Micropayments/Open Payment Systems and the UTA Pilot David Douglas Stone

2006 Smart Card Alliance Annual ConferenceOctober 3, 2006

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Agenda• Why now?• What does the consumer want?• The emergence of open payments?• Can the two world’s work together?

• Can transit and open payment systems work together?

• UTA as successful example

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Who is Peppercoin?Fo

unde

rs

M.I.T. Professors Silvio Micali & Ronald Rivest

Par

tner

sM

erch

ants

Transform routine payment transactions into new revenue opportunitiesAccelerate the cash to card transition, getting customers to come back more often and spend more using the existing cards in their wallets – all while costing merchants less.M

issi

on

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Evolution of fare media payments:Vision

Open Payments Platform

TOMORROW

Magnetic Stripe Cards

TODAY

Tokens

ContactlessSmart Cards

Value proposition -• Consumers

• Speed and convenience

• Agencies• Operational efficienciesCoins

100+ yearsGreg Garback, WMATA

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Why Now?

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Is Cash Destined To Disappear?

1980

Airlines Hotel Retail Dining QSR Parking Transit

% Card

% Cash

20

40

60

80

100

(Industry estimates)

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Increasingly, cash use is on the wane

1980 vs. 2006Consumer now expect to use their cards‘75 ’06 ‘75 ’06 ‘75 ’06 ‘75 ’06 ‘75 ’06 ‘75 ’06 ‘75 ’06

% Card% Cash

20

40

60

80

100

Airlines Hotel Retail Dining QSR Parking Transit

%

(Industry estimates)

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Why Now: Technology & Process Drivers are enabling open payments for transit

• Broadband• Contactless open cards• Wireless• Network computing• Internet

Technology Drivers Process Drivers•New players: PayPal, Google, VivoTech, Peppercoin

•Visa/MC small ticket•Aggregation•“Reg E”

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What Do Consumers Want?

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Consumers Want To Use Cards in transit & parking

% willing to use credit or debit cards

% willing to use contactless cards

% of Gen P respondents willing to use contactless0

Transit Parking

% U

.S. p

op.

102030405060708090

100

Research shows that Americans want to use credit and debit cards for small purchases, including transit and parking.

*compilation of Ipsos Insight November 2005 and March 2006 surveys. “Gen P” is defined as respondents ages 18-25.

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Emergence Of Open Payments

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Cash Is Very Expensive!

Large MetroTransit Agency

Cost Of Cash Is 6x Credit/Debit

22.5%

27%Credit &

Debit

73%Cash 3.5%

Cash cost/ sale

Credit & Debit cost/ sale

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Benefits of Open Payments• Card use and familiarity is ubiquitous• Regional and national use can become

common (less need for UTFS)• Card issue and management is handled by

banking industry• May be lower cost than alternative proprietary

systems

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Advanced Tools: Transaction AggregationAggregation can save 50% on repeat customers

$.05 $.10 $.18 $.33

N/A $.40 $.26 $.66

PeppercoinFee

Acquiring Bank Fee

Interchangefee

TotalCost

PeppercoinFee

Acquiring Bank Fee

Interchangefee

TotalCost

$2 $2 $2 $2

$8

Calculations assume $.10 acquirer fee and useMasterCard Signature Debit Small Ticket Interchange rate ($.04+1.60%)

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Open Payment Tools/TechniquesPeppercoin’s Virtual Prepaid creates and tracks balances on

a consumer’s preferred credit or debit card

Morning commute Evening commute

$50 Monthly PassSingle fare -$1.50- - - - - - - - - - - - - - -

BALANCE: $34.50

$50 Monthly PassSingle fare -$1.50- - - - - - - - - - - - - - -

BALANCE: $33.00

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Contactless Credit Card Pilot

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Ski Bus Pilot: Some Firsts

• First on bus contactless credit card program• First fully open payments program: Any

contactless Visa, MasterCard or American Express

• First announced aggregation transit trial*

* Not all card brands

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UTA Open Payments Pilot: How It Works

Consumer PeppercoinSmall Payment Suite

Issuing Bank

Card Network

Utah Transit Authority

Chase Paymentech Solutions

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UTA Aggregation Demonstration: Customer Experience

Contactless card reader

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UTA Aggregation Demonstration: Customer Experience

Charges on monthly credit card statement

UTA riders may visit Consumer Self Care site

hosted by Peppercoin to view details of

aggregated credit card purchases.

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Benefits to UTA• Lower card acceptance costs• Passenger convenience• Reduced reliance on smart card and other fare

media types as well as cash.• May encourage increased rider-ship• Ability to offer special fare promotions for

tourists

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Bridging The Two Worlds

Transit Payment Systems

Open mindedness and the willingness to embrace change

• Tariff policy• ePurse• Zone-based • POP• BRT

• Authorization• Reg E • Chargebacks• Settlement• Discount rate

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Is The Future Cashless?Thank You!

David Douglas StoneHead of Business Development

Board Advisor, Peppercoindstone@peppercoin.com