Near Field Communications (NFC) in China

NFC: Advancing the EcosystemJune 2012 Proprietary & Confidential 1

Our Background• Strategic advisory & execution in mobility since 2001We provide: 1. Assertive mobile and innovation strategies 2. Software partner ecosystem outreach 3. We manage B2D (Business to Developer) relationships to accelerate your technology innovation• Connecting over 1500 software partners to date with the worlds leading corporations• Offices in China and the USA Proprietary & Confidential 2

B2D Agency – Innovation in Technology Mobility Strategy +/- Offline & Automated Products +/- Network of Software Partners Proprietary & Confidential 3

Promote to our network of qualified software partners 60+ Leverage relevant Features Countries 4000+ Software AMERICAS EMEA APAC Houses 29% 36% 35% ~12 With appropriate technologies Developers/ ISV On the right devices ~50K Developers 1,500 60 10,000 Development Houses connected with Countries actively serving Successful applications for your OEM’s, Enterprises and Brands globally Global Fortune 1,000 companies benchmarking and competitive analysis Proprietary & Confidential 4

Significance of China: Population ComparisonAdministrative Regions of China, labeled as countries withEquivalent Populations Total population of China 1.3+ billion (mid 2011) Source: Strangemaps, China; M. Rosenberg (about.com) on population size China Proprietary & Confidential 5

China in numbers 1.3 485 135 BILLIONS MILLIONS MILLIONS POPULATION WITH ACCESS MORE IN TO INTERNET INTERNET CAFÉ 655 963 44.5x MILLIONS MILLIONS GROWTH URBAN MOBILE SUBSCRIBERS IN GDP SINCE 1985 (50%) AIM TO SURPASS USG DP - 2020 534k 115 MILLIONAIRES BILLIONAIRES Proprietary & Confidential 6

Significance of China: GDP Comparison Total GDP of China 2010: 5879 $ billion 2012: 7740 $ bn est. Per capita 2011: $5,184 (nominal) $8,394 (PPP) US per capita 2011: $48,387 (PPP) EU per capita 2011: $31,607 (PPP) GDP 2010 in $ billion Less than 50 50 < 120 120-200 200-400 400+ Source: The Economist, Country Equivalent Interactive China Map, Wikipedia on GDP total in China, IMF on EU and US PPP capita GDP. Proprietary & Confidential 7

China Market Forecasts• Increase driven by the nation’s huge number of cell phone subscribers, 900 Estimated NFC payments in China million in 2011.• Presently, more NFC handset add-ons have been shipped than actual NFC- US$ 8 Billion enabled mobile handsets. 2014• Shipment of bridging technologies is 900m or 11,25 % in expected to grow to 6.5 million in 2014 2011• Shipment of full NFC phones in 2014 is predicted to rise to 7 million. ABI Research, Mobile Payments in China Proprietary & Confidential 8

Overview of NFC in China Situation • 960 (!) million mobile subscribers - • Turnover to NFC phones takes time • Consumers change mobiles every 40 months, • Smartphones every 29 month. • Chinese consumer acceptance still uncertain, because security is a concern. • NFC business driven by telco & banking industry, both having large government involvement.NFC in China • In sync with global standards • Contactless POS terminals are being deployed, creating a network of physical merchants • SIMpass has captured the market and is driving the momentum with their hybrid solutions. • Consensus around SWP as leading option for Secure Element. Key • China Mobile, China Unicom, China Telecom (3 MNOs serving over 960 m subscribers) Stakeholders • China Unionpay • UICC based technology governed by MIIT whilst other technologies governed by PBOC Challenges • PBoC & MIIT • Consumer adoption (e.g. security issues) • Proprietary security technology & standards Source: MobiThinking for subscriber numbers: On phone replacement: Ericsson Survey 2012. Proprietary & Confidential 9

China NFC EcosystemMNOs Regulators • CIITA(China Information Industry • Issue SIM cards for NFC Trade Association), systems • Ministry of Industry and • Provide support, Information Technology (MIIT) • Back-end services • People’s Bank of China (PBoC), • Partner with Financial CIITA governing the m-payments industry. Institutions to sell NFC MIIT to consumer. • NFI must obtain License from PBo PBoC before engaging in payment • Do NOT subsidize or sell & settlement services handsets. CFinancial Institutions Others Industry Players• 2.4 billion bank cards; • Based on the infrastructure• serving 400+ financial institutions and rules given by the other stakeholders, technical• Loinking 1.2m ATM’s of 14 banks. equipment manufacturers• The Bank of China, the Agricultural and suppliers, consumer Bank, Construction Bank and the app, security or payment Industrial and Commercial Bank of service developers China are the top 4 banks• Combined individual accounts of over 600 million (>58% market share in 2011). Proprietary & Confidential 10

Key Technological Drivers PBoC • Payment Cards to be converted to Smart Cards • 3.3M POS terminals updated to support contactless payment 13.56MHz selected as national contactless payment standard, CIITA: 05/2011 Consumer Adoption driven by Availability Security • Solid Base of POS Terminals for NFC • OEMs leaning towards Unionpay for final NFC technology decision • It comes down to the merchants Proprietary & Confidential 11

Unionpay versus VISAChina UnionPay is at the center of a NFC standardization initiative in China. The technology they roll-out into themass-market will probably be used by the majority of ecosystem players (result from interviews conducted).They have the leading position in China, as the sole domestic inter-bank bankcard processor, operating the soledomestic bankcard acceptance in China due to local regulation. UNIONPAY 400 banks VISA 15,200 banks % of Global 29.2 % 28.6 % CARDS (2011) 1.94 billion cards issued Other Source: 2.4 bn cards 1.9 billion cards issued Net Profit: $ 1.6 Billion Net Profit: $3.65 Billion PROFIT (2011) Revenue $ not available Revenue $9.2 Billion ATMs 72,000 (2009) 1.93 million in 200 countries (2011) in 90+ countries Source: http://pymnts.com/news on Unionpay and VISA cards usage; websites VISA; Unionpay, www.paymentlawadvisor.com Proprietary & Confidential 12

China Unionpay NFC ProjectsKey Player China UnionpayProject Banking Phones with Micro- Micro-SD mobile payment Micros-SD payments and mobile Micro-SD and Mobile Point Of Sale SD point of sale terminals Terminals with BanksActivity NFC-enabled Jiang Yu First trials of Micro-SD Confirmed plans to deploy Refitting and equipping POS banking phones for Public payment microSD cards. Mobile POS transport, restaurants & essential in a region where convenience stores agriculture is the main industry.Location Chongqing Different regions in China Sichuan Across ChinaLaunch 09/2011 Est. 2011 Est. 2011 2011Users 9,000 100,000 500,000 300,000-400,000 equipped, 700,000 retrofittedNFC • MicroSD • MicroSD • MicroSD (GoTrust SWP) • Micro-SD • HTC • NFC handsets • In HTC Incredible w/ NFCDeviceTypePartners • Chongqing Rural • China Construction Bank • GoTrust SWP • China Construction Bank Commercial Bank • Smaller Regional Banks • Datang, HTC , TCl, K-Touch, 2 other • HTC • HTC handset m. • Datang • Datang • Wuhan Tianyu Information Industry • TCL • TCL and Go-Trust/Eastcompeace + 6 other for Micro-SD • CUP is focusing on 13.56 MHz with Micro SD cards • Strong relationship with HTC and DATANG whilst growing ties with TCL and GoTrustSource: Exicon • User numbers continue to grow significantly Proprietary & Confidential 13

3 Major Network Operations & User Amounts CHINA MOBILE 628 M CHINA UNICOM 186 M CHINA TELECOM 113 M USERS 158M Using 2G 158M Using 2G 87M Using 2G (8/2011) USERS BY AUG 2011 40.31M Using 3G 28.76M Using 3G 25.61M Using 3G JAN – JUN 2011 JAN – JUN 2011 Net Profit: $96 Million 158M Using 2G Net Profit: $413 Million Net Profit: $39 Billion REVENUE (1-6/2011) Revenue $391 Billion Revenue $159 Billion Revenue $188 Billion 158M Using 2G ARPU $10.9 $7.3 $8.2 (1-6/2011)APRU = Average Revenue per user Source: International Telecommunications Union. Proprietary & Confidential 14

Operator NFC ProjectsKey China TelecomPlayer China Mobile China UnicomProject SIMpass launch RF-SIM launch NFC Trial Shanghai Expo Beijing SIMpass Ticketing for 1st trial CT SIMpass projectDate transit Ticketing Buses, taxis, Ticketing & Ticketing, w/ 100 15,000 POS 2,000 payment & Ticketing Dual- Payment, student ID, parking facilities & payment merchants, incl terminals in Expo ticketing (transit) interface transport, w/ 11,000 restaurants (entertainment), convenience 2010 & city, incl. locations, incl SIMs, merchantsActivity w/ 5,000 stores, restaurants SMs, restaurants, gas stations, enabling merchants & movie theatres CVS & cinemas restaurants, SMs fare pymt, & cinemas ticketing Hangzhou Shanghai, Beijing & Xiamen Shanghai Beijing Shanghai Chongqing Nanjing & JiansuLocation OtherLaunch 3/2010 11/2009 7/2006 2011 05/2010, 01/2009 12/2008 12/2009Date 01/2011 (com.) >50,000 >2M RF-SIM orders 100 5,000 + merchants 1,000 (initial) 5,000 phones 10,000 700,000 SIMpass# of Users shipped shippedNFC SIMpass RF-SIM Nokia 3220, RF-SIM SIMpass Hedy Changhong SIM-passDevice Nokia 6131 Shanghai DG28 & F4,Type Fudan SIMpass Hangzhou Citizen China Mobile E-Tong Card Bank of China Bank Beijing Municipal Shanghai Congqing, Nanjing City Card Expo 2010 (transit fare of Communications Admin., Transportatio Yucheng Najing ZhongshanProject Hangzhou City 360° Organizers collection) (UnionPay-PBOC Communications n Authority Transportat InstitutePartners Card (local transit 2.0 contactless) Card (BMAP ion Yangzhou payment app) card) Technology Institute Watchdata, Fudan Microelectronics (chips) Watchdata, Lakala,Other Nationz Technologies, Hedy (largest local phone manufacturer) Yifutong, Enpay, YeopayPartners Eastcompeace Changhong (Consumer Electronics Company) Commercial Partners: Watchdata Nokia, Philips • Pulled out of RF-SIM Cards @ 2.4 GHz due to technical and Limited success with RF-SIM, SIMpass focusStatus cost reasons, use SIMpass & SIM-based NFC Focus on two solutions SIMpass & Sim-based NFC Planning Disney and • Signed GSMA LOI ProprietaryGSMA LOI Signed & Confidential 15 Microsoft Lab NFC trials Source: Exicon research & Smart Insights, NFC gains momentum in China 2011

SummaryNFC in China• NFC is expected to reach the tipping point by end 2012.• 4m+ POS terminals with contactless interface supporting 13.56 MHz• Larger scale contactless mobile payment commercial rollout, led by the MNOs.• Anticipating VERY LARGE scale NFC roll-out over the coming years, lead by MNOs and CUP.• Key industry players waiting for network of merchants• Market views China Unionpay as “leader” in this category. Proprietary & Confidential 16

Contact Us CEO / EXICON Stefan Rust EMAIL stefan@exiconglobal.com WEBSITE www.exiconglobal.com FOLLOW US @exicon Results speak louder than words. 80% of our work is repeat business. Proprietary & Confidential 17

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Near Field Communications (NFC) in China

by EXICON on Jun 21, 2012

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