Why we struggled to bring “the solution” to market despite common understanding that it is future proof?

1) Technology Reasons

HOW IT WAS MEANT TO BE

TSM

OTA platform

BANK A-X

MNO 2

OTA platform

MNO 1

OTA platform

MNO 3

SP

SP

SP

BANK A-X

SP

SP

SP

BANK A-X

BANK A-X

BANK A-X

BANK A-X BANK A-X

1) Technology Reasons

HOW IT IS – “TSM SCHISM”

MNO TSM

OTA platform

BANK A-X

MNO 2

OTA platform

MNO 1

OTA platform

MNO 3

MNO TSM

MNO TSM

C SP TSM (Group)

BANK A-X

C

BANK A-X BANK A-X

BANK A-X C SP TSM (Group)

SP

SP TSM (Aggregated)

HUB

1) Technology Reasons

HOW IT IS – “STANDARDIZATION SCHISM”

MNO TSM SP TSM

STANDARD

Global Platform AFSCM

MO

DE

simple

delegated

authorized

D

S

D

S

SP

SP

SP

BANK A-X

BANK A-X

BANK A-X

BANK A-X BANK A-X

1) Technology Reasons

GRAPH COLORING THEORY - COSTS ON ONE SIDE EQUALS REVENUES ON ANOTHER (VENDOR) ONE

MNO TSM

OTA platform

BANK A-X

MNO 2

OTA platform

MNO 1

OTA platform

MNO 3

MNO TSM

MNO TSM

C SP TSM (Group)

BANK A-X

C

BANK A-X BANK A-X

BANK A-X C SP TSM (Group)

SP

SP TSM (Aggregated)

SP TSM (Aggregated)

HUB

S

D S

D

D

D

S D

S

D S

S

2) Business Reasons

BUSINESS CASE/CONNECTED COSTS

PAYMENT SCHEME SELECTION (TECHNICAL DECISION AT THE END)

RIGID DECISION MAKING – GROUP DECISIONS

CUSTOMER OWNERSHIP (OWN WALLET/APPLICATION)

AND/OR Online payment only vs. Offline payment supported PIN on POS vs PIN on mobile Change PIN posibility Application management gateway integration

3) Customers facing Reasons

DEVICES

NFC penetration

Mobile OS – firmware (compatibility issue )

SECURE ELEMENT – NFC SIM EXCHANGE ISSUE

ACCEPTANCE NETWORK* (50% penetration of contactless POS is it enough?)

EDUCATION (does service activation without need of personal office visit help?)

*Low penetration of POS Terminals

5,97,57,78,89,49,610,312,112,313,414,816,218,819,320,321,022,222,423,624,524,825,928,028,428,530,0

33,135,5

RO SK PL DE BG HU CZ LV BE AT LT NL SI EU EE EUR LU SE DK PT IT UK FR EL ES CY IE FI

Source : European Central Bank Number of POS terminals per 1000 citizens (year 2012)

a) POS terminals in Slovakia is domain of big cities and big retail chains only.

2008 2009 2010 2011 2012 2013

40 000

38 000

36 000

34 000

0

Number of POS terminals

b) And even in this segment it seams market is saturated at level of 40ths. terminals

10

12

14

16

18

20

2013

16%

2012

16%

2011

17%

2010

17%

2009

17%

2008

16%

POS terminals penetration among Cash Registers

c) LONG TAIL MERCHANTS DON’T USE POS TERMINALS. ARE THEY ADDRESSED BY RIGHT PRODUCT AND APPROACH?

Is There Light on the end of the tunnel?

26.6.2014 – mimoriadne citlivé / citlivé / interné / verejné – Autor / Názov prezentácie 9

TSM INFRASTRUCTURE IS COMPLEX BUT CURRENTLY THE ONLY SERCURE SOLUTION PREPARED FOR MASS COMERCIAL DEPLOYMENT

MOBILE WALLET MARKET IS NASCENT ECOSYSTEM BUT TSM INFRASTRUCTURE STANDARDIZATION AND EXISTING COMMERCIAL DEPLOYMENTS ARE PAVING THE WAY – UNIFICATION IS ON THE WAY

HOSTED CARD EMULATION MIGHT BY PROMISING ALTERNATIVE/COMPLEMENT TO TSM INFRASTRUCTURE IN FEW YEARS

DEVICE PENETRATION AND CUSTOMER EDUCATION IS IN OUR HANDS

Way to go right here right now with ST and MyWallet

SP

SP

SP

BANK A-X

BANK A-X

OTA platform

OTA platform

ST MNO TSM

BANK A-X

C

C SP TSM (Group)

SP

SP TSM (Aggregated)

SP TSM (Aggregated)

NFC phone

NFC SIM

Application

BANK A-X S S

S

S

1)

2)

+ Full Control - Higher costs - Longer time to market (9+ months) - General ST solution constrains

support planned in 2015

support planned in 2015

+ Low Costs (NFC revolution program) + Fast time to market (6months) ? Outsourced solution - General ST solution constrains

Card

Multipurpose wallet vs. single purpose wallet, are those two approaches mutually exclusive?

Wallet ≠ payment instrument only

INTERNAL MARKET RESEARCH HAS REVEALED THAT 87% OF CUSTOMERS PERCEIVE VALUE IN WALLET

APPLICATION THAT AGGREGATES MULTIPLE SERVICES

AMONG MOST REQUIRED SERVICES ARE TRANSPORT CARDS AND LOYALTY CARDS OTT PLAYERS AND MNOs (INTEGRATED ICT TELCO PLAYERS) ARE MORE LIKELY TO

INTEGRATE/AGGREGATE MULTIPLE SERVICES THAN BANKS

AT THE END IT IS FEAR OF LOOSING CUSTOMER OWNERSHIP IF APPLICATION IS PROVIDED BY

SOMEBODY ELSE (ON BOTH MNO AND TSM SIDE)

War over customer ownership via Secure Element control

UICC (Universal Integrated Circuit Card) – SIM card

SMC (Secure Memory Card) – SD card

ESE (Embedded Secure Element) – separate device HW

HCE (Hosted Card Emulation) – SE in cloud

FULL TSM INFRASTRUCTURE NEEDED

IS HCE a holy grail?

BIG JOB AHEAD

SECURITY (MALICIOUS APPLETS, FAULT ATTACKS, MASQUERADES AND SIDE CHANNEL ATTACKS)

CERTIFICATION (Including emvco, visa, mastercard, american express, etc.)

FUNCTIONAL DRAWBACKS

LOW POWER MODE

ROAMING AND NO DATA CONNECTIVITY SCENARIOS

TRANSACTION SPEED (Over LTE, network latency can be as low as 20ms but for a 3G or 2G network it can

frequently exceed 100ms and even 300ms what is close to 400ms threshold)

Who can benefit from hce?

Bank

MNO

NEW ENTRANTS

Big OTT players may leverage and finally penetrate from online to physical stores

They are not likely willing to negotiate with local players

It is expected that many startups will bring their innovation to ecosystem

They are flexible not bounded by legacy approach – who from current players is able to cooperate with them?

Banks willing to bring their own application for their payment cards as complement to existing mobile banking applications.

Multipurpose mobile wallet freed from SIM centric and complex TSM solution is ideal for customer reach extension even beyond own customer base

A bird in the hand is worth two in the bush

SIM Centric TSM solution

2014 201?

HCE

Musical chairs – how many players will last and who will be out of the game if we play Mobile Payments?

Too many players not enough revenues

Bank

MNO

NEW ENTRANTS

WE BELIEVE THAT THERE WILL BE SEVERAL WINNERS AS IT IS COMMON IN MOBILE APPLICATIONS WORLD

ULTIMATE DECISION POWER IS IN THE HANDS OF CONSUMER AND HE/SHE WILL DECIDE WHO WILL SURVIVE

Having questions or willing to discuss cooperation? You are welcome to contact me:

Michal.Suster@telekom.sk