Welcome

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Executive Thinking On Payments

Part of the Vantiv Insight Series

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…and some data

How will consumers use mobile payments in 2017?

Housekeeping

Numbers reflect consumer-projected increase in mobile payments by shopping category

Today’s Speakers

Vantiv Insight Series Research Conducted by Vantiv and Mercator Advisory Services

• February 2012 • 1200 consumers surveyed

• June 2012 • 35 interviews with financial institution and tier1 merchant executives

Consumers asked about making payments now and in the future Industry Executives asked about how they are enabling payments

Representative Titles From the Executive Research – Merchants: • SVP Payments • SVP eCommerce • VP CRM • Dir. Global Risk and Payments Titles – Financial Institutions: • Bank President • SVP Payment Strategies • SVP Operations • Head of US Commercial Cards

Financial Institutions interviewed included major regional and smaller community banks as well as credit unions. Merchant companies interviewed were national in scale including: high-end and discount retailers, large drugstore chains, grocery store chains, a major hospitality chain, a quick food service chain, home improvement retail chains, a cellular phone company with retail outlets, a retail apparel conglomerate, an auto parts store chain, a large internet retailer, a large internet travel site, and a major airline.

Executive Perspectives What’s Keeping Them Up At Night?

NFC

Mobile Payments

Security

Prepaid Cards Mobile Wallets

Legislation

Cloud-based Payments

Customer Experience

EMV QR Codes Customer Retention

Data-Mining Encryption Rewards

Executive Thinking on Mobile Payments Security is a key concern, but executives are looking for solutions that reduce costs rather than increase them

“The phone is smarter and supports data elements to allow issuers better protection against fraud, which should result in lower transaction fees for merchants” - Discount Retailer

Executive Thinking on Mobile Payments Executives worry about implementation costs plus uncertain standards and evolving technologies

“The most challenging [thing] is to figure out which payment types a bank with limited resources should offer…. We can’t offer every type of solution that comes along.” - Regional Bank Executive

• Lack of Functionality • Lack of Standards • Disappointing Merchant Trials

Just Not There Yet

Executive Thinking on Mobile Wallets

OK, but which ones? A wide range of developers are coming out with mobile wallets at an increasing rate – more than 120 to date

Executive Thinking on Mobile Wallets

Source: IE Market Research Corp.

Merchant Exec Thinking on EMV Anxiety Around: • Compliance with mandates • Cost and complexity of implementation • Assumption of liability

“EMV is a big challenge for us because we are in the midst of upgrading terminals now with better software, but the EMV technology isn’t there yet…so that makes it very difficult for us to comply. We certainly won’t upgrade any sooner than demanded for that technology.” – Supermarket Executive

“Issuing an EMV card is just a direct expense for us – it’s 50% more expensive and we only get the added security impact if the merchants have the right EMV readers to accept it.” – Senior VP, Large Regional Bank

Anxiety Around: • Cost and Timing • Customer Reactions • What’s In It For Us?

Financial Exec Thinking on EMV

“Merchants are scared… Why would anyone want to give their sales data to get into the Google wallet? Merchants will lose ownership of their data and I could lose my customers.” - Airline Executive

Merchant Exec Thinking on New Threats Will we lose control of customers —and customer data?

“The banks should be hoping that VISA figures mobile payments out before Wal-Mart does, because if they don’t, the banks could very well be cut out of the equation.” - Community Bank Executive

Financial Exec Thinking on New Threats Will non-card-based mobile entrants cut into our revenues?

“We are taking a “wait and see” approach for mobile…. It’s not there yet.” - Credit Union Executive

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Cost + Uncertainty + Complexity =

WAIT and SEE

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Disconnect: What Consumers Want

Executives Think: Customers are focused on CONVENIENCE and REWARDS

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Customers Say: COST – not convenience – is #1 priority

Disconnect: What Consumers Want

say cost is critical in choice of payment method

say worst payment experiences are unauthorized, unexpected, or added fees

87% 80%

Disconnect: Timeframe

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1/3 of consumers think mobile payments will be common in just 2 years Execs Say: Not So Fast!

Expectations On Mobile Payments Becoming Common

Disconnect: Timeframe

1/3 In 2 Years

1/5 In 2 Years

1/6 In 2 Yrs

Consumers

Financial Institutions

Merchants 1/2 in 5 years

2/3 in 5 years

3/4 in 5 years

Younger Consumers

think that smartphone

payments will be common within 5

years

High-Value Consumers think

that smartphone payments will be common within 5

years

Disconnect: Demographic Differences

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Disconnect: Mobile Payments

Many Executives think mobile payments will be a vehicle for Card-based transactions – “electronic plastic.”

Consumers have high expectations for better tools, information, and convenience – an altogether compelling value proposition.

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Disconnect: Prepaid’s Role Many Executives think prepaid has its place, but is not yet an important payment tool

Consumers are increasingly interested in prepaid’s value props and expect to buy more

Now What? Move ahead • Take incremental steps, rather than “big bets” • Hold on to customers as payments evolve • Partner with providers to navigate changing landscape

Don’t Do Nothing

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Moving Ahead: With Mobile Payments

Financial Institutions should... Leverage the mobile banking platform • Add features ahead of payments • Learn how customers use mobile tools • Keep providing “pieces” of value as you evolve • Understand wallets before competitors do.

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Moving Ahead: With Mobile Payments

Merchants should... Integrate mobile into the shopping experience • Enhance in-store and online experiences • Incorporate mobile rebates, rewards, and coupons • Experiment to see what customers want • Transition to mobile payments when time is right

Moving Ahead: With Prepaid

Financial Institutions & Merchants should... Strengthen prepaid programs to take advantage of consumer interest • Balance information, ability to split transactions, etc. • Integrate into mobile wallet and loyalty programs

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“Financial institutions and merchants have an opportunity to take a leadership role in the evolution of payments. Those that take early steps to engage their customers will be better positioned to keep those customers tomorrow.” —Mercator Research

The Research Says:

• Despite uncertainty, wait-and-see may not be wise • Consumers want change sooner, rather than later • Consumers have high expectations for mobile and prepaid payments • Take small steps, experiment, learn, and

Stay Close To Consumers

Key Takeaways:

Q&A

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For More Vantiv Insights, visit vantiv.com/research

Thank You