FSTC’s 2008 Annual Conference On the Innovative Edge: Successful Strategies for Financial Services Industry Navigators The Financial Services Technology Consortium Empowering the Industry Through Innovative Ideas

FSTC’s 2008 Annual Conference On the Innovative Edge: Successful Strategies for Financial Services Industry Navigators Mobility in Payments: Getting to a Secure, Resilient, and Customer Friendly Solution

FSTC Mobile Technology Project Janey Place, CEO DigitalThinking June 18, 2008

Mobile Financial Services: Predictions  Great Statistics Global subscribers – ½ world population Mobile service revenue greater than fixed domestic and international line revenue Mobile commerce revenue soars; predictions top $50 billion  Celent February will be the year FIs and carriers “work together to create a much larger market opportunity  Mobile adoption  Technology standards  Industry dynamics  Business interests  What Happened? Or Didn’t Happen?

What Hasn't Happened  Celent expected potential of vast opportunity – a much bigger pie – to drive stake holders to cooperate on a bank/carrier model for mobile payments  But… instead, mobile banking has dominated initial implementation.  NFC is stalled – why?  Proximity Payments (POS) is where the money is – will this model change or will the card model be grafted on to the mobile channel?

The Problem  Conflicting Expectations FI’s want a mobile Internet – “dumb pipes” Carriers want new revenue from content Both want control of their customers  Many Global Models Carrier-led are most common: Philippines, Kenya Hybrid – carriers partner with FI - DoCoMo Bank-led is rare  Can’t We Just Get Along?

Mobile Realities  Wireless Carriers Own The Networks Not the Internet or old telephone network No regulatory presumption of “universal access” or “public good” Carriers’ huge investments make them determined not to be “dumb pipes” for content providers to earn revenues and customer loyalty  Digital content purchases– 25-50% revenue share to carrier  Mobile applications can be carrier controlled  Interoperability isn’t a given among carriers  Globally, Wireless Carriers are in Driver’s Seat US: Brand in the consumers hand is the carrier brand User choice is driven by carrier selection or handset Banks are frequently in the background in global payments

More Mobile Realties  US: Carriers Subsidize Handsets/Control User Choice This may change or erode, but it is the situation today New spectrum – some open requirements Verizon has announced it will be open – what does that mean?  Mobile Platform Contentions Who controls secure elements, user credentials? Most agree that FIs and other application providers will pay carriers “rents” to reside on mobile platform Mobile payments will not take off until a revenue sharing, “rental” and/or licensing business model is worked out  Carriers are in Charge Payments are content to mobile carriers This is different from current models of accessing value, whether stored in DDA accounts or prepaid cards or in credit vehicles The differences are presenting FIs with challenges

Lessons from the Past  Remember the Internet Regulation helped bring order Walled Garden versus Open Access ISP “owned” customer for a while Technology a major driver to today’s open Internet  Browser is inherently open  WWW is inherently open  Look at the trouble “closed” countries have controlling access  Land line evolution Technology innovation Regulation

Mobile Models: Celent Report 2006 Bank CentricBank Carrier JVCarrier Centric Bank owns the user accounts. Mobile payment system resides within a Bank’s firewall. To facilitate SMS payment, bank will strike relationship with one or more carriers to provide SMS access. Bank owns the user accounts (credit card or stored value) and infrastructure resides within a Bank’s firewall. The carrier is utilized purely as a connectivity vehicle. The Carrier provides connectivity and customer base. Carrier becomes licensed financial services provider; banks used for settlement (under normal settlement agreement that Banks provide). Useability issues associated with multiple carriers if carriers cannot provide a single message access number A split of transaction economics between carriers and banks is difficult to work through. Carriers and Bank must form close partnership that has not traditionally taken place. Carrier must be willing to commit to regulatory oversight as a full or partial financial services provider. Carriers purely connectivity and messaging providers; banks take on onus of digital and terrestrial mobile commerce system. Carriers make money off of data charges and there is a transaction fee split with a bank. Banks make money off transactions and have ability to market to telco consumer base. Carrier derives revenue from becoming a data/transport provider and receiving a transaction fee. Banks are incented to participate to receive float, settlement fees and chance to lure the unbanked.

Technology’s Role  Technology is an enabler – what will it enable? Open mobile web, bypassing carrier control? Great security and fraud prevention, requiring carrier involvement? Great User Interface, requiring carrier involvement?  A clear description is needed To identify where value is To identify which entity can best provide each value To ensure rapid user adoption  Can we have a Mobile Infrastructure that is Cost effective Capable of leveraging existing platforms Flexible enough to build compelling user-friendly applications Secure

Project Goals: Describe and Document  The current US wireless networks transmission technologies and interoperability (or lack thereof)  Handset capabilities in current and near-term future models  Modes of accessing content using mobile phones  Barriers to open access  Methods through which to provide mobile content  Open access standards and principles

The Mobile Channel  The mobile channel can be a powerful enabler of services to customers and driver of revenue if it is Very secure – let’s build this in up front this time, rather than dealing with deficiencies years later as we’re doing with the Internet. Consumers, businesses and application providers must trust this channel. This will require close collaboration among carriers, banks and handset manufacturers. User friendly and easy to use: Nothing accelerates adoption like a great User Interface. This will also require close collaboration among the various players. Integrated with FI infrastructure: Customers expect integration across channels; robust security demands it.

FSTC’s 2008 Annual Conference On the Innovative Edge: Successful Strategies for Financial Services Industry Navigators Mobility in Payments: Getting to a Secure, Resilient, and Customer Friendly Solution

FSTC’s 2008 Annual Conference On the Innovative Edge: Successful Strategies for Financial Services Industry Navigators Luncheon Program: Emerging Strategic Business Competencies – Sustainability & Security