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T H E B EST E X ECU T I O N V E N U E | 1

Vantiv, Inc. (NYSE: VNTV) is a leading payment processor differentiated by an integrated technology platform. Van-tiv offers a comprehensive suite of traditional and innova-tive payment processing and technology solutions to mer-chants and financial institutions of all sizes, enabling them to address their payment processing needs through a single provider. We build strong relationships with our custom-ers, helping them become more efficient, more secure and more successful. Vantiv is the second largest merchant ac-quirer and the largest PIN debit acquirer based on number of transactions in the U.S. The company’s growth strategy includes expanding further into high-growth channels and verticals, including integrated payments, ecommerce, and merchant bank.

Vantiv is making payments smarter, faster, and easier for all our partners, as well as the consumers they serve. From the largest retailers in the U.S., to the coffee shop down the street, we are leading the transformation in payments through chip-enabled cards, mobile wallets, eCommerce, and technology solutions to businesses of all sizes. We are leading in high-growth channels including integrated payments, merchant services, and eCommerce while con-tinuing to securely process payments for more than one third of the top 100 retailers. For more information, visit www.vantiv.com.

July 2015

Jordan McKee, Senior Analyst, [email protected]

Mobile Point of Sale: Smart Devices Earn a Growing Share of Global Payment Acceptance

Market ForecastTABLE OF CONTENTS

Mobile Point of Sale: Evolution and Revolution 2

Methodology 2

MPoS Market Overview 3

Global mPoS Forecast: 2015-2019 8

Emerging Commerce Trends Provide Fuel for Continued mPoS Growth 13

Conclusions and Recommendations 15The Bottom LineMobile point of sale growth continues to accelerate as the technology expands and deepens its reach across vertical industries, merchant tiers and geographies. 451 Research projects the global mPoS installed base will grow at a CAGR of 32% between 2015 and 2019, exceeding 54 million units by the end of the forecast period.

Key Findings• The global mobile point of sale (mPoS) installed base will grow fourfold between

2015 and 2019. Diverse factors such as enterprise deployments and financial inclusion will serve to increase the installed base at a 32% CAGR, with the market reaching more than 54 million units by the end of the forecast period.

• APAC will become the largest mPoS market by 2019. Rapidly increasing payment card penetration against the backdrop of a constrained PoS network has catalyzed significant mPoS activity in APAC, expanding the market by more than seven times between 2015 and 2019.

• Enterprise adoption of mPoS will drive growth in developed markets. In the US, a strong growth opportunity exists in businesses with 500-2,499 and 2,500-9,999 employees, given that 46% and 48%, respectively, are planning or considering mPoS implementations.

• Rapidly increasing mobile line penetration in emerging markets is catalyzing mPoS growth. In the Middle East and Africa, for instance, mobile line penetration is increasing faster than in any market, growing from 97% (1.34 billion) in 2015 to 111% (1.71 billion) in 2019.

• MPoS will not displace traditional PoS terminals in the foreseeable future. The impact of mobile on the traditional PoS will be similar to that of payment cards on cash: very circumstantial, and though usage has been impacted, outright displacement will be an unlikely scenario.

Mobile Point of Sale: Smart Devices Earn a Growing Share of Global Payment Acceptance July 2015

© Copyright 1997-2015, Yankee 451 Group, LLC. All rights reserved. Page 2

Mobile Point of Sale: Evolution and Revolution

Mobile point of sale (mPoS) first began to resonate in 2010. While that’s not the year of the technology’s inception, nor is it when the initial deployment took place, it’s when something arguably much more significant occurred: Square was launched. Five years later, the vendor has grown to process more than $30bn in annual total payment volume (TPV) and helped to spark a fundamental rethinking of the approach to payment acceptance. Square is a market disruptor, and its emergence has catalyzed a frenzy of activity across the global commerce value chain. Not only has the size of the mPoS market ballooned from a small handful of providers to north of 200 since its founding, but implementation of the technology and its use cases have expanded dramatically.

Today, it’s simply myopic to look at mPoS as a tool intended for use solely by micro-merchants such as dog walkers and babysitters. In a short time frame, mPoS has broadened its roots across a wide swath of vertical industries – running the gamut from retail to hospitality to home services – almost unanimously across all merchant tiers. Its momentum is at least in part indexed to its diversity; mPoS is helping to enable customer engagement for retailers such as Nordstrom while driving financial inclusion in countries such as Nigeria. And despite its rapid traction, 451 Research believes it to be in the early innings of its expansion, with the number of mPoS devices in use globally projected to increase from 13.32 million in 2015 to 54.03 million by 2019.

In this report we provide an in-depth perspective on the mPoS opportunity, drilling into:

• Market dynamics

• Business adoption

• Market forecast

• Growth drivers

Methodology

This report draws on a combination of qualitative and quantitative research compiled between March and July 2015. In our analysis we present the 451 Research five-year global market forecast for mPoS, which focuses on the total installed base of mPoS devices. The forecast has been compiled via a bottom-up market sizing breakdown built through aggregation of more than 75 individual vendor shipment estimates and direct vendor input. As part of the analysis, we draw upon our US IT Decision-Maker surveys, US Consumer surveys and Global Mobile Forecast, in addition to discussions with numerous constituents across the payments value chain, including card networks, issuing banks, merchant acquirers, payment processors, and PoS hardware and software manufacturers. For the purposes of this forecast, 451 Research defines mPoS as a smartphone, tablet or alternative consumer-oriented mobile device equipped to function as a PoS terminal and facilitate payment card transactions through a contact (e.g., audio jack) or wireless (e.g., Bluetooth) connection to a card-accepting reader or device sled.



MPoS Market Overview

The growth in mPoS deployments has at least in part been fueled by the technology’s entry into new merchant tiers. While it was initially introduced as a solution for those merchants that had been marginalized by acquiring banks, mPoS’ appeal has broadened dramatically in recent years. As illustrated in Figure 1, 451 Research views four distinct market opportunities for the technology.

Figure 1: MPoS Solutions Are Tailored to Four Distinct Market Segments Source: 451 Research, 2015

Company Size Primary Merchant Value Proposition Key Use Cases Notable Vendors Revenue Model

Nano and micro

Low-cost, portable acceptance device with merchant account included

Primary payment acceptance, merchant account, basic analytics, basic CRM, digital receipt

Square, PayPal (Here), iZettle, JUSP, Flint, PayAnywhere, Payleven, SumUp, Amazon, Dream Payments

Per transaction fee (typically 2.75%)

SMB (Tablet)

Low-cost, cloud-based, user-friendly cash register replacement

Primary payment acceptance, business management, advanced analytics, CRM, integration with third-party software

ShopKeep, Poynt, Bindo, First Data (Clover), Square, Total Merchant Services (Groovv), Verifone, North American Bancard (Storefront), Revel Systems, Groupon (Gnome)

Monthly, per register or per store fee (typically $49)

SMB (Phone)

Low-cost supplement to primary PoS solution (typically) available through existing payment partner

Supplemental payment acceptance, line-busting, pop-up shops, business continuity, remote salesforce, analytics, CRM

Third-party vendors: Ingenico, AnywhereCommerce, CardFlight, Dream Payments, Mobeewave

Providers:Bank of America, First Data, ChasePaymentech, Elavon, Vantiv

Third-party vendors: Varies: flat monthly fee per active user or percentage/flat fee per transaction

Providers: Typically offered at no cost as part of processing agreement (merchant pays normal processing rate)

Large/EnterpriseMobilized salesforce for in-store and out-of-store engagement

Supplemental payment acceptance, remote salesforce, business continuity, line-busting, pop-up shops, customer engagement, clientelling, product comparison, employee communication, ship-to-home

Ingenico, Verifone, AnywhereCommerce, UniteU, Fiverun, Infinite Peripherals, Microsoft

Varies: license/flat monthly fee per active user/percentage or flat fee per transaction



For nano- and micro-merchants, mPoS often serves as their initial entry point into the electronic payments ecosystem. This is largely thanks to the transparent pricing, hassle-free merchant account and overall ease of use that characterize solutions such as Square and iZettle. Solutions tailored to this market are relatively simplistic in terms of functionality and tend to include basic features such as transaction analytics and digital receipts. Further upmarket, the role of mPoS is diversified. In the SMB space, tablet PoS solutions are resonating strongly, serving as a cash register replacement and offering advanced cloud-based features such as business management and CRM. Here, mobile serves as something of displacement technology, making solutions touted by legacy vendors such as Micros, POSitouch and Verifone redundant. ShopKeep, Clover (First Data) and some 40 other vendors occupy this burgeoning market, as we detailed extensively in our reports Tablet Point-of-Sale Market Overview: Part 1 (April 2015) and Tablet Point-of-Sale Market Overview: Part 2 (June 2015). The SMB sector has also served as a hotbed of activity for payments industry incumbents looking to build out their mobile strategies. Merchant acquirers including First Data, Vantiv and Prosa have leveraged white-label mPoS platforms from providers such as Ingenico and AnywhereCommerce to provide their SMB customers with an alternative to solutions such as Square, which are driving churn and margin pressure in their core business. In many cases, they’ve partnered with mobile network operators (MNOs) such as Sprint, AT&T and Vivo to expand distribution. Processors and acquirers are also serving as distribution channels for tablet-based solutions, and in some cases, deploying their own (e.g., First Data). Large and enterprise-sized businesses are deploying mPoS for somewhat different reasons than their smaller counterparts. Retailers such as Nordstrom see the technology as an avenue to increasing customer satisfaction and engagement while driving operational efficiencies. In this sector, mPoS has seen implementation in a wide array of verticals, including transportation (e.g., Delta), insurance (e.g., Progressive) and quick service restaurants (e.g., Subway).

It’s worth mentioning that some blurring of the lines is beginning to occur as competition increases. Square, for instance, has been working aggressively to move upmarket into the SMB sector over the past 18 months. SMBs present a more lucrative growth opportunity, underscoring the interest on behalf of startups that demand volume to grow. On the contrary, some acquirers accustomed to serving larger merchants are taking a fresh look at micro-merchants and leveraging mPoS as their entry point in hopes of initiating and nurturing a growth relationship.

The vendors serving the mPoS market can be divided into two categories: payment facilitators and platform providers. Payment facilitators, such as Square and SumUp, typically go direct-to-merchant with their solution and provide transaction settlement with a merchant account. Backend payment services are often attained through a behind-the-scenes partnership with a merchant acquirer (e.g., Square and ChasePaymentech). Payment facilitators own the risk and merchant relationship and are often referred to as over-the-top providers, as their solutions, in some respects, disintermediate traditional players across the value chain. Platform providers, on the other hand, offer a combination of brandable hardware, software and/or services to other entities that distribute the solution to the merchant. These include vendors such as Ingenico and Miura Systems. MasterCard says of the 125 solutions it has certified through its mPoS program, approximately two-thirds are platform providers. Varying go-to-market strategies mean distributors of mPoS solutions are diverse, and can include acquirers, retailers, mobile operators, payment facilitators, marketplaces and more. For merchants, this translates to widespread availability, helping to drive the opportunity forward.

MPoS Deployment Drill-Down

As Figure 2 on the next page shows, implementation of mPoS is following a strong upward trajectory. Deployment of the technology in the US more than doubled between June 2012 and 2015, expanding from 21% of businesses to 47%. We find that mPoS is swiftly evolving into a high priority for owners and management, with 87% of businesses now stating that capturing payments on a mobile device and providing a real-time receipt is important. The growing ubiquity of mPoS is duly noted on the consumer front, with more than one in three respondents to our 2015 US Consumer Survey, June, reporting having made an mPoS transaction with a business in the last month.

https://451research.com/report-short?entityId=85128






Figure 2: MPoS Deployments Are on the RiseSource: 451 Research’s 2012, 2013, 2014 and 2015 US Enterprise Mobility: IT Decision-Maker Surveys, June

Percentage of businesses with mPoS deployments

50%45%40%35%30%25%20%15%10%

5%0%

% o

f bus

ines

ses

depl

oyed

Jun-12 (n=1,130)

Jun-13 (n=1,522)

Jun-14 (n=1,495)

Jun-15 (n=1,502)

21%

34%

40%

47%

The penetration of mPoS across merchant tiers is apparent, as shown in Figure 3. While our IT Decision-Maker surveys look purely at implementation of mPoS and do not distinguish between pilots, deployments in select business units and enterprise-wide rollouts, the widespread traction currently experienced by the technology is clear. The beauty of mPoS is in its versatility. The technology has proven its ability to serve a diverse merchant base consisting of varying business sizes and verticals. Significant depth is noted in businesses with 20-499 employees as well as those with more than 10,000 employees, where approximately 50% are in some stage of an mPoS deployment. A strong growth opportunity exists in businesses with 500-2,499 and 2,500-9,999 employees, given that 46% and 48%, respectively, are planning or considering mPoS implementations. Conversations with large providers indicate an emerging opportunity in the big box retail segment that will begin to manifest itself over the next several years. Several vendors we’ve spoken with are in the proof-of-concept phase or initial implementations with large retailers – including department stores and superstores – in the US and Europe.

Figure 3: MPoS Is Seeing Implementation Across Businesses of All Sizes Source: 451 Research’s 2015 US Enterprise Mobility: IT Decision-Maker Survey, June

Deployment of mPoS

Not deployed and no plansConsidering deployment, but no definite/immediate time frame

Already deployed Plan to deploy within the next 12 months

11%

12%

12%

13%

8%

16%

10%

15%

13%

10%

10%

14%

30%

33%

33%

29%

30%

27%

48%

40%

42%

49%

52%

42%

More than 10,000 Employees (n=124)

2,500-9,999 Employees (n=138)

500-2,499 Employees (n=198)

100-499 Employees (n=347)


Fewer than 20 Employees (n=336)



While mPoS is currently being deployed across a sizeable percentage of large businesses, it’s not necessarily apparent in the field. Many remain in early stages of their rollouts, as Figure 4 shows. Of businesses with more than 10,000 employees that have implemented the technology, 55% have 1,000 or fewer devices deployed. Similarly, 1 in 5 businesses with 2,500-9,999 employees currently using mPoS have fewer than 50 devices in use. Most large and enterprise-sized businesses are still experimenting with the technology, or implementing it for specific use cases such as line-busting, business continuity or pop-up shops. We anticipate that this will change, with mPoS transitioning to a primary salesforce tool in ongoing operations in the near term. Current-generation enterprise implementations involve devices that encompass a wide array of functionality and use cases, enabling mPoS to be integrated more holistically across the organization. Home Depot’s new FIRST Phone, 40,000 of which have been rolled out, includes not only payment acceptance, but inventory integration, a barcode scanner, store locators and a walkie-talkie for employee communication. Smaller businesses have mostly assimilated mPoS into their day-to-day activities already, either as their primary acceptance device or as a supplement to their existing PoS infrastructure.

Figure 4: Most Businesses Are in Early Stages of Their mPoS DeploymentsSource: 451 Research’s 2015 US IT Decision-Maker Survey, June

Number of mPoS devices currently deployed


2,500-9,999 Employees (n=55)

500-2,499 Employees (n=84)




22%

7%

23%

9%

20%

20%

29%

18%

27%

19%

14%

9%

6%

16%

14%

37%

28%

10%

12%

20%

28%

33%

11%

15%

12%

16%

27%

70%

501-1,000 1,001-5,000 More than 5,000301-500151-300Fewer than 50 50-150

2% 3%

5%

3%

2%

1%

4%

1%

2%

2%

2%

1%

1%

Looking at mPoS transaction volume, it’s evident that mobile is still some time off from displacing traditional payment acceptance devices. Figure 5 on the next page shows that across nearly every business size, at least half (or more) that have deployed the technology are seeing less than 10% of total transaction volume derived through mPoS; more than three-quarters see less than 20%. This begs the question if mPoS will ever truly displace traditional countertop terminals or continue on as something of a support technology. Inevitably, mPoS’ share of transactions in proportion to fixed PoS devices will rise steadily in the coming years as use cases for the technology continue to broaden and solidify. Pop-up stores and tablet-based PoS in the SMB sector are two examples where mobile has quickly gained share on countertop terminals. We’ve also seen some merchants leverage mobile to design new stores with fewer cash-wraps, and in emerging markets, mPoS has shown a tendency to leapfrog fixed PoS. But overall, it’s likely that the impact of mobile on the traditional PoS will be similar to that of payment cards on cash: very circumstantial, and though usage has been impacted, outright displacement will be an unlikely scenario.



Figure 5: MPoS’ Share of Total Transaction Volume Remains ModestSource: 451 Research’s 2015 US Enterprise Mobility: IT Decision-Maker Survey, June

Percentage of transactions made via mPoS in the last month

More than 20%11% - 20%6% - 10%Less than 1% 1% - 5%


2,500-9,999 Employees (n=55)

500-2,499 Employees (n=84)




22%

11%

14%

9%

18%

21%

33%

38%

29%

18%

19%

18%

35%

29%

42%

51%

52%

32%

10%

16%

13%

17%

8%

19%10%

5%

2%

5%

3%

MPoS is often inaccurately associated with low-value transactions, a misconception tied to the technology’s association with small businesses. Contrary to popular belief, small businesses, namely those with fewer than 20 employees, report the highest percentage of large-ticket mPoS transactions, with 35% seeing average transaction values (ATVs) upwards of $75. This is largely driven by the types of small businesses that have traditionally been heavy adopters of the technology (including doctors’ offices, small insurance companies and home services), whose products and services are characterized by larger transaction sizes. Further upmarket, mPoS transactions are normalized, and as a whole, are comparable in value to that of fixed PoS. As Figure 6 details, nearly two-thirds of all businesses using mPoS report ATVs of $25 or more; more than a third see ATVs in excess of $50.

Figure 6: The Average mPoS Ticket Size Is Comparable in Value to Fixed PoSSource: 451 Research’s 2015 US Enterprise Mobility: IT Decision-Maker Survey, June

Average mPoS transaction ticket size


2,500-9,999 Employees (n=55)

500-2,499 Employees (n=84)




25%

31%

19%

14%

24%

35%

13%

24%

14%

19%

11%

6%

30%

27%

45%

24%

25%

22%

17%

7%

12%

28%

24%

16%

12%

9%

6%

11%

13%

10%10%

$50-$74$25-$49$11-$24Under $5 $6-$10 More than $75

3%

2%

4%

4%

3%



Global mPoS Forecast: 2015-2019

451 Research projects the number of mPoS devices in use globally to increase from 13.32 million in 2015 to 54.03 million by 2019, representing a 32% CAGR. Figure 7 notes expansion across all geographies, though most prominently in emerging markets, where mPoS is serving as powerful driver of inclusion and helping to pull traditionally cash-only merchants into the electronic payments ecosystem. Here, an increasing payment card base has positioned mobile as the quickest and most economic onramp to acceptance, allowing the mPoS opportunity to begin to grow dramatically. In developed markets, despite a sizeable installed base of mPoS devices, growth has yet to plateau. Here, we see growth driven by upmarket adoption, with enterprises embarking on large-scale deployments and SMBs replacing cash registers with tablets. As a whole, we believe mPoS to be in the early innings of its overall expansion, with much growth set to unfold.

Figure 7: The Global Installed mPoS Base Is Set To Grow SignificantlySource: 451 Research, 2015

Global mPoS Installed Base Forecast: 2015-201960,000

50,000

40,000

30,000

20,000

10,000

0MPo

S In

stal

led

Base

(in

Thou

sand

s)

2015 2016 2017 2018 2019

APACMiddle East & AfricaEuropeNorth America Latin America

Below, we break down the findings and key trends across each major region.

North America (US & Canada)

Figure 8: North America Will Make Up More Half of the Global Installed Base in 2015Source: 451 Research, 2015

North America mPoS Installed Base Forecast: 2015-2019

20,000

15,000

10,000

5,000

0MPo

S In

stal

led

Base

(in

Thou

sand

s)

2015 2016 2017 2018 2019

6,800 8,976

11,400

14,249

17,384



The largest and most established of the mPoS markets, North America will make up more half the global installed base in 2015. This market is poised to grow at a 21% CAGR over the five-year forecast period, as illustrated in Figure 8 on the previous page. Growth will be predominately driven by large-scale deployments, which we expect to increase significantly in coming years as mPoS further penetrates the enterprise. The overwhelming majority of activity in North America comes from the US. Here, Square maintains a strong lead over competing solutions, underscoring the impact mPoS has had on the acquiring industry; Square processed $30bn in TPV in 2014, almost all of which was derived from domestic businesses. Ingenico, through its acquisition of ROAM, has had great momentum with its platform strategy in the US. The vendor claims to power 70% of US white-label solutions and has been a strong ally of acquiring banks in need of building out their SMB strategies. The US has also been a bastion for tablet PoS, serving as the deepest-penetrated geographical market thanks to solutions such as Clover, Revel and ShopKeep that have built out sizeable footprints over the past 24 months. EMV is a noteworthy trend to follow as the October 2015 liability shift approaches. This will drive a near- to mid-term lift in shipments that won’t necessarily be reflected in the installed base.

Despite its smaller size, Canada has seen its share of mPoS activity in recent months. Ingenico deepened its mPoS partnership with Canada’s largest processor, Moneris, in July 2014 and struck a deal with Global Payments in April 2015 to distribute its iCMP device. Native vendors such as AnywhereCommerce as well as newcomers Dream Payments and Mobeewave have also established partnerships with several major merchant acquirers within the country. Square also operates in Canada, but with a limited merchant base in part due to its lack of EMV compatibility. It recently acquired Toronto-based Kili Technology to help build out its EMV and contactless products.

North America’s registered mobile lines as a percentage of the population is set to increase from 111% (397 million) in 2015 to 116% (424 million) in 2019. During the same time frame, mobile phones in use will rise from 312 million to 334 million. Smartphones are nearly ubiquitous in this market; as a proportion of mobile phones they will grow from 87% to 93%. North America has the highest percentage of smartphones relative to mobile phones in use.

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