Brion BonkowskiManaging Director

June 6, 2013

Boot Camp Week 2Improve your Payment IQ

Mechanics of an Electronic Payment - “Go with the (Transaction) Flow”

Notable Trends

What’s Next?

Wrap-up / Q&A

Introduction

Who is Interested in Payments?

Ecosystem Recap w/ Terms & Terminology

Electronic Payments Market Share

Electronic Transaction Types

Deep Dive of Transaction Flows Credit and Debit Cards - 4 Party Credit and Debit Cards - 3 Party Bank Payments (Non Real-time) Bank Payments (Real-time) Closed Loop & Digital Wallets (Point systems

too)

Agenda

My Story – Moving into the Payment Space

Who is ROI Payments?

Why a Boot Camp Series?

Introduction

Who? Roles including Finance, IT, Sales, Marketing, and Treasury are all involved in the payment chain

at some point It is rare when someone is specifically assigned to payments, as such many people find

themselves unprepared to navigate the payment ecosystem ROI Payment Webinars attract

A cross section of industries, including state/local government, non-profit organizations, eCommerce, SaaS and payment industry insiders

Senior Finance folks (CFOs, controllers, etc), technology execs, operations managers and sales/marketing team members

Why? People become involved in payment projects and need a holistic overview of the industry so

that they can dive deep into their project, work, etc. Wikipedia and Google searches don’t provide a comprehensive understanding

Result? Everybody can benefit from an increased “Payment IQ” Comprehensive understanding helps in today’s environment (rapidly evolving)

Who is Interested in Payments

Recap of Five Major Categories from Boot Camp 1: Schemes Issuers Acquirers Processors Technology

Authorization Process for reserving funds on a card holder’s account (reduces

available balance) Merchants use a gateway or terminal to perform authorizations

against a “front end” network and receive auth code No money changes hands during an authorization Merchants ~30 days to capture the authorization

Capture / Settlement Merchant uses an authorization code to complete a transaction Merchants generally close a daily batch containing multiple

auths Amount captured can be lower than original auth

Terms & Terminology

Void Removal of an authorization from the network Some networks do this realtime, others do not

Refund Used to reverse a capture transaction References an original authorization code

Funding Process whereby merchant receives funds from

captured transactions

Let’s Review Some Data regarding Market Share by Payment Type

Non Cash Payments Market Share US vs EU vs BRIC

USA & Canada EuropeBrazil, Russia, India, China

Card Purchase Volume in US (billions)

Now Let’s Do a Deep Dive on Transaction Flows

Most typical electronic transaction

Merchant Accounting System usually managed by Processor

Credit & Debit Cards: 4 Party System

1 2

34

Much simpler as less parties involved

Better management of risk (chargebacks, etc) due to visibility of both issuing and acquiring history

Credit & Debit Cards: 3 Party System

12

3

Note that the issuer and

acquirer are the same party

Originating/Receiving Depository Financial Institution

No authorization or guaranteed funds

Costs less than cards due to lack of interchange

Bank Payments (Non Real Time)

MerchantsOriginating Bank

Customers Bank

In several markets, banks or groups of banks have teamed up to provide Real-Time Bank Transfers.

Real-time bank transfers give an immediate online authorization/confirmation of funds availability.

Quick settlement (usually next-day), security for the merchant as payments are guaranteed (no chargeback)

Security for the consumer (consumer interacts with their own online bank application)

Often more cost-effective for higher value transactions, combining the benefits of a card-based transaction with the benefits of a bank-based payment.

Bank Payments (Real Time)

Closed Loop system doesn’t need to contact a 3rd party network for auth, settlement, etc - it is all Internal.

Best known example is a merchant gift card – with the most popular being Starbucks card

Digital wallets such as PayPal, Facebook Credits, etc are emerging

Decidedly simpler than open-looped systems (aka multi-party networks) because the network, issuance and acquiring is all the same company

These payment schemes generally come about in verticals or controlled markets (Starbucks, Playspan, etc)

Closed Loop & Digital Wallets

SBUX Card is a gift card morphing into a payment network

Innovation in payment networks being born from competing agendas: Google, ISIS, Amazon, etc

Mobile Payments: Lot’s of buzz but no real winner yet as there has been very little consumer benefit

New Business Models – LevelUp and Google are willing to give away processing in return for advertising opportunities and data

eWallets and Closed Loop networks will lead innovation vs multi-party networks

What’s Next and Should we Plan for Changes?

Relevant Acquisitions

American Express: Payfone for mobile payments Sometrics as a virtual currency and offers

platformeBay/PayPal:

FigCard- mobile payments Zong- enabling phone bill billing for ecommerce Gifts Project- enabling group buying

Google: Lending Club- a peer to peer lending platform TxVia- a prepaid processing platform Zave- digital coupons and loyalty

Google: Lending Club- a peer to peer lending platform TxVia- a prepaid processing platform Zave- digital coupons and loyalty

MasterCard: Linkable- turns ads into linkable offers tied to

credit cards Truaxis- a merchant funded offers network

Visa: Playspan – Game specific closed loop network

and players card Fundama – Mobile based prepaid platform for

unbanked consumers Square – App and Hardware for in person

payments

Contact Information:Brion Bonkowskibrion@roipayments.com212.812.4177 x: 2134

Questions & Contact Info