Booz Allen Hamilton White Paper Overview

The Pay-Buy-Mobile EcosystemA Macro-Economic Perspective

BarcelonaFebruary 13th, 2008

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Asia/Pacific Ian Park,Principal, BankingTae YamauraSenior Asc., TelcoCurtis Pierce, Associate, Transport…

North AmericaWilly DommenPrincial, Transport

Michael CatalanoAssociate, TechnologyAnthony ScottAssociate, Technology…

Industry experts from Booz Allen’s Global Mobile NFC team devel-oped the GSMA Pay-Buy-Mobile white paper in summer/fall 2007

EuropeRoman FriedrichPartner, TelcoOlaf AckerPrincipal, Telco/TechChristopher SchmitzPrincipal, Financial ServicesHolger BrohmPrincipal, Financial ServicesStefan AmlingPrincipal, TransportOliver WyrschAssociate, TelcoPeter SpieckermannSenior Consultant, Telco...

Global Team with >25 members representing Booz Allen’s Telco, Banking, IT, Transport and Technology functions

Working with MNOs, suppliers, credit card associations, transport and technology providers on making m-payment a reality across continents

Booz Allen’s Global Mobile NFC Team

Roman FriedrichPartner, Europe, Dusseldorf

Oliver WyrschAssociate, Europe, Zurich

Peter SpieckermannSenior Consultant, Europe, Munich

Olaf AckerPrincipal, Europe, Frankfurt

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The white paper discusses the business potential of the Pay-Buy-Mobile use case from a macro-economic perspective

Pay-Buy-Mobile White Paper – Background Information

The white paper investigates the feasibility, market acceptance and business outlook for the Pay-Buy-Mobile ecosystem based on a standardized business case

It is complimentary to and differentiated from an MNO driven Pay-Buy-Mobile white paper, developed by a group of MNOs in 2007

White paper focus was on a stand-alone business case, to prove that even the most basic payment scenario with conservative assumptions can be profitable

The analysis was done for 10 markets plus 3 regions and covers a floating 5 year window from a macro-economic perspective (top-down)

The white paper is also meant as a marketing tool to promote Pay-Buy-Mobile and motivate sceptical stakeholders to join

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As it focuses on Pay-Buy-Mobile only, it reflects only a sub-set of potential revenue streams expected from Mobile NFC

TicketingMobile ticketing in– Public transport– Concerts– Sport events– Ski lifts

PaymentMobile payment at– Retail stores

(POS)– Restaurants– Virtual credit &

debit cards

MarketingLoyalty programmeseVouchersNFC enabled posters / billboards

Access ControlAccess control for– Office buildings– Computer

Systems– Cars

Mobile NFC

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In addition to the country-agnostic Pay-Buy Mobile analysis, the white paper covers 10 country markets as well as 3 regional cases

UK

Switzerland

Sweden

UkraineSpain

TurkeyPortugal

South AfricaNorway

RussiaNetherlands

IraqFrance

Poland

Nigeria

Morocco

Israel

Hungary

Egypt

Czech

Algeria

Emerging Markets

Italy

Greece

Ireland

Finland

Denmark

Germany

Developed Markets

Belgium

Austria

Europe

Customer Research by Serrula

Trial-Country1)

Customer & Merchant Research by Serrula

Note: Shaded countries are not in focus(1) In underlined countries Pay-Buy-Mobile is piloted by local MNOsSource: Booz Allen Analysis, Merrill Lynch Global Wireless Matrix

Emerging Markets

Developed Markets

Canada

USA

North America

Venezuela

Peru

Mexico

Colombia

Chile

Brazil

Argentina

Emerging Markets

Developed Markets

Latin America

Thailand

Taiwan

Philippines

PakistanSouth Korea

MalaysiaSingapore

IndonesiaNew Zealand

IndiaJapan

China

Bangladesh

Emerging Markets

Developed Markets

Hong Kong

Australia

Asia / Pacific

Country

Country and Region Overview

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The business case analysis is based on 3 pillars

Data from banks, credit card associations, research companies and other public sources

Public Research Expert Interviews Serrula Customer & Merchant Research

Interviews with >50 industry experts from

– Banks

– MNOs

– Credit Card Associations

– Merchants

– TSMs

– Handset Suppliers

Market research by Serrula

– 2800 customers (online research)

– 200 merchants(phone interviews)

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Objective of the analysis was a to prove that there is a profitable business case for all stakeholders involved

Key Stakeholders

NFC

Card Issuing Bank

Subscriber

Trusted ServiceManager

Merchant

Acts as middleman between operators and

banks. Provides infrastructure and services for virtual debit and credit

card applications

Acts as platform provider that rents out secure

slots for mobile applications on UICC and provides mobile network

Mobile Network Operator

Operates Point of Sales with debit or credit card terminals that are NF-

enabled

Is mobile subscriber and debit or credit card

holder. Has an NFC-enabled handset

Is as debit or credit card issuer and operates the card value chain with

acquirer

Handset Supplier

Manufactures NFC-capable handsets that

allow subscribers to use mobile NFC applications

Electronic Pay-ments Networks

Operates an electronic payment network

for card transactions

UICCSupplier

Manufactures UICCs(Universal IntegratedCircuit Card) for NFC-

capable handsets

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To get there we need to reflect the perspectives of each playerin the business case logic

Mobile NFC Ecosystem

Trusted Service Manager (TSM)

Mobile NetworkOperator (MNO)

Service Industries / Application Provider(Transport, Consumer, Restaurants, …)

Financial Services Industry

establish business model

defend payment monopoly

extend value chain leverage new technologiesand business models

Offer / Accept mPaymentschemes for the

respective industry appl. (eg. eTicketing)

Operate / Usesecure mobile

infrastructure formPayment appl.

Operate / Use secure mobile infrastructure for the respectiveindustry appl. (eg. eTicketing)

ServiceContract

ServiceContract

ServiceContract

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Monetary Flow for Pay-Buy-Mobile & Investments

We created a standard business case model and applied it to all 10 country markets

Existing monetary flowsNew for Pay-Buy-Mobile

CustomerCard Holder & Mobile Subscriber

Trusted ServiceManager (TSM)

Merchant

Fee per customer for updating card data e.g. card issuance, expiration and maintenance (business model scenario)

Interchange fee (approx. 50% for CIB,50% for acquirer)

Rental fee for USIM slot for Pay-Buy-Mobile application per card(business model scenario)Annual credit card fee and

potentially Pay-Buy-Mobile fee

MNO

NFC-enabledterminals

NFC-enabled handset

Paymenttransactionat POS(simplified)

Mobile subscription fee andpotentially Pay-Buy-Mobile fee

Rental fee for USIMslot for Pay-Buy-Mobile application (alternative scenario)

CIB

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The modelling of the business case is based on four separate cases for each stakeholder – each needs to be profitable

-

-

-

-

MNO Business Case

CIB Business Case

TSM Business Case

Merchant Business Case

P/LRevenueCost

Market: Pay-Buy-Mobile Subscribers

Revenue MNO

Cost MNOP/L MNO

Revenue Bank

Cost BankP/L Bank

Revenue TSM

Cost TSMP/L TSM

Revenue Merchant

Cost MerchantP/L Merchant

Pay-Buy-MobileSubscribers

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1

2

3

Customer and Handset Supplier Perspectiveare not described in individual cases

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Business Case Key issue #1: Who pays the MNO for Pay Buy Mobile services?

Alternatives:

– Customer pays MNO (per service, per card or general fee)

– Banks pay MNO (per service, per card or general fee)

Booz Allen Hypothesis: Banks are in a better position to pay MNOs for slot use

– they have the option to subsidize Pay-Buy Mobile fees (important in markets where customers are not used to pay fees for credit cards)

– fees multiply with each card put on the UICC (higher revenue potential for MNOs)

– rental fee agreements can be combined with other joint marketing activities

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Business Case Key issues #2 & #3: Can MNOs get a share of the transaction fees? Will it be cheaper for merchants?

Acquirer1.09€

Issuer1.16€

Acquiring Prozessor

Issuing Prozessor

Network OperatorMerchant97.60€

Cardholder100.00€

CardAssociations

0.15 €Charges for

Clearing/Authorisation0.07€

Charges for Clearing/Authorisation0.08€

Interchange (1.24 €)

ProcessingFees

Dis

agio

2.40

€

Terminal leaseand transaction

fees

Annual Fees

Sample Money Flows in Card Transactions

Transactions

ProcessingFees

X.XX€ = money flows

NUMBERS ILLUSTRATIVE

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To be successful, the Pay-Buy-Mobile ecosystem needs to be open to reach significant market share and offer benefits to all players

All CIBs and MNOs in a market can interact with each other securely and conveniently (e.g. through a TSM), limiting the amount of necessary interfaces and allowing easy integration of new market participants

Merchants, CIBs, and MNOs cover all potential (sub-)markets, and customers have access to any merchant POS

The business model allows profitable business cases for all stakeholders —stakeholders do not conduct business to the detriment of any other player

The customer will have a relationship with MNO for the mobile subscription and with the CIB for the debit or credit card

Standards will drive contactless card technology, security requirements from banks and credit card companies, as well as handset certification. All players need a guarantee to invest in the “right” technology

M-marketing and value-added services based on a consistent infrastructure will give Pay-Buy-Mobile an additional push

Key Features of Proposed Business Model

Open Business Model

Full Market Coverage

Cooperative Approach

Shared Customer Relationships

Standardization & Interoperability

Adjacent Revenue Streams

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Key driver of the case is an expected sales uplift at the POS due to speed & convenience that will impact customer purchase behaviour

Speed & Convenience

Cash Replacement

Key Drivers of Pay-Buy-Mobile Business Case

Pay-Buy-Mobile Subscriber Fees

MNO Key Enabler

The MNO is the key enabler (and beneficiary) of the business model, as he invest in core infrastructure (POS upgrade primarily driven by banks initially)

Country-specific – strongly influenced by annual card fees customers are used ot pay (or not)

Range of €3-€6 per year in countries where customers are used to pay for cards

Speed & convenience are crucial for most merchants to defend and grow sales

Direct impact on revenue of the CIB (interchange fees) and indirectly drive revenue for MNOs and TSM

Often mentioned as a key driver, but very limited potential to reduce cash handling costs from our analysis (in some countries large merchants are even paid by bank for cash handling)

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Thank you! Your questions?

Olaf AckerPrincipal / Mitglied der Geschäftsleitung

Booz Allen Hamilton GmbHGrüneburgweg 102

60323 FrankfurtGermany

Mobile: +49 170 2238 453

acker_olaf@bah.comwww.boozallen.de / www.boozallen.com

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