1. April 6th
, 2016
Industry Report
Transaction Processing: Industry Brief
Contents:
Market Payment Overview 2
Revenue 3
IndustryChanges 3
ProcessingMediums 4
Actors 5
Market Analysis 6
Financial Metrics 6
CompetitionMatrix 7
AlternativePayments 8
Market Trends 8
IndustryLong-Term[U.S] 8
Sub-SectorLong-Term[Global] 9
Taxes, Policies& Regulations 9
U.K. Legislation 9
U.K. Regulations 10
U.S. Taxes 11
Trade Associations 11
Links 12

2. PaymentIndustryBrief - 2
Payment Market Overview
The global payment processing (merchant acquiring) industry generates $50 billion annually with
projected growth to $71 billion in 2015.1
4Q15 Industry Positives [Global]:2
 2015 holiday e-commerce sector sales were solid, with data from MasterCard SpendingPulse
indicating20%y/y salesgrowth.Onlineholiday e-commerce sales were the most active during
the traditional holiday shopping window (from Black Friday [November 27] through Christmas
Eve [December 24]).
 Total payment card metrics were stable to positive in the US. MasterCard and Visa reported
calendar 4Q15 domestic credit growth of 9%, while American Express reported 6% growth
(excluding Costco).
 The payment industry initiated EMV upgrade cycle provided a tailwind to point-of-sale (PoS)
manufacturers,EMV card distributors,andretail-facing payment card processors, which are in-
demand to provide and comply with these new security solutions. Investors may recall that
theoretically, all domestic retail locations were supposed to be capable of accepting EMV
paymentcards(chip-and-pin) byOctober1,2015. However,industryestimatesindicate only 8%
of U.S. retail locations have turned on their chip- and-pin acceptance capability.
 SpecializedSaaS-basedoutsourcedsolutionsservicing financial institutions, which address B2B
payments and core bank processing requirements remain in high demand.
 Good expense control: a number of management teams intentionally reduced discretionary
expenses during the quarter, which helped those companies meet or exceed our profitability
assumptions.
 Industryisconsolidating:omni-channel,full-service offeringsare the leadrequirement for long-
termsuccess.HeartlandPaymentswaspurchasedby Global Payments for 30x 2016E P/E (or 16x
2016E EV/EBITDA) while Transfirst was acquired by TSYS (subsequent to quarter-end) for 14x
2016E EV/EBITDA.
4Q15 Industry Negatives [Global]:3
 Several companies benefited from favorable non-operational adjustments in the most recent
quarter (i.e. tax rate, share buyback, and other one-off items), which were highly accretive to
non-GAAP EPS.
 Multiple challenges remain, including: forex headwinds from a stronger U.S. dollar, tepid
consumerspendingdomestically(anumberof large retailersin-store saleswere negative in the
Decemberquarter,offsetbymuchfastere-commerce),uneven economic conditions overseas,
and ongoing political and economic instability in Brazil and Russia

3. PaymentIndustryBrief - 3
Transaction Processing Revenue Opportunity
Revenue Opportunity($inBil.) CAGR CAGR CAGR
CreditCard Processing 2008A 2013A 2018E 2008-
2013
2013-
2018
2008-
2018
Merchant Acquiring:
Domestic $8.5 $11.1 $15.4 5.5% 6.8% 6.2%
Global $24.3 $39.1 $69.0 $10.0-% 12.0% 11.0%
PrepaidDomestic $5.0 $8.9 $16.5 12.2% 13.2% 12.7%
Card IssuerProcessing:
Domestic: $2.9 $2.7 $2.6 -1.4% -1.2% -1.3%
Global: $10.3 $24.3 $29.8 18.6% 4.1% 11.2%
EFT ProcessingDomestic: $0.8 $1.1 $1.3 6.6% 4.5% 5.6%
Total CreditProcessing: $40.4 $73.4 $116.5 12.7% 9.7% 11.2%
MoneyTransfer: $27.9 $26.6 $34.8 -0.9% 5.5% 2.2%
Total Transaction
Processing:
$68.3 $100.0 $151.3 7.9% 8.6% 8.3%
Source: The Nilson Report, World Bank, and Raymond James research.
Large and Growing E-Commerce Opportunities [Global Industry]:4
 Industrysourcesindicate global e-commerce sales were over $1.2 trillion in 2014 (of which the
U.S. accountedforapproximatelyone-quarter) and could grow at a 17% CAGR to $2.5 trillion by
2018.5
 Assuming payment card processors generate a 2% service fee for every $100 of e-commerce
sales, the worldwide e-commerce payment service revenue opportunity could exceed $50
billion by 2018.
 The global adoption of Internet-enabled Smartphones will be a large economic driver for the
Transaction Industry, particularly in large populous regions that lack modern payments
infrastructure.
o Visaestimatesapproximately$11 trillionof global (excludingWesternEurope) personal
consumptionexpenditure(PCE) remainspaperbased,withmore than half generated in
developing markets.
 Gartner estimatesthatworldwide mobilepaymenttransactionvolume will reach$721 billionby
2017, compared to $163.1 billion in 2012, representing an average annual growth rate of 35%.
o ProjectsTotal Mobile Paymentuserstomore thandouble duringthissame period,rising
from 200.8 million in 2012 to over 450 million users in 2017
Point-of-Sale (PoS) Changes in the US Industry: 6
 The U.S. PoS equipmentindustryisundergoinganationwide, top-to-bottom multibillion dollar
upgrade cycle over the next four or five years, as retailers comply with the new October 2015
payment industry regulations,
o Stricter security requirements
o EMV acceptance (chip-and-PIN).

4. PaymentIndustryBrief - 4
 Potential for 8-10 million PoS devices requiring upgrades.
o Potential growth for omni-channel transactional functionality such as near – field
communications (NFC), Bluetooth, QR-code readers (barcodes).
Processing Mediums:7
 Debit/Credit Card:
o Merchant Acquiring: The electronic enablement of credit card processing for
authorization and settlement between the reatailers’ PoS devices and the bank, card
issuing institution, and card association networks (Visa, MC).
o Card Issuer Processor: Provides transaction posting and accounting services.
 Servicesprovidedonbehalf of cardissuingbanksandretailers,card production,
statement preparation, e-commerce services, portfolio management, account
acquisition, credit evaluation, risk management, and customer service.
 Card issuerprocessorsreceiveaflatmonthlyfee foreachcard account managed
from card issuing banks and retailers, as well as for every transaction posted.
Volume is the key to success, based on usage not dollar value.
o Card Issuer: Typically a bank institution or firm.
 AmericanExpressandDiscoverpredominantlyoperate andmaintainrecordsfor
a three-party (closed-loop) network, playing the role of both card association
and card issuer and, thus, assume transactional credit risk.
 Electronic Funds Transfer (EFT) Processing: Enable online debit card processing (online debit
and ATMare virtuallythe same) throughgateway processing, ATMdriving, and network access
to the financial services industry.
o EFT networks connect to the retail point-of-sale or ATMand enable consumers to pay
with or withdraw money directly from funds held within their checking accounts.
o Electronic funds transfer processors receive flat per-transaction fees for online debit
card and ATM transaction processing, as well as other network functions such as
gateway switching.
o Volume is the key to success, based on usage not dollar value.
 WirelessMoneyTransfers:A method of electronic funds transfer from one person or entity to
another, usually from a bank account.
o This can be completed at an associate bank or cash office such as Western Union.
Emerging Processing Technologies:
 Mobile Payments: Apple Pay
o What is Apple Pay? A mobile wallet and payments initiative that allows consumers to
electronically store their payment cards on their device(s).
o What Products offer Apple Pay? iPhone 6 and 6s models.
o Where isApple Pay accepted? Any retail location that utilizes a new PoS device, major
card networks, and card issuing banks.

5. PaymentIndustryBrief - 5
o Benefits to ‘swipe’ method: The application requires a two-factor authentication
methodtoauthorize payment –fingerprintscan+ PIN entry,andtap of the device on an
NFC-enabled terminal.
o How isit secure?Featuresaone-time use tokenthatencryptspaymentcard credentials
to ensure that if data is stolen, it’s useless outside the current transaction.
 Others: PayPal, Venmo
Credit Card Processing Flow [Visual Aid]:
Authorization -> Capture -> Settlement
Actors:
Coverage specific to the State of Georgia and Metro Atlanta Region:
Elavon [Atlanta, GA] One of Top 5 global payment processors, with
more than 1 million customers.
FiServ [Norcross, GA) Earning over $5.1 Billion in 2014, Fiserv is a leader
in FiTech processing services.
First Data [Atlanta, GA] Serves 6mil businesses, 4K financial institutions in
118 countries,andprocesses $1.9trillionannually.
Global Payments [Atlanta, GA] A Fortune 1000 company with partners in 29
countries and 4,300 employees worldwide.
InComm [Atlanta, GA] Providesconnectivity to more than 450K points of
distribution in 31 countries.
Transaction Processing Coverage Universe:
Group: Description:
ACI Worldwide Inc (ACIW) Designs, markets, and sells electronic payment-
related software and services.
Alliance Data Systems Corp. Loyaltyand rewards program, card and processing
industry.
Blackhawk Network Holdings, Inc. (ADS) Electronic network that links consumer-oriented
prepaid cards to retailers.
Customer
Retailer's PoS
Merchant
Aquirer (a)
Card
Association (b)
•Visa
•MasterCard
•Discover
•AmEx
Card Issuer
Processor (c)
Card Issuer (d)

6. PaymentIndustryBrief - 6
P1
Q1
Price per
Transaction
Marginal Revenue per
Transaction
Marginal Cost per
Transaction
Quantity of
Transactions
Bottomline Technologies (EPAY) Provider of electronic business-to business
payment, invoice, and doc managment solutions.
CPI Card Group Inc. (PTMS) A leadingprovider of card manufacturing in North
America and the UK.
DH Corporation (DH.T) North American service provider of financial
technology solutions to financial servers.
Fidelity National Information Services (FIS) Core bank processing, credit, and debit issuer
processing services.
FleetCor Technologies (FLT) Fleetcardprogram operatorfor the transportation
industry.
Global Payments Inc. (GPN) Mid-market acquirer.
Heartland Payment Systems (HPY) Merchant acquirer for restaurants and small
retailers in the United States.
Intuit Inc. (INTU) Financial record-keeping solutions for small
businesses and tax preparation consumers.
MasterCard, Inc. (MA) Second largest worldwide credit card association.
OnDeck Capital, Inc. (ONDK) Facilitator of the proprietary OnDeck credit score.
PayPal Holdings, Inc. (PYPL) Outsource transactionprocessingservice provider.
Vantiv, Inc. (VNTV) Integratedmerchantacquirerandissuerprocessor
Verifone Systems, Inc. (PAY) Point-of-Sale (PoS) device.
Visa, Inc. (V) Largest worldwide credit card association.
Source: Raymond James Research
Market Analysis
Attractive Financial Metrics:8
 The financial metrics of the transaction processing sector are attractive, with companies often
generating 80% or higher recurring revenue, strong free cash flow, low capital expenditures,
organic top- line growth of 6-8%, and EPS growth of 10-15% on 20% operating margins.
 Many transaction processing companies manage a cash-heavy and debt-light balance sheet.
These outsource service companies operate leverageable business models that expand
profitability from processing incremental transaction volume over a fixed-cost infrastructure.
Transaction Processing Financial Model:

7. PaymentIndustryBrief - 7
Comparison of Actors: Competition Matrix
ACIWorldwide
AllianceDataSystems
AmericanExpress
BankofAmerica
BlackhawkNetwork
CapitalOne
ChinaUnionPay
Citi
Discover
Elavon
EuronetWorldwide
FIS
FleetCor
GECapitalRetailBank
GlobalPayments
HeartlandPayments
JPMorganChase
MasterCard
PayPal
USBank
Vantiv
Visa
WellsFargo
ACI Worldwide Inc (ACIW) EFT EFT EFT
Alliance Data Systems Corp.
(ADS)
PL PL PL PL
Fidelity National Information
Systems (FIS)
EFT EFT FC CIP
FleetCor (FLT)
Global Payments (GPN) MA MA MA MA MA
Blackhawk Networks (HAWK) PP PP
Heartland Payments (HPY) MA CC MA MA MA CC MA CC
MasterCard (MA) CA CA CA CA
CPI Card Group (PMTS) CIP CIP CIP CIP CIP CIP
PayPal (PYPL) EFT EFT
Visa (V) CA CA CA CA
Vantiv (VNTV) EFT MA MA CIP MA MA MA
Brief Description: This Matrix provides insight to which groups use which processing partnerships, and by which methods. The methods are listed in the Legend. It is meant to
show commonalities for methodology, i.e. PayPal and ACI WorldWide Inc only use EFT, VISA and MC only use CA, etc.
Legend:
Prepaid= PP Card Association=CA Private Label = PL CampusCards = CC
Merchant Aquirer= MA EFT Processing= EFT FleetCards= FC Card IssuingProcessing=CIP

8. PaymentIndustryBrief - 8
Alternative Payments:
 Automated Clearinghouse (ACH) BasedMobile Payments: Electronicallyinitiated,bankaccount
funded transfers that take place between financial institutions in the U.S.
o Merchant CustomerExchange (MCX) utilizesACHrailstobypasscostly interchange fees
imposed by credit card networks.
o Mobile andDigital walletproviders such as MCX and PayPal may benefit by allowing to
provide offering to consumers and retailers.
 BitCoin:A decentralized,low-cost,global peer-to-peertransactionprocessing ecosystem which
enables the exchange of digital assets between two registered parties.
o The value of a single BitCoinisdetermined by demand (or usage), which may vary day-
to-day.
 Current worth: $415 p/ BitCoin
o It ischeaperto processa BitCointransactionthantraditional paymentcards, as fees are
close to zero unless a third party intervenes.
 3rd
Party Rate for BitCoin: 1%
 Average Merchant Rate at PoS: 2%
 Online: 3% or higher
o Is it secure? There is no central banking authority which manages the issuance or
transferral of BitCoin virtual currency, therefore the P2P network uses a cryptographic
algorithm protocol to process transactions.
 Others: Money Transfer, Cash
Market Trends
Positive Long-Term Trends by Industry [in the United States]: 9
 Projected 50% increase, or $6 – 7 billion incremental revenue opportunity [pending the
remaining cash and check transaction volume at the retail point-of-sale (PoS) is converted to
credit card payment].
o Approximate estimate of $50 billion cash and $13 billion check transactions last year,
representing$1.50 trillionand$1.16 trillionof consumerpayments value, respectively.
 Domesticpaymentcardprocessingservice revenuemarketopportunitywas$11 billionfor2013,
which could expand at a 7% CAGR to $15 billion by 2018.
o The worldwide payment card processing service revenue market opportunity was
approximately $39 billion in 2013, growing at a 12% CAGR to $69 billion by 2018.
Growth Outlook by Market Source [Global]: 10
 Credit Card Associations:
o 2013: Processingvolumetotaled$2.5 billion i.e. 16% of total transaction volume in the
U.S.

9. PaymentIndustryBrief - 9
o 2018: Opportunity to convert remaining 40% paper-based transactions to plastic;
growth to $3.5 trillion.
 Merchant Acquiring:
o 2013: Estimated $11 billion in the U.S. and $39 billion globally
o 2018: Potential growth of 12% CAGR, $15 billion U.S., and $69 billion globally.
 Card Issuer Processing:
o 2013: Total Revenue for outsourced processing approximately $3 billion in the U.S.
o 2018: Potential growth of 8% CAGR and expansion to $30 billion globally; Projected
stagnant growth in the U.S.
 EFT Processing:
o 2013: $1.1 billion based on 23 billion annual PIN debt transactions with approximate
$0.05 fixed fee per transaction in the U.S.
o 2018: Potential growth of 5% CAGR and %1.3 billion in the U.S.
 Prepaid:
o 2018: Prepaid Dollar value growth at 11% CAGR to $473 billion as alternatives to
traditional bankaccountsglobally. Total pre-paid transactions in the U.S. could grow at
13% CAGR to approximately $16-18 billion annually.
 PoS Devices:
o 2015: Currently8-10 millionPoSdevicesinthe U.S.growing at flat CAGR, and 20 million
globally growing at 5-10% CAGR.
o 2018: Due to U.S. mandate for EMV-enabled device adoption in October 2015, PoS
terminal upgrades could drive CAGR and total use.
 Checks:
o 2013: Remain an important method of payment with nearly $13 billion transactions
totaling $1.2 trillion in the U.S.
o 2018: Decline by at least 11% annually in the next five years.
 Money Transfers:
o 2015: $440 billion, up 1% annually per year with average transaction fee of 6.4% of the
dollar being sent. Total revenue approximately $28 billion.
o 2018: Projectedgrowthat single-digit pace, potential offset with pricing compression.
Taxes, Policies & Regulations
Let’s first look at the Payment Processing industry in the UK. The Financial Conduct Authority (FCA),
formerlythe Financial Services Act (2012) (FSA), regulates the conduct of more than 70,000 businesses
in the UK, reporting to the Treasury and the Parliament as an independent body. The FSA receives
funding in the form of annual fees from the regulated firms.

10. PaymentIndustryBrief - 10
The FCA monitors and enforces the Payment Services Regulations (PSRs)1
, which introduced both
important payments-related legislation known as Payment Services Directive (PSD) in 2009 and
Payment Services Directive II (PSD2) in 2013. This legislation, proposed by the European Commission,
was designed to:
 Help develop the Single Euro Payments Area (SEPA);
 Regulate payment institutions [to encourage non-banks to enter the market];
 Provide increased consumer protection and transparency; and,
 Establish maximum processing times for payments in euro and other EU currencies.
In addition to the above, the PSRs:
 Define and regulate financial terms and activities including
o Cash deposits and withdrawals;
o Payment transactions [credit transfers and direct debits]; and,
o Payment card transactions.
 Form the Conduct of Business Requirements
o Obligationsforbothpaymentservice providers (PSPs) and customers when it comes to
providing and using payment services
 Set a default maximum timescale for execution of D+1, D+3 and D+4 transaction times.
The Prudential RegulationAuthority (PRA),anotherpiece establishedwith the FSA (2012), protects and
improves the stability of the UK’s financial system through prudential regulation and supervision of
approximately1,700 banks,creditunions,insurersand majorinvestmentfirms2
.Unlikethe FCA which is
an independent body, the PRA is a subsidiary of the Bank of England.
The PRA adopts and enforces all relevant EU regulations, submits to guidance by the European
Supervisory Authorities, encourages international cooperation through active involvement with:
 The Financial Stability Board;
 The Basel Committee on Banking Supervision;
 The International Association of Insurance supervisors; and,
 The Joint Forum.
Lastly, PRA is actively working with these relevant European institutions and EU regulators in its
involvementinthe on-goingdevelopmentof the singlemarketinfinancialservices.Thiscomprehensive
legislative programme, as well as the regulation of financial services across Europe, is overseen by a
EuropeanSystemof Financial Supervision(ESFS) comprising of three European Supervisory Authorities
(ESA):
 The European Banking Authority (EBA);
1 Payment Services Directive (PSD), Policy, Payments UK, http://www.paymentsuk.org.uk/policy/european-
developments/payment-services-directive
2 Prudential Regulation Authority, Bank of England, http://www.bankofengland.co.uk/pra/Pages/default.aspx

11. PaymentIndustryBrief - 11
 The European Securities and Markets Authority (ESMA); and,
 The European Insurance and Occupational Pensions Authority (EIOPA).
Concerning the Payment Processing Industry, the PRA is an important institution and piece of FCA. It
should serve as a reminder that the UK financial system is malleable, and will remain relevant to
European and Global standards.
A strongglobal legislativeexampleisthe Single-Euros Payment Area (SEPA) regulation, initially passed
by the European Parliament and Council in early 20123
. The regulation established technical
requirements for credit transfers and direct debits, strictly affecting euro denomination payments,
where both the payer and payee’s PSP are located in the Union.
Similartothe UK, electronicpaymentprocessinginthe UnitedStates is a highly-regulated industry due
to access tosensitive andpersonal financialinformation. Recent regulations that affect merchants are:
 IRS Mandate (Section 6050W), December 20104
: Merchant acquiring entities and third party
settlement organizations are required to report annual gross payment card transactions by
credit, debit, or co-branded cards and third-party transaction [Form 1099] to their merchant
service providers, who then pass the information to the Internal Revenue Service (IRS).
o AlsorequiredtosubmitaW9 Form to the payee for income over $600 [paid in the form
of a transaction] in a tax year.
 Durbin Agreement, October 20115
: A part of the Dodd-Frank Reform and Protection Act, the
Agreement sets limits on interchange [or ‘swipe’] fees paid by merchants to large banks to
process debit card transactions, setting a cap of 21 cents per transaction plus .05% of the
transaction total.
o Applicable to Visa and MasterCard debit cards – not credit cards.
o Applicable to non-exempt institutions with $10 billion or more in total assets.
 PCI Compliance6
:The Payment Card Industry Data Security Standards (PCI DSS) encompasses a
set of requirements established to ensure all merchants who process, store or transmit credit
card information maintain a secure transaction environment.
Trade Associations
There are twomajor Trade Associationsforthe TransactionPaymentProcessing Industry in the State of
Georgia and the United States:
3 SEPA Regulation, Policy, Payments UK, http://www.paymentsuk.org.uk/policy/european-developments/sepa-
regulation
4 Section 6050W,IRS Code; Administrative, Procedural, and Miscellaneous; https://www.irs.gov/pub/irs-drop/n-
09-19.pdf
5 The Durbin Agreement, Industry News, Compliance 101; http://www.compliance101.com/industry-
regulations/the-durbin-amendment/
6 PCI Security Standards Council, https://www.pcisecuritystandards.org/

12. PaymentIndustryBrief - 12
 American Transaction Processing Coalition (ATPC)7
: The ATPC represents the more than 70
Georgia-based companies that develop the products and provide resources supporting the
financial service industry’s technology needs.
o 60+ percent of the companies in this U.S. industry call the State of Georgia home;
o 70+ percent of all U.S. payments processed annually run through the State of Georgia;
and,
o ATPC employs more than 40,000 employees in Georgia, and an additional 105,000
people around the world on the payroll of Georgia companies.
o Link: http://www.atpcoalition.org/
 Electronic Transaction Systems Corporation (ETS): ETS is an international corporation in PCI-
compliant merchant processing solutions, offering services to clients in 23 countries.
o Electronicprocessingincludesbutnotlimitedto:creditanddebitprocessing,POScheck,
electronic funds transfer (EFT) and ATMdriving.
o Headquartered in the State of Virginia, with satellite offices in Germany, Canada and
Ireland.
o Link: https://www.etsms.com/
Helpful Links
 Financial Conduct Authority (FCA): http://www.fca.org.uk/
 Prudential RegulationAuthority(PRA):http://www.bankofengland.co.uk/pra/pages/default.aspx
 US Internal Revenue Service (IRS): https://www.irs.gov/
1 ATP Coalition, http://www.atpcoalition.org/
2 4Q15 Transaction Processing Quarterly,pg.1; March 17, 2016;Trasaction Processing, Raymond James &
Associates
3 4Q15 Transaction Processing Quarterly,pg.1 – 2; March 17, 2016; Trasaction Processing, Raymond James &
Associates
4 4Q15 Transaction Processing Quarterly,pg.25; March 17, 2016; Trasaction Processing, Raymond James &
Associates
5 4Q15 Transaction Processing Quarterly,pg.26; March 17, 2016; Trasaction Processing, Raymond James &
Associates
6 4Q15 Transaction Processing Quarterly,pg.25; March 17, 2016; Trasaction Processing, Raymond James &
Associates
7 4Q15 Transaction Processing Quarterly,pg.27 – 28; March 17, 2016;Trasaction Processing, Raymond James &
Associates
8 4Q15 Transaction Processing Quarterly,pg.24 – 25; March 17, 2016;Trasaction Processing, Raymond James &
Associates
9 4Q15 Transaction Processing Quarterly,pg.24; March 17, 2016; Trasaction Processing, Raymond James &
Associates
10 4Q15 Transaction Processing Quarterly,pg.29 – 30; March 17, 2016;Trasaction Processing, Raymond James &
Associates
7 About Us, ATP Coalition, http://www.atpcoalition.org/ m