With over 5 billion mobile phones users globally (vs. only 2 billion who have credit cards), mobile payments are poised to eclipse all traditional forms of payment. While this technology has been around for nearly a decade, it is only recently that mobile payments have emerged as the ‘next killer app’. GP Bullhound, the Technology Investment Bank, yesterday organised a breakfast roundtable to discuss the future of mobile payments. After an introduction by Julien Oussadon and Amanjit Dhami from GP Bullhound the attendees were treated to an in-depth talk given by James Patmore – Managing Director, EMEA, of boku, one of the leaders in the mobile payments industry. The rise of social networks in the western world, alongside the popularity of online, social and casual games has created a large and growing opportunity in the mobile payments space. Furthermore, the proliferation of mobile across the emerging world has also led to the uptake of peer-to-peer mobile payments services. These markets are skipping a payment generation and aligning themselves with the Western world. It seems that, due to this new model, everybody is trying to get involved from mobile ad network InMobi’s SmartPay solution to Visa’s hotly anticipated mobile payment service. As James Patmore commented, mobile payments are ideal for those without credit or debit cards. Surprisingly, credit/debit card penetration is still low even in Western Europe whereas there are 5 billion mobile phone users globally. They also provide a more immediate means of payment, allowing users to transact at the point of purchase decision. James Patmore added “m-commerce will eventually supersede all other forms of payment from cash to credit cards and is potentially a trillion dollar industry”.

1. SECTOR UPDATE   MOBILE
MOBILE PAYMENTS – IT’S PAYBACK TIME
Mobile Payments Entering the Mainstream
The rise of the social networks in the western world, followed by their flooding of online,
social and casual games has created a large and growing opportunity in the mobile
payments space. The desire to monetize these games as they started to gain industry
wide traction in 2009 led to the development of micro payments to suit social gaming
platforms. These payment systems had to be implemented as the likelihood of using a
credit card to transact on a micro transaction was unlikely. This then led to the
establishment and growth of a new age of mobile payment pure play providers.
There are around two billion people globally who have credit cards, but five billion with
mobiles – the mobile opportunity is larger and has the potential of cannibalising an
established payment method. The proliferation of mobiles across the emerging world
has also led to the uptake of peer to peer mobile payment services. These markets are
skipping a payment generation and aligning themselves with the western world. This
gives mobile payment providers a global landscape to penetrate.
Consolidation Wave Looming for Suppliers and Customers
The mobile payments landscape is attracting the attention of a large number of players
from different sectors, resulting in a fragmented market today with only a handful of
players with scale. We expect M&A to naturally follow, with market rumours that both
Google and Apple have been bidding for US mobile payments specialist Boku. The
French mobile payments business of online media group Hi-Media has also been
formally announced for sale, with the current market appetite and interest being a key
timing factor. It has been reported that Zong is pushing aggressively to expand its
partnership base, trying to connect in as many geographies as possible. In order to
expand globally, resources and the best management teams will be required. We
therefore believe that the weaker players with limited financial power will suffer.
Payment platforms naturally suffer from commoditization (to differing degrees), with
mobile payments being no different. However, in order to avoid this margin pressure,
scale along with direct operator relationships will be important. The transition from
purchasing digital goods through the mobile to physical products such as train / concert
tickets will also fuel consolidation amongst platform providers. Furthermore, merchants
such as Bigpoint and Habbo (both gaming companies) have had to partner with multiple
vendors in order to ensure that their payments solution has sufficient geographic
coverage for their user base. This offers a key opportunity for consolidation – merchants
are already pushing for this today.
In this report we aim to delve into both the remote mobile payments space, along with
the mobile banking / peer-to-peer space – arguably the most developed areas where we
expect to witness the greatest innovation and consolidation over the next few years .
Important disclosures appear at the back of this report.
GP Bullhound LLP is authorised and regulated by the Financial Services Authority

3. Market Fundamentals Advancing Growth
The mobile payments sector has emerged as a fast growing segment in the mobile data
industry, with volumes growing at a CAGR of 56%, from $108 billion in 2010 to $633 billion
1
in 2014 . This rapid growth has predominantly been fuelled by the social gaming
phenomena where revenues are generated from the sale of virtual goods, lead generation
offers, as well as advertising. Revenues from virtual goods accumulated to $510m in 2010
2
in the US alone, with revenues set to reach c. $650m in 2011 and over $790m in 2012 .
EXHIBIT 1 - MOBILE MARKET FUNDAMENTALS
Source: GP Bullhound
Technology and Consumer Behaviour Driving Diverse Mobile Use
There are a number of technology trends which have surfaced and resulted in a more
favourable environment for the development of mobile payment services.
Firstly, we can consider the rise of global mobile handset shipments, which is set to reach
1.8 billion in 2015, up from 1.3 billion in 2010, representing a CAGR of 6% (Exhibit 2).
EXHIBIT 2 – MOBILE HANDSET SHIPMENTS – W ORLDW IDE
2,000
1,752
Mobile Handset Shipments (million)
1,688
1,600
1,600 1,482
1,375
1,308
1,166
1,200
800
400
0
2009A 2010A 2011F 2012F 2013F 2014F 2015F
Source: Portio Research Ltd.
1 Source: Portio Research Ltd
.
2 Source: eMarketer
GP Bullhound LLP

4. The smartphone has also risen as the handset of choice. This has resulted in users having
access to Internet on the go and through high quality usable interfaces. The number of
global smartphone shipments is set to grow at a 2010 – 2012 CAGR of 45% (Exhibit ).
EXHIBIT 3 - SHIFT IN MOBILE PHONE TECHNOLOGY TO SMARTPHONES
700
Global Smartphone Shipments 619
600
500 447
(million)
400
295
300
191
200 145
100
0
2008 2009 2010 2011 2012
Source: Portio Research Ltd.
Market information also tells us that the number of mobile Internet users is set to exceed
the number of desktop Internet users by 2014 (Exhibit 4). Therefore, as people spend
more time browsing the Internet and transacting, the ability to be able to pay for goods and
services via mobile will become increasingly important.
EXHIBIT 4 - MOBILE INTERNET USERS OVERTAKING DESKTOP
2.0
Internet Users (billion)
1.6
1.2
0.8
0.4
0.0
2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E
Mobile Desktop
Source: Broker Research
The iPhone and other smartphones have enabled the consumption of diverse media over
mobile, such as music, games, banking and shopping. It can be seen that iPhone and
other smartphone users represent 22% and 16% of total US mobile subscribers
respectively who are conducting personal banking on their mobiles (Exhibit 5). As the
emergence of viable mobile payment solutions occurs, we will see a large number of
subscribers using their mobile also for commerce.
GP Bullhound LLP

5. EXHIBIT 5 - DIVERSE CONTENT CONSUMPTION ON MOBILE DEVICES
70% 65% iPhone
61%
58%
60% 52%
48% 48% Smartphone
% of US Mobile
50% 43%
Subscribers
40% 42% 40% Average mobile
40% 35%
31% user
30% 23% 22%
21%
16% 18%
20% 14% 15% 14% 14%
12% 12% 12%
9% 9%
10% 3% 4% 4% 2%
0%
Music Games Social Web Search Instant News Video Personal Restaurant Online
Networking Messaging Banking Guides Shopping
Source: Broker Research
The emerging markets present a large and growing opportunity due to the sheer growth of
mobile subscribers (Exhibit 6). Africa and Middle East is set to grow at a 09-15 CAGR of
10.4%, as opposde to 2.0% in the western world. This proliferation has led to the uptake of
mobile related services such as peer to peer payments. It is very likely that these regions
may skip a payment generation. This will be especially true in emerging markets where
credit card fraud is a real issue. Mobile payment providers have a truly global
landscape to penetrate.
EXHIBIT 6 - MOBILE SUBSCRIBERS - REGIONAL
8,000 7,352
7,038
Mobile Subscribers (million)
7,000 6,675 406
6,263 395
382 630
5,787 623
6,000 368 613 687
5,255 352 601 664
638 563
5,000 4,656 335 585 608 557
1,228
560 549
574
1,156
314 541
1,076
4,000 538 535 531
989
494 518
889
785
3,000 500
678
3,838
3,644
2,000
3,417
3,156
2,857
2,521
2,132
1,000
0
2009A 2010A 2011F 2012F 2013F 2014F 2015F
Asia Pacific Africa & Middle East Western Europe
Latin America Eastern Europe North America
Source: Portio Research Ltd.
GP Bullhound LLP

6. The development of infrastructure, along with the uptake of mobile devices has meant that
the mobile payments market now represents a compelling sector for investors and
strategics to monetize. This market is set to grow at a CAGR of 56% between 2010 and
2014 to represent a $633 billion opportunity by 2014 (Exhibit 7).
EXHIBIT 7 – MOBILE PAYMENT VOLUMES – W ORLDW IDE
700
633
Mobile Payment Volumes (USD
600
500
416
billion)
400
300 270
200 171
108
100 69
0
2009A 2010A 2011F 2012F 2013F 2014F
Source: Portio Research Ltd.
The number of mobile payment users is set to grow at a CAGR of 43% between 2010 and
2014, representing 490 million users by 2014. This correlates to a penetration of 8% in
mobile payments in 2014, demonstrating the upside that still exists in this market place
(Exhibit 8).
EXHIBIT 8 – MOBILE PAYMENT USERS AND PENETRATION – W ORLDW IDE
700 9%
7.8%
8%
Mobile Payment Penetration (%)
600
490 7%
500 5.6% 6%
Users (million)
400 5%
4.1% 341
300 4%
3.0% 237
2.3% 3%
200 1.8% 166
116 2%
100 81
1%
0 0%
2009A 2010A 2011F 2012F 2013F 2014F
Source: Portio Research Ltd.
Certain commentators are predicting that companies which already have masses of stored
user payment information such as PayPal, Amazon and Apple are likely to dominate in
terms of market share. It is our belief however, that the early winners will be those pure
play companies who are specialized in the payments field with a strong installed direct
operator network. As we have witnessed in many other mobile sub sectors; establishing
and managing direct operator relationships and the associated revenue share, service
quality and end user data will be critical to establishing scale and profitability. When
payment transactions are concernced, time will be a critical factor affecting the user
experience. We note with interest that a number of the leading players, such as Zong,
GP Bullhound LLP

7. 3
Bango, Neomobile and Mindmatics, have a legacy business which has already
established much of the infrastructure required for a successful mobile payments
business. Those starting from scratch will have a steep learning curve ahead as they
establish their operator relationships.
Similarly to SMS, mobile payments might over time become a commodity leading to the
erosion of margins. Again, we believe only companies which have secured strong and
direct relationships with the operators, and are processing large volumes will be able to
defend their dominance and price points.
The mobile payments landscape is rapidly taking shape with numerous emerging venture
backed payment providers positioning against a small group of established players. All
participants are jostling to secure prominent and sustainable positions by diversifying their
offerings.
The mobile payments market consists of various subsectors with very different value
propositions to the end user. We have mapped out the key sub sectors in Exhibit 9.
EXHIBIT 9 - MOBILE FINANCE TAXONOMY
Remote Mobile P2P Mobile
Payments Payments
Mobile
Finance
Providers
Handset Contact
Mobile Banking Mobile
Payments
/ Zetawire
Source: GP Bullhound
Remote Mobile Payment Providers – this involves using the mobile phone as a channel
to make payments online with the resulting charge applied to the end user’s mobile phone
bill, credit / debit card, specified account etc. This area has seen rapid growth due to the
ability to transact online without the need for a credit card, along with the boom of virtual
goods. Mobile payments in this space are generally used for micro transactions, i.e.
transactions below a unit value of ~€40. Key players in this space include Zong, Boku,
3 Neomobile is a current GP Bullhound client
GP Bullhound LLP

8. Neomobile, Mindmatics, PayPal Bump, ebay and Google checkout amongst others. This
area receives the most analsyst attention due to societies continuing fascination and
deeper integration into the Web 2.0 Digital Media landscape. There are a multitude of
untapped digital media monetization opportunities, which will ensure rapid growth for
players acting in this space.
Peer to Peer Mobile Payment Providers – involves sending money from one mobile
account to another. This has applications in emerging markets where it can be used as a
payment transfer method between individual buyers and sellers. Key players in this space
include Obopay, KushCash and Luup. It is our belief that strong double digit growth in this
sub sector will continue to be driven by the developing markets where the mobile offers the
only viable route for secure payments due to the great deal of credit card fraud.
Mobile Banking Providers – provide a new interface between customers and their bank
accounts, utilizing mobile phones in order to complete simple transaction requests such as
checking account balances and making payments. This has become popular in emerging
markets, specifically around preventing account fraud. Key players include Citi Mobile,
JPMorgan and Wells Fargo amongst others. Mobile banking has been slow to take off in
developed regions, but stands to gain in the emerging markets where often the best form
of identification for a banking customer is their mobile number, as opposed to their home
address.
In Store Mobile Payment Providers – This allows users to scan their mobile phones
against devices at a merchants’ points of sales terminal in order to finance the purchase of
physical goods. Key players in this space include Mocapay and Mobile Lime. The
convenience of this payment route from an end user perspective will further erode the
credit card foothold and will mark a key milestone in the maturity of the market – when a
consumer is frequently using their mobile device to purchase physical goods in tandem
with virtual ones. However, the expensive and current primitive development of technology
and services in this space means that this area of payments will require significant
investment over the coming years.
The micropayments market has seen the most media hype and attention, with companies
such as Zong, Boku, Neomobile, Allopass and Mindmatics offering a variety of services.
In most of Europe, mobile payment companies are only allowed to bill for digital items that
have a value of up to ~€40 – i.e. micropayments. The definition of “digital” goods however
is often pushed by mobile payment providers from the usual gaming virtual goods to items
such as concert and public transport tickets (i.e. into the realm of the credit card). Virtual
goods or items which have a marginal cost of production will remain popular for mobile
transactions. All of these payments go directly onto the consumer’s mobile phone bill, i.e.
constitute “on operator” billing.
As the market matures, will we ever be in a situation where one can buy anything, and
charge it to one’s mobile phone bill, e.g. a TV from Amazon? Can the mobile phone bill
merely become another means by which to do one’s shopping? A mobile operator would
ultimately require additional infrastructure both in forms of technology along with support
personnel and billing capabilities to be able to facilitate payments for larger items from a
variety of sources. Compliance, risk systems and regulation would be necessary to allow
GP Bullhound LLP

9. high value transactions to take place. Mobile operators are not however, likely to move
lightly into the business of physical goods, which is a substantial deviation from their core
business, unless the ultimate benefits far outweigh the operational, logistical and
regulatory challenges which lie ahead. However, the micropayment market does represent
a significant opportunity for operators who are looking to offer value added services due to
the slowdown in their core voice and traditional data business. In Sweden, ~40% of
operator revenue is currently generated from micropayment purchases of public
transport tickets. This is possible in Sweden, as the travel companies are being charged
~7% by the operators for this service (the cost is not passed onto the end users).
From a physical goods merchant’s perspective, the ultimate payout they receive would
have to be much higher than is currently on offer to entice them into offering customers the
mobile payments option. This however, we believe will happen over time with the western
world converging to the higher payout models of Asia.
We believe the only way for operators to be able to take a share of the macro payments
market would be through the establishment of a credit card like system between the global
operators. This nearly took place, where in February 2003, T-Mobile, Orange, and
Vodafone formed a new Mobile Payment Services Association (MPSA). This association
had the goal of delivering an open, interoperable and commonly branded solution for
payments via mobile phones, designed to work across all operator networks. In June
2003, the consortium re-branded itself as SimPay. In February 2005, Amena and
Proximus joined the consortium. SimPay planned to create a pan-European framework
whereby merchants and content resellers would be able to charge for products and
services directly to a subscriber's bill. However, in June 2005, SimPay decided, "following
the decision of one of its founding Members not to launch SimPay for the foreseeable
future,...not to pursue its activity on a pan-European scale as originally planned." Activities
were put on hold effective June 24, 2005. In spite of this, the UK SimPay founders
Vodafone, Orange, Three, o2 and T-Mobile started work in 2005 on a project called
"Payforit" which was launched in 2007 to provide similar services in the UK.
Regulators in developing countries appear to be more relaxed around mobile billing for
non-digital goods. Mindmatics issued a press release in 2010 stating that they can bill for
non-digital goods in 28 countries (mainly developing). However, there are currently no
practical applications for physical goods billing in those markets since operator payouts
are often well below 50%.
Social Networks Driving First Wave Growth in the Micropayment
Market
Social network application developers have been successful at enticing users into their
service through free models (freemium), and creating revenue streams through selling
subscriptions and virtual goods. Given the reported conversion rate through mobile of up
to 10x that of credit cards, take up of the services by the merchants has been rapid. Before
the explosion of the social network and social gaming companies, mobile payments were
only used to pay for ringtones, logos and pictures, i.e. where the consumer was
purchasing mobile goods and services. With the success of online gaming and social
networks came the success of the mobile micro payments landscape which grew around
GP Bullhound LLP

10. the desire to purchase virtual goods. Early pioneers in this payment channel included
Zynga and Playfish.
It is clear that mobile micropayments will ultimately remain the dominant payment method
for social networks and gaming companies due to its ease of use, high conversion rates
and mobile savvy demographic.
While 2010 was shy of optimism, we see 2011 as the year when new payment channels
will start showing ROI on the hundreds of millions that have been invested so far.
 Within the financial services industry, BNP Paribas and Visa launched a mobile
payment pilot in France to test contactless technology
 Earlier last year, Barclays partnered with Orange to offer a mobile payments
service. In the US, AT&T, Verizon and T-Mobile partnered with Barclays and
Discover card to launch a mobile payments services
 In 2009, Citi India launched a P2P pilot based on Nokia’s Obopay technology
 Most recently (January 2011), Fifth Third Bank announced a partnership with
CashEdge to offer mobile payments to its customers. This service enables its
customers to make payments from their Fifth Third online banking account or cell
phone to any person who has an email address, a cell phone number or bank
account number. Fifth Third Bank envisages its customers will be using this
mobile payment service to pay babysitters, landlords and such like
While the technology has been around for more than a decade and the user perception
has remained the same, the threat of disintermediation cannot be discounted as new
entrants such as PayPal and Google make their way into mobile payments. As a result,
banks and telecom operators are taking a closer look at alternative payment technologies.
It is our belief that the credit card might ultimately suffer.
Japan and South Korea have been among the earliest adopters of mobile payments and
had their fair share of disappointments before mobile payments became popular only in
the past five years.
Retail financial markets are heavily regulated and more focused on ensuring privacy and
safety. On the other hand, the telecom sector is relatively young and in comparison a rich
source of technology innovation. Developed markets have reached saturation in both
sectors, hence it is important that the technology and service can foster new customers /
business lines without cannibalizing their existing revenue streams.
Market Potential
Emerging market leader Safaricom, a Kenyan mobile operator, posted 40% higher
revenue over last year on the back of mobile money initiatives like M-Pesa and M-Kesho.
M-Pesa was originally conceived by part owner Vodafone and the UK Government body
DFID as a micro-finance initiative for repaying P2P loans. The absence of a competing
payment infrastructure and having SMS technology, drove fast customer adoption which
spurred competition among African central banks to launch mobile payment services,
resulting in opportunities from mobile payment vendors like Fundamo, mBlox, Mi-Pay and
Sybase.
GP Bullhound LLP

11. In developed markets, online retailers such as Ocado, Argos, Nike and Net-A-Porter.com
have seen success with a mobile payment option for orders on their mobile sites. Mobile
ticketing has been used by event management, food, retail and transport companies, and
they are also starting to introduce mobile payments to provide a true on-the-go experience
to the customer.
Mobile Internet and SMS-based payments have achieved strong growth and penetration
owing to their ubiquity, implementation ease and the growth of mobile commerce.
Contactless mobile payments look promising; however, issues with technology
standardization, capital investment, competing infrastructure and security mean this does
not present a compelling business case to POS merchants as well as banks.
Technology & Security Developments Critical for Next Phase of
Market Growth
SMS and mobile Internet payments do not store any user credentials on the mobile device.
Companies like mFoundry, Firethorn, Monitise and Boku enable mobile Internet or SMS-
based payments through either a preloaded money wallet or by linking payment
instructions to a bank or debit/credit account. These payment channels can be easily
integrated with the existing infrastructure, and do not require huge investments or any
significant change to the business process.
Contactless technology-enabled mobile phones store the application information and
user’s credentials on a secure element attached or embedded inside the device. SIM
vendors such as Gemalto, Oberthur and NXP are working closely with device
manufacturers like Nokia, Sagem, Samsung and Motorola on contactless enabled phones.
Nokia has promised that all of its future smartphones will be NFC-enabled. The
contactless value chain has also created space for companies like Venyon, Cassis and
ViVOtech, which provide OTA (“Over-the-air”) provisioning of NFC-enabled (“Near Field
Communication”) SIM phones. From the acquirer standpoint, contactless readers like Visa
PayWave and MasterCard Paypass are required to read the contactless device.
Mobile payments require additional security, authentication and fraud management
because the mobile device could be stolen or the network itself could be hacked.
Payments processors such as Equens, Vocalink and Metavante have developed mobile
payment platforms for both issuers and acquirers. The lack of critical mass has meant that
the price points for contactless payments will remain high and hence prohibitive.
Boundaries Blurring Between Key Players in the Ecosystem
GSMA has identified 79 live mobile money deployments worldwide, in reality it should be
double this number, since most bank-led deployments have not been counted. Successful
deployments in the UAE, UK, India and Central Europe have been missed. Telecom
operators followed closely by mobile payments technology vendors have been the most
active partners in consortia-led deployments. The global development organization GGAP,
supported by the World Bank and over 30 government development organizations, sees
mobile payments and banking as a necessary tool for bringing financial inclusion to the
billions of unbanked people across the globe.
It is becoming difficult to distinguish banks from telecom operators, and vice-versa.
Banxafe, supported by leading Belgian telecom operators and RaboMobiel, owned by
GP Bullhound LLP

12. Rabobank in the Netherlands, provides special SIM cards enabled with a banking account
that allows users to buy from vending machines, pay at restaurants or pay parking using
SMS or NFC. To overcome financial regulations, non-financial companies have been
known to buy banks. China Mobile bought Shanghai-based Pudong Bank to expand its
mobile payments business. Western Union and MoneyGram have found that working with
several telecom operators and merchants in emerging markets offers them a wider reach
and quickens the money remittance cash-out process.
Direct Billing – a Key Evolution in the Customer Experience
The arrival of the application stores provided consumers with access to a vast array of
digital content via a new channel. Direct billing which was pioneered a few years ago
essentially provides a real time payment experience with a great degree of flexibility. Since
Premium SMS (PSMS) is an offline model, which is essentially by nature a messaging
protocol, not a payments protocol, the direct billing method stands to gain as it gives the
user a similar experience to an ecommerce purchase online. It also gives the merchant a
real time experience which allows them to prevent bad debt which often accumulates
through PSMS payment methods. Direct billing can be seen as the evolution of micro
transactions going forward.
There are a number of drivers which will ultimately lead towards the increased traction of
direct billing methods. Firstly, operators would like to offer users a one click payment
experience similar to that which exists in application stores already. Operators also feel
they have been cut out of Apple’s value chain, and are simply being used to provide the
infrastructure. Therefore, mobile operators have seen wholesale revenues decrease on
both PSMS and WAP based billing, and are urgently seeking measures to strengthen their
position in the ecosystem. In order for direct billing to be a real challenger, it will essentially
need to evolve to accommodate the purchase of physical goods alongside digital goods.
Certain payment providers have charged €100 on a mobile phone bill and not had any
complaints from the regulator. Therefore, it is their view that the payments landscape will
evolve to allow for these higher value transactions. In the UK the operators allow billing of
physical goods already up to a limit of ~£30.
In the direct billing scenario, payment companies have successfully pushed for higher
operator payouts due to the lack of revenue leakage which occurs through PSMS.
Consumer Uptake - Credit Cards are Not Always the Answer
Credit card details are considered as highly confidential, and with online credit card fraud a
real possibility, entering one’s details for micro transactions has not been popular. There is
also a time value associated with transacting using a credit card, as it means reaching for
one’s wallet etc. Being able to complete transactions by entering your mobile number is
quick and easy, and generally distracts a person from thinking too hard about the
particular buying decision – the goods in question are of a low value. The easier it is to
make a purchase, the more likely it is that people tend to spend on impulse.
Moreover, the target demographic for mobile payments include both young persons who
currently do not have credit cards, along with those who have credit problems. There are
GP Bullhound LLP

13. around two billion people globally who have credit cards, but five billion globally
have mobile phones.
Users are already accustomed to being charged on their mobile phone bill, or buying credit
in the shop, i.e. associating payments with their mobile. Therefore, using their mobile
number to then make payments should come as a natural extension.
Higher Conversion Rates Driving Merchant Behaviour
One of the key selling points for merchants to entice them into the mobile payments space
is the higher conversion rates, i.e. users who successfully transact. Merchants GP
Bullhound have spoken to discussed conversion rates of 5-10x higher when
offering mobile payment methods as opposed to traditional credit card input.
Conversion rates are also linked to operator coverage. A mobile payments company can
only offer coverage of a user base that is accessible through their operator relationships.
This is a key point for merchants to bear in mind when choosing a payment provider.
Sustainability of Revenue Model
The mobile payments value chain can be thought of as shown in Exhibit 7. The mobile
payments provider ultimately connects the merchant with the end user, handling all the
complexity associated with multiple aggregator / merchant partners on one side, and
multiple mobile operators on the other side. The operator payout differs greatly depending
on the geography, as it is directly linked to the mobile market dynamics of the country in
question.
Speaking with a number of mobile payments providers, it is clear that the operator
recognizes the fact that they need to increase payouts both in order to remain competitive,
and also to promote growth of the volume of mobile payments which will ultimately benefit
their own income. Developed market operators have seen a decline in their core voice and
basic data business, pushing them towards looking at mobile payments offerings seriously,
and being dynamic with payouts which have reached ~85% already in some regions. The
developed mobile markets in Asia already have payout ratios around the 90% region and it
is likely that western developed markets will reach the same level over time.
EXHIBIT 3 – MOBILE PAYMENTS VALUE CHAIN
n n
and Revenue
Players
Delivered
and User
Delivered
Charged
Service
Users
Service
Shared
1 1
Mobile Mobile
n Merchant Aggregator Payments Operator / Users n
Provider Web Brand
Source: GP Bullhound
GP Bullhound LLP

14. Revenue Share in Developing Markets following a Similar Path to
the Western Markets
In the developing markets such as India and Brazil, mobile operators are spoilt by
increasing mobile penetration and growth of both basic voice and data services. The value
added services market is not one they appear to place focus on, due to the ever increasing
revenue streams and high margins they are already generating. The incremental benefits
of offering value added services do not outweigh the implementation of such services, and
operators are also not currently prepared to share their margins on these products.
Operator payouts in these markets tend to be sub 50%, thus detracting merchants from
using such services. Individual market dynamics also need to be taken into consideration
when offering mobile payment services, with markets such as Brazil imposing additional
government taxes, which mean the operators need to offer higher payouts in order to
attract merchants.
As the subscriber base of operators increases, and price competition occurs in the
market (as has been seen in developed regions already), emerging market operators
will look to offer alternative services and mobile payments will become a key focus
area.
Innovation Required to Avoid Commoditization
Like any payments business, mobile payment companies will see their margins come
under pressure over time unless they have a clearly differentiated offering.
In order to win in the long term, providers will need to have direct operator relationships
and a large volume of transactions going through their platform, or offer a value add
service on top of the payments piece. We are seeing a number of the leading players
offer integrated services where they combine the core offering with consultancy,
user acquisition and service design to lock in clients and enhance margins .
Consolidation in the mobile payment market is accelerating. VC-backed company Boku
continues to fuel its growth with the acquisitions of Paymo and Mobillcash. The deals were
largely a way for Boku to gain customers and technology and expand its global footprint. It
is critical for mobile payments companies to achieve critical mass in order to emerge from
the plethora of rivals to establish themselves as credible leaders. Rumours have also
surfaced that Boku was in the middle of a bidding war from giants Apple and Google for a
reported five times revenue.
The mobile payments business of online French media group Hi-Media has also been
formally put up for sale, with the current market appetite and interest being a key factor in
the timing of the sale. While consolidation is currently happening at a micro level, we
expect that the two or three leaders of the space will ultimately be acquired by a larger
strategic acquirer (e.g. Obopay/Nokia).
While Apple is managing its development through its iTunes platform, it is our belief that
other players such as Google, Nokia, RIM, Microsoft, Palm and Facebook will be more
likely to acquire than build so as to catch-up with Apple.
GP Bullhound LLP

15. Neomobile acquired Onebip
Neomobile acquired Onebip to strengthen their position in the m-commerce space. By
integrating Onebip, a leading m-payment solution for game publishers, social networks
and online merchants, Neomobile becomes a “one stop shop” for web merchants in the
mobile world. The acquisition will create one of the Top 3 mobile commerce players in
Europe. Onebip offers a user friendly mobile payment solution to monetize digital goods
and services. Onebip also allows users (more than 2 million accounts as of transaction
date) to make online payments through mobile carrier billing as a powerful and simple
alternative to the credit card or other payment options. The technology developed by
Onebip coupled with Neomobile’s relationships with mobile carriers, especially in key
European and LatAm markets, will deliver value to international merchants.
PayPal acquires Fig Card
PayPal recently acquired Fig Card Corporation (April 2011), cementing its focus on mobile
within the payments landscape. Fig Card Corporation provides mobile payment solutions
for merchants in the United States. Its solutions allow customers to purchase goods using
their mobile phones. The company was founded in 2010 and is based in Boston,
Massachusetts. According to the PayPal blog, they were attracted to Fig Card since it had
"developed an extremely easy way for merchants to accept mobile payments in stores by
using a simple and very low cost USB device that plugs into the cash register or point-of-
sale terminal." Once the merchant added the USB device, the customer simply needed the
app to make a mobile payment.
Google
Google has made further inroads into the mobile commerce space with the acquisition of
Canadian start-up Zetawire. Zetawire offers an NFC-based wallet service called Walleto,
and was acquired in August 2010. Although the acquisition was small, it plays into a much
larger market. Google also acquired California based Jambool in August 2010 for $70
million. Jambool provides a virtual economy by offering a payment API that provides a way
to enable micropayments in an online game or social network application.
Google has interests in mobile advertising with Admob; transaction processing with
Google Checkout and Location Based Services with applications such as Google Maps,
Places and Latitude. We see Google acquiring further assets to orchestrate its offering for
the mobile device.
Nokia acquires Obopay India
In December 2010, Nokia announced the acquisition of Indian mobile payments solution
provider Obopay India. This is following on from an acquisition of a 38% strategic stake in
the US topco Obopay, which was completed in March 2009. Obopay helps consumers and
businesses to purchase, pay, and transfer money through their mobile phone, using
Obopay's mobile application, text message, mobile Web, widget, or Obopay.com. The
company has raised $137 million in funding to date.
GP Bullhound LLP

16. The acquisition follows on from a strategic relationship in India which was developed over
the years, where Obopay was able to utilize Nokia’s long term relationships with banks,
telecom providers and merchants in order to offer their service.
Sybase acquired PayBox Solutions
In December 2008, Sybase completed the acquisition of German mobile payment software
provider PayBox for $11.4m. PayBox allows users to purchase goods and services online
using their mobile, as well as conduct mobile banking and mobile peer to peer money
transfer. The price tag again is small for a company of Sybase’s size, but the strategic
value is large. Sybase will be able to use its existing mobile infrastructure to expand and
explore the field of mobile payments. Sybase are looking to become a major enabler of
mobile commerce.
Belgacom acquired Tunz
In March 2009, Belgacom completed the acquisition of a 40% stake in Tunz, the Belgian
based mobile payments solutions system. Belgacom in combination with Tunz went on to
launch a combined micro payment brand called pingping which went live in March 2009.
Belgacom provides the national infrastructure for the service, with Tunz being responsible
for the technology.
GP Bullhound LLP

17. Selected Private Placements
Date Target Investor(s) EV ($m ) Target Business Description
Provides a suite of softw are and hardw are for applications in
May-11 NeoMedia Technologies Yorkville Advisors, LLC 0.5
mobile marketing, couponing, ticketing and payments
May-11 Pagatech Goodw ell Investments - A consumer mobile payments service
Develops and markets identity-based mobile payment
May-11 Mobio Identity Systems, Inc. - 3.7
solutions
Apr-11 Fig Card Corporation PayPal - Mobile payment solutions for merchants
Apr-11 PayCommerce Inc. - - Cloud-based universal business payment solutions
Apr-11 My Mobile Payments Limited - 11.3 Mobile payment services in India
Apr-11 C-SAM - 15.0 Mobile payment technology solutions
Apr-11 MobileBest - 50.0 E-payment applications
Shanghai Handpay Information
Mar-11 Junsan Capital - Mobile e-commerce and mobile payment solutions
Technology
Payment solutions for car w ash, ticket printer, vending
Mar-11 Uphill AinaCom -
machines, parking, and door opening applications
Mar-11 ViVOtech Incorporated Motorola Solutions Venture Capital - Develops NFC payment softw are and hardw are
Feb-11 Mobile Commerce Ltd. Fiserv - Mobile banking and payment services
Feb-11 Rfinity Horizons Ventures 4.0 Designs and develops mobile payment transaction systems
Provides digital permit and mobile payment solutions for the
Feb-11 NOW! Innovations Estonian Development Fund 2.1
parking and transport sectors
North Bridge Venture Partners; General
Feb-11 Paydiant 7.6 Mobile payment solutions
Catalyst Partners
Jan-11 Ezuza - 0.8 Mobile payment solutions
Offers softw are applications enabling a mobile business to
Dec-10 Mint Wireless Ltd. - 0.5
process credit cards and other forms of payment
Nov-10 Fig Card Corporation - 1.0 Provides mobile payment solutions for merchants in the US
Provides softw are that enables mobile access to personal
Nov-10 Vipera Plc - 1.6
financial services
Designs and develops technology for mobile payment and
Oct-10 Pin-Pay SAL Middle East Venture Partners -
mobile banking solutions
Sep-10 XIPWIRE, Inc. - 0.5 Operates an online mobile payment platform
Provides online payments services to pay for virtual and
May-10 Boku Andreessen Horow itz -
digital goods w ith the mobile phone
Apr-10 Zong Matrix Partners 15.0 Offers One-off Payment Service
Provides mobile payment gatew ay services and diversified
Mar-10 Palmpay China - 5.0
mobile value-added services in China
Offers electronic parking services including cashless mobile
Jan-10 Parkmobile USA Fontinalis Partners, LLC -
payments
GP Bullhound LLP

18. Selected M&A
EV/LTM
Date Target Acquirer EV ($m ) Revenue Target Business Description
Apr-11 Fig Card Corporation PayPal - - Mobile payment solutions for merchants in the US
Mobile payment provider for online game publishers, social
Mar-11 Onebip Neomobile - -
netw orks and w eb merchants
Offers payment solutions for car w ash, ticket printer, vending
Mar-11 Uphill AinaCom - -
machines, parking, and door opening applications
Feb-11 Mobile Commerce Fiserv - - Provides mobile banking and payment services
Dec-10 Obopay Mobile Technology India Nokia Corporation - - Mobile payments solutions in India
Oct-10 iControl Mobile Payment Solutions RingGo - - Mobile payment to the parking industry
Oct-10 MobiCash Payment Solutions Labour Investment Holdings - - Provides mobile payment solutions through Mobipay brand
Aug-10 WiWallet Mobile Payments UCS Group 16.3 - Provides mobile payment platform solutions
Multidisplay Comercio e Servicos Develops mobile technological platforms, pre-paid cell phone
Aug-10 Cielo SA; American BankNote 51.5 -
Tecnologicos recharge and mobile payment platforms
Jul-10 Nimbus Systems Redknee Solutions 14.7 - Provides billing softw are and mobile payments solutions
Jul-10 Trivnet Gemalto 40.0 - Provides a transaction management engine
Provider of mobile payment solutions and value added
Jun-10 Kincaid Show Verde Unipessoal 9.8 -
services (VAS)
Jun-10 LinQpay Stakool 0.5 - Provides global and mobile payment services
May-10 M2 Europe Muscato Group Inc. 2,026.8 - Provides prepaid card and processing solutions including
Provides content management, publishing services, hosted
Apr-10 WIN plc IMImobile Europe 19.6 0.3x
mobile applications and mass market billing mechanisms
Provides mobile payment and transportation automation
Apr-10 VeriFone Transportation Systems VeriFone Systems 33.3 -
solutions
Source: Capital IQ, GP Bullhound
GP Bullhound LLP

19. GP Bullhound is a research-centric investment bank headquartered in London.
Per Roman Hugh Campbell Manish Madhvani
Founder / Partner Founder / Partner Founder / Partner
Christian Lagerling Alec Dafferner André Shortell
Founder / Partner Partner / Head of US Partner
Guillaume Bonneton Antony Northrop Frank Schmitt
Partner Senior Advisor Director
Claudio Alvarez Julien Oussadon Carl Bergholtz
Vice President Vice President Vice President
Sasha Afanasieva Amanjit Dhami Remy Valette
Associate Associate Associate
Justine Chan Florent Roulet Malcolm Ferguson
Associate Analyst Analyst
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