Global Trends in Payment Systems. Summary of 2011 Survey Findings

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Baldwin Cannon
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2 Global Payment Trends Survey Overview 2

3 For the 4th year running, Edgar, Dunn & Company has conducted a survey of

The questions asked revolved around five main topics: Current & future

individual payment channels Expected future importance of payment

3 3 For the 4th year running, Edgar, Dunn & Company has conducted a survey of payments professionals globally on key industry dynamics in their markets The questions asked revolved around five main topics: Current & future importance of individual payment products Current & future importance of individual payment channels Expected future importance of payment technologies Most influential market participants Key industry events that will shape payments markets

4 4 participated in the survey and represented a total of 50 countries

5 5 Respondents to the survey covered a wide cross section of roles within the industry, and generally had extensive cards / payments experience

6 6 USA / Canada Overview of Findings Card based payments and electronic bill payments are considered the most important payment methods, with credit/charge and prepaid cards significantly higher than other regions. Cash is lower in importance as a method of payment than in any other region, but has increased its score versus There are high expectations for growth over the next 5 years in both mobile payments and mobile as a channel; this is supported by the expected growth in the importance of both mobile and, to a lesser extent, contactless technologies. Growth in the importance of Security/authentication and Fraud technologies is the highest for any region, possibly due to the fraud losses being incurred by the industry. The USA / Canada continued to rate the consumer as the most influential market participant. In 2011, growth in mobile/nfc continues to be the event expected to have the greatest impact in shaping the payments market over the next 3 years.

7 7 Europe Overview of Findings Direct debit/giro/ach is considered the most important payment product, well ahead of its score in other regions, and has grown significantly in importance compared to The importance of Mobile and Contactless products is the lowest of any region, and has reduced compared to 2010; nonetheless, there are high expectations for growth in both of these products over the next 5 years. Mobile technologies are seen as growing most in importance in the next 5 years, well ahead of contactless and internet technologies. In support of this, Telcos/MNOs are expected to be the most influential participants in the market over the next few years, and growth in mobile/nfc is the event expected to have the greatest impact in shaping the payments market. Europe has the highest expected growth in virtual card technologies of any region.

8 Asia Overview of Findings Despite the relative strength of the Asian economies, there is an underlying theme of back to the basics to some degree replacing the leapfrog intentions in previous

8 8 Asia Overview of Findings Despite the relative strength of the Asian economies, there is an underlying theme of back to the basics to some degree replacing the leapfrog intentions in previous surveys. Unlike other regions, contactless and mobile payments did not rank highly possibly reflecting technical / acceptance issues although this may change as smart phones become common. Instead, there was a focus on developing out bill payment and domestic debit card systems with the latter preferred by respondents over scheme debit. Payment schemes were expected to play a lesser role into the future than in other regions perhaps reflecting the greater role played by regulators, as well as convergence / disintermediation. And despite the generally low rating given to mobile, MNO s were ranked as the second most influential participant moving forward. Amongst new market entrants mentioned, MNO consortiums, tech companies (Google, Apple, Paypal) and major retailers (Carrefour, Amazon) were often mentioned. Amongst new products / services, Internet-based technology, mobile & contactless, payment hubs were also frequently mentioned.

9 9 Australia & New Zealand Overview of Findings Cards, electronic bill payment and direct entry/ach are all scored as highly important payment products (perhaps due to the ubiquity of BPAY and pay anyone on internet banking). Contactless and Mobile payments still rank low in importance, although the highest of any region, but with high expectations for growth over the next 5 years; interestingly, mobile as a channel for payments already scores highly. The internet channel is expected to show the strongest growth in the next 5 years (the highest for any region), just ahead of the mobile channel. Consumers and Issuers are expected to be the most influential participants in the payments market over the next few years, just ahead of Payment Schemes. As in a number of other regions, growth in mobile/nfc is the event expected to have the greatest impact in shaping the payments market.

10 Detailed Survey Findings 10

11 11 Current relative importance of payment products Globally, credit and charge cards continue to be perceived as the most important payment products with little change from 2010 Please score the current relative importance of these payment products in your country?

12 12 The current importance of individual payment products continues to vary significantly by region Notably higher than global average Notably lower than global average Please score the current relative importance of these payment products in your country? Product % Respondents who rated the product as important or very important Global Europe USA / Canada Asia Australia / NZ Credit / charge cards 84% 75% 95% 78% 89% Direct debit / credit / giro / ACH 75% 84% 69% 63% 80% International scheme debit cards 73% 71% 71% 60% 88% Electronic bill payments 70% 49% 83% 55% 91% Cash 67% 64% 57% 84% 65% Domestic debit cards 66% 58% 82% 49% 72% Internet based payments 63% 57% 68% 51% 75% Remittances 39% 31% 39% 63% 34% Prepaid cards 33% 18% 52% 31% 34% Mobile payments (remote) 25% 19% 21% 24% 36% Contactless cards 24% 15% 22% 26% 35% Cheques 23% 20% 30% 41% 8% Mobile transfers 21% 9% 24% 24% 30% Mobile NFC payments 19% 13% 20% 13% 29%

13 13 Cash appears to be increasing in importance in all regions except Europe Notably higher than global average Notably lower than global average Difference in % of respondents answering important or very important between 2011 and 2010 surveys Product Global Europe USA / Canada Asia Australia / NZ Cash 7% 0% 11% 14% 9% Mobile payments (remote / to merchants) 1% -3% -3% -10% 18% Direct debit / direct credit / Giro / ACH 1% 11% -4% -14% 4% International scheme (Visa & MasterCard) debit cards 1% -4% 1% -2% 5% Credit / charge cards -1% -3% 3% -5% -3% Domestic debit cards (e.g. PIN debit in USA) -1% -3% 1% 0% -6% Electronic bill payments -3% -2% -2% -30% 7% Cheques -5% -2% -3% -4% -8% Contactless cards (e.g. PayPass, PayWave, transit) -8% -16% -3% -14% -5% Mobile NFC payments -8% -12% -11% -21% 8% Mobile transfers (P2P, remittances) -10% -13% -12% -24% 5% Internet based payment products (incl. P2P / excl. bill payments) -10% -9% -5% -25% -8% Remittances (excluding Mobile) -11% -8% -10% -19% -7% Prepaid / stored value cards -13% -18% -12% -16% -8%

14 14 Over the next 5 years, the greatest growth continues to be expected to occur in Mobile payments both NFC and Remote followed by Contactless Cards What are the 3 payment products which will experience the greatest growth in importance in your country over the next 5 years?

15 15 Expected growth in importance of Mobile and Contactless Card payments is significantly lower in Asia than in the other regions Notably higher than global average Notably lower than global average What are the 3 payment products which will experience the greatest growth in importance in your country over the next 5 years? Product % Respondents who rated the product as important or very important Global Europe USA / Canada Asia Australia / NZ Mobile NFC payments 47% 52% 50% 24% 58% Mobile payments (remote / to merchants) 46% 49% 54% 35% 42% Contactless cards (e.g. PayPass, PayWave, transit) 44% 53% 32% 21% 63% Mobile transfers (P2P, remittances) 34% 25% 35% 39% 38% Internet based payment products (incl.p2p / excl. bill payments) 31% 35% 29% 34% 28% Prepaid / stored value cards 22% 22% 33% 23% 14% Electronic bill payments 18% 15% 17% 32% 11% International scheme (Visa & MasterCard) debit cards 12% 15% 2% 12% 17% Domestic debit cards (e.g. PIN debit in USA) 12% 6% 16% 16% 11% Credit / charge cards 11% 8% 11% 24% 5% Direct debit / direct credit / Giro / ACH 9% 8% 10% 14% 2% Remittances (excluding Mobile) 4% 2% 4% 10% 1% Cash 3% 1% 2% 11% 2% Cheques 0% 1% 0% 1% 0%

16 Summary of 2011 Survey 16 Findings As a payment channel the Internet is perceived to be as important as the traditional Point of Sale terminal with overall results very similar to 2010 Please score the current relative importance of these payment channels in your country?

17 Bank branch and ATM retain significantly higher importance as a payment channel in Asia than in the other regions surveyed Notably higher than global average Notably lower than global average

17 17 Bank branch and ATM retain significantly higher importance as a payment channel in Asia than in the other regions surveyed Notably higher than global average Notably lower than global average Please score the current relative importance of these payment channels in your country? Channel % Respondents who rated the product as important or very important Global Europe USA / Canada Asia Australia / NZ Point of sale (e.g. purchases, prepaid top-up) 89% 89% 93% 84% 89% Online / internet 86% 84% 92% 75% 94% ATMs & self service devices (e.g. kiosks) 76% 72% 73% 86% 75% Mobile 43% 34% 49% 39% 55% Bank branch 33% 27% 20% 56% 31% Telephone (IVR, customer service officer) 20% 15% 18% 21% 25% Agencies (e.g. post office) 15% 14% 5% 28% 14%

are the 3 payment channels which will experience the

18 18 The Mobile and Internet channels are expected to continue to grow in importance in the coming 5 years What are the 3 payment channels which will experience the greatest growth in importance in your country over the next 5 years?

19 The growth in importance of the Mobile channel was significant in all regions, and highest in USA / Canada Notably higher than global average Notably lower than global average What are the 3

19 19 The growth in importance of the Mobile channel was significant in all regions, and highest in USA / Canada Notably higher than global average Notably lower than global average What are the 3 payment channels which will experience the greatest growth in importance in your country over the next 5 years? Channel % Respondents who rated the product as important or very important Global Europe USA / Canada Asia Australia / NZ Mobile 92% 94% 100% 82% 94% Online / Internet 89% 92% 87% 83% 95% Point of Sale 57% 58% 55% 60% 54% ATMs & self service 32% 22% 31% 56% 25% Telephone 6% 6% 5% 3% 9% Agencies (e.g. Post office) 4% 6% 1% 5% 4% Bank branch 2% 2% 0% 5% 1%

20 20 Globally, smart phones will drive the growth in mobile, however basic phones will still play a key role in developing payments markets What are the mobile channels which will experience the greatest growth in importance in your country over the next 5 years?

21 21 Given the expected future growth of Mobile and Contactless, it is not surprising that related technologies are also often mentioned Which 3 payment technologies will experience the greatest growth in importance in your country over the next 5 years?

22 22 Reflecting the expected trends in payment products, the growth in importance of payment technologies also tends to vary significantly by region Notably higher than global average Notably lower than global average Which 3 payment technologies will experience the greatest growth in importance in your country over the next 5 years? Product % Respondents who rated the product as important or very important Global Europe USA / Canada Asia Australia / NZ Mobile based technology (excluding NFC) 64% 76% 60% 42% 72% Contactless / NFC technology 64% 56% 62% 60% 75% Internet based technology 48% 54% 36% 63% 41% Security / authentication technology 33% 32% 39% 37% 27% Payment hubs (shared payment infrastructure) 22% 16% 17% 38% 20% Fraud detection technology 20% 20% 23% 17% 19% Contact chip technology (including display, key pad) 19% 14% 24% 18% 19% Virtual Cards 17% 21% 20% 11% 18% Credit evaluation / risk assessment technology 8% 4% 11% 11% 6%

23 23 The role of Central Banks / Regulators is seen as less significant this year (32% of respondents versus 44% in 2010), with Consumers and Telcos coming to the fore In 5 years time, who do you believe will be the 3 most influential market participants in your country?

24 24 although 62% of Asian respondents believe that Central Banks / Regulators will have a major influence over the next five years Notably higher than global average Notably lower than global average In 5 years time, who do you believe will be the 3 most influential market participants in your country? Market Participant % Respondents who rated the product as important or very important Global Europe USA / Canada Asia Australia / NZ Consumers 38% 32% 49% 35% 40% Telecommunications / mobile network operators 37% 42% 33% 43% 30% Card issuers 32% 29% 30% 29% 40% Payment associations / schemes 32% 34% 37% 17% 38% Central banks / regulators 32% 25% 18% 62% 26% Merchants 24% 29% 32% 15% 18% Financial institutions - other than issuer / acquirer 23% 21% 16% 37% 20% Payment processors / networks 19% 18% 22% 21% 17% Mobile handset manufacturers 18% 17% 18% 9% 27% Merchant acquirers 12% 12% 9% 9% 15% System vendors / service providers 12% 14% 12% 11% 11% Other government agencies 2% 2% 1% 6% 1%

25 25 Payments professionals believe that the growth of Mobile / NFC is going to be the key driver in shaping the immediate future of payments markets Which of the following events will have the greatest impact in shaping the payments market within your country over the next 3 years?

26 26 Growth of Mobile / NFC is considered to be the key driver in shaping the immediate future of payments markets across all regions surveyed Notably higher than global average Notably lower than global average Which of the following events will have the greatest impact in shaping the payments market within your country over the next 3 years? Event % Respondents who rated the product as important or very important Global Europe USA / Canada Asia Australia / NZ Growth of Mobile / NFC 77% 76% 76% 65% 89% Technology advancements 47% 40% 53% 41% 56% New market entrants 43% 54% 41% 31% 43% Regulator changes to pricing (e.g. interchange, surcharging) Regulator changes to industry practices (e.g. consumer lending, levying of fees) Regulator changes to processing (e.g. domestic, scheme separation) 41% 43% 51% 32% 37% 32% 27% 35% 50% 21% 21% 16% 13% 42% 18% Industry mergers / acquisitions 18% 25% 12% 21% 11%

Pascal Burg Director Edgar, Dunn & Company Immeuble Elysées La Défense 42 rue Vignon, 5 th Floor, 75009, Paris Phone: +33 1 4007 9224 Mb +33 6 79 37 55 47 pascal.burg@edgardunn.

27 Pascal Burg Director Edgar, Dunn & Company Immeuble Elysées La Défense 42 rue Vignon, 5 th Floor, 75009, Paris Phone: Mb pascal.burg@edgardunn.com 27 David Dee Director Edgar, Dunn & Company Suite 501, 45 Lime Street Sydney NSW 2000 Australia Ph Mb david.dee@edgardunn.com John Bresnahan Director Edgar, Dunn & Company 817 West Peachtree Street NW Suite 310, Atlanta, GA Phone: Mb john.bresnahan@edgardunn.com This presentation was prepared based on 2011 Global Payments Trends Survey conducted in September Edgar, Dunn & Company. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without the prior written permission of the authors. Requests and inquiries concerning reproduction and rights should be addressed to the undersigned.

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