How technology drives payments

1. Trends in Digital Commerce
Samee Zafar, Director
Sofia
24 October 2014

2. Global Financial
Services & Payments
Samee Zafar
samee.zafar@edgardunn.com
2
EDGAR, DUNN & COMPANY (EDC) is an independent global financial
services and payments consultancy. Founded in 1978, the firm is
widely regarded as a trusted advisor to its clients, providing a full
range of strategy consulting services, expertise and market insight.
The financial services and payments industries are increasingly
cross-border and global enterprises
EDC leverages its global footprint and 30+ years of experience to
facilitate development and implementation of successful
strategies for our clients that satisfy both their market-specific and
global needs
Today we serve clients in more than 45 countries on six continents
from eight locations worldwide
Experts in Digital Commerce Consulting

3. 3
From Atoms to Bits
(this) book is made of
"unwieldy atoms" that will
probably be replaced by a
digital copy by the time
anyone reads it
Nicholas Negroponte 1995

4. 4
Digital Transformation
Computing
Communications
Digital
Transformation

5. Old technologies…
1,10
1,12
1,14
1,16
1,18
1,20
1,22
1,24
1,26
1,28
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fixed-telephone subscriptions
Source: KPCB; World bank data; Google public data
2,00
3,00
4,00
5,00
6,00
7,00
8,00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mobile-cellular subscriptions
0,10
0,20
0,30
0,40
0,50
0,60
0,70
0,80
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Billions
Fixed wired broadband
1,00
1,50
2,00
2,50
3,00
3,50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Billions
Individuals using the Internet
… being replaced by new

6. Quicker Path to Critical Mass
38 years
Telephone Television Internet IPod
Within ten
years:
IPhone Facebook Android
Payments initiated by mobile devices will
outnumber transactions initiated by
plastic cards
50 billion devices will be connected to
the web – up from 5 billion today
Angry Birds
35 days
More recently
13 years 4 years 3 years 2 years 2 years 1 year
?
To reach 50 million users

7. Digital Disruptors
Host Pays 3% Guest Pays 6-12%
Source: Provider websites
7

8. Payments Innovation
Physical Digital
1950 1960 1970 1980 1990 2000 2010 2020
Cloud
computing
8

9. The Enhanced Payments Landscape
9

10. Beyond Transaction Facilitation
Source: American Express 2011
Confidential 10

11. &
11
Remittances, Personal
& Bill Payments
Point of Sale
mPOS / Acceptance
$
Remote Payments –
Digital Goods*
Remote Payments –
Physical Goods
Loyalty & Incentives
Social Commerce /
Virtual Currencies
Customer Data
Source: EDC; Forbes.com and other sites * Including in-app payments; carrier billing
MOBILE / DIGITAL WALLETS
Digital Commerce Matrix

12. Bringing it all together
P2P/Money
Transfer
Payment
Method
Financial
Management
Coupons Comparison
Shopping
Tickets/Passes Loyalty Rewards
$
Convenience Through Service Aggregation
12

13. The current favourite
Confidential 13

14. Other favourites
Confidential 14

15. New technologies show promise
Examples of beacons
Confidential 15
Beacons: significant potential for
retailers
Description: low-cost device based on
BLE (Bluetooth Low Energy)
technology
Why is it considering as significant?
 Does not affect current payment
infrastructure
 Can directly increase sales and influence
customer behaviour at point-of-sale
 Enable location-specific services such as
indoor navigation, advertisement delivery,
couponing, payments, file transfer, etc.
Current status: need to be further
assessed to understand full potential
1
2
3
4
Navigate
Check-in indoors
/receive
coupons
Proximity
marketing
Frictionless
payments

16. Biometrics - making a comeback
Examples of initiatives
Confidential 16
Biometrics payments: some potential
but significant concerns
Description: use of biological data
to authenticate a client and
authorise a transaction
Why is it considering as significant?
 Different types : fingerprint, palm vein
sensors, iris, voice
 Uniqueness of biological data for each
individual leads to strong security
 Potential to enable frictionless payments
Current status
 Different initiatives like Brazilian Bradesco
bank (palm vein sensors) or National
Security in France (fingerprint)
 Significant concerns regarding the use of
biological data

17. So .. What will be the impact on payment systems?
17
Merchant
Acquirer
Card
Issuer
Payment
Company
Card Payment System
(payment charged to payment card)
Merchants Consumers
Merchant’s
Bank
Consumer’s
Bank
ACH / Retail
Banks
ACH Payment System
(payment charged to bank account)

18. Existing leaders will have to innovate or become pure infrastructure
providers
Merchant
Acquirer
Card
Issuer
Payment
Company
Merchants Consumers
Merchant’s
Bank
Consumer’s
Bank
18
ACH / Retail
Banks
Wallets TSM’s MNO’s
Social
Commerce
Alternative
Players
Gateways /
PSPs
Device
Providers
Digital Content
Managers Disruptors
Social
Networks
Terminal /
mPOS
Providers
“Apple”

19. 19
Payment economics and regulatory intervention – a hurdle?
Source: EDC Analysis (2013); Reserve Bank of Australia
(2013); Mercator Advisory Group (2007)
Note 1: See graph on declining MSC in appendix
The Australian experience
In 2002, the Reserve Bank of Australia
intervened in the payment card markets
to reduce interchange fees¹
for banks operating in its domestic
market, impacting the issuers’
interchange revenue
With the decrease in revenue stream of
interchange, issuers have made some
strong alterations to their account terms
in Australia
Issuers increased credit card related fees
following the regulation as a way to
counter balance the losses in interchange
revenues
$61
$98
$40
$85
$140
$80
0
50
100
150
Average Reward Card
Annual Fee
Average Gold Reward
Card Annual Fee
Average Fee Revenue on
Bank-Issued Personal
Credit Card Accounts
2002
2006
+ 43%
+ 40% + 100%
Source: Mercator Advisory Group (2007)
Confidential
Aus$

20. Innovators with a clear advantage
Confidential 20
91%
70%
81%
82%
91%
72%
74%
76%
77%
82%
85%
0% 20% 40% 60% 80% 100%
Merchant and
merchant initiatives
Emerging
alternative players
Banks and financial
institutions
Web-related
companies
Card networks / payment
schemes
Established
alternative players
2014
2012
Players most likely to drive the growth of digital payments
Source: EDC Advanced Payment Survey 2014
Examples
No data available for 2012

21. © 2012 Edgar, Dunn & Company 21
Edgar, Dunn & Company
Candlewick House
120 Cannon Street
London
EC4N 6AS
Tel +44 207 283 1114
Mobile +44 7825 027 526
Fax +44 207 283 1007
samee.zafar@edgardunn.com
Samee Zafar
Director
Thank You