Brion BonkowskiManaging Director

May 29, 2013

Boot Camp Week 1Improve your Payment IQ

Names & Nomenclature in the Modern Payments Ecosystem

Overview of Recent Consolidation

The Next 5 Years – Major New Entrances

Wrap-up / Q&A

Introduction

Who is Interested in Payments?

Understanding the Landscape

Ecosystem PlayersSchemes IssuersAcquirersProcessorsTechnology Vendors

Agenda

My Story – Moving into the Payment Space

Who is ROI Payments?

Why a Boot Camp Series?

Introduction

Who? Roles including Finance, IT, Sales, Marketing, and Treasury are all involved in the payment chain

at some point It is rare when someone is specifically assigned to payments, as such many people find

themselves unprepared to navigate the payment ecosystem ROI Payment Webinars attract

A cross section of industries, including state/local government, non-profit organizations, eCommerce, SaaS and payment industry insiders

Senior Finance folks (CFOs, controllers, etc), technology execs, operations managers and sales/marketing team members

Why? People become involved in payment projects and need a holistic overview of the industry so

that they can dive deep into their project, work, etc. Wikipedia and Google searches don’t provide a comprehensive understanding

Result? Everybody can benefit from an increased “Payment IQ” Comprehensive understanding helps in today’s environment (rapidly evolving)

Who is Interested in Payments

Useful to use a transaction flow to orient the ecosystem players

For this example, we’ll use a Visa credit transaction

Future boot camps will cover various transaction flows in detail3 and 4 party networks, closed loop systems, emerging networks, etc

ROI categorizes vendors into 5 major categories:Schemes, Issuers, Acquirers, Processors & Technology Vendors

Understanding the Landscape

Typical Credit Transaction Parties

Customer

Cardholder Merchant

TechnologyIssuer Acquirer

Inte

rchange

Processor

Schemes

Ecosystem Players by Category

Schemes set the rules and standards in a transaction network, establish branding and spurring adoption

Provide Customer (cardholder) and Business (merchant) rules, regulations and pricing schemes

There are commercially adopted schemes and, in certain countries, regulatory promoted schemes

Schemes

Global Regional Emerging

Issuers own the customer relationship (i.e. they issue plastic and get cards into the wild)

Issuers are a customer of the schemes (Visa/MC/etc)

Issuers profit from debt, card holder fees and interchange

Issuers

#1 in US Volume#1 in US Market Share

Acquirers own the merchant relationship and enable businesses to participate in the payment network

In the US, Acquirers typically work through channel partners, called ISOs or “Super ISOs”, who act as their feet on the street selling and implementing solutions for merchants.

Acquirers take liability for merchant activity, including financial obligations, regulatory requirements, security compliance and scheme rules & regulations

They acquire the payment chain on behalf of merchant - which processor to use, which technologies work with their networks, etc.

Acquirers

#1 in US Volume#1 in US # of Merchants

Processors handle the “muck” of transaction processing and are often called Backend Networks

The industry has a small number of large processors, primarily because the economics support processors that can operate at large scale

They are technology focused banking networks performing back office functions such as: Authorization and settlement Funds transfer to the merchant Statement generation & interchange calculation Dispute management Equipment and software certification

They generally own or have relationships with various front end networks (intermediates between merchant and issuing bank to authorize cards)

Processors

48% US Marketshare

Technology is the most complex and disparate part of today’s payment ecosystem

The Technology Space is innovating very quickly -- ROI focuses most of its attention on this part of the payment chain

ROI includes everything from PSP’s to Payment Gateways to terminals in this bucket

Technology is where merchants interact with the payment ecosystem Proxy transactions to front end networks Implement business rules (tax, fraud, notifications, rebills, verification, etc)

Technology layer keeps merchants from having to interact directly from a technical standpoint with processors unless scale warrants it

Technology Vendors

ROI Payments classifies payment ecosystem into 5 categories: Schemes, Issuers, Acquirers, Processors and Technology VendorsNOTE – The payment space is complex and multi-layered. Many vendors

play in several categories and/or resell or bundle each others’ servicesPrime example is First Data, who is the processor for most of the major

commercial banks in North America including Bank of America and Citi

Today’s Webinar should be considered a starting point to understanding the industry

High level terms - ROI has assembled a glossary of terms relevant to the payment ecosystem that will help you understand statements, create RFP’s, and negotiate contracts. If you would like a copy of the ROI glossary, please let us know.

Ecosystem Recap

What’s Next?

Recent acquisitions show change in the ecosystem Visa acquires CyberSource (2011)

Acquisition positions Visa in the Technology Space with a leading enterprise payment platform and SMB gateway

Vantiv acquires Litle (2013) Acquisition moves Vantiv from processing into online retail solutions with

expertise in rebilling, tokenization, and reconciliation (2013) Ingenico acquires Ogone

Acquisition provides global payment gateway to the hardware manufacturer (2013)

Groupon acquired FeeFighters (2013)- demonstrates companies outside of the ecosystem are vying for entry into the market.

Lesson learned? Many processors are building technology portfolios to increase solution set

and stay relevant ROI predicts more acquisitions and consolidation in 2013/14

M&A Activity Shows Industry Change

Mobile and Internet commerce are causing change and introducing new competitors and technologies to payments

Major new players will enter the payment stream in the coming years, such asMobile / telecom carriers (ATT, Verizon, etc)Technology companies (Apple, Microsoft, Google)New payment methods are gaining traction (Bitcoin)

Regulatory and competitive forces may change the face of the payment chain as we know it today

Missing Logos – Upcoming Entrances

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Contact Information:Brion Bonkowskibrion@roipayments.com212.812.4177 x: 2134

Questions & Contact Info