Webinar The US Mobile Money Revolution Susan Huynh, Forecast Analyst March 13, 2014. Call in at 10:55 a.m. Eastern time

Are we undergoing a payment revolution? Image source: Flickr (http://www.flickr.com/) and http://commons.wikimedia.org/wiki/File:US_Navy_080918-N-0659H-001_A_Naval_Support_Activity_Mid-South_Sailor_takes_a_moment_to_decide_which_credit_card_to_use.jpg

Agenda Definitions Proximity payments: Technology comparison Drivers Methodology Remote payments: Likely consumers Retail by category P2P Smartphone evolution Adoption growth Demographics © 2014 Forrester Research, Inc. Reproduction Prohibited 3

Definitions Mobile proximity purchases (attended and unattended). These are purchases initiated by using a mobile handset at the retail POS or where the buyer and seller are in-person, both attended (in retail shops) and unattended (generally vending, parking, and transit). Purchases include mobile-hardware- enabled and nonhardware-enabled technologies. Exclusions: purchases made through a programmable NFC sticker attached to mobile handsets Mobile remote commerce is defined as a transaction over a mobile handset through which payment information is captured on the mobile phone for the purchase of products or services (i.e., retail products, travel, coupons/deals, and games). This excludes SMS commerce (e.g., donations), newspaper subscriptions, stock trades, investments, and gambling. Mobile P2P/remittances. These are domestic and cross-border person-to- person fund transfers initiated through the use of a mobile handset, either through the use of a preloaded application or a browser-based application to initiate, authenticate, and transfer funds. These include all transfers that originate from the United States. Exclusions: bank-to-bank fund transfers The forecast numbers do not include purchases made on a tablet device. © 2014 Forrester Research, Inc. Reproduction Prohibited

Method of payment examples Retail point-of-sale Remote Remote Proximity Remote P2P

$20 billion in 2013 Mobile devices are rapidly evolving the way we make payments and purchase products. US mobile payments Source: Upcoming “Mobile Payments Forecast, 2013 To 2018 (US)” Forrester report © 2014 Forrester Research, Inc. Reproduction Prohibited

71% $2.9 Percentage of the mobile population with a smartphone The amount dollars spent offline trillion Source: *Forrester Research Smartphone Adoption Forecast, 2012 To 2017 (US), 2013 data point; †Forrester Research Online Retail Forecast, 2012-2017 (US), 2013 data point

Proximity payments RETAIL POINT-OF-SALE Proximity © 2014 Forrester Research, Inc. Reproduction Prohibited

Hardware-based payment struggle Early days struggle © 2014 Forrester Research, Inc. Reproduction Prohibited

Hardware-based failed to pick up February 2013: ISIS NFC pilot resulted in a 1% adoption rate, most usage in public transportation, vending. Expects up to 2% adoption with nationwide rollout this year April 2013: MCX partnered with Gemalto to support bar-code-enabled transactions — with $1 trillion GMV. May 2013: Google Wallet chief, Osama Bedier, resigned. September 2013: Capital One exited ISIS pilot. © 2014 Forrester Research, Inc. Reproduction Prohibited

Inhibitor: contact-less terminal capabilities There are approximately 7 million credit-card-accepting terminals in the US. POS terminals accepting contactless payments in 2011 Important dates 2013: MasterCard, Visa, Amex, and Discover require EMV processing. 2015: Fraud liability shifts to merchants with non-EMV POS. Source: EMVCo (http://www.emvco.com/about_emvco.aspx?id=202) and Dan Balaban, “Google’s Schmidt Predicts Contactless Terminal Rollout,” NFC Times, June 23, 2011 (http://nfctimes.com/news/google-s-schmidt-predicts-contactless-terminal-rollout) © 2014 Forrester Research, Inc. Reproduction Prohibited

Software-based payments’ varied successes Concentration in quick service restaurants (QSR)

Case study: Starbucks Starbucks is an affordable luxury. Its US revenues grew 9% and 11% in the past two years. Rewards tap into a loyal pool of customers. Wealthier demographic Average per visit $7.54 Source: Starbucks’ statements and “Certify Featured in The Economist with the latest report on 2012 Business,” Certify, December 21, 2012 (http://www.certify.com/2012-12-21-Certify-Featured-in-The-Economist-with-the-latest-report-on-2012-Business-Expenses) $6.73 © 2014 Forrester Research, Inc. Reproduction Prohibited

Proximity model drivers Drivers and inhibitors © 2014 Forrester Research, Inc. Reproduction Prohibited

Category drivers Assumption: In the short-term future (five years), quick service restaurants (QSR) will drive proximity spend. Statuses of gas stations, transit, department stores, and Rx are unclear. Assumption: Half of those that are very interested (five) will actually become users in the short term. MCX? Retail Online Surveys (US) “How interested are you in paying for merchandise in a physical retailer store using your cell phone instead of cash or a debit/credit card (e.g., by tapping my cell phone at the point of sale)?” Q2 2012 Q2 2013 Not interested at all (1, 2) 64% 62% (3) 14% 15% (4) 11% Very interested (5) 9% 10% Already use this (96) 2% © 2014 Forrester Research, Inc. Reproduction Prohibited

Consumer interest driver — spend shift 10-year observation Less Same rate © 2014 Forrester Research, Inc. Reproduction Prohibited

Remote Mobile commerce Remote

Mobile retail is 6% of online retail Mobile travel to gain share against retail products in 2018. Drivers: smartphone adoption, online tenure, and frequency of mobile Internet access US mobile remote Source: Upcoming “Mobile Payments Forecast, 2013 To 2018 (US)” Forrester report © 2014 Forrester Research, Inc. Reproduction Prohibited

Primary reason for growth: buyer growth Assumption: Mobile buyers and mobile Internet users will grow 2x faster than online buyers’ and online users’ rates. Retail buyer accelerator looks at tenure and more importantly, frequency of access (online security comfort). Source: Upcoming “Mobile And Tablet Commerce Forecast, 2013 To 2018 (US)” Forrester report © 2014 Forrester Research, Inc. Reproduction Prohibited

Category drivers Likely mobile purchases Low High Offline research (e.g., furniture and art collectibles) Merchant push (e.g., apparel, footwear, and flowers) Screen size agnostic (e.g., software, books, music, and videos) Intensive research (e.g., PCs and medical supplies) Immediate consumption (e.g., digital goods and event/movie tickets) Impulse (e.g., music and videos) Low High Likely mobile purchases © 2014 Forrester Research, Inc. Reproduction Prohibited

Frequent Internet users more likely to buy Specifically those who go online several times a day Base: mobile phone owners. “How often do you go online using a mobile phone?” “How often do you buy or order products/services online?” Total Several times a day At least daily At least weekly At least monthly Less than monthly Never 34% 56% 49% 48% 35% 21% 14% 18% 24% 19% 10% 8% 6% 15% 11% 7% 4% 3% 1% 5% 31% 52% 68% Source: North American Technographics® Retail Online Benchmark Recontact Survey, 2013 © 2014 Forrester Research, Inc. Reproduction Prohibited

Mobile retail by category Clothing is the fastest growing category. US mobile retail products Source: Upcoming “Mobile Payments Forecast, 2013 To 2018 (US)” Forrester report © 2014 Forrester Research, Inc. Reproduction Prohibited

P2P P2P P2P and remittances

Mobile remittances picked up share in recent years, but P2P will grow against remittances US mobile remittances/P2P Source: Public press releases Venmo (mobile P2P program) was launched in 2011. In 2012, Venmo was acquired by PayPal, the transaction was about $250M. US P2P TPV (2012) Source: Upcoming “Mobile Payments Forecast, 2013 To 2018 (US)” Forrester report © 2014 Forrester Research, Inc. Reproduction Prohibited

Smartphone evolution Adoption growth and owner demographics

Smartphones will continue to saturate Feature phones will become almost nonexistent. Smartphone owners as a percentage of mobile subscribers Source: Forrester Research Smartphone Adoption Forecast, 2012 To 2017 (US) © 2014 Forrester Research, Inc. Reproduction Prohibited

Smartphone demographics Young and wealthy 35% High income 36% Middle income 29% Low income © 2014 Forrester Research, Inc. Reproduction Prohibited

Smartphones changing shopper behavior Top mobile activities Smartphones changing shopper behavior Information Purchased on device Nothing product- or store-related in the past three months 38% 22% 40% Source: North American Technographics® Retail Online Benchmark Recontact Survey, 2013 © 2014 Forrester Research, Inc. Reproduction Prohibited

Appendix

Category exclusions and examples Proximity mCommerce P2P Bill pay (users only) Method of payment examples NFC or RFID (Isis) QR/2D bar codes (LevelUp and Starbucks) Cloud/pay by face (PayPal/eBay Now and Square Wallet) Mobile web In app GPS location cloud (eBay Now) Money sent via mobile handset (originating in the US) Western Union PayPal Venmo Transaction type examples Retail, fuel, groceries, cinema ticket, train ticket, restaurant bill, gifts (Bump Pay), transit, and parking Cinema tickets, mobile phone credit, games, music, and maps Plumber, taxi fare, music lesson, legal fees, and gifts Insurance, utilities, rent, tax, and subscriptions Transaction exclusions Vendor-size-initiated mobile payment (such as Square), virtual content purchases, and programmable NFC stickers SMS commerce (e.g., donations), newspaper subscription, stock trades and investments, and gambling Donations made via mobile SMS to charities or political campaigns, bank person-to-person fund transfers © 2014 Forrester Research, Inc. Reproduction Prohibited

Questions?

Susan Huynh +1 212.857.0709 shuynh@forrester.com