A Recap on Mobile POS in Europe in 2012 Prepared for: Dramatic Activity, But No Clear Winners Yet 21 December 2012 Not For RedistributionCONFIDENTIAL: This mailer is solely for the use of the recipient. No part may be circulated, quoted, or reproduced without prior approval by First Annapolis Consulting, Inc.
Mobile POS in EuropeThis report reviews what has happened with mobile card acceptance solutions in 2012.This document is an update to our first mailer from April 2012. • Our April report defined "what is mobile POS?" and examined the positive and negative implications for acquirers – "Mobile POS" refers to card acceptance tools which operate on consumer-grade mobile devices. • Includes simple "card terminal apps" or more complex products, such as "tablet ePOS" and bespoke retailing apps for which payments is just a minor function. – Mobile POS can dramatically expand acceptance, making cards practical for new kinds of merchants. – Serving micro-merchants successfully requires innovation in the acquiring back office, not just a front-end product. – Mobile POS is likely just an early step in a broader trend of innovative mobile commerce products. • If you havent seen it, download our prior report from http://www.slideshare.net/benbrownFAC/the-mobile- pos-opportunity-for-european-acquirersFirst Annapolis Consulting, Inc. | Confidential | 21 December 2012 2
Mobile POS in EuropeMobile POS solutions have appeared in Europe at a rapid pace this year. European Mobile POS Activity MasterCard Visa Europe Intuit Ingenico issues mPOS updates mPOS expands to takes control best practices best practices UK from US of Roam Data payleven mPowa (UK) exists launches SumUp O2 launches Adyen launches "stealth mode" in Germany launches mPOS in UK Shuttle mPOS January 2012 Feb Mar Apr May June July Aug Sep Oct Nov Dec May 2010 May 2011 Elavon offers handpoint PayPal Here WorldPay JUSP (Italy) Square iZettle launches mPOS in the UK pivots to offer launches pilots "Pay exits "stealth launches in Sweden services direct (not in EU) as You Go" mode" in USA StreetPay to merchants launches in Germany payleven iZettle expands expands globally to UK, DEFirst Annapolis Consulting, Inc. | Confidential | 21 December 2012 3
Mobile POS in Europe Mobile POS offerings now exist (or are coming to market soon) across Europe.• Mobile POS startups are moving very quickly to expand to more markets.• Products are evolving beyond simple card acceptance apps, as they have in the U.S.• Competition is likely to intensify in 2013 as traditional merchant acquirers start to offer mobile POS with improved back office processes.First Annapolis Consulting, Inc. | Confidential | 21 December 2012 4
Mobile POS in Europe Early case studies demonstrate strong demand for mobile POS, even in highly developed cards markets. Existing Terminals ~200,000 New Mobile POS ~25,000 Card Market Maturity Market Expansion 12.5% • In 2012, iZettle expanded to Norway, Denmark, Finland, the UK, and Germany.POS terminals per 1,000 people Australia 30 • iZettle signed 10,000 users at launch in Hong Kong Norway, an 8% expansion of that market. Canada 20 Brazil Denmark Finland Italy Spain France Sweden Existing Terminals ~10 million USA Portugal UK New Mobile POS ~2.5 million Turkey Japan Greece Germany Holland 10 Belgium Estonia Market Expansion 25.0% Taiwan S. Africa Argentina China Poland • Square dominates the U.S. market with India Russia Mexico and others over 2 million users; Intuit (who just 0 entered the U.K.) is a strong #2 0 2,000 4,000 6,000 8,000 10,000 12,000 Annual Transactions per POS Terminal • PayPal received 1,000 applications per hour the first day it offered mobile POS. • In two months, PayPal signed 300,000 users across the US, Canada, Australia, and HK. Source: First Annapolis Consulting estimates and analysis, company statements First Annapolis Consulting, Inc. | Confidential | 21 December 2012 5
Mobile POS in EuropeWe project strong demand for mobile POS in Europe and around the world. • Europe is still early in its development (for mobile Global Adoption Forecast for Mobile POS Millions of Users (businesses, not units) POS) with about only 150,000 users across the EU 304 • Mobile POS in Europe is likely to grow rapidly, 286 to about 3 million users by 2017 267 250 39 • The opportunity is spread across micro-merchants 34 (who require a Square/iZettle-like solution) and traditional acceptors (i.e., larger merchants) 26 – Most players should focus on a particular merchant 18 segment or product niche because business 14 requirements and relevant distribution tactics are 11 very different 8 1 • Mobile POS will cannibalize traditional POS terminals (and traditional acquiring services) to 2011 2013 2015 2017 some degree Addressable Market Actual Adoption Total Businesses – Anecdotes suggest that up to 20% of SME attrition at traditional U.S. acquirers is now caused by SquareSource: First Annapolis Consulting estimates and analysisFirst Annapolis Consulting, Inc. | Confidential | 21 December 2012 6
Mobile POS in EuropeMobile POS is evolving rapidly from a basic card acceptance tool to more complex propositions.We think tablet-based ePOS solutions will be a particularly important area in 2013. Likely Mobile POS Product Evolutions iZettle payleven LevelUp (Mobile Card Terminal, (Mobile Card Terminal, (cloud-based Chip-and-Signature) Chip-and-PIN) Mobile POS) Square App Square Register Punchd Passbook QuickBooks Tablet (Mobile Card (Tablet ePOS) (Mobile Loyalty) (Mobile Coupons) (ERP Software) Terminal, Mag Stripe) PayPal Pay with Square GoPago (Alternative Payments, (Mobile Wallet) (Mobile Ordering) Cloud Wallets)• Winning products are likely to look quite different in a couple years than todays mobile POS offerings.• Innovative products are increasingly integrated, towards both the merchant back office (e.g., ePOS and ERP software) and the consumer (e.g., mobile wallets and mobile ordering apps).• In advanced forms, mobile POS is much more interesting to traditional acceptors – SMEs and large retailers.First Annapolis Consulting, Inc. | Confidential | 21 December 2012 7
Mobile POS in Europe U.S. merchants are proving that mobile POS is far more than a micro-merchant phenomenon. We expect to see this same up-market trend flourish in Europe in 2013. Major Merchants Using Mobile POS Case Study: Apple Store • Mobile POS is Apples primary POS; clerks use an iPod and card reader sleeve to process sales anywhere • In U.S., Apple uses an IPS/Datecs sleeve; in Europe, it uses Ingenicos iSMP sleeve • Digital receipts available• A 2011 study of 32 large U.S. retailers found that 63% were • Apple has been using mobile using mobile POS or planning to do so by 2012. POS for a decade (originally• JCPenney (a mass market U.S. chain with 1,100 department via a bespoke device) stores) announced that it planned to migrate its entire in- store POS estate to mobile POS and self-checkout in 2013. • EasyPay app enables customers to use their own• Nordstrom (an upmarket U.S. department store chain with device to self-checkout $8.6 billion in sales) executives recently said, "[we] believe • Purchases are billed to the the future of our point-of-sale systems is completely customers iTunes account, if mobile." they have a domestic card on• Starbucks recently converted its 11,000 U.S. stores (and file their $8 billion in sales) to Square/Chase Paymentech, but Starbucks will continue to use its MICROS ePOS system. First Annapolis Consulting, Inc. | Confidential | 21 December 2012 8
Mobile POS in EuropeMobile POS has received a mixed reception from the card schemes. Visa Europe, most notably, has"doubled down" on EMV and will require all readers to support chip-and-PIN. Payment Industry Action on Mobile POS Security August 2011 Nov 2010 April 2011 June 2011 Visa announces May 2012 July 2012 requirement for US PCI Council Visa invests in Square, PCI Council re-certifies processors to support Mobile POS Best Visa and MasterCard decertifies all gains Board seat; tells purpose-built mobile merchant acceptance Practices issued by prohibit the use of mobile payment Square to add encryption acceptance devices but of chip transactions PCI, MasterCard, non-compliant applications before going international not mobile POS apps by April 2013 Visa Europe* payment applications future Schemes grant Visa Europe to stop PCI Council Visa Inc. releases Best waivers from some MasterCard issuing waivers at establishes Mobile Practices for Mobile rules in Europe to invests in iZettle year-end, enforce Working Group Payment Acceptance foster mobile POS chip-and-PIN rules Early 2011 April 2011 Late 2011 June 2012 Early 2013 Indicates positive industry action American Express Indicates neutral industry action invests in iZettle Indicates negative industry action October 2012Note: (*) Visa Europe best practices version 2 released in September 2012First Annapolis Consulting, Inc. | Confidential | 21 December 2012 9
Mobile POS in EuropeVendors are pursuing a number of different business models in the mobile POS marketplace.The market remains fragmented, though we expect evidence of leadership to emerge in 2013. Mobile POS Market Sample Facilitators & Acquirers & MSPs Solution Integrators Component Vendors Full Stack Terminal Hardware Vendor Mobile App Developer Partial Stack Gateway Back Office ServicesFirst Annapolis Consulting, Inc. | Confidential | 21 December 2012 10
Mobile POS in Europe All types of acceptance players should think carefully about mobile POS. It creates a substantial new, unserved niche – but also has the potential to cause material disruption across the market.Acquirers Gateways (PSPs)• Were slow to move (due • Well suited for wholesale to legacy tech and risk /compliance "solution integrator" role worry) but now investing in mPOS • New products, channel• Can just clear for others, but usually convergence create investment want to "own the merchant" demands for gateways• Doing nothing risks disinter- mediation or marginalizationStartups POS OEMs• Europeans (iZettle, payleven, • Well suited to provide etc.) have been fast followers of reader hardware, though VeriFone Square and first movers in the EU and Ingenico using mPOS to move• Most act as payment facilitators, into services (as solution integrators) some focus on a wholesale "solution • Opens door for second-tier, integrator" role low-cost, or foreign playersBusiness Software SchemesDevelopers • Visa Inc. and MasterCard• View mobile POS (especially have both invested in start- tablet ePOS) as a platform to ups – and allow chip-and-sign deliver business software/services • PayPal has developed its own SME• Both Sage and Intuit now offer solution to make the leap offline – a mobile POS in the UK major strategic evolution for them Positive Implication Negative Implication and a threat to acquirersFirst Annapolis Consulting, Inc. | Confidential | 21 December 2012 11
Mobile POS in EuropeFirst Annapolis can help to analyze the mobile POS market, to develop your strategy,and to support implementation to get you into the market. First Annapolis Areas of Assistance Opportunity Strategy Go-to-Market Assessment Development Support Market Sizing Customer Needs Analysis Evaluate / Select Vendors (RFP) Product Landscape Develop the Business Case Establish Partnerships Benchmark the Competition Product / Proposition Design Review & Improve Operational Processes Analyze Your Strengths and Distribution Strategy Weaknesses and the Market Opportunity and Threats Pricing Strategy Relevant Experience • Developed a pan-European mobile POS • Advised a multi-national payment processor strategy for a large merchant acquirer on opportunities in mobile POS (and mobile • Evaluated potential mobile POS partners / payments more broadly) vendors for a European bank acquirer • Studied the mobile commerce activity of the • Assessed the disruptive potential of mobile top retailers in the U.S. and U.K. technology on acceptance for multiple • Extensive strategy, sourcing, and M&A private equity investors and one of the experience over the past decade in acquiring, worlds largest POS terminal OEMs mobile, and alternative paymentsFirst Annapolis Consulting, Inc. | Confidential | 21 December 2012 12
Mobile POS in EuropeFirst Annapolis is a leading payments consultancy and M&A advisory firm. Company Summary Service Offerings Proven Acceptance & Acquiring Management Consulting Sourcing & Partnerships Mergers & Acquisitions Full Service Advisory • Founded in 1991 Credit Issuing & Retailer Services • Global HQ in Washington, D.C.; European HQ in Amsterdam Deposit Access (Debit) Professional Expertise • Focus exclusively on payments Commercial Payments • Circa 90 employees • Balanced combination of industry, Mobile & Alternative Payments functional, and consulting experience Market Leadership Global Coverage • Advise market leaders: ‒ Financial institutions ‒ Payment schemes ‒ Transaction processors FA Offices Representative Clients ‒ Technology providers ‒ Retailers and leading global brands EXPERIENCED COMMITTED OBJECTIVE Baltimore - Washington, D.C. | AmsterdamFirst Annapolis Consulting, Inc. | Confidential | 21 December 2012 13
First Annapolis Consulting | M&A Advisory Keizersgracht 313-I 900 Elkridge Landing Road #400 1016EE Amsterdam Linthicum, Maryland 21090 The Netherlands United States of America Phone: +31 20 530 0360 Phone: +1 410 855 8500 Fax: +31 20 530 0369 Fax: +1 410 855 8599 Prepared for: http://www.firstannapolis.com Joel Van Arsdale, Partner Ben Brown, Consultant firstname.lastname@example.org email@example.com +31 20 530 0363 +31 20 530 0364 +1 410 855 8512 +1 410 855 8510CONFIDENTIAL: This mailer is solely for the use of the recipient. No part may be circulated, quoted, or reproduced without prior approval by First Annapolis Consulting, Inc.