Transcript The Disruptors Yobie Benjamin Chief Technology Officer Citi Transaction Services / Citi Enterprise Payments Institutional Clients Group June 2012

The Disruptors
Yobie Benjamin
Chief Technology Officer
Citi Transaction Services /
Citi Enterprise Payments
Institutional Clients Group
June 2012
The Disruptive Forces
The Mobile Phone:
a profound redefinition of human community
1.1 billion: Speakers of Mandarin –
most common language
1.6 billion: Muslims –
most common religion
2.4 billion: People
with access to the internet
4.4 billion: People
with reliable access to electricity
6.9 billion:
World Population
5.2 billion: People
with access to mobile phones
6.0 billion: People
with access to clean water
Access to mobile communications will soon
be as common as access to drinking water –
and will likely surpass it!
Source: The Pew Forum 2011, Ethnologue 2005, The Economist 2010, International Telecommunications Union 2011,
Water.org, internetworldstats.com
Mobile Payments has already made tremendous
progress, and will continue its strong growth
Gross value of mobile payment transactions
$ billions
545
122% p.a.
245
30
2010
2011
60
2012
2013
• 5.9B mobile cellular subscriptions
• 87% of all people have access to mobile
phones
Today: 627M
smartphone users,
11% of all active
SIMs
110
10
Mobile Payments growth is being fuelled by
pervasive global access to mobile phones:
2014
2015
Top brands leading
the way
Source: IE Market Research Corporation 2011; Yankee Group 2011, Gartner Report 2011, Mobile Payments Today 2011,
International Telecommunications Union 2011, Research & Markets 2011
2015: 1.5B
smartphone users,
25% of all active
SIMs
Mobile Payments today, and in the near future
United States
Google Wallet mobile
payments
Mobile payments JV with
AT&T, Verizon & T-Mobile
And more to
come…
Europe
Asia-Pacific
Americas
Mobile payments JV
Mobile payment service
with HTC phones
Mobile payments JV in
Mexico with Citi/Banamex,
America Movil and Banco
Inbursa
NFC Hub
PayPal “Mobile Payments
Standard” enabling
merchants in Singapore
Mobile payments JV
in Canada
Payments will look very different in 5 years
Need content – top 5 predictions
 Convergence of digital economy and bank grade
mobile payments
 Explosive innovation and adoption of all things
mobile payments
 Proliferation of payment wallets
 Consumer shift from “e” to “m” commerce
 Most mobile phones are smart phones and
make payments as easy as calls
 All major merchants accept mobile payments
on web and POS
 All transit systems installing mobile payments
 Marketing shift to highly targeted mobile offers
 Mobile wallet is on-boarding channel for many
first time financial services consumers
Mobile Payments: The opportunity
The pay-offs are in:
 Moving from physical to digital
currency
Consumers
 Increasing the audienceStandardization
able to
Merchants
Regulation
engage with this new economy
 Leveraging “Big Data”:
contextual, highly targeted offers
Rapid Growth
7
Ubiquity
VeriFone Proprietary and Confidential – Do Not Distribute Outside the Company
2020
Mobile Payments: What’s holding us back?
What’s in it for ME?
What is the value
proposition for
consumers? For
merchants?
What is the revenue
model for providers:
Banks? Telecos?
Software?
What is the business case
for investment: Senior
Management? Boards?
PE?
We need clearly defined, sustainable business models with value
drivers for all parties in the ecosystem
Three disruptive macro forces
Ubiquitous
Connectivity
Growing Digital
Economy
Consumer
Empowerment
Driving major change, particularly for Merchants, Banks,
Telcos, Cable and Software Companies
Devices… So Much Fun!
“Hello World” - Goodbye Feature Phones!!!
Plastic = Blockbuster | Phone Payments = Netflix
Trending to the new reality
Current state of payments: revenues are expected
to exceed $1.3 T by 2015
ESTIMATES
Global payment revenues have rebounded
after declining by 5% from 2008-2009,
$Billions, (2010)
+5-7%
-5%
998
1,300
+6%
945
Global payments revenue regional breakdown 2
Percent, $ Billions, (2010)
North America
324
Europe
995
229
Asia Pacific
A 1% change
from paper to
electronic
delivers $30B
of revenue
2008
2009
2010
2015
Share in paper 3
% of transactions
1-3%
66%
3-5%
97%
12-14%
80%
Latin America
87
8-11%
93%
Rest of the World
76
10-12%
98%
5-7%
92%
Total
Strong organic growth in
payments revenues, driven by
non-US markets
1 “Institutional” revenues do not include interbank clearing and settlement
2 “Latin America” includes Mexico; “Rest of World” includes Africa, Russia, Turkey, and the Middle East
3 “Paper” is defined as cash and check payments, and includes both consumer and institutional transactions
Source: McKinsey Global Payments Map
279
CAGR
2010-2015
995
Electronic migration enables
us to:
• Intermediate transactions
• Create services-based
businesses
5B connected consumers – creating new distribution
channels for banks, corporations and governments
Implications
Manufacturer Direct-to-Consumer
% purchases - Nth America Survey
17%
5%
Source: Forrester 2011
2008
Mobile connectivity increases access to a global
marketplace of 5+ billion consumers:
– Corporates to consumers (increasing Direct-toConsumer business models)
– Governments to citizens
– Aid agencies and NGOs to recipients
 Companies are looking to exploit their distribution
capabilities beyond current business models:
– Digital companies with digital reach and digital
goods
– Mobile ecosystem companies
7%
2006

2010
 Global financial services solutions are needed to
integrate payments capabilities:
– While information flows freely across borders, cash
does not
– International financial flows is a complex, multiparty challenge; clearing and settlement requires
international partners
Confidential & Proprietary
Banks today operate in only two dimensions - new
opportunities require 3D thinking
Banks
B
Clients
Global market
B
G
C
Brand
Banking
licenses
Global Corporations
Consumer and corporate
operations
(i.e. digital goods and
services)
Payments and collection
platforms
Governments
Customer
Relationships
5B connected
consumers
globally
(i.e. tax collection, benefits
payments, transit)
Regulated product
design and delivery
Banks risk disintermediation by technology companies if they do not leverage
their vast assets and address the core needs of new business models
Mobile phones: The new local bank?
In developed countries, approximately 81% of adults are banked
vs. 28% in developing in countries
There are 5+ billion mobile phone users worldwide but only 1.8
billion bank accounts
Russia
- 69.0%
UK
- 94.5%
- 91.0%
US
India
China
- 91.0%
- 48.0%
- 42.0%
- 89.0%
- 73.0%
- 71.0%
- 92.4%
Africa
Brazil
- 43.0%
- 96.0%
6.9 billion people
Gap Narrowing
Source: Yankee Group, Financial Access Initiative, World Bank, Mobile Thinking
5.2 billion mobile users
- 20.0%
- 53.0%
1.8 billion bank accounts
2 - 3 billion underserved
Gap Widening
Mobile Money: 800MM potential accounts in
5 years, already 100+ services
A significant need...
...increasingly being addressed...
…will generate a large
number of new accounts
# Mobile Money accounts (MM)
684
+51%
807
499
326
107
199
2011 2012 2013 2014 2015 2016
Addresses the needs
of 2.5B underserved
consumers1
100+ services being launched
Current accounts
estimated at 100MM+
These accounts are currently mostly stored value accounts that allow person-to-person
payments, are managed by MNOs, and are untapped by branded financial networks
¹Consumers in countries with large gaps between mobile and bank penetration; defined as mobile
penetration >50% and banking penetration <50%; 72 countries qualify.
Current Goal: Mobile Wallets that provide a full
range of payments capabilities
Current mobile payments services are
closed loop with limited functionality
A full range of payments are needed to
provide a “bank-like” experience
Salary pay/benefits
Merchant pay
Transfer from bank
Cash-in
MNO #1
MNO #1
Cash-out
International
remittance
Bill pay
Other Mobile
Money services
Emerging Markets: cost and distribution models
drive ability to scale
Banks face economic and access issues competing for
the mass market & underserved /unbanked
MNOs leverage their distribution infrastructure to
deliver simple peer-to-peer and bill payments via prepaid value transfers, limiting exposure & risk
Key Issue: Risk Management must be industrial
strength if payments are driven to open networks
As financial resources are built, more sophisticated
services are needed, leading to greater partnership
opportunities for Banks & MNOs, and potentially, to
increased friction
Key Issue: Banks & MNOs will compete to optimize
asset structures, customer data, and revenue flows
MNOs: Advantages, up to a point
MNOS have more efficient entry economics but plateau quickly, banks have
financial sophistication but are unable to get early economics to work
Comparative product value for MNOs and banks
High
Cash-in
Complexity and Sophistication
P2P
Money
Transfer
Cash-out
Bill
Payment
Salary
Payment
Int’l
Transfer
Driven by simple
products that
leverage MNO airtime
distribution
infrastructure
Retail
purchase
Cards
Credit
Savings
Lending
Security
Value line for
banks
Insurance
Diminishing benefits as
individual actors go beyond core
product competencies
Driven by complex
products that leverage
bank transaction and
account systems
Service Evolution
Value line for
MNOs
VAS
Transactional
High
Core Payments
Core Banking
Mobile payments and eCommerce will comprise an
increasingly larger percentage of payments volumes
2010
Mobile
Payment
Flows: $10B
2015
CAGR:
+122%
eCommerce
Flows:
$1,700B
CAGR: 15%
Why?
Mobile
Payment
Flows: $545B
eCommerce
Flows: $3,420B
Total Flows:
Global Payment
Flows : $516T
CAGR: +9%
Global Payment
Flows: $780T
SOURCE: Yankee Group, Dec 2010; Press search; McKinsey Global Payments Map
• Phone is a more powerful device
than the PC
— Knows who you are
— Knows when you are in/near
store
— Knows your purchase/search
history
— Delivers instant gratification
• 5x more phones than PCs
• In store sales are still 19x greater
than eCommerce
Moving forward: our core challenges
Consumers /
Merchants
Industries
Growth of Mobile
payments ecosystem
requires collaboration
across industries
Consumer and merchant
adoption will be driven by a
clear set of value propositions
and overcoming concerns
Policy Makers
Policy and rule uncertainty
hold back setting of
standards and scaling of
adoption
Shareholders
Key enablers need confidence in the mobile payments
ecosystem to fund the significant capital required to create scale
The Mobile Evolution
Plethora of new participants with innovative payment solutions, many of
which fall outside of formal prudential and consumer regulation
Payment
Facilitators
Stored Value
Accounts
Mobile
Billing
Virtual
Currencies
“Alternative”
Payment
Categories
Many of the protections in place for traditional ‘bank-grade’ payments, are
at best optional in the new models, and rarely auditable and enforceable
Mobile Payments: Driving mass adoption
Progress towards broad adoption will rest on establishing a set of guidelines
that define the minimal rules of engagement for mobile payments.
Opportunity Areas for Improvement
Safety
Mobile payments systems must ensure the safety of customer data and
the security of the payments system
The mobile payments system needs to be fully operational and scalable
Soundness
Ubiquity
Compliance
FIs and merchants need ability to execute against guidelines, enabling
clearing, settlement, scalability, and performance
Mobile payments must be available across all channels and devices to use
anywhere and integration for merchants and issuers must be simple
The mobile payments system must ensure compliance with all state,
federal and industry regulations and guidelines
We have a responsibility to ensure that the above conditions exist to promote competition
and innovation, fostering convenience, accessibility and inclusion.
Citi’s vision: To be the World’s Digital Bank
Leveraging:
 Electronic
Bringing together:
 Global payments
information to
deliver unique
value propositions
to clients
business



Our banking licenses
Our brand
Strengths in
regulatory and risk
management
Proximity
Payments
Mobile POS
Mobile Commerce
Mobile Bill Pay

Global
infrastructure

Collaborative
working models
Money Transfer
P2P
Ticketing / Parking
Accelerating change and driving the future
The road to success:
Offer solutions that deliver real value, ease of adoption and security to
consumers and merchants
Drive agreement among leading Banks, Telcos, Networks, Merchants and
Hardware Manufacturers on a sustainable business model and standards
Create open solutions, multi-industry partnerships with distinct roles, common
objectives and shared risk and rewards
Support from policy makers ensuring safety and soundness of the payments
system and a level playing field among all participants, encouraging innovation
and investment
The future is now!