Innovation in Payments is rarely “Disruptive,” but is normally Top Down, driven by public private cooperation, where change is mandated from the top, and entrepreneurs respond to consumer preferences at the margins. In this presentation we show how mobile payments and the Cloud, accompanied by the requirements of likely eCity networks and APPs wlll emerge in 2016 and benefit IT innovators and non-FSIs (non-Financial Service Institutions).

1. Why the Advent of the eCity Will Produce Disruptive Change
March 2015
Walter Kitchenman
wkitchenman@hotmail.com
Disruptive vs Top Down Change in US
Payments in 2016

2. Part of a Series on Global Information Management
1
This presentation is part of a series of work by Walter Kitchenman covering the
importance and use of Information. Earlier studies documented the availability,
use and benefits of shared consumer data and how such transparency shapes
businesses globally; Inhibitors to Information Sharing (Knowledge and Content
Management);Trends in Loyalty and Customer Communication; and an
Introduction to Digital Marketing.

3. 2
1. Define “Disruptive” vs “Top Down” change
2. Describe the Payments’ Landscape or Ecosystem today
3. Rank the relative importance of developments that impact payments
4. Show how mobile payments and the Cloud, accompanied by a Top
Down public mandate, will disrupt dominant networks in 2016
5. Anticipate the requirements of likely eCity networks and APPs that wlll
emerge in 2016 and benefit IT innovators and non-FSIs (non-Financial
Service Institutions)
Purpose
Innovation in Payments is rarely “Disruptive,” but is normally Top Down,
driven by public private cooperation, where change is mandated from the
top, and entrepreneurs respond to consumer preferences at the margins.
How the eCity Will Disrupt the Payments’ Ecosystem in 2016

4. Agenda
1. Overview and Definitions …..…………………………….………….. 4
2. Key Developments in Payments 2016 …………………..…………. 13
3. The eCity as Top Down Catalyst ……..…………………………..… 19
4. Impact of Emerging eCity Networks 2016 ………………………….. 23
5. Summary …………………………….……………..………………….. 27
3

5. OVERVIEW AND DEFINITIONS
Disruptive vs Top Down Change in US Payments in 2016
4

6. 5
Traditional NFC Apple Pay
IT Innovators Will Provide Consumers with
APPs Acting as Mobile Wallets or Passbooks
Mobile APPs and payments may create major disruptive change, but
only in concert with a major “Top Down” event or requirement.
OVERVIEW> MOBILE APPS
Source: Celent

7. What is “Disruptive Change?”
• Payments, like currency, are regulated and play a critical role in financial
stability and national economic policies – Change is rarely Disruptive
• Payments’ networks make settlements in national currencies
• What’s possible technologically is not necessarily desirable policy-wise
• What consumers say they want is not necessarily desirable policy-wise
• The public sector must require/support change in the Payments’ Landscape
6
The process by which a product or service takes root initially in simple
applications at the bottom of a market and then relentlessly moves up
market, eventually displacing established competitors.”
– Prof. Clayton Christensen, Harvard University
OVERVIEW> DEFINITION
Change in Payments Takes Time – A Lot of Time!

8. What is “Top Down” Change in Payments?
• Regulation. US Constitution of 1787 enumerates power to pay debts,
borrow money, regulate commerce, coin money and regulate its value
• Web-based and Related. In 1980s, DARPA/US Govt. foments Internet
• ACH and Online Payments. In early 90s, US Treasury Dept. mandates
employers remit taxes electronically; Fed requires settlement via imaging
• RFID/Contactless/Proximity. Govts. in Asia push RFID in mass transit;
RFID introduced for US subways and toll roads
• EMV. EU requirements drive cards with a chip, blurring differences
between online, smart phone payments and card present payments,
major card associations (and regulators) push for adoption in US
7
Top Down change is when strategies and innovation are first conceived or
mandated by policy makers, official and quasi-official bodies, and then
disseminated to lower levels in the payments’ ecosystem.”
– Walter Kitchenman
OVERVIEW> DEFINITION

9. “Top Down Change” Inhibits Innovation Too
– and Maybe that’s a Good Thing
• Bitcoins, Other Cyber Currencies and regulatory doubts
• Peer-to-Peer Payments and Small Transfer Difficulty largely due to
innovation-killing anti-money laundering compliance
8
The wrong use of a thing is worse than it’s non-use.”
– PLATO, Euthydemus
OVERVIEW> DEFINITION

10. What is the US Payments’ Landscape Today?
• Payments’ Networks. Dominate and main beneficiaries of the status
quo, particularly card settlement (Interchange)
• Card Issuers. Most vulnerable to regulation and disruption (e.g., Durbin
and other possible changes that reduce revenues from fees)
• IT Innovators. Non-FSIs that seek innovation and will likely benefit
• Big Box Retailers. Biggest proponents of regulating network fees (that they
believe are passed through to them) and litigants to force more regs
• Government Regulators. Possible catalyst for standardization; Durbin
limits fees in debit; CFPB will likely regulate non-FSIs by 2016
9
Many potentially disruptive forces have …minimal impact because there’s
… limited operability from one technology to another. If payments …gain
something equivalent to open sourcing of mobile APPs … that could change
things dramatically.”
– George Hofheimer, Filene Research Institute
OVERVIEW> US PAYMENTS TODAY

11. How Do Today’s Payments’ Networks Work?
1. Cardholders. Make purchases and are billed
– IT innovators (e.g. Apple Pay) may act as intermediaries
2. Merchants. Accept payments’ cards and other instruments and pay fees
– Third party processors may act as intermediaries
– Big Box Retailers may create their own independent network to capture all fees
3. Acquirers. FSIs that enlist merchants to accept payments’ instruments
4. Card Co.’s (or Assoc.). Visa, MasterCard, etc. determine network fees
(Interchange), settle payments and control most payments
5. Card Issuers. FSIs that Acquire/Retain cardholders, manage Rewards
– Third party processors may act as intermediaries
10
Payments involve a four part process through which settlement is made
between the merchant’s and consumer’s banks. There are five participants.
OVERVIEW> US PAYMENTS TODAY
Example of Payments’ Card Settlement

12. Example of Payments’ Network (e.g., the Interchange):
US$100 Purchase @ 2% Fee (with Innovative Device)
5 Processor Pays $98.00
($2.00 discount)
7 Issuer Pays $98.00
ISSUING BANK
(aka ISSUER)
CARD COMPANIES
/PROCESSORS
MERCHANT
(aka RETAILER)
CONSUMERS
(aka CARDHOLDERS)
1 $100 Purchase
with Card or Device
2 Merchant
Submits $100
3 Acquiring bank pays merchant
$97.55 ($2.45 Discount)
4 Bank Submits
$100
ACQUIRING BANK
(aka MERCHANT BANK)
8 Issuer Bills
Cardholder $100
6 Processor
Submits $100
9 Cardholder Pays $100 or
Revolves (if credit card)
NFC, WALLET
APPLE PAY,
CLOUD, OTHER
OVERVIEW> EXAMPLE INTERCHANGE
11

13. What is an eCity that Benefits IT Innovators?
• Parking Management & Electric Vehicles
– Visitors pay parking with or without meters
(GPS positioning or iBeacons)
– Visitors extend parking times remotely
– Residents recognized, Event Parking
– Electric vehicle charge stations payments
• Real-Time Info
– City alerts and promos to APPs
– Parking (revenues) monitored real-time
– Local Merchant offers/coupons to APPs
– Tickets/Citations pushed to APPs
• Citations and Payments
– Tickets paid through APPs
– Ticket forgiveness/discounts possible
– Other city agency fees payable through APPs
– Might be used to pay Merchants
12
Cloud technology allows a city to create a low cost Payments’ Network and
community of local merchants, city agencies, visitor/parkers and residents.
OVERVIEW> eCITY
Source: Grupo Delaware

14. KEY DEVELOPMENTS IN PAYMENTS 2016
Disruptive vs Top Down Change in US Payments in 2016
13

15. 14
Anticipated Disruptors
1. Federal regulations less impactful but non-FSIs will have oversight
2. Litigation by retailers attacking fees over, but Merchant Networks emerge
3. IT Innovations in mobile and the Cloud will lead to Top Down mandates
Unanticipated Disruptors
1. Advent of the eCity Network
– Top Down municipal mandate/support for mobile payments
– Creation of a payments’ network (linking parkers, city depts., local merchants)
– Parking minutes or “Time” as alternative currency
– Real-time parking management, fines and fees, fine and fee payments, and
nearby merchant offers and coupons pushed to eCity-related APPs
Technological advances will lead to Top Down requirements at the
municipal level, which in turn will be a catalyst that disrupts the status quo.
Relative Importance of Developments 2016 –
and Unexpected Change that May be Key
KEY DEVELOPMENTS IN PAYMENTS 2016 > SUMMARY

16. 15
• Card and Rewards Fees. Potential for Durban-like restrictions on Credit
Cards, especially in regards to Rewards? Possible but not likely in 2016.
– Australia and Canada provide insights
• A Single Track Payments’ Network (e.g., like Brazil). Interoperability
necessary for innovation; but big players oppose and it’s not likely in 2016.
– Cloud-related technology will facilitate greater interoperability without a mandate
• Consumer Financial Protection Bureau (CFPB). Oversight over non-FSIs’
in the payments’ space – including eCity innovators; would most likely enjoy
the support of heavily regulated financial institutions. Likely by 2016.
“Countries need to have strict regulation that pushes companies to the next
generation of technology, rather than retarding them at the last generation.”
- Michael Porter, Harvard University
In 2016 Federal Regulations Less Disruptive than
Durbin but CFPB will Expand Oversight
KEY DEVELOPMENTS IN PAYMENTS 2016 > REGULATIONS

17. Less Litigation but a Merchant-Run Payments’
Network Emerges
• Cloud technology facilitates development of an alternative network
• Possible oversight and regulations with which Big Box retailers have little
experience discourage development of an alternative network
• Merchant-Run Payments’ Network not likely to gain traction among
consumers by 2016
• Consumers will prefer fully portable payments’ mechanisms and smaller
merchants distrust Walmart more than traditional acquirers
• www.mcx.com provides an idea of a possible Merchant-Run Network
16
After big loss over greater Fed-mandated fee reductions for debit in late
2014, Walmart, Costco, Home Depot, et. al. create a Network for 2016.
KEY DEVELOPMENTS IN PAYMENTS 2016 > MERCHANTS

18. 17
• Smart Phones and Mobile Payments. Ubiquity; Includes Square, PayPal,
NFC and Cloud-based rivals, Apple Pay and Samsung in future
• EMV. Blurs lines between cards/smart devices, offline/online payments
• Cloud Technology Can Foment Missing “Interoperability”
– Mitigates inhibitors of scale, maintenance costs
– Alternative to NFC and EMV? (e.g., Starbucks QR reader, Mobile Parking APPs)
– Benefits non-FSI innovators, small IT firms, small merchants
• Real-Time Pays
– Ability for small merchants to push promos, coupons and loyalty via APPs
• “Data Mash-Ups.” Real-time info. and location data bring it all together
The Cloud, especially via Mobile payments, may prove the most
“Disruptive” if accompanied by a Top Down catalyst like the eCity.
IT Innovations More Likely than Regs or Big
Box Retailers to Disrupt Payments in 2016
KEY DEVELOPMENTS IN PAYMENTS 2016 > IT

19. 18
Development
1. The Cloud Provides Cost Effective
Interoperability. Easier integration/
interoperability among players/processes
2. Mobile Pay Platforms are Ubiquitous.
Mobile (or online) payments required with
confidence (e.g., removal of toll booths and
intro. of RFID and license plate readers in
many US states provide precedent)
3. The eCity Arrives. Major cities take
advantage of Cloud-based technology to
support/require mobile payments for
parking, tickets and enforcement, events,
and other related to vehicles; GPS location
or iBeacons remove need for meters
Disruptive Result*
• Anonymous visitor/parkers become
recognized customers for cities, local
merchants, APP providers
• Merchants join the eCity parking-related
network to Reward customer/parkers with
parking minutes or “Time” on APPs
• Merchants push offers and coupons in
real-time to visitor/parkers APPs
• “Time” becomes alternative currency,
transferred between visitor/parkers and
used for other eCity payments on APPs
• eCities recognize other eCity networks
Mobile payments required by major cities in the US will create eCity
networks that challenge the roles of traditional players.
2016: Top Down Mandate is Catalyst for Change
*Does not involve today’s payments’ network
KEY DEVELOPMENTS IN PAYMENTS 2016 > eCITY

20. THE eCITY AS TOP DOWN CATALYST
Disruptive vs Top Down Change in US Payments in 2016
19

21. eCity APPs Offer Many Payments’ Mechanisms
• Cash (Prepaid Mobile)
• Merchant Awarded minutes/points
• Visa
• MasterCard
• AMEX
• DISCOVER
• Bank Account (ACH)
• Pay Pal
• Transfer Telecom Minutes
• Other emerging
eCity Account and APP
NFC, SMS, Apple Pay, QR Code, Other
20
An eCity APP is a wallet or passbook with payments’ cards, prepaid cash
(prepaid account), or merchant contributed “parking minutes” associated.
eCITY AS TOP DOWN CATLYST > PAYMENTS APP
Exsmple: Grupo Delaware

22. New Process: Merchant Acquistion and
Loyalty Programs Using an eCity Network
• Highly targeted promos to visitor/parkers within a block or two of a merchant
• Consumer location identified via GPS, iBeacons, or parking spot number
• Minutes/points accumulate by paying for parking or through spend at
merchants in the eCity network
• Minutes/points are a percentage of spend or fixed dollar amount (flexible)
• eCity APPs automatically calculate and display minutes/points based on
individual merchant policies and agreements
• Push notifications inform eCity APP users of points awarded or redeemed
• Spend on APPs results in municipal parking being complimentary de facto
• The eCity manages parking efficiently and captures significant revenue
21
21
Local businesses provide parking minutes/points and highly targeted promos to
visitor/parkers via a Loyalty back-end incorporated into the eCity APP.
eCITY AS TOP DOWN CATLYST > eCITY NETWORK

23. 22
VISITORS PAY
PARKING
MERCHANTS & CITY
PROMOTE
CITY ENFORCES
COLLECTS FEES
Example of eCity Capable Parking App Using
Cloud Technology (e.g., QR Code)
Major components of the eCity Payments’ Network are in use in several
European cities (example is from Spain’s Grupo Delaware).
eCITY AS TOP DOWN CATLYST > EXAMPLE

24. IMPACT OF EMERGING eCITY NETWORKS 2016
Disruptive vs Top Down Change in US Payments in 2016
23

25. • eCity networks facilitate the crediting of “Time” by local merchants to
visitor/parkers accounts to generate traffic and reward loyalty
• Coupons pushed to APPs introduce goods and services as alternative
means of settlement outside traditional payments’ networks
– For example, a participant in the eCity network exchanges a coupon for a free
soda for 1 hour of parking from another participant
• eCity networks and related mobile APPs bring benefits of digital marketing
and major loyalty and Rewards programs to smaller merchants
24
New Process: eCity Networks May Settle in
Other Than National Currencies
Dominant players in today’s Payments’ Landscape are limited to settling
transactions in national currencies.
IMPACT OF eCITY NETWORKS > SETTLEMENT

26. The eCity Network Has Advantages Over
Other Potential Payments’ Network Start-Ups
• Facebook, Apple (via iTunes), Google Plus and Social Networks
– Apple best positioned with hundreds of millions of customers and payments
mechanisms associated with iTunes, and Apple Pay in place
! Apple Pay platform with iPhone 6 increasingly socialized
! iBeacons incorporated into payments' platform
• Amazon, Netflix, Hulu and other online content providers
– Millions of registered payments’ methods
– Deep knowledge of customer location and preferences
– Ability to reach millions of users in near real-time
25
Governments mandate participation as they do with mass transit oriented RFID
technology and recognition software; Online social and media networks have
no such advantages but could partner with existing or emerging networks.
IMPACT OF eCITY NETWORKS > ALTERNATIVE NETWORKS

27. “Hot” Payments’ IT Issues Appear Less Critical
Because No Technology Dominates the eCity
• EMV. Mobile eCity APPs replace card present transactions; smart
devices have similar capabilities making EMV benefits less immediate
– EMV still required and makes card present and online payments compatible
• NFC. eCity use of Cloud-based technologies (e.g., QR codes, SMS,
Apple Pay) make NFC proximity IT less relevant albeit necessary
– NFC may or may not be part of a mobile phone payments' platform
• GPS and iBeacons. eCity APPs will locate parker/visitors for the city and
local merchants through GPS, iBeacons (Bluetooth transmitters interact
with a moblie device), or low tech entry of a parking space number
26
For example, location IT appears less relevant when consumers enter parking
space numbers (common practice among mobile parking providers today, e.g.
www.parkmobile.com).
IMPACT OF eCITY NETWORKS > IT

28. SUMMARY
Disruptive vs Top Down Change in US Payments in 2016
27

29. Short-Term Benefits
• Some settlement takes place at
participants in today’s Payments’
Network as payments’ cards, Pay
Pal accounts, and other existing are
associated with eCity-related APPs
• Capture of smaller payments
(parking and many vehicle related
fees) increase transaction volume
for payments’ associations/networks
Long-Term Challenges
• Increasing number of transactions
outside today’s dominant payments’
ecosystem at the margin
• Merchants award parking minutes or
“Time” settled without the
involvement of current players in the
payments’ ecosystem
28
Challenges Posed by the eCity to Today’s
Payments’ Ecosystem are Longer-Term
Innovative IT providers and non-US companies are more competitive in the
Payments’ Landscape due to greater interoperability (potential partners of the
eCity with more relevant IT experience than many dominant players).
SUMMARY > CHALLENGES TO PAYMENT ECOSYSTEM

30. Impact of the eCity and Disruption to Major
Participants in the Payments’ Ecosystem 2016
29
Payment Network Participant Positive Neutral Negative
Consumers (greater choice = positive) ✔
IT Innovators (interoperability =
positive)
✔"
Local Governments ✔"
Big Box Retailers ✔"
Small Merchants ✔"
Issuers: Big Banks ✔" ✔" ✔"
Issuers: Community Banks ✔"
Credit Unions ✔"
Card Associations
(Visa, MasterCard)
✔" ✔" ✔"
Acquirers ✔"
Third Party Processors ✔" ✔" ✔"
Regulators (more oversight = negative) ✔"
SUMMARY > IMPACT MAJOR PLAYERS

31. 30
• Data mash-ups for alerts, promos, and coupons are pushed to visitors/
parkers/residents/merchants APPs adding value to eCity networks
• Online social and media networks partner with dominant players or eCity
networks but do not succeed as standalone payments’ networks
• “Minutes” for parking (or telecom) and local merchant goods and services
create a new payments’ ‘currency’ that may be transferred APP to APP
• Big banks, card co.'s, 3rd party payments’ processors gain initially as smaller
pays move to cards/traditional accounts but lose share at the margin
• The eCity benefits non-FSI firms (e.g., Apple, Samsung, telecom and
payments and parking innovators) and non-US firms with experience globally
• Cities, municipal depts., need strategic advice in payments and related IT
The Cloud permits lower cost, easier integration that foments eCity
networks that act as a Top Down catalyst for disruptive change in 2016.
Key Take Aways: Mobile Payments for Parking
Lead to eCity Networks and Top Down Change
SUMMARY > KEY TAKE AWAYS

32. A Hint Where the US eCity Will Be Born with
an RFP for Mobile Parking Summer 2015
• US IT innovators. Provide devices, Cloud-based services, APPs (e.g.,
Apple Pay) but use payments’ gateways to the established network
• Parking Management. Know parking (including mobile), enforcement at
the municipal level, but not cutting edge IT (e.g., Park Mobile)
• Non-US Innovators. Link visitors/parkers/residents/merchants in a
network to push coupons, promos and settle in minutes or “Time” but not
in US (e.g., Grupo Delaware)
• San Francisco. Issues RFP in June 2015 for mobile parking that is basis
of the eCity – parking managers take lead but need strategic advice
31
SUMMARY > WHERE AND WHEN
“The extreme geniality of San Francisco’s economic, intellectual and political
climate makes it the most varied and challenging city in the United States.”
- James Michener
Partnerships Emerge Among Beneficiaries of Disruptive Change

33. Why the Advent of the eCity Will Produce Disruptive Change
March 2015
Walter Kitchenman
wkitchenman@hotmail.com
Disruptive vs Top Down Change in US
Payments in 2016