Joining the Mobile Payments Chase

Second City National Bank

Deloitte Consulting LLP

Anna Huang
Starling Shan
May 12, 2012
 Q&A

The Fragmented Mobile Payment Market Position of Second City National Bank

Current Situation and Challenge Desired Outcome

Demand Side
Supply Side
Second
Fragmented Individual Merchant readiness City
National
Lack of sufficient
Adaptable Innovation
knowledge Driving Force

Confusing message Interoperability

Merchant
Acceptance and
Ecosystem coordination
Adaptation

Organizati
Developer
on
Bypass Bridged Initiated
Developer Financial Financial
Authorizer Institution Institution Joint Force
Agent Developer Developer
Virtual Account Carrier Carrier
Manufacturer Manufacturer
Network Manufact
Carrier
urer

Majority, Passive, Fragmented Trial, Observation

Not centralized Collaborative
Non- collaborative Transaction
Individual attempts focused
Low coverage Slow expansion
 Q&A

Win On The Value Chain Direction of Second City National Bank

Shared Value Proposition (FAISO)

Fast and Flexible

Adaptable

Inexpensive

Secure

Optimized

Plays an essential role

Currently only tapping on 1/3 of the value chain
Objectives and Direction for Growth
Not yet established relationships with carriers/operators
Passive position on value chain
 Q&A

Fierce Competition The Gateway For Breaking Through

Partnership with Google Wallet, ISIS and Others

Technical Partnership Most Beneficial

Operational Issue Strategic Issue Option

Second City National Bank

Initiation by Technical
Multiple layers for transfer Acquisition

1. Lack of direct benefit

Security and privacy
Limitation to retail
Low trust towards technical
companies
2. Operational issues unresolved One Stop Process
3. Not a necessary approach for
Security and Optimization
financial institutions
Achieved
4. Less control
5. Financial Institution in passive Proactive Control
position

Direct Revenue Benefit

Not the best option for Second City National Bank
 Q&A

Lead with Initiation Acquire Strong Technical Development Core

Approach for Acquisition

Criteria Measurement Target

1. At least 40% of the business portfolio
1. Number of current account in NFC
1. NFC Technology
2. Above industry average
2. Number of technicians
2. Talent Experience
3. At least 15% in average
3. Yearly revenue growth rate in past five
3. Growth Potential
4. At least 10%, less than 40%
year timeline
4. Market Power
5. Between 70 to 100 million
4. Market share in the mobile industry
5. Cost to Acquire
6. Total liabilities able to be cleared
5. Next five year cash flow NPV plus
6. Current Liabilities
before acquisition
intangible and tangible assets

6. Total liabilities

An Example of Target Companies Blue Bite

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
Transition
Process
Requires both sides to be
on rock solid foundation
Requires base companys
pre-acquisition orientation in
place
Requires mutual
understanding between both
parties of expected changes
Risk Areas
Innovation
Process
Risk Management
Requires acquired talent on
board and able to achieve
expectations and goals
Requires niche technology
development
Requires technical progress
communicated at all levels
Q&A
Time &
Financials
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
 Q&A

Financial Perspective Estimated Revenue Stream in Card Component

8000 In millions

7000 6857.93

Best Case
6000
Nuetral Case
5128.55
5000 Worst Case

4000

2875.35 3050.46
3000 2710.29
2480.3

2000

1000

0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Expected Acquisition Cost: $150 - $340 Million

Assumed Growth peek at 2018 and 2020

 Q&A

Path to Success Long Term Timeline

Acquisition Research Launch &Marketing Feedback, Further New Market Leader

- Prepare internally for &Development - Ensure accurate R&D - Achieved one stop

acquisition - Focus largely on message - Ensure Message process

- Transition the current communication communicated in all - Eliminated security

- New company technology fraud - Ensure value chain level concerned resulted

orientation - Security player support - Proactive from multiple layers

- Adaptation stage development aligned response - Gain significant

-Complete -invite insight from - Efficient and - Ensure changes market share

value chain players accessible training adaptable to all - Achieve long term
for users players benefits
- Establish customer
feedback channel
FY13 FY15 FY16 FY16-20 FY23

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 Core
Step 1
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
Establishment of Financial
Institution Network
Step 2
Gain sufficient coverage and
encourage adaptability by
working with other banks at
similar size
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
Q&A
Establishment of Merchant
Network
Step 3
Address the need of small
to midsize businesses by
establishing firm merchant
reward network
Milestones
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
 Conclusion

Customer Second City National Bank Merchant

Network

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
 Q&A

Options for Technology Development

In House
Optimized
Secure
Inexpensive
Acquire Adaptable
Fast
Flexible
Partner

0 2 4 6 8 10 12 14

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

Financial Analysis

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 2480.3 2629.1182786.8653065.5523372.1073877.923 4459.6115128.553

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

 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-tes
ts-mobile-payments-in-san-francisco.php
http://www.infotouch.net/home/about.asp
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nts-space
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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%20
Services.pdf
http://www.slideshare.net/victori98pt/mobile-payments-2788055
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