MOBILE PAYMENTS (“M-PAYMENTS”) August 2007 Potential impact on South African banking industry Team Galahad Lionel Diakanyo Joshua Makgate Sean Rule

2 Mobile banking and Mobile payments defined… Mobile banking (“M-banking”) Mobile payments (“M-payments”) “M-banking is a full service banking suite, much like internet banking, but effected through a mobile phone” “M-payments is the use of a wireless device such as a mobile phone for the payment for any kind of goods or service” use of mobile phone to access to bank account directly; or through loading of stored value which can then be accessed through mobile phone

3 Picture the following…

4 External factors influencing the banking environment Banking environment Changing demographics & consumer tastes Trust Technology innovations Regulation and new entrants

5 Traditional intermediation role of banks… Intermediation Lenders Borrowers Merchants Customers Underwriting Payments

6 Banks currently being disintermediated… Lenders Borrowers Merchants Customers Underwriting Payments Disintermediation

7 MTN’s great success in customer acquisition… 164%

8 but facing increasing competitive pressures… -20%

9 Overlap of banking and mobile use in South Africa… Banked 16m Mobile users 16m Unbanked, with mobile 4m Banked, no mobile 4m Banked, with mobile 12m Unbanked, with no mobile 10m Potential disintermediation Potential new revenues

10 Banking industry strategy… South African banking industry should aim to: Prevent disintermediation Seek out new sources of revenue Maintain ownership of customer

11 Provide an M-payments solution… M-payments solution: Use of mobile phone to effect payments at POS Collaboration between banks establishment of centralised M-payments system revenue sharing agreement Partnership with mobile operators leverage off existing prepaid infrastructure revenue earned per loading transaction

12 M-payments solution… loading At merchant customer requests cash loaded to M-payments system Customer is prompted to enter double PIN Customer issued with code and loads onto mobile phone in similar manner to prepaid airtime 4 Once confirmed, transaction authenticated and stored value is credited to users mobile phone number Collaborative effort

13 M-payments solution… transacting Acquirer bank Clearing & settlement 1 At merchant customer purchases goods – enters customer mobile number 2 Text message sent to customer with one- time PIN. Customer enters one-time PIN at POS M-payments system 3 Customer M-payment account debited 4 Clearing and settlement takes place and merchant account credited 4

14 Value proposition… Banks Mobile operators Banks not disintermediated Revenue generator Low cost of entry Provision of financial services to unbanked Potential to reduce fraud losses Reduced cash handling and plastic card issuing costs Mobile operators able to increase transaction fee income Increased data traffic on network Minimal investment cost

15 Value proposition… ConsumersMerchants Convenience Automatic refill and alerts Use at all major merchants Secure Cash remittance potential Increased revenue Reduced cash handling, bank deposit and insurance costs Greater sense of physical security for employees Increased customer convenience

16 Business case… Current debit card revenues , , , ,343 Number of transactions (million) Transaction fee from customer (Rand) Transaction fees (R'm) Average transaction value (Rand) Total estimated Dr card transaction value (R’m) Merchant fee (R’m) Total fees earned from Debit cards (R'm) Number of transactions (million) Transaction fee from customer (Rand) Transaction fees (R'm) Average transaction value (Rand) Total estimated Dr card transaction value (R’m) Merchant fee (R’m) Total fees earned from Debit cards (R'm)

17  Very real and credible threat of banks being disintermediated in the payments space  Proposed M-payments solution Defensive Offensive  Very real and credible threat of banks being disintermediated in the payments space  Proposed M-payments solution Defensive Offensive Conclusion…