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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 . - PowerPoint PPT Presentation
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The Disruptors Yobie Benjamin Chief Technology Officer Citi Transaction Services / Citi Enterprise Payments Institutional
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Page 1: The Disruptors

The Disruptors

Yobie BenjaminChief Technology OfficerCiti Transaction Services /Citi Enterprise PaymentsInstitutional Clients Group

June 2012

Page 2: The Disruptors

The Disruptive Forces

Page 3: The Disruptors

The Mobile Phone: a profound redefinition of human community

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

6.9 billion: World Population

6.0 billion: People with access to clean water

5.2 billion: People with access to mobile phones

4.4 billion: People with reliable access to electricity

2.4 billion: People with access to the internet

1.6 billion: Muslims – most common religion

1.1 billion: Speakers of Mandarin – most common language

Page 4: The Disruptors

122% p.a.

6030

2013

245

2010

110

2014

10

2011 20152012

545

Source: IE Market Research Corporation 2011; Yankee Group 2011, Gartner Report 2011, Mobile Payments Today 2011, International Telecommunications Union 2011, Research & Markets 2011

Gross value of mobile payment transactions$ billions

Top brands leading the way

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

2015: 1.5B smartphone users, 25% of all active SIMs

Today: 627M smartphone users, 11% of all active SIMs

Page 5: The Disruptors

Mobile Payments today, and in the near future

United States

Google Wallet mobile payments

Mobile payments JV with AT&T, Verizon & T-Mobile

And more to come…

Europe

Mobile payments JV

NFC Hub

Asia-Pacific

PayPal “Mobile Payments Standard” enabling merchants in Singapore

Mobile payment service with HTC phones

Americas

Mobile payments JV in Mexico with Citi/Banamex, America Movil and Banco Inbursa

Mobile payments JV in Canada

Page 6: The Disruptors

Need content – top 5 predictions

Payments will look very different in 5 years

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

Page 7: The Disruptors

Mobile Payments: The opportunity

7 VeriFone Proprietary and Confidential – Do Not Distribute Outside the Company

2020Rapid Growth Ubiquity

Consumers

Merchants

Standardization

Regulation

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

Page 8: The Disruptors

Mobile Payments: What’s holding us back?

What’s in it for ME?

We need clearly defined, sustainable business models with value drivers for all parties in the ecosystem

What is the revenue model for providers:

Banks? Telecos? Software?

What is the value proposition for

consumers? For merchants?

What is the business case for investment: Senior Management? Boards?

PE?

Page 9: The Disruptors

Three disruptive macro forces

Consumer Empowerme

nt

Ubiquitous Connectivity

Growing Digital

Economy

Driving major change, particularly for Merchants, Banks, Telcos, Cable and Software Companies

Page 10: The Disruptors

Devices… So Much Fun!

Page 11: The Disruptors

“Hello World” - Goodbye Feature Phones!!!

Page 12: The Disruptors

Plastic = Blockbuster | Phone Payments = Netflix

Page 13: The Disruptors

Trending to the new reality

Page 14: The Disruptors

1,300

995945998

2008 2009 2010 2015

+5-7%

995

76

87

279

229

324

Latin America

Rest of the World

Asia Pacific

Europe

North America

Total

Source: McKinsey Global Payments Map

1 “Institutional” revenues do not include interbank clearing and settlement2 “Latin America” includes Mexico; “Rest of World” includes Africa, Russia, Turkey, and the Middle East3 “Paper” is defined as cash and check payments, and includes both consumer and institutional transactions

Current state of payments: revenues are expected to exceed $1.3 T by 2015

Global payments revenue regional breakdown 2

Percent, $ Billions, (2010)Share in paper 3

% of transactions

66%

98%

80%

97%

93%

92%

Strong organic growth in payments revenues, driven by non-US markets

Electronic migration enables us to:• Intermediate

transactions• Create services-based

businesses

Global payment revenues have reboundedafter declining by 5% from 2008-2009, $Billions, (2010)

-5% +6%

ESTIMATES

CAGR2010-2015

1-3%

10-12%

12-14%

3-5%

8-11%

5-7%

A 1% change from paper to

electronic delivers $30B

of revenue

Page 15: The Disruptors

5B connected consumers – creating new distribution channels for banks, corporations and governments

Manufacturer Direct-to-Consumer % purchases - Nth America Survey

2006

5%

17%

7%

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

Implications

Confidential & Proprietary

Source: Forrester 2011

2008 2010

Page 16: The Disruptors

Banks today operate in only two dimensions - new opportunities require 3D thinking

Banks Clients Global market

B B C

Brand

Banking licenses

Consumer and corporate operations

Payments and collection platforms

CustomerRelationships

Regulated product design and delivery

Global Corporations(i.e. digital goods and

services)

Governments (i.e. tax collection, benefits

payments, transit)

5B connected consumers

globally

G

Banks risk disintermediation by technology companies if they do not leverage their vast assets and address the core needs of new business models

Page 17: The Disruptors

Source: Yankee Group, Financial Access Initiative, World Bank, Mobile Thinking

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

US

- 91.0%- 89.0%

Brazil- 43.0%- 96.0%

UK

- 91.0%- 92.4%

Russia- 69.0%- 94.5%

India- 48.0%- 73.0%

China- 42.0%- 71.0%

Africa- 20.0%- 53.0%

Gap Narrowing Gap Widening

2 - 3 billion underserved1.8 billion bank accounts5.2 billion mobile users6.9 billion people

Mobile phones: The new local bank?

Page 18: The Disruptors

A significant need...

Mobile Money: 800MM potential accounts in 5 years, already 100+ services

Addresses the needs of 2.5B underserved

consumers1

...increasingly being addressed... …will generate a large number of new accounts

100+ services being launched

# Mobile Money accounts (MM)

+51%

2016

807

2015

684

2014

499

2013

326

2012

199

2011

107

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.

Page 19: The Disruptors

Current mobile payments services are closed loop with limited functionality

Current Goal: Mobile Wallets that provide a full range of payments capabilities

MNO #1Cash-in Cash-outMNO #1

Salary pay/benefits

Transfer from bank

International remittance

Merchant pay

Bill pay

Other MobileMoney services

A full range of payments are needed to provide a “bank-like” experience

Page 20: The Disruptors

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

Page 21: The Disruptors

Com

plex

ity a

nd S

ophi

stic

atio

n

P2P Money

Transfer

Cash-in Cash-out Int’lTransfer

Salary Payment

Bill Payment

Retail purchase

Cards Credit LendingSavings

Service Evolution High

High

VASSecurity Insurance

Transactional Core Payments Core Banking

Comparative product value for MNOs and banks

Driven by simple products that

leverage MNO airtime distribution

infrastructure

Value line for MNOs

Value line for banks

Driven by complex products that leverage bank transaction and

account systems

Diminishing benefits as individual actors go beyond core

product competencies

MNOS have more efficient entry economics but plateau quickly, banks have financial sophistication but are unable to get early economics to work

MNOs: Advantages, up to a point

Page 22: The Disruptors

Mobile payments and eCommerce will comprise an increasingly larger percentage of payments volumes

SOURCE: Yankee Group, Dec 2010; Press search; McKinsey Global Payments Map

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

2010

Global PaymentFlows : $516T

eCommerceFlows: $1,700B

Mobile PaymentFlows: $10B

2015

Global PaymentFlows: $780T

eCommerceFlows: $3,420B

Mobile PaymentFlows: $545B

CAGR: +122%

CAGR: +9%

Total Flows:

CAGR: 15%

Page 23: The Disruptors

Moving forward: our core challenges

Key enablers need confidence in the mobile payments ecosystem to fund the significant capital required to create scale

Industries

Growth of Mobile payments ecosystem requires collaboration

across industries

Consumers /Merchants

Consumer and merchant adoption will be driven by a

clear set of value propositions and overcoming concerns

Policy Makers

Policy and rule uncertainty hold back setting of

standards and scaling of adoption

Shareholders

Page 24: The Disruptors

The Mobile Evolution

Plethora of new participants with innovative payment solutions, many of which fall outside of formal prudential and consumer regulation

Many of the protections in place for traditional ‘bank-grade’ payments, are at best optional in the new models, and rarely auditable and enforceable

Payment Facilitators

Stored Value Accounts

Mobile Billing

Virtual Currencies

“Alternative” Payment

Categories

Page 25: The Disruptors

Mobile Payments: Driving mass adoption

We have a responsibility to ensure that the above conditions exist to promote competition and innovation, fostering convenience, accessibility and inclusion.

Opportunity Areas for Improvement

Progress towards broad adoption will rest on establishing a set of guidelines that define the minimal rules of engagement for mobile payments.

SafetyMobile payments systems must ensure the safety of customer data and the security of

the payments system

Soundness

The mobile payments system needs to be fully operational and scalable

FIs and merchants need ability to execute against guidelines, enabling clearing,

settlement, scalability, and performance

UbiquityMobile payments must be available across all

channels and devices to use anywhere and integration for merchants and issuers must be

simple

ComplianceThe mobile payments system must ensure

compliance with all state, federal and industry regulations and guidelines

Page 26: The Disruptors

Citi’s vision: To be the World’s Digital Bank

Bringing together: Global payments

business Our banking licenses Our brand Strengths in

regulatory and risk management

Leveraging: Electronic

information to deliver unique value propositions to clients

Global infrastructure

Collaborative working models

Proximity Payments

Mobile POS Mobile Commerce Mobile Bill Pay Ticketing / Parking

Money TransferP2P

Page 27: The Disruptors

Accelerating change and driving the future

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

The future is now!


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