Overview of Mobile Payments in the Brazil on 2012

1. GSMA
NFC BRAZIL MOMENTUM
Vinã del Mar, Chile
April, 2012
RENATO SILVA
PRODUCTS, MARKETING AND SALES DIRECTOR
Renato.silva@paggo.com.br

2. AGENDA
Paggo’s Background
Brazilian Market and Perspectives
Recent NFC Movements in Brazil

3. Paggo’s Background
Brazilian Market and Perspectives
Recent NFC Movements in Brazil
AGENDA

4. Launched in 2006, Oi Paggo is
the first mobile payment system
operating in Brazil.
Disruptive payment method
for MNO differentiation
In 2009, Oi Paggo reaches more
than 250.000 customers and
75.000 registered Merchants.
 Private Label mPayment
platform open to MNOs
In 2010, new JV between
Cielo and Oi to promote
convenience, financial
inclusion and presence to
non-traditional markets
 Value added to existing
payments backbone
From a MNO Value Added Service to the 1st
Mobile Payment Operator in Brazil.
Paggo plays a mobile payment operator role among MNOs,
Banks and traditional Card Issuers by enabling mobile
financial services to consumers and merchants, through the
integration, fine tuning and specialization of the existing
cellular network to Cielo’s Backbone.
WHAT ABOUT PAGGO?

5. In 2006 Paggo and Oi launched Oi Paggo, a vertical credit
card network structure similar to a 3-party scheme, where
Paggo manages a closed loop system playing card scheme,
card issuer and transactions acquirer for consumers and
merchants.
CARD ISSUER/ACQUIRER/ PL
MERCHANTSCARD HOLDER
Invoicing
Mobile Card
Payments
Settlement
of Funds
Product/ Services
Payments
Service charge fee
Revenues:
• Merchant Discount rate (MDR)
• Prepayment of receivables
• Implicit interchange fees
• Interest installments
Acquiring methods:
 e-commerce
 Checkout machines
 POS terminals
 Mobile phones as POS
Usage conditions:
• Oi MNO’S customer
• Enrollment to Oi Paggo
• Credit Approval (Oi Paggo policy)
• Monthly usage fee (Only when used)
A CLOSED LOOP SYSTEM TO KICK START THE MODEL...
Oi Paggo

6. "The Chicken and Egg Paradox"
“Mobile cardholders” versus acceptance
over merchants and retail:
 Existing mature banking system
 Strong payments with plastic cards culture
(debit and credit)
 Disruptive payment method: Cellphone
MNO brand positioning influencing Product
positioning (another VAS or payment tool?)
Marketing, Marketing, Marketing…Strong
communication effort to generate culture
among merchants and consumers.
"From Concept to execution"
Critical mass generation lies within the offer of
credit / financial services to the unbanked or
underserved population:
 It’s difficult to reach informal merchants that
trade with unbanked people
 Training and generation of mpayment culture
among these merchants should be an obsession
 Regional barriers for adoption leads to
geographic deployment and focus on execution
In the end of the day, it is very difficult to target
on the unbanked customers
Go-To-Market strategy execution shall lead to
traditional markets where convenience will be
perceived instead of a real problem being solved.
Convenience itself is not strong enough to
generate scale.
...THAT GENERATED A LOT OF LESSONS LEARNED...

7. ClIENTES 44 MM ClIENTES 22,6 MM
NEW MARKETSTRADITIONAL
POS TEF WEB POS MOBILE1,5M 0,3M KAs
THE JV Oi & BANCO DO BRASIL REDEFINED PAGGO’S BUSINESS...
FINANCIAL SERVICES
Oi&BB JV Issuing Co-branded cards that are associated to a cellphone
 PIN Authentication support
 Mobile POS over handset
JV
 Co-branded Credit cards
 Pre-paid (gift) Cards
 Credit/ Debit Traditional Cards
Micro insurance
 Loyalty (Oi Pontos)
MOBILE PAYMENTS
Scale and Pattern in mPayments
Differentiation, monetization and
Loyalty
+

8. ...IN ORDER TO BUILD A MUCH MORE SCALABLE MODEL...
The JV is deeply oriented to scale and performance,
therefore the company is open to new partners as it is
designed to be a compound of MNOs in order to offer a
broaden mobile platform that addresses security, usability,
reliability and compliance to multiple Services Providers.
An“integrator” to MNOs affording scale to service providers
Boad of Directors
CEO
MASSAYUKI
FUJIMOTO
CMO
RENATO
SILVA
COO
EDUARDO
CAMASMIE
CFO
LUCIANA
VEDOVE
Shareholders
Headquarter placed next to Cielo’s HQ in
Alphaville, São Paulo.
The team is composed by professionals from
multiple industries such as telecom, acquirer,
banking and financial services.
Board of shareholders is composed by 3 VPs of
each company, and it is chaired by Cielo
Paggo’s equity capital is open for new MNOs as
shareholders;
Cielo is predicted to be the majority
shareholder in case of new partners joining the JV

9.  Biggest telecommunication group in Brazil with
more than 71 million customers
(19MM wireline; 46MM wireless; 6MM Broad band)
 The only brazilian MNO with a Fixed-mobile
convergent value proposition
 The 1st fine tuned Telco network dedicated to
Mobile Financial Services in Brazil
 Nationwide coverage with higher concentration
in the Southeast and Northeast of Brazil
 Largest Acquirer network operation in
Brazil with 1.8 million merchants
 Present in 97.6% of Brazilian cities,
 Around 7% of GDP captured by Cielo’s
network
 Full service multi-brand oriented
company and leader in transaction
acquirer for the main payment schemes;
 Reference in transaction solutions and
network services
LEVERAGING SCALE THROUGH ITS PARTNERS ASSETS...
Both partners ensure the consistency needed to offer the best
experience and performing solution for mPayments in Brazil

10. CARD ISSUER ACQUIRER
Interchance Fee
PAYMENT SCHEME
Settlement of funds
CIELO INTEGRATED PAGGO TO THE 4-PARTY BUSINESS MODEL...
MERCHANTSCARD HOLDER
Card Payment
Sale of Consumer
goods & services
Invoice
Payment
Settlementoffunds
Service-fee
MNO
MOBILE PAYMENT
OPERATOR
VAN Fee
SMS
Data
Paggo is a Value Added Network
complementing Cielo’s Network.
The value proposition to the
ecosystem is the monitoring,
customization and adjustments of
the necessary resources in both,
MNO and Acquirer network,
affording high performance and
best user experience ever.
VAN to Cielo

11. • 3-party scheme (closed loop
system)
• Mobile as a credit card
• Card Issued by Oi Paggo (private
label)
• Single MNO-based
• Present in 90.000 merchants and
450 .000 cardholders with 4 million
transactions per year
...TURNING PAGGO INTO A BROAD MOBILE PAYMENT PLATFORM...
• 4-party scheme
• Co-branded and Traditional cards
• Multiple Payment Schemes
•Multiple MNOs
• Present over 1.8 million merchants

12. ...WITH THE FOLLOWING REVENUE STREAMS AND SERVICES...
Product Value Proposition
Strong authentication method to
support customer Id validation
though banking password input via
mobile phone.
Self top up service funded by credit
cards via mobile phones
POS machine emulation in a mobile
phone to enable sales by capturing
traditional credit cards or mobile-to-
mobile transactions.
Virtual Co-branded cards issued by
MNOs and Banks
Alternate validation method to
Token addressing cost
reduction, usability and
security for transactions.
Cost reduction in distribution
and increase in top-ups
though impulse buy .
Penetration into untapped
market segments by electronic
payments and new markets
Convenience and
transformation of mobile
phones into wallets
CONSUMERSMERCHANTS
VALUE ADDED
NETWORK
USER
AUTHENTICATION
SMS/ NFC
SMS
SMS/ NFC
SMS/ APP/ NFC
AIR TIME
TOP-UP
CO-BRANDED
CARDS

13. TO SUPPORT FINANCIAL INCLUSION AND REACH SCALE.
Direct Sales
Unbanked / Underserved
Population
Social Inclusion
• Enable electronic payments in
everywhere, from direct sales to small
entrepreneurs
 Bring low cost, high performance and
stronger security tools to trade in e-
commerce and informal markets
 Enable Mobile Financial Services to
unbanked and underserved people
 Help to build the mPayment
ecosystem
The Vision is to complement the
financial system
Development of
electronic channel to
micro-retail and informal
economies using
penetrated mobile plant.
Pre paid debit cards
through mobile phones
as "Bancarization”
Access to Prepaid
basic services -
water, electricity
and health

14. Paggo’s Background
Brazilian Market and Perspectives
Recent NFC Movements in Brazil
AGENDA

15.  Huge mobile penetration in Brazil: Over 245
millions cellphones sold (1:1.25 ratio)
 Smartphones penetration likely to double in the
next 3 years (10% to 50%)
Telecom still growing at 10%~15% per year rate
Prepaid is a success model for mobile
penetration (±82% of users are prepaid)
Market concentrated within 4 MNOs: Vivo, Tim,
Claro and Oi
Telcos Market
 Electronic payments market growing over two digits per
year (24% in 2011)
 BRL $ 670 billion market in 2011 with 8.3 billion
transactions
 27% of the consumption in Brazil are payed by cards (Credit,
Debit and private label)
Market concentrated within 3 Acquirers : Cielo , Redecard
and GetNet.
THE BRAZILIAN MARKET: A TREMENDOUS POTENTIAL FOR PAYMENTS
Source: ABECS, Teleco
Strong Regulation, Advanced Payment
systems, High concentration of mobile
phones and economy booming...
Payments Market

16. Source: Wireless Intelligence, World Bank, WMM, Global Insight
…The high concentration of unbanked consumers, High
cellphones penetration in society and the mature
financial system brings Brazil to debut the mobile
payments …
MKT SHARE - MNO
29,81%
26,80%
24,56%
18,53%
VIVO CLARO TIM OI
70%
28%
2%
CIELO REDECARD GETNET
MKT SHARE - ACQUIRER
2002 2008
MKT SHARE – PAYMENTS
…BUT VERY CONCENTRATED WITH FEW PLAYERS….

17. ENTERTAINMENTTRANSPORTATION SPORTS
Showbiz and intertainment 15% em
2010*;
10% annual growth for the next 5
years with a potential revenue of US$
2Billion in 2014*;
10th biggest market in the world
Mostly concentrated in cinema,
theater, shows e events;
Main players are Time for fun, XYZ
Live, Evenpro and Geo Eventos.
** Source: PriceWaterhouseCoopers
The RFID technology is widely
penetrated in the brazilian
transportation system
 77 cities in 24 states adopted RFID e-
ticketing
Transportation systems are
interoperable (buses, trains, Ferryboats,
subways) due card readers capabilities
ID and Clearing system concentrated in
6 vendors: ProData, Digicom, Empresa1,
Cartão Prata, Auttran
Distributors are: Sptrans, RioCard,
LiberCard, TransFacil
Vertical business: Transportation
companies owns Clearing system and
card distributors
Estimated BRL $ 33 billion market
due Worldcup 2014
Estimated BRL $30 billion market
due Rio Summer Olimpic games;
Soccer stadiuns private and non-
private are concentrated in two
players: BWA and Outplan that are
verticalized companies
Non-regulated market
BRL $ 328 million annualy spent in
sponsorship and media rights by
Sports Marketing agencies such as
Traffic, Ogilvy, Momentum, 9ine
…IN ALL SEGMENTS…MANY ROAD BLOCKING

18. 55% of Brazilians have their wages paid in cash
40% of Brazilians above 18 years old are unbanked;
52,6% of people in the Northeast region and 50% in the
North region are unbanked
 Even in the most depeloped regions unbanked ratio is
above 30% (Southeast 34,1%; Mid-West 31,2%; South 30%)
Banks are not perceived as a credit suppliers (high
interest, bureaucracy, conservative institutions)
 Unbanked people take great risk by accepting credit offer
from illicit or not so regulated institutions paying abusive
costs for credit
Unbanked people need modern financial products and
services that fit their reality. Prepaid model is a possibility!
Financial Market
Mostly Unbanked people are willing
to have a bank account
Fonte: ABECS, PNAD, IPEA
…BUT THERE IS A GREAT OPPORTUNITY ALONG UNBANKED PEOPLE
Social inclusion will be a long-term result!

19. PREPAID ACCOUNT
There is already a strong culture of Cash in
for prepaid minutes
Topup channels are present everywhere
even in informal economies
More than 160 million Prepaid customers in
Brazil;
 Oi has 15MM unbanked customers in
Prepaid (20% of all Oi customers)
ENTERTAINMENT TRANSPORTATION SPORTS
THE PREPAID MODEL WAS SUCCESSFUL FOR MOBILE TELCOs
TELECOM
mWALLET
…MNOs are studing the creation of recipients such as
prepaid cards to serves as a electronic wallets between
the topup channel and the prepaid account, allowing
customes to decide on how much to topup…and how
much to use in a ticket purchase….
Prepaid accounts ≈ mWallets

20. Paggo’s Background
Brazilian Market and Perspectives
Recent NFC Movements in Brazil
AGENDA

21. PROGRESS MADE SO FAR...
 GSMA is fostering meeting with all brazilian ecosystem since the beggining of this year
 All 4 Brazilian MNOs have signed agreement on standards regarding to UICC and Handsets
requirements
 Meetings were conducted with Handset and SmartCard manufacturesa and Payment Schemes
(VISA and MasterCard)
 All 4 Brazilian MNOs signed a LOI signalizing GSMA and the Brazilian market its intention to
deploy NFC solutions by the end of 2012
MOBILE
MARKETING
TICKETING
P2P
INFO
NFC
PAYMENTS
TRANSPORT
VENDING
MACHINE

22. MNO + ISSUER MNO + ACQUIRER MNO + PAYMENT SCHEME
CO-Branded card issuing:
 Interchange being splited
between Banks and Telcos
Unique MPO/ Acquirer model:
MDR for the CO-Branded cards;
Authentication Fee for PIN
 Comission for minutes distribution
(Topup);
 VAN fee for transactions captured
over Mobile POS.
Payment Scheme going Mobile
 Maintenance of of the revenue
model
AND SEVERAL PARTNERSHIPS BEING FORMED OVER THE LAST YEAR...

23. Banks are mobilizing the industry for contactless card rollout
Bradesco starts contactless card distribution
= TI Inside 12/04/2012
O Bradesco iniciou a distribuição de cartões equipados com tecnologia contactless,
que permite a realização de pagamentos por aproximação, sem contato físico –
um chip instalado no cartão permite usá-lo para compras. O produto será
oferecido para clientes do Bradesco Prime, à medida que os cartões atuais tiverem
a data de validade vencida.
Visa wants NFC ”in full operation" by the 2014
Brazil World cup
= TI Inside 16/04/2012:
O novo sistema leva, na prática, o cartão de crédito para dentro do
smartphone do usuário. Para pagar suas compras, o consumidor apenas
aproximará o seu smartphone equipado com NFC de máquinas de pagamento
adaptadas a essa tecnologia, com o valor da compra sendo debitado
diretamente de sua fatura de cartão de crédito. Para os usuários mais
tradicionais, haverá também a opção de utilizar o NFC por meio de um cartão
similar àqueles de crédito atualmente existentes que poderá ser passado (tal
qual um crachá de acesso) em qualquer máquina equipada com a tecnologia
de contato.Santander launches 1st e-wallet with Visa and
MasterCard = CardNews 09/03/2012
O Banco Santander, braço espanhol do Grupo Santander, associou-se com a
Orange para desenvolver a primeira carteira móvel (e-wallet) que suporta contas
Visa e MasterCard. A carteira móvel do Santander vai permitir aos clientes
carregar seus cartões de débito e crédito, tanto Visa quanto MasterCard, em seus
telefones celulares para fazerem pagamentos NFC onde payWave e PayPass são
aceitos.
EVEN INDEPENDENT INITIATIVES...CONTACTLESS CARDS AND

24. PagSeguro account owners can pay though proximity via
Mobile-2-mobile Nokia phones
Internet e-Wallets Going mobile
Allows Vivo customers to topup prepaid cellphones from Vivo
through a paypal account: own credits or credit cards
associated to the account
Whats next?
Pay companies...
?
DISRUPTIVE MODELS...OPPORTUNITIES OR THREATS?

25.  Transports are a natural backbone to NFC but the business model seems to be inefficient to
all parties: Small margin x Set up costs
 The business is little regulated and models are fragmented in a municipality layer.
 As the value chain is verticalized there will be much energy and obstacles to gain critical
mass.
 Payments can accelerate NFC deployment, but MNOs will act as followers.
 Deployment will be financed by Banks by the launch of contactless cards
 Acquirers will upgrade their POS plant into Contactless POS supporting Banks strategy.
 MNOs shall finance NFC Handset and SIM penetration as a Bank partner.
 Business Lever – The prepaid model for the unbanked people shall motivate NFC handset
and SIM penetration as a substitute to card issuance.
 Hurdles – Traditional players can impose regulations and restrictions in order to slow down
this move, but it will happen anyway.
OUR VISION FOR THE BRAZILIAN MOMENTUM
Convenience itself is not strong enough to generate critical mass to
consolidate NFC value proposition

26. Massayuki Fujimoto
Chief Executive Officer
Massayuki.Fujimoto@paggo.com.br
+55 11 6559 9999
Renato Silva
Chief Marketing Officer
Renato.silva@paggo.com.br
+55 11 6869 1000
Eduardo Camasmie
Chief Information Officer
Eduardo.camasmie@paggo.com.br
+55 11 6821 1000
Thank You !