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MasterCard PayPass™

PayPass Performance Insights

February 2008

Version 1-9

Advanced Payments

For Customer and Vendor Use Only

MasterCard PayPass MasterCard PayPass Performance Insights

Contents

Purpose of this document ____________________________________________________ 3

Audience Restrictions ________________________________________________________ 3

Copyright___________________________________________________________________ 3

Document History ___________________________________________________________ 3

Executive Summary__________________________________________________________ 4

1 MasterCard PayPass Grows Profitability ___________________________________ 5

2 Proven Economic Benefits – PayPass Expand Usage and Becomes the Preferred Card ____________________________________________________________________ 6

3 One Issuer’s Experience with MasterCard PayPass __________________________ 7

4 The Importance of Learning to “Tap” _____________________________________ 10

5 The Importance of Cardholder Awareness ________________________________ 11

Appendix: Definitions_______________________________________________________ 12

PayPass Product Management – For Customer and Vendor Use Only of 12 Copyright 2007 MasterCard International Incorporated


Purpose of this document This document provides details of current PayPass performance metrics and general statistics that have been generated from the combined analysis of PayPass transactions processed by MasterCard and case studies created in collaboration with MasterCard Issuers

Audience Restrictions This document has been created by the MasterCard Global PayPass Product Management Group and contains potentially sensitive information. It is intended for internal use by the following audiences only:

•

•

•

Individual discussions with MasterCard Customers and Product Vendors.

Explicitly excluded is the use of the information contained in this document at vendor and/or member forums, where members of the press and/or market analysts may be present.

No part of this document may be copied and used in any publication, presentation or other document in whole or in part without the express approval of Catherine Murchie, Senior Business Leader, Product Management (x55113).

Copyright The information contained in this document is proprietary and confidential to MasterCard International Incorporated (MasterCard).

This material may not be duplicated, published, or disclosed, in whole or in part, without the prior written permission of MasterCard.

Document History Date Version Number Created Reviewed

15th March 2007 1-3 JF CC, CM1, MS, RP, BFO, LK, CM2

23rd April 2007 1-4 MS CM1, MS

8th May 2007 1-5 MS CM1, MS

6th August 2007 1-6 MS CM1, MS

23rd October 2007 1-7 MS MS, RP

10th December 2007 1-8 MS MS, RP

4th February 2008 1-9 MS MS, RP

1 Catherine Murchie

2 Chris Monteiro



Executive Summary As of December 2007, there are over 23 million MasterCard PayPass cards and devices in use at over 95,000 merchants worldwide, including new acceptance environments such as vending, taxis, tollbooths, and transit.

In addition to robust deployments at McDonald’s, 7-Eleven, CVS, Duane Reade, Sheetz, Regal Entertainment Group in the US, PayPass has been rolled out in 24 countries. Outside the US, PayPass speeds consumers through the checkout process at such locations as McDonald's (Lebanon and Mexico), Burger King (Turkey), 7-Eleven (Australia), Starbucks (Turkey and Malaysia), Petro-Canada (Canada), Tim Hortons (Canada) and in many other types of merchants including supermarkets, cinemas, gas stations, fast food and transit. PayPass technology has also proven popular in sports facilities, including football and baseball stadiums and professional golfing events.

Through Q4 2007, the average ticket size for a PayPass transaction was just over $27; more than 70% (70.77%) of transactions were for purchases of $25 or less – a sign that PayPass is increasingly displacing cash.

MasterCard PayPass Quarterly Transaction Report (through December 2007)

Source: MasterCard Data Warehouse

Metric 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07

Average Ticket Size

Total:

Credit Purchases

Debit Purchases

$20.35

$23.31

$18.41

$19.62

$22.72

$18.75

$18.45

$21.41

$17.77

$18.51

$20.14

$18.18

$17.90

$20.14

$17.50

$18.25

$21.54

$17.58

$18.93

$21.82

$18.05

$27.10

$38.19

$20.00

Cash Displacement

% Transactions $25 and under

% Transactions $10 and under

74.27

41.41

75.67

44.02

77.92

46.62

78.29

46.87

79.33

48.78

78.94

50.01

78.75

50.59

70.77

43.90

Lift3 (Top of Wallet Trend)

% Increase in Usage $

% Increase in Transactions

16.01

32.47

19.45

28.65

17.68

24.71

18.61

29.16

21.43

30.53

23.41

31.89

24.35

32.14

26.80

26.88

Fig 1: MasterCard Quarterly PayPass Transaction Report (through December 2007)

3 Lift calculations are derived from a subset of PayPass-enabled debit and credit cards that leveraged the PayPass technology [i.e., tapped] in the current month and had observable activity during the same month in the prior year. The lift calculation was modified for Q4 to exclude accounts that were PayPass enabled in the prior year. Most cardholders were not offered rebates or other incentives to use their PayPass cards during this period, and particular issuer portfolio segments (e.g., inactive accounts) were not targeted for PayPass issuance.



1 MasterCard PayPass Grows Profitability MasterCard PayPass demonstrates an economic benefit to issuers. Cardholders that use their PayPass card make it their preferred card. Clear cardholder communication to teach cardholders how and where to “tap” their card at participating merchants is a key driver for success.

The statistics provided below are based on MasterCard transaction data and case studies conducted with participating PayPass issuing banks.

PayPass expands card usage and becomes the preferred card

Cardholders spend more with their PayPass card – After being PayPass enabled, there was an increased overall spend of 27% per PayPass account. Taking the effect of reactivation into account in the issuer case studies conducted, increases grew between 28%-42%.

Cardholders use their PayPass card more often – After being PayPass enabled, there was an increased transaction frequency per account of 27%. Taking the effect of reactivation into account in the issuer case studies conducted, increases grew between 33%-52%.

Cardholders use PayPass for smaller purchases – Average ticket for PayPass transactions is just over $27; more than 70% are for purchases $25 or less - a sign that PayPass is increasingly displacing cash.

PayPass expands where cardholders choose to shop for everyday purchases

Cardholders use PayPass at merchants that mostly accept cash – Consumers get what they want when no longer limited to cash on hand.

PayPass expands where cardholders choose to shop – As more consumers carry PayPass, acceptance at new merchants is growing in step. While cash remains more popular at these merchant types, PayPass is clearly gaining ground, and fast.

PayPass moves transactions from cash to card

More than 70% of PayPass Transactions are under $25 – $724 billion cash purchases (2004)4 – that is the global cash displacement opportunity. Consumer preference for PayPass over cash continues to grow the card industry’s share of low value payments.

PayPass increases re-activation

New Profitability Opportunities – PayPass contributes to issuers’ bottom line and helps differentiate them from their competition. It is also a proven tool to convert inactive accounts. In one issuer case study, for example, 15% of active “tappers” were previously inactive.

4 Source: Datamonitor – December 2006



The key is to get cardholders to “tap”

Cardholders that tap with PayPass show the most significant growth – PayPass cardholders showed more significant growth in spend and transaction frequency than other segments of issuers’ portfolios.

A MasterCard PayPass case study shows that 30% of the issuer’s portfolio of PayPass cardholders (those that “tapped” and “swiped” at PayPass-enabled merchants), drove 71% of the change in total dollar volume after being reissued with PayPass.

MasterCard sees a direct correlation between portfolio profitability and cardholder awareness of MasterCard PayPass – Following marketing and communications best practices helps maximize PayPass issuers’ profitability and shows markedly different results from those that did not. The best practices include:

o Educating Consumers – Communicate simply and often o Training – Training the branch staff and call center staff on where and how to

use PayPass and distribute FAQ o Considering Card Design – Display PayPass prominently on the card front.

This document contains current PayPass performance metrics and general statistics that have been generated from the combined analysis of PayPass transactions processed by MasterCard and case studies created in collaboration with MasterCard Issuers.

2 Proven Economic Benefits – PayPass Expands Usage and Becomes the Preferred Card

MasterCard PayPass demonstrates an economic benefit to issuers; cardholders that use their PayPass card make it their preferred card. Clear cardholder communication to teach cardholders how and where to “tap” their card at participating merchants is a key driver for success.

Upgrading a portfolio to PayPass positively impacts activation and usage across all account segments both inside and outside of PayPass merchants. To date, MasterCard has conducted three in-depth case studies in partnership with issuers to evaluate the impacts of PayPass. Completing the case studies involved combining data provided from PayPass issuers with MasterCard’s transaction data to provide a detailed snapshot of portfolio performance.

Fig.2 shows that PayPass users (cardholders who tapped) consistently showed more significant growth after being PayPass enabled than any other segment.

Fig. 2 also shows that the performance varies from issuer to issuer. A number of factors influenced this variation including the timing of the study, cardholder geography, make-up of the portfolio prior to re-issuance and level of cardholder activity.



MasterCard PayPass Performance – Issuer Case Studies

The case studies analyzed the same 3 month time frame in consecutive years and measured the year-over-year growth for accounts that conducted “Tap” transactions. The table includes results from the three issuers.

*Metric: Issuer A Issuer B Issuer C

Total cardholder spending per account

36% Increase 28% Increase

42% Increase

Total frequency of transactions per account

45% Increase 33% Increase

52% Increase

Cardholder spending @ PayPass merchants

230% Increase

65% Increase

85% Increase

Cardholder transaction frequency @ PayPass merchants

270% Increase

93% Increase

107% Increase

Expansion of where cardholders choose to shop

27% Increase 4% Increase 13% Increase

Fig 2: PayPass Performance across 3 issuers *See Appendix for definitions

3 One Issuer’s Experience with MasterCard PayPass In this section, we take a more in-depth look at the performance of Issuer B (see middle of chart above). What the case study shows is that, after becoming PayPass enabled, cardholders used their card at PayPass enabled merchants more often and PayPass succeeded in activating accounts that were previously inactive.

Fig. 3 shows the behavior of cardholders before and after being PayPass enabled.

• More cardholders began to visit PayPass enabled merchants after becoming PayPass enabled – An increase from 23% to 31%

• Inactive accounts became active after becoming PayPass enabled – Reduced inactivity from 37% to 27%.

Fig 3: Performance of cardholders before and after being PayPass enabled.

0%23%

40%

37%

8%

23%

42%

27%

1. Tap Active @ Enabled Merchants

2. Swipe Active ONLY @ Enabled Merchants

3. Active Outside of Enabled Merchants

4. Inactive

Before PayPass Issuance Post PayPass Issuance0%

23%

40%

37%

8%

23%

42%

27%


2. Swipe Active ONLY @ Enabled Merchants

3. Active Outside of Enabled Merchants

4. Inactive

Before PayPass Issuance Post PayPass Issuance



Fig. 4 (below) shows the behavior of the 8% of cardholders who “tapped” at PayPass enabled merchants in 2006 and what their behavior was in 2005.

In 2005: • Almost 15% of them were inactive

• 23% of them did not shop at PayPass enabled merchants

• 61% of them shopped at PayPass enabled merchants

In 2006: • The 15% that were inactive in 2005 had the highest level of annualized incremental spend

in 2006 - $7,890

• The 23% that did not shop at PayPass merchants in 2005 had a 38.6% increase in their total spend in 2006

• The 61% that shopped at PayPass merchants in 2005, increased their spend at the PayPass-enabled merchants by 26% and increased their overall spend by 9.6%

2006 @ PayPass Merchants

Total Spend

@ PayPass Merchants

Total Spend

26.3% 9.6% $153 $1,089

n/a 38.6% $284 $2,200

n/a n/a $480 $7,890

Annualized Incremental Spend:

Percentage Change:(2006 vs 2005)

8%


61.6% Active @ PayPass Merchants

23.8% Active Outside of PayPass Merchants

14.7% Inactive

Where Were 2006 Tap Actives in 2005?2006 @ PayPass

MerchantsTotal

Spend@ PayPass Merchants

Total Spend

26.3% 9.6% $153 $1,089

n/a 38.6% $284 $2,200

n/a n/a $480 $7,890

Annualized Incremental Spend:

Percentage Change:(2006 vs 2005)

8%


61.6% Active @ PayPass Merchants

23.8% Active Outside of PayPass Merchants

14.7% Inactive

Where Were 2006 Tap Actives in 2005?

Fig 4: Performance of the accounts that “tapped.”



PayPass cardholders that were active at PayPass enabled merchants drove the most significant growth

In the following example of Issuer B’s performance (Fig. 5), 30% of cardholders active at PayPass merchants drove 71% of the change in total dollar volume after being PayPass enabled.

-20%

0%

20%

40%

60%

80%

100%

Total Accounts (Segmented by 2006 Behavior)

Annualized Change In GDV/Account

% C

on

trib

uti

on Tap Active @ EnabledMerchants

Swipe Active ONLY @Enabled Merchants

Active Outside ofEnabled Merchants

Inactive

Fig 5: Annualized change in Total Dollar Volume AFTER re-issuance with PayPass (by MasterCard behavior segment) Getting cardholders to tap at the point of sale maximized incremental growth in total dollar volume and revenue generated by the portfolio. Fig. 6, below, displays the portfolio impacts after issuance of PayPass by each of the account segments:

Segment Percentage of Portfolio Incremental Total

Dollar Volume (Annualized)Tap Active @ Enabled Merchants 8% $2,350Swipe Active ONLY @ Enabled Merchants 23% $2,100Active Outside of Enabled Merchants 43% $641Inactive 27% ($464)

TOTAL 100.0% $807

Fig 6: Portfolio impacts after issuance of PayPass by account segment



4 The Importance of Learning to “Tap” As the case study detail above is showing, cardholders that utilize PayPass technology demonstrate a change in overall card usage year-over-year.

The chart below (Fig.7) shows more clearly the impact and importance of getting cardholders to tap at the point of sale. The more the cardholder uses the PayPass functionality on the card, the greater the level of change in overall performance.

As the frequency of tap transactions increased, the growth in spend and transaction frequency also increased. The chart below shows that accounts that tapped more than 5 times had the most significant change in their total behavior:

• 30% increase in spend

• Almost 50% increase in transaction frequency

% of Tappers 2005 2006 %CH 2005 2006 %CH1 Tap 58% $772 $937 21.3% 17.1 21.7 26.6%2 Taps 19% $839 $1,027 22.5% 19.1 24.8 30.0%3 Taps 9% $879 $1,117 27.0% 20.2 27.8 37.9%4 Taps 5% $964 $1,243 28.9% 22.0 30.1 36.7%5+ Taps 9% $1,003 $1,303 30.0% 25.1 37.6 49.8%

Total: 100% $825 $1,019 23.5% 18.7 24.7 31.7%

Average Dollar Volume in May Average Transactions in May

Fig 7: Impact of getting cardholders to tap at point of sale. [Source: MasterCard Transaction Data]



5 The Importance of Cardholder Awareness Marketing and communications best practices helps maximize PayPass issuers’ profitability and shows markedly different results from other issuers that do not follow the same practices. Awareness leads to usage.

Number of Times Tapped Weekly

Among Consumers Aware of PayPass:

Footnote appears here

1 to 23 to 56 to 910+Do Not Tap

81%

19%

Tap Weekly

Do Not Tap

Number of Times Tapped Weekly

Among Consumers Aware of PayPass:

Footnote appears here

1 to 23 to 56 to 910+Do Not Tap

81%

19%

Tap Weekly

Do Not Tap

Percentage Aware of PayPass

8985

64 63

3934 32

28

0

10

20

30

40

50

60

70

80

90

100

Perc

enta

ge

Card Design Considerations –Place PayPass prominently on the card front

Training – Train your branch staff and call center staff on where and how to use PayPass and distribute FAQ

Educate Consumers –Communicate simply and often

Best Practices

Best In Class Above Average Room for Improvement

MEDIAN = 51%

Percentage Aware of PayPass

8985

64 63

3934 32

28

0

10

20

30

40

50

60

70

80

90

100

Perc

enta

ge




Best Practices




Best Practices

Best In Class Above Average Room for Improvement

MEDIAN = 51%MEDIAN = 51%

Fig. 8 – Best Practise considerations




Appendix: Definitions Usage Per Account – This includes both PayPass users (cardholders who tapped) who increased their usage volume and PayPass users who began to use their card again once their card was PayPass enabled.

Total Transactions Per Account – Represents both PayPass users (cardholders who tapped) increasing their transaction frequency and PayPass users who began to use their card again once their account was PayPass enabled.

Usage at PayPass Merchants – Represents both PayPass users who increased their usage volume at PayPass enabled merchants and PayPass users beginning to use their card again at these merchants.

Number of Transactions at PayPass Merchants – Represents both PayPass users who increased their number of transactions at PayPass enabled merchants and PayPass users beginning to use their card again at these merchants.

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