By First Annapolis Consulting, 4 April 2012

1. The Mobile POS Opportunity
for European Acquirers
4 April 2012
Privileged

2. Summary Overview
Mobile POS has the potential to unlock millions of new merchants and drive new revenues.
Acquirers should act to own this business on their terms as mobile POS could be a threat.
What is “mobile POS”? What can mobile POS do for acquirers?
+ Expands the overall acceptance market by enabling acceptance
of “micro-merchants” – a truly new-to-card segment
+ Creates cross-sale opportunities for existing merchants (such as
larger merchants looking to complement traditional systems)
+ Powerful, multi-functional mobile devices enable new
opportunities for value-added services
+ Creates a business case to think about distribution strategy and
business processes (e.g., sign-up, servicing) more innovatively
iZettle mobile POS + Provides acquirers with a runway to compete in the broader
Square Register mobile commerce world
tablet application
• Mobile tools for card acceptance which operate on common
mobile devices (i.e., smartphones and tablets)
Why should acquirers worry about mobile POS?
• Usually includes a low cost card reader (with magnetic stripe, ‒ Not well suited for conventional distribution and sign-up practices
chip, or chip-and-PIN capability) and mobile app
‒ Lowers barriers to entry for new acquiring service providers (i.e.,
• Processing services may be delivered through a payment PSPs could win small merchants using innovative mobile POS)
facilitator (aggregator) or traditional acquiring model
‒ Could disrupt terminal rental revenue streams
• Includes standalone solutions and bespoke applications
integrated to retailers’ existing back office systems ‒ Increases complexity of the POS systems environment
Mobile POS Opportunity for European Acquirers PRIVILEGED 1

3. Current Situation
Mobile POS has gained impressive traction in North America over the past 18 months and
providers are migrating to Europe. Europe will also see many homegrown solutions.
Notable Mobile POS Providers in the Americas Emerging Mobile POS Providers in Europe
• Six months after its
public launch in late
2011, iZettle expanded
the Swedish POS
market by 12.5%
CardpayUK
• Square has signed over 1 million
users since its launch in May 2010
• In combination, the top mobile POS
offerings have expanded the U.S.
terminal estate by 15% to 20%
• Over two-thirds of the top-50 U.S.
acquirers now offer mobile POS • Big retailers like The
Apple Store have adopted
Ingenico’s up market
iSMP chip-and-PIN reader
sleeve for the iPhone
Mobile POS Opportunity for European Acquirers PRIVILEGED 2

4. Current Situation
Numerous barriers limit deeper penetration of traditional merchant accounts. Mobile POS,
if accompanied by the appropriate processes, could solve many of these impediments.
Buy POS Register for Accept Process
Funding CRM
Solution Acquiring Payments Payments
Traditional Pain
• High cost of • Cumbersome • Receipt required • High • Delayed • Low quality of
for Merchants
hardware application and (today - paper) acceptance settlement reporting and
Points
• Complex adjudication • PIN validation costs reconciliation
process data/tools
integrations (especially • Infrastructure
with the ePOS • High rates of denial encrypted PED requirements
requirement)
• Difficult to access
alternative schemes
at the POS
Traditional Pain
• High cost of • High cost of • Bespoke • Chargeback risk • Legacy systems
for Acquirers
hardware merchant legacy not enabled for
Points
procurement, acquisition telecoms and automated
distribution, and • Manual application, platform front- customer support
management ends are
adjudication, and • Legacy
difficult to adapt
boarding environments
• Blunt, up-front risk make
deployment of
policies & tools
value-added
Red text indicates potential process • Burdensome services difficult
improvements under a well-
KYC/AML rules
designed mobile POS solution
Mobile POS Opportunity for European Acquirers PRIVILEGED Source: MasterCard, First Annapolis Consulting 3

5. Product Construct
Mobile POS solutions are relevant across the merchant market, from micro
to large corporate, although the needs and use cases vary by segment.
Mobile POS at Various Types of Merchants
• A secondary/
complementary POS
• May use
mobile as • Enables new use
Mobile POS Value
primary POS, cases: queue
for Segment
Proposition
• Mobile as but more likely busting, floating
primary POS it’s secondary POS, out-of-store
alongside a events, field
• May only sell service workers
traditional POS
occasionally,
so low/no fixed
• Sweet spot for tablet ePOS with • Modest cannibalization of
costs are traditional POS
store management functionality
important hardware/revenues (but only
• Card acceptance made easy • Generally new-to-cards because • Motivated by both cost and modest, can’t handle large
• P2P individuals respond to a POS cost too high or sign-up functionality; compatibility with volumes)
micro-merchant proposition process too burdensome legacy systems is less important • Security is critical to this segment
• As long as cost structure is • Similar buying criteria and • Tablets + Apps substantially • Mobile POS opens a window
scalable the masses can be usage behavior as individuals reduces barriers to ePOS into front-end services provided
for Acquirers
profitable. This means driving (i.e., consumer-style marketing, adoption, a decision then to larger merchants (acquirers
Implications
Competitive
customer acquisition in a fully fully automated boarding, etc.) impacting choice of payment can potentially reclaim lost
automated fashion acceptance device front-end position)
• If costs are fixed, margins
• Even a €250 acquisition cost scale very well for these • Mobile POS could cannibalize • Enabling new use cases
(fractions of a normal acquiring merchants which can have traditional terminal revenues creates retention value for
merchant) can kill profitability significant transacting upside acquirers or other legacy
• PSPs specializing in mobile
providers
• Requires business process • Requires business process POS become competitors
innovation to serve profitably innovation to serve profitably
Mobile POS Opportunity for European Acquirers PRIVILEGED 4

6. Product Construct
Mobile POS is just one in a range of mobile-enabled selling and transacting applications.
Mobile POS Product Spectrum
Basic Card Mobile Enabled Mobile CRM Apps Cloud-Based ePOS, Order E-wallets and
Acceptance Distance Selling (Compatible with Mobile Hardware Taking Merchant Offers
Legacy ePOS/ERP) (Lower-Tier ePOS) Apps
iZettle app PayPal Mobile Global Bay iPad Retailing Revel Systems Cloud- Tesco Grocery app Square Card Case
for iPhone Express Checkout and CRM apps Based ePOS for iPad app for iPhone
Mobile POS Opportunity for European Acquirers PRIVILEGED 5

7. Product Construct
Mobile POS requires a new technical infrastructure …
Mobile POS Key Success Factors Mobile POS Technology
Technology Product
Marketing Automated Card Reader Software
(Adaptability, Merchandising
(new channels, Hardware App
Reliability, (simple, easy, Operations
etc.)
Security) bundled product)
4 1 1 1
Large
Enterprises
2 2 2 2
SME
Retailers
Gateway & Acquiring
Middleware Services
1 4 4 4
Micro
Merchants
1 Less Important 4 More Important
Mobile POS Opportunity for European Acquirers PRIVILEGED 6

8. Product Construct
… Of equal or greater importance, however, is that serving micro-merchants also requires
extensive process and marketing innovation relative to the legacy acquiring business.
Mobile POS Success Factors
Process Innovations for
and Merchant Buying Criteria
Micro-merchant Acquiring
Based on First Annapolis Surveys
Technology Product
Marketing Automated Consumer-style / mass marketing,
(Adaptability, Merchandising
(new channels,
Reliability, (simple, easy,
etc.)
Operations low acquisition cost channels
Security) bundled product)
Simple pricing, bundled service
4 1 1 1
Large
Enterprises Online/mobile application, simple
sign-up
Automated boarding
2 2 2 2
SME
Retailers
Deferred underwriting/regulatory checks
(back-end risk management)
1 4 4 4
Micro Online/mobile servicing
Merchants
Flexible merchant hierarchies
1 Less Important 4 More Important
Mobile POS Opportunity for European Acquirers PRIVILEGED 7

9. Product Construct
Micro-merchants have extremely low lifetime values, which limits the scale of the revenue
opportunity and compels suppliers to develop a low-cost acquisition and servicing models.
Mobile POS Revenue Pool Potential
Millions of POS
1 mil 2 mil 3 mil 4 mil 5 mil
€1,000 €10 €20 €30 €40 €50
Annual Volume
€2,000 €20 €40 €60 €80 €100
per Account
€3,000 €30 €60 €90 €120 €150 Potential?
If you assume strong unit
€5,000 €50 €100 €150 €200 €250 demand and continued
growth in account activity
€10,000 €100 €200 €300 €400 €500
& usage levels
€20,000 €200 €400 €600 €800 €1,000
Today*
*If you apply Square’s current position
(1 mil users, €3B annualized volume,
1% revenue margin)
Source: Square press releases, First Annapolis estimates
Mobile POS Opportunity for European Acquirers PRIVILEGED 8

10. Product Construct
Mobile POS is just one more indicator that bank-centric sign-up processes in the micro-
merchant segment are not appropriate to the profit and risk dynamics of the segment.
Number of Fields Required on
Typical Merchant Application • KYC and AML requirements increase acquisition
Note: A “Field” is “Last Name”, “First Name”, etc. costs and reduce ease of sign up significantly
which is not consistent with the risk profile of
238 processing for micro-merchants (if well
Key controlled)
Full Merchant Application
Individual/Basic Application • Traditional acquiring applications often cover too
many products/services, rather than focusing on
the minimum information requirements for the
service requested
• Application requirements are typically not well
90
27 27
suited to start-up or informal businesses (trading
history, business registration, etc.)
12
10 14 13 • Paper + post is not an easy way of doing
Traditional business; fully digital, online, and automated is.
Bank Acquirer
Both card schemes and regulators have shown willingness to think about micro-merchants differently,
requiring less robust regulatory processes.
Mobile POS Opportunity for European Acquirers PRIVILEGED 9

11. Product Construct
Various product constructs are now live in Europe; more are coming soon.
SEPA requirements do not prohibit mobile POS solutions.
Typical Mobile POS Product Constructs
Card Reader Authentication Secured
Pros Cons EU Example
Technology Method Trans.
Magnetic • Treated as e-commerce
• Quick product roll-out transaction; higher interchange
Stripe CVV X • Improves user experience and chargeback liability
Reader (Germany / Pan-Europe)
incurred
• Multi-function reader supports
broad enterprise-centric • Hardware is costly due to
Chip-and-PIN ✔ functionality development, certification, and
manufacture
Chip • Meets current rules (Iceland / UK)
Reader • Less secure than PIN
• Meets EMV requirements for
• Merchants exposed to
Chip-and-Sign X chip card validation
chargeback liability due to lack
• Relatively cheap cost (Sweden / EU)
of PIN validation
• Merchants must verify 3D-
• Simple and cheap for Secure to gain chargeback
None CVV / Secure
(key entry) Code
X merchant to attain (e.g., protection
download free application) (UK / EU)
• Poor user experience
Recent Mobile EMV
Reader Introductions
Mobile POS Opportunity for European Acquirers PRIVILEGED Source: Company disclosures, market observations 10

12. Market Opportunity
We estimate that mobile POS could increase the total POS in the market by 40%,
potentially cannibalizing 5% of traditional POS hardware/software along the way
(albeit, much of the 40% will be micro, low-volume, low-revenue POS).
Size Potential of Mobile (shown as number of POS, in millions)
Registered, Unregistered Comments
Businesses Businesses
• 29 million registered businesses in the
EU; Circa 20 million unregistered
Total Enterprises businesses in the EU
• Noting that some of these enterprises are
Already Potential to insubstantial shells
Accept Accept Low or No Potential to Accept
• 9.5 mil F2F POS today in Europe
• c. 4 million potential additional POS
Traditional Acceptance Solutions (Today) based on today’s POS product
• Remaining businesses unlikely to accept
cards based on today’s POS product (i.e.,
B2B, etc.)
• We estimate that Mobile POS could add 5
Incremental Demand Created by Mobile POS million incremental POS to the market
(while cannibalizing 0.5 traditional
terminals)
• 3 million of these POS would come from
unlikely to accept (i.e., unregistered)
(+c. 40% incremental growth in • Projected 2020:
Acceptance After Mobile POS (2020) POS from mobile POS, 5% • 11.5 mil traditional POS
cannibalization of traditional POS) • 5.5 mil mobile POS
• (excludes virtual/e-comm POS)
Note: Square and iZettle have
both expanded their POS market
by 12.5% with early adoption 0 5000 10000 15000 20000 25000 30000 35000 40000
Mobile POS Opportunity for European Acquirers PRIVILEGED Source: First Annapolis estimates 11

13. Market Opportunity
Available market fundamentals are somewhat divergent. On the one hand smart phone
penetration is key (mature markets); on the other hand, the substitution of traditional POS is likely
to be greater in less established card markets.
European Market Landscape Based on
Card and Smartphone Penetration Mobile POS can unlock
3.0 micromerchants in
developed markets
Card Penetration with high card and
Payment Cards
per Capita smartphone penetration
UK Finland
France
2.0
Portugal
Belgium
Slovenia Holland
Sweden
Germany Spain
Estonia
Austria Denmark
Latvia Bulgaria Lithuania Ireland
Czech Republic Italy
Hungary 1.0
Slovakia
0.0 0.3 Smartphone 0.6
Poland Penetration
The low cost of mobile Romania Smartphones
per Capita
POS can be a catalyst Size of the Bubble Indicates
for first-round POS Addressable Merchants in
market development in Traditionally Card-Accepting
underdeveloped areas Sectors (not number of card-
0.0
accepting merchants)
Source: Eurostat, Google/IPSOS, Tomi Ahonen,
Mobile POS Opportunity for European Acquirers PRIVILEGED First Annapolis estimates 12

14. Strategic Implications
Mobile POS is purely an acceptance play today, but the product is also one step in the
evolution towards convergence of acceptance and consumer mobile payment technologies.
Evolution of the Mobile Commerce Ecosystem
Future: Mobile commerce
Potential Future: Wallet owners potentially
acceptance ecosystem
compete as merchant offer ecosystems and
converges with consumer wallets
payment schemes
(offers, marketing) . The owner
of the POS software is potentially
Tomorrow: Mobile platforms
well positioned for this
(Google, Apple, etc.),
convergence
payment schemes (Visa, MC,
PayPal, etc.), and MNOs
Tomorrow: cloud- The End Game compete to own wallet
based technology, • Consumer and merchant-led
new hardware ecosystems converge. Access to the
options shakes up merchant becomes critical for
the ePOS market consumer-facing providers while
consumer ecosystem relevance
Today: enabling Today: banks broadly
becomes important to merchant
mobile devices as roll out mobile banking
payment service providers.
basic card terminals tools and test mobile
expands the • Control of the merchant POS and/or wallets
merchant market consumer wallet are strategic assets
towards revenue pools beyond
payments.
Acceptance Consumer
Evolution Account/Wallet
Evolution
Mobile POS Opportunity for European Acquirers PRIVILEGED 13

15. Strategic Implications
Mobile POS could disrupt (somewhat) the traditional payment acceptance value chain.
Positioning Advantages / Current &
Mobile POS Rationale Potential Implications
Disadvantages Future Players
Cross-sell opportunities into current and
Maintaining ownership of the target customer base
• Unique opportunity to move
Acquirers merchant account with a – Aged platforms, slow to adapt to front-end
market share
competitive, bundled POS offering technology
– Not well adapted to micro merchants
Strong POS technical abilities • PSP / OEM success in Mobile
POS will bode well for Acquirers
PSPs Can lead the charge in Mobile POS – Not experienced at bundling acquiring who are aligned with these
& OEMs h/w and s/w development service or small merchant distribution providers (e.g., referral, white-
(orient around wholesale channels) label)
Established reputation, global footprint, & • Payment schemes (existing and
Provide an extension of current network
Payment emerging) form closed loop
payment solutions (e.g., mobile
Schemes wallet), with closed-loop potential – Channel conflict with existing merchant networks, requiring Acquirer buy-
services members in and/or compliance obligations
Ability and flexibility to focus on serving
Caters to specific merchant niches market niches / gaps
Specialists • Specialists beat Acquirers to
(e.g., traders) that are not satisfied
& Startups Quick sign-up / sales process micro-merchant base
by traditional providers
– Limited distribution assets
Mobile Evolve to provide a more Mass marketing and distribution assets • MNOs displace acquirer’s cross-
Network comprehensive set of business
services beyond data networks – Limited payment acceptance experience sell influence on the merchant
Operators
Mobile POS Opportunity for European Acquirers PRIVILEGED 14

16. Strategic Implications
Acquirers have several options for developing a mobile POS solution.
The right approach, and the right partner, should be tailored for your specific situation.
Develop a
new product Integrated Solution
Providers
Integrate a
new solution PSPs
Solution
Potential
Delivery
Partners
Options White label an
existing solution
Hardware OEMs
Re-sell a third-
party solution
Software
Developers
Mobile POS Opportunity for European Acquirers PRIVILEGED 15

17. Strategic Implications
We believe that all acquirers should have a mobile POS strategy
(acknowledging that this strategy could be quite different among acquirers).
Basic Strategy Steps Commentary
• Explore various business model options to answer the
1 Set a clear strategy question, “What role, if any, do we want to play in the
mobile POS value chain?”
2
• Answer the in-house versus outsource question.
Make a product development decision
• Find a technical solution partner
• Into which segments will you sell the product?
3
Develop a marketing strategy, • How will you merchandise the product and tailor it to
Invest in supporting business processes targeted segments?
• How will you support the product?
4
• Find new distribution partners and channels
Develop new distribution channels
• Develop internal teams and resources to support
Mobile POS Opportunity for European Acquirers PRIVILEGED 16

18. Next Steps
First Annapolis can help to analyze the mobile POS market, to develop your strategy,
and to support implementation to get you into the market.
Opportunity Strategy Go-to-Market
Assessment Development Support
Market Sizing Customer Needs Analysis Select Vendors
Product Landscape Develop the Business Case Establish Partnerships
Benchmark the Competition Product / Proposition Design Review & Improve
Operational Processes
Analyze Your Strengths and Marketing Strategy
Weaknesses and the Market
Opportunity and Threats Distribution Strategy
Pricing Strategy
Mobile POS Opportunity for European Acquirers PRIVILEGED 17

19. About First Annapolis
Company Summary Service Offerings
Full Service Advisory Support
Proven Acceptance & Acquiring
Sourcing & Partnerships
Management Consulting
Mergers & Acquisitions
• Founded in 1991
Credit Issuing
• Global HQ in Washington DC;
European HQ in Amsterdam
Deposit Access
Professional Expertise
• Focus exclusively on payments Commercial Payments
• 70+ billing professionals
Mobile & Alternative Payments
• Balanced combination of industry,
functional, and consulting experience
Market Leadership Representative Client Coverage
• Advise market leaders:
‒ Financial institutions
‒ Payment schemes FA Offices
‒ Transaction processors Representative Clients
‒ Technology providers
‒ Retailers and leading global brands
EXPERIENCED COMMITTED OBJECTIVE
Baltimore-Washington | Amsterdam
Mobile POS Opportunity for European Acquirers PRIVILEGED 18

20. Contact Us
First Annapolis Consulting | M&A Advisory Services
Keizersgracht 313-I 900 Elkridge Landing Road, Suite 400
1016EE Amsterdam Linthicum, Maryland 21090
The Netherlands USA
Phone: +31 20 530 0360 Phone: +1 410 855 8500
Fax: +31 20 530 0369 Fax: +1 410 855 8599
http://www.firstannapolis.com
Joel Van Arsdale, Partner Ben Brown, Associate Mandy Giacchetto, Associate
joel@firstannapolis.com ben.brown@firstannapolis.com mandy.giacchetto@firstannapolis.com
+31 20 530 0363 +31 20 530 0364 +31 20 530 0364
Mobile POS Opportunity for European Acquirers PRIVILEGED 19