This report is based upon information we consider reliable, but its accuracy and completeness cannot be guaranteed. Information provided is not all inclusive. All information listed is as available. For internal use only. Reproducing or allowing reproduction or dissemination of any portion of this report externally for any purpose is strictly prohibited and may violate the intellectual property rights of The Strawhecker Group. All sales are final, nonrefundable, and nontransferable © Copyright 2018. The Strawhecker Group ®. All Rights Reserved.

TSG eReport: Payments Industry 201

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The Payments Industry 201 report provides a detailed look into industry nuances, overlapping roles, and trends reshaping the current and future landscape of payments.

TSG’s 201 report covers the following topics: • Transaction flow – card present and card not present• Payments ecosystem and the blurred lines of participants• Emerging trends and technology themes• A detailed look at independent software vendors (ISVs) and payment facilitators• Payments glossary

Combined, TSG’s Payments Industry 101 and 201 reports provide a comprehensive understanding of the current state of the industry, participants, roles, and key trends. TSG’s Payments Industry 301 will cover the future of payments. For more in-depth research, please contact: tsgmetrics@thestrawgroup.com.

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Payments 201 - PREVIEW

Overview – Payments Industry 201

Table of Contents - PREVIEW

Overview of Key Payments Trends 4

Life of a Transaction –Card Present and Card Not Present

6

Blurred Lines Within the Payments Ecosystem 10

Emerging Trends and Technology Themes 12

Independent Software Vendors and Payment Facilitators

21

Payments 201 Summary 34

Payments Industry Glossary 36

Confidential. For discussion purposes only. © Copyright 2018. The Strawhecker Group. All Rights Reserved 3

Confidential. For discussion purposes only. © Copyright 2018. The Strawhecker Group. All Rights Reserved 4

Life of a Transaction – Card Present - PREVIEW

With card present transactions, the cardholder swipes or inserts a card when making a purchase and the transaction typically takes place at a store’s physical location.

Payment network remit funds to the acquiring bank.

If authorization occurs, the issuer withdraws and

remits funds through the payment network.

Acquiring bank credits merchant’s account, net of fees paid to the issuer, payment network and acquirer.

Merchant submits transaction information to acquirer, either directly or through an ISV or payment facilitator.

Acquirer transmits transaction, via processor, to

the appropriate payment network.

Payment network direct transaction to the respective

issuer for authorization. Authorization is sent to merchant via acquirer.

Authorization

Settlement

$

$

Consumer

Merchant

Merchant Payment network IssuerISO/Acquirer/ProcessorPayment Facilitator/ISV

For illustrative purposes only. Please reference the payments industry glossary for definitions, page 36.

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Payment Facilitators - PREVIEW

How does the payment facilitator model work?

Merchant agreement: The merchant agreement is between the acquirer and payment facilitator. The payment facilitator holds a merchant identification number (MID) with the acquirer and boards sub-merchants under this MID.

Settlement: When transactions are settled, the acquirer transfers funds to the payment facilitator.

Sub-Merchant

Acquirer

Payment FacilitatorSub-Merchant agreement: The sub-merchant agreement is between the payment facilitator and sub-merchant. The payment facilitator can board sub-merchants much quicker utilizing their already established merchant identification number, as they take on the sub-merchant risk.

Settlement: When transactions are settled, the payment facilitator transfers funds to the sub-merchant.

For illustrative purposes only

3.7+ MillionU.S. MERCHANTS IN

TSG’S ANALYTICS PLATFORM

40+OF THE TOP 50

ACQUIRERS SERVED

1,000+CLIENTS ADVISED

23+ YearsAVERAGE ASSOCIATE

EXPERIENCE

29ACQUISITIONS/

INVESTMENT TRANS

Management Consulting | Analytics & Research | Buy/Sell Advisory | eReports

The Strawhecker Group (TSG) is a fast-growing analytics and consulting firm focused on the electronic

payments industry. The company serves the entire payments ecosystem, from fintech startups to Fortune

500 companies. The firm provides its clients with advisory services, research and analytics to help them plan

and execute their strategic initiatives. Based in Omaha, a recognized payments industry hub, TSG is an

established leader in this high-growth, ever-evolving space.