Mobile Payments Now entering mass adoption phase APRIL 2020 - - PowerPoint PPT Presentation

Mobile Payments Now entering mass adoption phase

APRIL 2020

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2 MOBILE PAYMENTS

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

• Infrastructure and Services are in place — Mass adoption of

mobile payments is now.

• Better user experience, enhanced security, enhancedv alue-added

services better ergonomics.

• Covid-19 acting as addition catalyst for digital payments.
• Fears of contamination from bank notes and coins, mobile-money

as a public-health tool.

• Governments pushing for a cashless society.
• Cash limits are increasing across the world, better oversight of

money fmows.

• Total addressable market expands thanks to new forms of

mobile payments.

• In-car payments, personalized shopping (including VR) experience,

fjnancial services.

Investment Case

JPMorgan Chase Bank XS1668108845 JMLNARMP USD 1.50% management fee + 15% performance fee, HWM Issuing bank ISIN Ticker Currency Fees Issuing bank ISIN Ticker Currency Fees SG CH0239657494 (USD Retail) IND1AMPU USD 2.00% management fee+ 15% performance fee, HWM Share classes in EUR for retail (CH0239656603) and institutional (CH0239656462) available

Mobile Payments Certifjcate details

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The Ecosystem of Mobile Payments

VIRTUAL & AUGMENTED REALIT Y TECH GIANTS PROCESSORS & NET WORKS LOYALT Y PROGRAMS BIOMETRICS & SECURIT Y PROCESSORS & NET WORKS HARDWARE VENDORS

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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• The Global Payment industry generated revenues of $1.9tn in
• 2018. It is expected to generate $3.0tn by 2025 (CAGR of 6%)!
• Non-banking revenues account for more than 60% of this huge

pie.

• Asia-Pacifjc is the largest region in terms of revenues (45%),

fuelled by commercial clients.

• All revenue verticals of the payment industry are today disrupted

by the use of smartphones and dedicated apps.

Overview of the Payment Industry

Revenue breakdown as of 2018 SOURCE: McKinsey, AtonRâ Partners AtonRâ Mobile Payments universe: a $1.8tn total addressable market (2025) 40% Net interest income & Overdraft 24% Credit cards revenues 24% Domestic transactions 12% Cross-border transactions

GLOBAL PAYMENTS REVENUE BREAKDOWN

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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A $162bn Market by 2025 growing at 22% p.a. (2020-2025)

¹Based on transactions volume of $4.5tn SOURCE: Nester Research, IHL Group, Market Research Future, McKinsey, AtonRâ Partners

DRIVERS

• Reduced transaction costs
• Surgein E - & M - commerce
• Improved experience thanks to APIs and apps
• Rewards revolution
• Impulse from the largest tech players
• Gen Z, the largest population cohort globally

RISKS

• Security & fraud
• Data privacy
• Regulatory compliance

Mobile payments processing ($90bn¹) 25% 21% mPOS/hardware ($21bn) 17% NFC chips ($48bn) 12% mPOS software ($3bn) 14% Payment cards ($560bn) 4% Loyalty programs ($220bn) TOP DOWN ANALYSIS Industry experts internal quantitative market analysis

Related markets

BOTTOM UP ANALYSIS Public and Private companies’ guidance internal qualitative and quantitative companies’ analysis CAGR 2020–2025

AtonRâ Mobile Payments

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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By 2022, 1/3 Of Smartphone Users Will Use It For Mobile Payments

SOURCE: Statista

• Mobile payments refer to all payment transactions made from or

via a mobile device and debited either on a bank account or on a mobile operator bill.

• At the end of 2019, there were approx. 3.2bn smartphone users
• worldwide. By 2022, 1.1bn people will use their smartphone to

make payments by 2022.

• All smartphones currently allow contactless payments via an

electronic mobile wallet.

• They can also become POS terminals for merchants.

Mobile Proximity Payments Web/In-app Purchases Person-to-Person Payments

MOBILE PAYMENTS CATEGORIES

NFC <wireless exchange data> Mobile money (SMS) Mobile as a point-of-sale terminal QR code MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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Growth To Accelerate In Every Part Of The World

SOURCE: MordorIntelligence, Statista, eMarketer, Newzoo, AtonRâ Partners

• The annual transaction volume via mobile payments crossed

the $1tn mark in 2019.

• By 2024, this volume should reach $3.7tn, implying a growth

rate of 30%!

• Disparities between countries are wide but growth is

accelerating everywhere.

• Highest penetration rates in Asia-Pacifjc, as early adopters of the

technology.

• Growth potential in North America and Europe remain important.

ANNUAL TRANSACTION VOLUME OF MOBILE PAYMENTS ($BN)

500 1500 2500 3500 1000 2000 3000 2015 2016 2017 2018 2019 2021 2020 2022 2023 2024 TRANSACTION VOLUME ($BN)

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

0% 10% 20% 30% 40% 50% 60% 45.7% 54.2% 22.9% 31.7% 13.8% 23.1% 11.0% 19.6% 8.8% 15.7% 6.8% 12.4%

MOBILE PAYMENTS USERS (% OF SMARTPHONES USERS)

Asia–Pacific North America Werstern Europe Central & Werstern Europe Latin America Middle East & Africa 2017 2022

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Digital Transactions To Overtake Cash Transactions By 2022

SOURCE: Worldpay, AtonRâ Partners

• Mobile payments use is increasing at the expense of cash

transactions mostly for traditional point of sale (“POS”) transactions, according to Worldpay.

• Mobile payments and e-wallet transactions will overtake cash

and credit cards by 2022.

• The use of cash varies by region In Europe, approx. 75% of retail

transactions are still done in cash.

GLOBAL POINT OF SALE PAYMENT METHODS (%)

2018 2022 0% 5% 10% 15% 20% 25% 30% 35% Cash Debit Card Credit Card Wallet/Mobile Payments Other 16% 28% 31% 17%

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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Best Days of E-commerce are ahead of us

SOURCE: eMarketer, Statista, Fred, Worldpay, AtonRâ Partners

• E-commerce, as a percentage of total retail sales, is globally on

the rise.

• In China over 60% of retail sales could be done online by 2022.
• COVID-19 shock likely to accelerate the online shopping

transition everywhere in the world.

• The switch from traditional POS to e-commerce benefjts mobile

payments.

• By 2022, e-wallet and mobile payments will account for 47% of

global e-commerce transactions.

0% 10% 20% 30% 40% 50% 60% 70%

SHARE OF E-COMMERCE IN TOTAL RETAIL SALES (%)

GLOBAL CHINA UNITED STATES 2015 2016 2017 2018 2019 2020 2021 2022 2023 0% 10% 20% 30% 40% 50% 60% 70%

MOBILE PAYMENTS USE FOR POS & E-COMMERCE (%)

NORTH AMERICA LATIN AMERICA EMEA ASIA-PACIFIC POS 2018 eCom 2022 eCom 2018 POS 2022

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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E-Wallets Becoming Mainstream

Non-exhaustive list of eWallets. Latest data availableas of November 2019. SOURCE: Company Statements, AtonRâ Partners

• E-wallets in China benefjt from high penetration rates of mobile

payments in the country.

• In developed countries mobile payments are approaching an

infmection point.

• P2P digital services like Venmo and Square Cash will reach

$574bn by 2023 in the U.S.

ACTIVE USERS (MN)

ACTIVE USERS ON TOP MOBILE PAYMENT PLATFORMS (MN)

100 200 300 400 500 600 700 800 900 ALIPAY PAYTM UPI G PAY VENMO PAYPAL M_PESA WECHAT PAY AMAZON PAY CHASE PAY APPLE PAY STARBUCKS SQUARE CASH SAMSUNG PAY

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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The Mobile Payment Landscape

Assessment Fees (to the credit card company) Markup Fees (to the processor) Interchange Fees (to the issuing bank) Total Fees the merchant pays

Hardware & Issuance Merchant Services Connection

• Payment card
• Card issuance
• Security
• Semiconductor
• POS / ATM terminal
• Acquiring services
• Route the encrypted transaction to

the card network

• Most large acquirers do the

processing part

• Processing
• Technological side – clearing &

settlement

• Payment networks
• Credit & debit cards
• Connectivity
• Internet, Phone line

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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The Payment's Processors Landscape

• Payment processor represents the best way to capture the

volume growth of digital transactions.

• Highly scalable business models hint at signifjcant earnings

leverage.

• High barriers to entry.
• Strong balance sheets and cash-fmow generation give ammo

for M&A in a highly fragmented industry.

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

PROCESSING THE AQUIRER AND PROCESSOR Identify the appropriate network corresponding to card ISO (independent sales organizations) resell the processing services POINT OF SALE

1 CAPTURES BANKING DATA 4 TRANSACTION APPROVAL OR REJECTION REQUESTS THE AUTHORIZATION 3 5 2

NETWORKS Identify which financial institution issued the card and re-route CARD ISSUING BANK Verification (fraud, balance, etc.)

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Covid-19 To Accelerate The Growth Of Digital Payments

SOURCE: Emarsys

• The World Health Organization recommended in February 2020 to

switch to contactless payments to slow down the COVID-19

• utbreak. Governments and retailers around the world embraced

this recommendation as the disease was quickly spreading.

• The limit for contactless credit cards payments without PIN

codes has been increased almost everywhere.

• The only way to fully avoid a point-of-sale keypad is to pay with

a mobile phone.

• E-commerce, and hence mobile payments, will benefjt from the

lockdown and social distancing measures.

• More than 50% of the world population has been under
• lockdown. People extensively used home-delivery services.

SURGE IN ONLINE ORDERS FOR RETAILERS DURING THE LOCKDOWN

• 40%
• 20%

20% 60% 100% 0% 40% 80% YoY ORDER GROWTH (IN%) 12–Jan–20 26–Jan–20 9–Feb–20 23–Feb–20 8–Mar–20 22–Mar–20 SWITZERLAND ITALY FRANCE GERMANY

DISEASES SPREAD THROUGH BANKNOTES

COVID-19 Salmonella Acid fast bacilli Shigella E coli Candidia Aspergillus Enterococcus

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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Governments Pushing For Digital Payments

• Governments see many advantages in a cashless society.
• Fighting tax evasion, money laundering, criminal activities.
• Improving the collection of economic data.
• Reducing disease transmission.
• Political decisions and incentive accelerates the transition to a

cashless society.

• Japan’s VAT increase in 2019 was partially offset by rebates on

electronic payments.

• China’s credit system relies on individuals’ economic data which

is collected through smartphones.

• Cash in circulation depends on payment’s habits.
• As infrastructure, relevance and popularity of digital and mobile

payments increase so will the decrease of cash in circulation.

BANKNOTES & COINS IN CIRCULATION (AS % OF GDP , 2017)

0% * DATA FROM 2016 10% 5% 15% 20% Japan Switzerland India Russia China US Mexico South Korea Australia Canada Turkey UK* Brazil South Africa Sweden

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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E-money To Further Pressure Banks

Central Bank Digital Currency (CBDC)

• Central banks are facing the competition of e-money through

central banks digital currencies (CBDCs), a digital version of cash. Research and pilot programs are ongoing worldwide.

• Digital money maybe more convenient than cash and bank

deposits as a means of payment. E-money would add further pressure on banks.

• Monetary authorities may partner with e-money providers to

make central bank digital currency (CBDC) effective.

• Central bank digital currencies (CBDCs) aims at precise objectives.
• Improved effectiveness of monetary policy.
• Users’ data protection from third parties and widespread

fjnancial inclusion.

• Enhanced payments system effjciency and augmented fjnancial

system stability.

Notes: Electronic money (e-money) is defjned as an electronic store of monetary value stored on a technical device that may be widely used for making payments to other entities. (from ECB) SOURCE: IMF , BIS

CBDCs – PROJECT ADVANCEMENT

PILOT PHASE RESEARCH PHASE

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

16 MOBILE PAYMENTS SOURCE: BIS

A Short Guide To Implement CBDCs

• CBDCs technological fundament revolves around correctly

addressing users’ and policy makers’ needs.

• Indirect vs direct claims: Do central banks still need

intermediaries to handle retail payments or are they better off without intermediaries?

• Conventional vs distributed ledger technology (DLT) based

infrastructure: Should one entity store all data or is a slower but safer network of players preferable?

• Token- or account-based access: What is more valuable

between complete users’ privacy and AML procedures?

• Wholesale or retail level: Are CBDCs exchangeable across

borders or do they have domestic usage? The CBDC pyramid maps consumer needs (LHS) onto theassociated design choices for the central bank (RHS). The four layers of the RHS form a hierarchy in which the lower layers represent design choices that feed into subsequent, higher-level decisions.

THE CBDC PYRAMID FROM CONSUMER NEEDS... ...TO CBDC DESIGN CHOICES

Architecture: indirect or direct claims, and what operational role for the central bank? DLT-based or conventional central bank infrastructure? Account or token-based access technology? Accessible to all Ensure privacy in lawful exchange Cross-border payments Resilient and robust operations DLT Convenient real-time payments Cash-like with peer-to-peer functionality Wholesale or retail interlinkages?

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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Smartphones Can Replace Anything

• Near-fjeld communication chips can be found in all smartphones

and offer infjnite possibilities to the users.

• Working distance of less than 10cm reduced the likelihood of

unwanted interception.

• Transfer of data can be validated with biometrics, e.g.

fjngerprints, adding an extra layer of security.

• Data can be encrypted.
• Smartphones facilitate the convergence between mobile ID,

digital payments, keys, etc.

Tickets Mobile payments Digital ID Building access Car key Hotel room key Public transport Computer login Medical data Loyalty program

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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The Future Is Taking Shape

VIRTUAL & AUGMENTED REALIT Y HAND PAYMENT (BIOMETRICS) MICROCHIP IMPL ANT AUTOMATED STORES IN- CAR PAYMENT FACIAL RECOGNITION (BIOMETRICS)

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

19 MOBILE PAYMENTS SOURCE: CBInsights, KPMG, FinTech Global

Private Companies Commands The Lion's Share

• Since 2012, mobile payments companies have been among the

most attractive fjntech sub-segments for private equity.

• Internet giants are very active on the PE stage.
• Most prominent mobile payments unicorns (Brex, Klarna, Monzo,

N26, Revolut, TransferWise, Stripe) are worth over $58bn combined.

• Further M&A activity and IPOs are to be expected.

MOBILE PAYMENTS PRIVATE MARKET INVESTMENTS

2012 2013 2014 2015 2016 2017 2018 500 1500 2500 3000 3500 5000 1000 2000 4500 4000 PRIVATE MARKET INVESTMENTS ($BN) 150 300 50 100 250

• NO. DEALS

MOBILE PAYMENTS NUMBER OF DEALS (RHS)

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

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An Investment Example: Square

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

Notes: Gross Payment Volume is the total dollar amount of all card payments processed by sellers using Square, net of refunds. It includes Cash App activity and Cash for Business. SOURCE: AtonRâ Partners, Square company reports

• Square built its success on micro and small merchants and then

started to tackle the large merchant segment.

• Smaller businesses are more profjtable for Square but now

generate less Gross Payment Volume (GPV). As of 4Q19, GPV from larger sellers grew to 55% of total.

• The company is growing its user base and increasing engagement

as well monetization of its services.

• Cash App had 24mn monthly active users in December 2019 (up

60% y/y). It generates $30 in annualized revenue per monthly active customer, twice up from 2017 .

• Square Capital offers business loans ($2.3bn originated in 2019).

Delinquency rate remains low as only Square merchants are eligible.

• The fjrm is net-debt free and FCF positive – the acquisition path

to bring new services and customers on board will continue.

• U.S. small and medium businesses alone represent a $3tn GPV

total addressable market opportunity.

• Around 21mn SMEs are active in the U.S.. Globally, more than

120mn businesses may be reached expanding the potential market six-fold.

• Jack Dorsey donated $1bn worth Square stock for Covid-19 relief

(girl's health, education, universal basic income).

• Based in San Francisco, California (USA)
• Approx. 3’835 employees
• Founded in 2009, listed in 2015
• In 2019, over $106bn of Gross Payment Volume, generated by nearly 2.3bn

card payments from 407mn payment cards

Quick facts

0.0 1.0 2.0 3.0 4.0 5.0 0% 10% 20% 30% 40% 50%

SQUARE FINANCIALS

2015 2016 2017 2018 2019 IN USD BILLION REVENUE (IHS) GROWTH Y/Y (RHS)

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Investment Conclusion

• Our Smartphones Become Our Wallets.
• Countries Are Pushing Towards A Cashless Society.
• Mobile Payments Offer Fast, Cheap, And Safe Transactions.
• Next-Generation Of Apps Are More Convenient And User-Friendly.
• Mobile Point-Of-Sale Directly Built Within The Smartphone (Tap To

Phone).

• Actions To Reduce The Contagion Rate Of Covid-19 Will Increase

The Number Of Users.

• Value-Added Services Such As Loyalty Program, Coupons,

Spending Analysis, Etc., Drive Usage.

Mass adoption on its way – not a question of "if" ... but "when"

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

SOURCE: CBInsights, KPMG, FinTech Global

22

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