Digital Workshop Value chain, stakeholders and Edenred positioning - - PowerPoint PPT Presentation

Digital Workshop

Value chain, stakeholders and Edenred positioning

Digital… a global and secular evolution

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Digital has fostered mutations in our daily lives and in the way of doing business Simplification of services and processes New types of relations and interactions Speed of information Data collection and analytics

Edenred, forerunner in the shift to digital of prepaid benefits

3

First card launch

To answer stakeholders’ needs in Latam (government, affiliates, clients)

End 1990’s

Technological development

Based on proprietary authorization platforms

2000 2000-2010 2010

Industrialization phase

Shift to digital set as a strategic priority after the spin-off

Post

• st-2010

2010

58 58%

• f digital issue volume

at end-2013

From paper vouchers to cards and platforms

A major change fostering innovation and new opportunities for Edenred

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Digital, a source of new growth opportunities for Edenred

Digit Digital al

Simplification of processes (selling and distribution process)

Easier and less costly roll-out for Edenred and clients, especially SMEs

Enrichment of beneficiary experience with new media

Multiple types of media connected to a personal account

Creation of new types of businesses thanks to data traceability and analytics

Like Expense management solutions,

• r the US NutriSavings program

Creation of new growth

• pportunities backed on the

knowledge of the beneficiary

Development of new solutions for affiliates and beneficiaries (savings, promotions,..)

Digital workshop

Payment value chain and Payment value chain and playe players rs

Antoine Dumurgier, Executive Vice President, Strategy and Development

Three types of transaction models

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Standard banking Standard banking model cards model cards Edenr Edenred s ed solut

• lutions

ions bas based o ed on n pr priv ivat ate e mod model el Eden Edenred s red solutions

• lutions

based on based on banking model banking model

Standard banking model

Transaction models

A standard banking transaction & interactions

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• 7. Reimburse

merchant

• 1. Load /

deposit money / Line of credit

• 3. Purchase

Merchant

Issuer/ Program manager

Cardholder/ Client

• 2. Issue

card

• 4. Acquire

merchant transactions

Acquirer Scheme

• 6. Clearing & settlement
• 5. Authorization

Main players and role

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Scheme

• Intermediary between issuers and acquirers
• Brand management: build a universal network of

acceptance

• Transaction management: define the rules of a

transaction and execute the clearing & settlement of transactions between issuers and acquirers

Issuer/ Program manager Issuer:

• Hold the cardholder account
• Authorize transaction requests
• Guarantee the payment to the merchant

Program manager

• Design the program
• Sell the product to the cardholder

Illustrations Can be separate entities or the same entity

Acquirer

• Can be in charge of POS setup and maintenance
• Allow collection of data from a transaction at POS
• Transfer the data to the scheme or directly to

authorization platform

• Reimburse merchants

Banking acquirer Technical acquirers

Focus on the clearing process

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Acquirer 1 Acquirer 2 Acquirer 3 Acquirer 4

• Clearing files
• Issuer 1

Issuer 2 Issuer 3 Issuer 4

• Clearing files
• Scheme

Technology providers

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Card manufacturer

Illustrations

• Manufacture and customize cards
• Different technological options (magnetic stripes, chip

& pin, contactless…) POS manufacturer

• Design software and hardware for the acceptance
• Sell the electronic acceptance terminals to acquirers,

leasing companies or directly to merchants Other technology providers

• Some parts of the value chain can be outsourced by

banks to specialized players: technical acquisition, authorization & processing…

Edenred solutions based on banking model

Transaction models

Three types of acceptance on the banking model

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Universal

• The scheme ensures that the

card could be accepted everywhere ATM Merchants …

• MID = Merchant Identifier
• Each merchant has its own

MID.

MID

Filtered – by merchant Filtered – by category of merchants

• MCC = Merchant

Category Code

• A MCC defines a

category of merchants (ex.: restaurants, hotels,

• il stations…)

MCC

Authorization: a key part of the value chain in Edenred’s business…

14

• 7. Reimburse

merchant

• 1. Order/Load

card

• 3. Purchase

Merchant

• 2. Issue

card

• 4. Acquire

merchant transactions

Acquirer Scheme

• 6. Clearing & settlement
• 5. Authorization

 Set up of business rules  Criteria to authorize the transaction, like availability of the funds on the account, merchant ID, time of the transaction… Issuer/ Program manager

Cardholder Company

Specialized in prepaid programs (versus debit/credit) Allows functionalities developed in one market to be rolled-out to all markets Team dedicated to Edenred, allowing fast time-to-market:

• New country set up ≤3 months
• New program set up ≤6 weeks

Laboratory of innovation thanks to the PSS direct clients(PayPal, Debenhams, Eveything Everywhere…)

… and a competitive advantage

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xxx Strategic advantages versus competitors with no in-house platform and cost synergies Strategic advantages of in-house platform

Authorization control customization (FlexiControl) Network customization (FlexiLoop) Technical features customization

(FlexiTech)

Differentiating capacity

Illustration of a banking MID model

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PrePay Solutions is the issuer and Edenred Sweden is the program manager PrePay Solutions is the inhouse platform used to process transactions

• MasterCard is the scheme
• The network is filtered through MID

Meal card in Sweden Processor Scheme Issuer/PM

Business model

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Merchant

Issuer/ Program manager

Cardholder Acquirer Scheme

Merchant reimbursement within a period defined by local scheme rules Client fee MSC (Merchant Service Charge), POS rental , and other service fees Merchant fee Scheme fees Scheme fees Interchange

Fees earned by Edenred xxx

Company

Edenred solutions based on private model

Transaction models

Private model transaction

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Merchant

Issuer/ Program manager

Cardholder Acquirer

Issuer = Acquirer

Authorization

No sheme

Company

Private model transaction

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Merchant Cardholder

Issuer/ Program manager

Authorization

The program manager has its own acceptance network. It can deploy its own POS/ software, or leverage an existing acceptance network allowing private acquisition

Company

Illustrations of a private model (1/2)

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Edenred Brazil is the issuer and program manager WATTS is the inhouse platform used to process transactions

• Edenred has set up its own terminals at oil

stations

• Terminals are connected to WATTS

Fuel & Fleet card solution in Brazil Issuer/PM Processor Acquirer

Illustrations of a private model (2/2)

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Edenred Belgium is the issuer and program manager PrePay Solutions is the inhouse platform used to process transactions ATOS is a technical acquirer and transfers transaction data to PrePay Solutions

Meal card in Belgium Processor Acquirer Issuer/PM

Business model

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Merchant Cardholder

Issuer/ Program manager

Merchant reimbursement within a period defined in the contract Merchant fee Client fee

Fees earned by Edenred xxx

Company

Comparison between private and banking models

Transaction models

Universal MID - Filtered Closed

Edenred types of solutions

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Ex.: Ticket Kadéos Universel in France

Network acceptance Banking model Banking model Private model

Ex.: Ticket Restaurant in Sweden Ex.: Ticket Car in Brazil

1%(1)

(1) In % of total digital issue volume at end-2013

24%(1) 75%(1)

Local environment More appropriate if the acquirer market is very fragmented More appropriate if the acquirer market is concentrated Speed of roll-out Sources of operating revenue Client fee, interchange fee, merchant fee, lost & expired Client fee, merchant fee, lost & expired Float holding period Implementation costs Overall profitability Value chain control

Decision criteria: banking vs. private models

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The acceptance choice between banking and private model is made country by country, depending on local context

Banking model (MID Filtered) Private model

Illustration of France: a two-step transition

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The 2d version of the card will be launched before the end of 2014, with enhanced functionalities

1st version of the card

• Banking model
• MasterCard Scheme
• MID filter

In the second half of 2014

2d version of the card (private model)

Edenred France is the issuer and program manager PrePay Solutions is the inhouse platform used to process transactions CONECS(1) is the technical acquirer and will use some functionalities of Groupement des Cartes Bancaires CB (2) to acquire data (1) CONECS is a structure created in July 2013 by Edenred, Groupe Chèque Déjeuner, Sodexo and Natixis, the 4 main local meal vouchers issuers. (2) CB is a national French scheme with more than 1.1 million merchants.

Enforcement

• f the decree

Digital workshop

Financ Financial effects ial effects

Loïc Jenouvrier, Executive Vice President, Finance and Legal Affairs

Effects on P&L and Float

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New volume opportunities:

• Increase penetration in SMEs (simpler solutions and lower cost of acquisition)
• Create new solutions thanks to tighter control of fund allocation

Issue volume Revenue

• Reduce lost products (~0.25% of IV). No impact on expired.
• Diversify revenue sources by developing new services for affiliates and

beneficiaries

Costs

• Holding period: reduction of around -15% at the level of a program
• Ongoing growth in value, fuelled by issue volume growth

Float

• At the level of a country: 5% to 10% cost decrease
• At Group level: >50% operating flow-through ratio from 2014

Cost developments at the country level

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5% to 10% cost reduction post digital transition, depending on volume generated by the solution

35 35 35 35 30 12 10 Paper aper cos cost s t struct tructure ure Dig Digital c ital cos

• st s

structu ructure re

Sales Support functions (marketing, finance…) Production and logistics IT costs & call centers Whatever the media, Sales remains at the heart of the business

• 18%

+10%

Total costs decrease:

• 5% to -10%

60% decrease in production & logistics costs New recurring digital costs

Change in flow-through ratio

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Considering the change in project costs and the transition effects: Objective of >50% operating flow-through ratio in the next three years

2013 2014

Flow-through ratio, including digital extra-costs

>75%

2011 2012 2016 2010

39% >50% 49% 31%

Digital Issue volume

>50%

51%

No more digital extra-costs

35% 41% 58%

2015

Acceleration of the digital shift

…

Float developments at the solution level

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Beneficiary retention Merchant retention & reimbursement

1 2 3

Order/ delivery

With cards: fewer logistics in phase and phase 1 3 Around -15% fewer days of issue volume, when a program is shifted from paper to digital

~80% of the retention period is related to beneficiary use habits, which do not change with the shift to digital

Issue volume (in €bn) 10.8 +39% 15.0 Digital IV in % 12% 46% Float (in €bn) 1.9 +30% 2.5

Nb of weeks 9.2

• 0.7

8.5

Nb of weeks on paper 9.2 9.2 Nb of weeks on digital 8.0 8.0

Float evolution at the Group level

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A strong positive impact of digital on volume growth A limited mix effect on the float holding period 2007 2012 FLOAT EVOLUTION EXCLUDING EXPENSE MANAGEMENT

x4

Mix effect on float holding period ~13% difference

Digital workshop

Con Conclusio clusion

Our ambition: to be at the cutting edge

• f technology and innovation

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view iew on

• n the

the evolution in the BtoC payment world

• UK pionner in prepaid, leading

the sector for the last 10 years

• 70% of PPS processing for

external cilents in 2013: a laboratory of innovation to acquire new technologies, like EE Cash on Tap solution processed by PPS

• Corporate venture investment in

Partech (€15m)

• View on the deal flow of the

Partech International IV Fund, focused on digital

• Example of investment: La

Fourchette.com

~40

40m active accounts

~€2.0

2.0bn activity volume

New growth territories to explore

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New opportunities linked to a new world of interaction and information

From an offline world… to a world of information New business

• pportunities

Beneficiary Affiliate

1 personal account Digital media

Enrich our benefits programs with services Develop solutions for Affiliates & Beneficiaries new interactions data collection Enrich the beneficiary experience through mobile