the disruptors
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The Disruptors. Yobie Benjamin Chief Technology Officer Citi Transaction Services / Citi Enterprise Payments Institutional Clients Group June 2012. The Disruptive F orces. The Mobile Phone: a profound redefinition of human community . - PowerPoint PPT PresentationTRANSCRIPT
The Disruptors
Yobie BenjaminChief Technology OfficerCiti Transaction Services /Citi Enterprise PaymentsInstitutional Clients Group
June 2012
The Disruptive Forces
The Mobile Phone: a profound redefinition of human community
Access to mobile communications will soon be as common as access to drinking water –
and will likely surpass it!Source: The Pew Forum 2011, Ethnologue 2005, The Economist 2010, International Telecommunications Union 2011,
Water.org, internetworldstats.com
6.9 billion: World Population
6.0 billion: People with access to clean water
5.2 billion: People with access to mobile phones
4.4 billion: People with reliable access to electricity
2.4 billion: People with access to the internet
1.6 billion: Muslims – most common religion
1.1 billion: Speakers of Mandarin – most common language
122% p.a.
6030
2013
245
2010
110
2014
10
2011 20152012
545
Source: IE Market Research Corporation 2011; Yankee Group 2011, Gartner Report 2011, Mobile Payments Today 2011, International Telecommunications Union 2011, Research & Markets 2011
Gross value of mobile payment transactions$ billions
Top brands leading the way
Mobile Payments has already made tremendous progress, and will continue its strong growth
Mobile Payments growth is being fuelled by pervasive global access to mobile phones:
• 5.9B mobile cellular subscriptions• 87% of all people have access to mobile
phones
2015: 1.5B smartphone users, 25% of all active SIMs
Today: 627M smartphone users, 11% of all active SIMs
Mobile Payments today, and in the near future
United States
Google Wallet mobile payments
Mobile payments JV with AT&T, Verizon & T-Mobile
And more to come…
Europe
Mobile payments JV
NFC Hub
Asia-Pacific
PayPal “Mobile Payments Standard” enabling merchants in Singapore
Mobile payment service with HTC phones
Americas
Mobile payments JV in Mexico with Citi/Banamex, America Movil and Banco Inbursa
Mobile payments JV in Canada
Need content – top 5 predictions
Payments will look very different in 5 years
Convergence of digital economy and bank grade mobile payments
Explosive innovation and adoption of all things mobile payments
Proliferation of payment wallets Consumer shift from “e” to “m” commerce Most mobile phones are smart phones and
make payments as easy as calls All major merchants accept mobile payments
on web and POS All transit systems installing mobile payments Marketing shift to highly targeted mobile offers Mobile wallet is on-boarding channel for many
first time financial services consumers
Mobile Payments: The opportunity
7 VeriFone Proprietary and Confidential – Do Not Distribute Outside the Company
2020Rapid Growth Ubiquity
Consumers
Merchants
Standardization
Regulation
The pay-offs are in: Moving from physical to digital
currency Increasing the audience able to
engage with this new economy Leveraging “Big Data”:
contextual, highly targeted offers
Mobile Payments: What’s holding us back?
What’s in it for ME?
We need clearly defined, sustainable business models with value drivers for all parties in the ecosystem
What is the revenue model for providers:
Banks? Telecos? Software?
What is the value proposition for
consumers? For merchants?
What is the business case for investment: Senior Management? Boards?
PE?
Three disruptive macro forces
Consumer Empowerme
nt
Ubiquitous Connectivity
Growing Digital
Economy
Driving major change, particularly for Merchants, Banks, Telcos, Cable and Software Companies
Devices… So Much Fun!
“Hello World” - Goodbye Feature Phones!!!
Plastic = Blockbuster | Phone Payments = Netflix
Trending to the new reality
1,300
995945998
2008 2009 2010 2015
+5-7%
995
76
87
279
229
324
Latin America
Rest of the World
Asia Pacific
Europe
North America
Total
Source: McKinsey Global Payments Map
1 “Institutional” revenues do not include interbank clearing and settlement2 “Latin America” includes Mexico; “Rest of World” includes Africa, Russia, Turkey, and the Middle East3 “Paper” is defined as cash and check payments, and includes both consumer and institutional transactions
Current state of payments: revenues are expected to exceed $1.3 T by 2015
Global payments revenue regional breakdown 2
Percent, $ Billions, (2010)Share in paper 3
% of transactions
66%
98%
80%
97%
93%
92%
Strong organic growth in payments revenues, driven by non-US markets
Electronic migration enables us to:• Intermediate
transactions• Create services-based
businesses
Global payment revenues have reboundedafter declining by 5% from 2008-2009, $Billions, (2010)
-5% +6%
ESTIMATES
CAGR2010-2015
1-3%
10-12%
12-14%
3-5%
8-11%
5-7%
A 1% change from paper to
electronic delivers $30B
of revenue
5B connected consumers – creating new distribution channels for banks, corporations and governments
Manufacturer Direct-to-Consumer % purchases - Nth America Survey
2006
5%
17%
7%
Mobile connectivity increases access to a global marketplace of 5+ billion consumers:
– Corporates to consumers (increasing Direct-to-Consumer business models)
– Governments to citizens – Aid agencies and NGOs to recipients
Companies are looking to exploit their distribution capabilities beyond current business models:– Digital companies with digital reach and digital
goods – Mobile ecosystem companies
Global financial services solutions are needed to integrate payments capabilities:– While information flows freely across borders, cash
does not– International financial flows is a complex, multi-
party challenge; clearing and settlement requires international partners
Implications
Confidential & Proprietary
Source: Forrester 2011
2008 2010
Banks today operate in only two dimensions - new opportunities require 3D thinking
Banks Clients Global market
B B C
Brand
Banking licenses
Consumer and corporate operations
Payments and collection platforms
CustomerRelationships
Regulated product design and delivery
Global Corporations(i.e. digital goods and
services)
Governments (i.e. tax collection, benefits
payments, transit)
5B connected consumers
globally
G
Banks risk disintermediation by technology companies if they do not leverage their vast assets and address the core needs of new business models
Source: Yankee Group, Financial Access Initiative, World Bank, Mobile Thinking
In developed countries, approximately 81% of adults are banked vs. 28% in developing in countries
There are 5+ billion mobile phone users worldwide but only 1.8 billion bank accounts
US
- 91.0%- 89.0%
Brazil- 43.0%- 96.0%
UK
- 91.0%- 92.4%
Russia- 69.0%- 94.5%
India- 48.0%- 73.0%
China- 42.0%- 71.0%
Africa- 20.0%- 53.0%
Gap Narrowing Gap Widening
2 - 3 billion underserved1.8 billion bank accounts5.2 billion mobile users6.9 billion people
Mobile phones: The new local bank?
A significant need...
Mobile Money: 800MM potential accounts in 5 years, already 100+ services
Addresses the needs of 2.5B underserved
consumers1
...increasingly being addressed... …will generate a large number of new accounts
100+ services being launched
# Mobile Money accounts (MM)
+51%
2016
807
2015
684
2014
499
2013
326
2012
199
2011
107
Current accounts estimated at 100MM+
These accounts are currently mostly stored value accounts that allow person-to-person payments, are managed by MNOs, and are untapped by branded financial networks
¹Consumers in countries with large gaps between mobile and bank penetration; defined as mobile penetration >50% and banking penetration <50%; 72 countries qualify.
Current mobile payments services are closed loop with limited functionality
Current Goal: Mobile Wallets that provide a full range of payments capabilities
MNO #1Cash-in Cash-outMNO #1
Salary pay/benefits
Transfer from bank
International remittance
Merchant pay
Bill pay
Other MobileMoney services
A full range of payments are needed to provide a “bank-like” experience
Emerging Markets: cost and distribution models drive ability to scale
Banks face economic and access issues competing for the mass market & underserved /unbanked
MNOs leverage their distribution infrastructure to deliver simple peer-to-peer and bill payments via pre-
paid value transfers, limiting exposure & risk
Key Issue: Risk Management must be industrial strength if payments are driven to open networks
As financial resources are built, more sophisticated services are needed, leading to greater partnership opportunities for Banks & MNOs, and potentially, to
increased friction Key Issue: Banks & MNOs will compete to optimize asset structures, customer data, and revenue flows
Com
plex
ity a
nd S
ophi
stic
atio
n
P2P Money
Transfer
Cash-in Cash-out Int’lTransfer
Salary Payment
Bill Payment
Retail purchase
Cards Credit LendingSavings
Service Evolution High
High
VASSecurity Insurance
Transactional Core Payments Core Banking
Comparative product value for MNOs and banks
Driven by simple products that
leverage MNO airtime distribution
infrastructure
Value line for MNOs
Value line for banks
Driven by complex products that leverage bank transaction and
account systems
Diminishing benefits as individual actors go beyond core
product competencies
MNOS have more efficient entry economics but plateau quickly, banks have financial sophistication but are unable to get early economics to work
MNOs: Advantages, up to a point
Mobile payments and eCommerce will comprise an increasingly larger percentage of payments volumes
SOURCE: Yankee Group, Dec 2010; Press search; McKinsey Global Payments Map
Why?
• Phone is a more powerful device than the PC
— Knows who you are— Knows when you are in/near
store— Knows your purchase/search
history— Delivers instant gratification
• 5x more phones than PCs• In store sales are still 19x greater
than eCommerce
2010
Global PaymentFlows : $516T
eCommerceFlows: $1,700B
Mobile PaymentFlows: $10B
2015
Global PaymentFlows: $780T
eCommerceFlows: $3,420B
Mobile PaymentFlows: $545B
CAGR: +122%
CAGR: +9%
Total Flows:
CAGR: 15%
Moving forward: our core challenges
Key enablers need confidence in the mobile payments ecosystem to fund the significant capital required to create scale
Industries
Growth of Mobile payments ecosystem requires collaboration
across industries
Consumers /Merchants
Consumer and merchant adoption will be driven by a
clear set of value propositions and overcoming concerns
Policy Makers
Policy and rule uncertainty hold back setting of
standards and scaling of adoption
Shareholders
The Mobile Evolution
Plethora of new participants with innovative payment solutions, many of which fall outside of formal prudential and consumer regulation
Many of the protections in place for traditional ‘bank-grade’ payments, are at best optional in the new models, and rarely auditable and enforceable
Payment Facilitators
Stored Value Accounts
Mobile Billing
Virtual Currencies
“Alternative” Payment
Categories
Mobile Payments: Driving mass adoption
We have a responsibility to ensure that the above conditions exist to promote competition and innovation, fostering convenience, accessibility and inclusion.
Opportunity Areas for Improvement
Progress towards broad adoption will rest on establishing a set of guidelines that define the minimal rules of engagement for mobile payments.
SafetyMobile payments systems must ensure the safety of customer data and the security of
the payments system
Soundness
The mobile payments system needs to be fully operational and scalable
FIs and merchants need ability to execute against guidelines, enabling clearing,
settlement, scalability, and performance
UbiquityMobile payments must be available across all
channels and devices to use anywhere and integration for merchants and issuers must be
simple
ComplianceThe mobile payments system must ensure
compliance with all state, federal and industry regulations and guidelines
Citi’s vision: To be the World’s Digital Bank
Bringing together: Global payments
business Our banking licenses Our brand Strengths in
regulatory and risk management
Leveraging: Electronic
information to deliver unique value propositions to clients
Global infrastructure
Collaborative working models
Proximity Payments
Mobile POS Mobile Commerce Mobile Bill Pay Ticketing / Parking
Money TransferP2P
Accelerating change and driving the future
The road to success:
Offer solutions that deliver real value, ease of adoption and security to consumers and merchants
Drive agreement among leading Banks, Telcos, Networks, Merchants and Hardware Manufacturers on a sustainable business model and standards
Create open solutions, multi-industry partnerships with distinct roles, common objectives and shared risk and rewards
Support from policy makers ensuring safety and soundness of the payments system and a level playing field among all participants, encouraging innovation and investment
The future is now!