS; clerks use an iPod and card reader sleeve to process sales anywhere

• In U.S., Apple uses an IPS/Datecs sleeve; in Europe, it uses Ingenico's iSMP sleeve

• Digital receipts available

• Apple has been using mobile POS for a decade (originally via a bespoke device)

• EasyPay app enables customers to use their own device to self-checkout

• Purchases are billed to the customer's iTunes account, if they have a domestic card on file

Major Merchants Using Mobile POS

• A 2011 study of 32 large U.S. retailers found that 63% were using mobile POS or planning to do so by 2012.

• JCPenney (a mass market U.S. chain with 1,100 department stores) announced that it planned to migrate its entire in-store POS estate to mobile POS and self-checkout in 2013.

• Nordstrom (an upmarket U.S. department store chain with $8.6 billion in sales) executives recently said, "[we] believe the future of our point-of-sale systems is completely mobile."

• Starbucks recently converted its 11,000 U.S. stores (and their $8 billion in sales) to Square/Chase Paymentech, but Starbucks will continue to use its MICROS ePOS system.

Case Study: Apple Store



21 December 2012

Mobile POS has received a mixed reception from the card schemes. Visa Europe, most notably, has "doubled down" on EMV and will require all readers to support chip-and-PIN.

Payment Industry Action on Mobile POS Security

Indicates negative industry action

Indicates neutral industry action

Indicates positive industry action

PCI Council decertifies all

mobile payment applications

Visa Inc. releases Best Practices for Mobile Payment Acceptance

PCI Council re-certifies purpose-built mobile

acceptance devices but not mobile POS apps

Visa invests in Square, gains Board seat; tells

Square to add encryption before going international

PCI Council establishes Mobile

Working Group

Visa announces requirement for US

processors to support merchant acceptance of chip transactions

by April 2013

Nov 2010

Early 2011 April 2011

April 2011 June 2011

August 2011

Schemes grant waivers from some rules in Europe to foster mobile POS

Late 2011

Mobile POS Best Practices issued by PCI, MasterCard,

Visa Europe*

May 2012

future

Visa and MasterCard prohibit the use of

non-compliant payment applications

Early 2013

Visa Europe to stop issuing waivers at year-end, enforce chip-and-PIN rules

July 2012

MasterCard invests in iZettle

June 2012

Note: (*) Visa Europe best practices version 2 released in September 2012

American Express invests in iZettle

October 2012



21 December 2012

Vendors are pursuing a number of different business models in the mobile POS marketplace. The market remains fragmented, though we expect evidence of leadership to emerge in 2013.

Mobile POS Market Sample

Facilitators & Acquirers & MSPs Solution Integrators Component Vendors

Full Stack Terminal Hardware Vendor

Mobile App Developer

Partial Stack Gateway

Back Office Services



21 December 2012

All types of acceptance players should think carefully about mobile POS. It creates a substantial new, unserved niche – but also has the potential to cause material disruption across the market.

Acquirers • Were slow to move (due

to legacy tech and risk /compliance worry) but now investing in mPOS

• Can just clear for others, but usually want to "own the merchant"

• Doing nothing risks disinter-mediation or marginalization

Gateways (PSPs) • Well suited for wholesale

"solution integrator" role

• New products, channel convergence create investment demands for gateways

POS OEMs • Well suited to provide reader hardware, though VeriFone

and Ingenico using mPOS to move into services (as solution integrators)

• Opens door for second-tier, low-cost, or foreign players

Schemes • Visa Inc. and MasterCard

have both invested in startups – and allow chip-and-sign

• PayPal has developed its own SME solution to make the leap offline – a major strategic evolution for them and a threat to acquirers

Business Software Developers • View mobile POS (especially

tablet ePOS) as a platform to deliver business software/services

• Both Sage and Intuit now offer mobile POS in the UK

Startups • Europeans (iZettle, payleven,

etc.) have been fast followers of Square and first movers in the EU

• Most act as payment facilitators, some focus on a wholesale "solution integrator" role

Positive Implication Negative Implication



21 December 2012

First Annapolis can help to analyze the mobile POS market, to develop your strategy, and to support implementation to get you into the market.

Opportunity Assessment

Strategy Development

Go-to-Market Support

Review & Improve Operational Processes

Establish Partnerships

Benchmark the Competition

Analyze Your Strengths and Weaknesses and the Market

Opportunity and Threats

Evaluate / Select Vendors (RFP)

Product Landscape

Market Sizing

Product / Proposition Design

Develop the Business Case

Customer Needs Analysis

Distribution Strategy

Pricing Strategy

First Annapolis Areas of Assistance

Relevant Experience

• Developed a pan-European mobile POS strategy for a large merchant acquirer

• Evaluated potential mobile POS partners / vendors for a European bank acquirer

• Assessed the disruptive potential of mobile technology on acceptance for multiple private equity investors and one of the world's largest POS terminal OEMs

• Advised a multi-national payment processor on opportunities in mobile POS (and mobile payments more broadly)

• Studied the mobile commerce activity of the top retailers in the U.S. and U.K.

• Extensive strategy, sourcing, and M&A experience over the past decade in acquiring, mobile, and alternative payments



21 December 2012

First Annapolis is a leading payments consultancy and M&A advisory firm.

Proven

• Founded in 1991 • Global HQ in Washington, D.C.;

European HQ in Amsterdam

Professional Expertise

• Focus exclusively on payments • Circa 90 employees • Balanced combination of industry,

functional, and consulting experience

Market Leadership

• Advise market leaders: ‒ Financial institutions ‒ Payment schemes ‒ Transaction processors ‒ Technology providers ‒ Retailers and leading global brands

Acceptance & Acquiring

Credit Issuing & Retailer Services

Deposit Access (Debit)

Commercial Payments

Mobile & Alternative Payments

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Partn

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Service Offerings

Global Coverage

Company Summary

Full Se

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FA Offices Representative Clients

EXPERIENCED COMMITTED

Baltimore - Washington, D.C. | Amsterdam

OBJECTIVE

CONFIDENTIAL: This mailer is solely for the use of the recipient. No part may be circulated, quoted, or reproduced without prior approval by First Annapolis Consulting, Inc.

Prepared for:

First Annapolis Consulting | M&A Advisory

http://www.firstannapolis.com

Keizersgracht 313-I 1016EE Amsterdam The Netherlands Phone: +31 20 530 0360 Fax: +31 20 530 0369

900 Elkridge Landing Road #400 Linthicum, Maryland 21090 United States of America Phone: +1 410 855 8500 Fax: +1 410 855 8599

Joel Van Arsdale, Partner [email protected] +31 20 530 0363 +1 410 855 8512

Ben Brown, Consultant [email protected] +31 20 530 0364 +1 410 855 8510

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Mobile POS in Europe in 2012

Economy & Finance