Deloitte Consulting LLPAnna HuangStarling Shan

May 12, 2012

Joining the Mobile Payments Chase

Second City National Bank

Merchant

Organization

CarrierManufacturer

Developer

Desired Outcome

The Fragmented Mobile Payment Market – Position of Second City National Bank

Second City

National

Driving Force

Joint Force

Demand Side Supply Side

Ecosystem coordination

Interoperability

Adaptable Innovation

Merchant readiness

Acceptance and Adaptation

Confusing message

Lack of sufficient knowledge

Fragmented Individual

Bypass • Developer• Authorizer • Agent• Virtual Account

Bridged• Financial Institution• Developer• Carrier• Manufacturer

Initiated• Financial Institution• Developer• Carrier• Manufacturer• Network

Majority, Passive, Fragmented• Not centralized• Non- collaborative• Individual attempts• Low coverage

Trial, ObservationCollaborativeTransaction focusedSlow expansion

Current Situation and Challenge

Q&A

Win On The Value Chain– Direction of Second City National Bank

• Plays an essential role

• Currently only tapping on 1/3 of the value chain

• Not yet established relationships with carriers/operators

• Passive position on value chain

Fast and Flexible

Adaptable

Inexpensive

Secure

Optimized

Shared Value Proposition (FAISO)

Objectives and Direction for Growth

Q&A

Fierce Competition – The Gateway For Breaking Through

Q&A

1. Lack of direct benefit

2. Operational issues unresolved

3. Not a necessary approach for financial institutions

4. Less control

5. Financial Institution in passive position

Partnership with Google Wallet, ISIS and Others

Security and privacy

Limitation to retail

Multiple layers for transfer

Low trust towards technical companies

Not the best option for Second City National Bank

Technical Operational Issue

Partnership Strategic Issue

Most Beneficial Option

One Stop Process

Proactive Control

Direct Revenue Benefit

Security and Optimization Achieved

Second City National Bank Initiation by Technical

Acquisition

Lead with Initiation – Acquire Strong Technical Development Core

Q&A

Approach for Acquisition

Criteria Measurement Target

1. NFC Technology

2. Talent Experience

3. Growth Potential

4. Market Power

5. Cost to Acquire

6. Current Liabilities

An Example of Target Companies – Blue Bite

1. Number of current account in NFC

2. Number of technicians

3. Yearly revenue growth rate in past five

year timeline

4. Market share in the mobile industry

5. Next five year cash flow NPV plus

intangible and tangible assets

6. Total liabilities

1. At least 40% of the business portfolio

2. Above industry average

3. At least 15% in average

4. At least 10%, less than 40%

5. Between 70 to 100 million

6. Total liabilities able to be cleared

before acquisition

1. NFC Technology - One of the best NFC innovator in the field

2. Talent Experience - Highly technical talent specifically for NFC and mobile

3. Growth Potential – about 15%

4. Market Power - Expected 15+ Mobile engagement in the industry

5. Cost to Acquire – about 80 million

6. Current Liabilities – unknown, currently not publically held

Risk Incorporated – Challenges of Acquisition

• Requires both sides to be

on rock solid foundation

• Requires base company’s

pre-acquisition orientation in

place

• Requires mutual

understanding between both

parties of expected changes

• Requires investment heavily

in the process of due diligence

• Requires investigating all of

the potential hidden liabilities

of the target company.

• Requires readiness from all

levels, especially financial and

accounting

• Requires acquired talent on

board and able to achieve

expectations and goals

• Requires niche technology

development

• Requires technical progress

communicated at all levels

Transition Process

Innovation Process

Time & Financials

Risk Areas

Risk Management

Q&A

Financial Perspective – Estimated Revenue Stream in Card Component

Q&A

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20220

1000

2000

3000

4000

5000

6000

7000

8000

6857.93134837569

5128.55

Launch Year2480.30014

Establish Network with other Banks

Establish Merchant Network

3050.456

Best Case

Nuetral Case

Worst Case

In millions

Expected Acquisition Cost: $150 - $340 Million

Assumed Growth peek at 2018 and 2020

FY23

Path to Success – Long Term Timeline

FY16-20

Acquisition

- Prepare internally for

acquisition

- Transition

- New company

orientation

- Adaptation stage

-Complete

Research

&Development

- Focus largely on

the current

technology fraud

- Security

development

-invite insight from

value chain players

Launch &Marketing

- Ensure accurate

message

communication

- Ensure value chain

player support

aligned

- Efficient and

accessible training

for users

- Establish customer

feedback channel

Feedback, Further

R&D

- Ensure Message

communicated in all

level

- Proactive

response

- Ensure changes

adaptable to all

players

New Market Leader

- Achieved one stop

process

- Eliminated security

concerned resulted

from multiple layers

- Gain significant

market share

- Achieve long term

benefits

FY13 FY15 FY16

Q&A

Critical Stage for Long Term Success:

1. Technical development

2. Support system development

3. Merchant network development

Strategic Development – Critical Stages for Long Term Success

Establishment of

Technical CoreEstablishment of Financial

Institution NetworkEstablishment of Merchant

Network

Step 1 Step 2 Step 3

Complete the innovation of NFC based payment

technology

Milestones

1) Develop secure NFC

connection

2) Develop payment application

3) Customized application

based on FAISO objectives

4) Issue application, system and

infrastructure all under

Second City National Bank

Address the need of small to midsize businesses by

establishing firm merchant reward network

Gain sufficient coverage and encourage adaptability by

working with other banks at similar size

Milestones Milestones

1) Connect with banks at similar

size, encourage a joint network

2) Other major banks adapt

technology, system, and

infrastructure initiated by Second

City National Bank

3) A set membership fee connected

at a set time

4) Develop new source of revenue

1) Build merchant reward network by

eliminating transaction cost for member

of the network

2) Local small to mid size business

discount on membership fee

3) Exclusive marketing channel via Second

City National Mobile Payment App

4) Promised increasing stream of customer

Q&A

Conclusion

Customer MerchantNetwork

Second City National Bank

NFC Technology Infrastructure System

Bank Associations Initiated by SCNB

Localized , connected small to mid size merchant

community including retail, restaurants and hotels

Appendix

Appendix

• Further analysis of the three options• Financials• NFC Power• NFC Power 2• How it works for consumers

Partner

Acquire

In House

0 2 4 6 8 10 12 14

InexpensiveFast

FlexibleFastAdaptableInexpensiveSecureOptimized

Options for Technology Development

Long Term Approach• Feasible only with unlimited available resource• Tremendous cost and major time consuming• Total Control

Best Realistic Head Start Option• Practical with current available resource• Great talent and expertise acquisition at manageable cost• Still maintain control

Least Viable Option• Practical with current available resource• Great talent and expertise acquisition at manageable cost• Lost control

Q&A

No Effect 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

2443.2322455.5262467.882 2480.32492.7812505.324 2517.93 2530.62543.3342556.1312568.993

Revenues

Best Situation Launch Banking Network Merchant Network

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Revenues 2443.2322455.5262467.882 2480.32703.5273000.9153451.052 3968.714762.4525714.943 6858

Neutral Situation

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Card Component 2443.2322455.5262467.882 2480.32629.1182786.8653065.5523372.1073877.9234459.6115128.553

Worst Situation

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Card Component 2443.2322455.5262467.882 2480.32554.709 2631.352710.291 2791.62875.3482961.6083050.456

Financial Analysis

Q&A

NFC Power

Q&A

NFC Power

Q&A

How it works for consumers

Q&A

List of Sources

• http://www.readwriteweb.com/mobile/2011/03/nfc-2011-wells-fargo-tests-mobile-payments-in-san-francisco.php

• http://www.infotouch.net/home/about.asp • https://www.x.com/devzone/articles/9-companies-watch-mobile-

payments-space • https://www.nacha.org/userfiles/File/The_Internet_Council/

Resources/Mobile%20payments%202010%20-%20Innopay.pdf http://www-935.ibm.com/services/us/gbs/pdf/GBW03136-USEN-00.pdf

• http://www.egonzehnder.com/us/practices/industries/financialservices/thoughtleadership/article/id/17500695

• http://www.mpf.org.in/pdf/Mobile%20Payment%20Systems%20and%20Services.pdf http://www.slideshare.net/victori98pt/mobile-payments-2788055

• http://www.slideshare.net/fullscreen/DanTrigub/blue-bite-presentation-11887953/2

Q&A