INSIGHTS JULY 2017

INSIGHTS

JULY 2017

Payment Consultants and Interim Managers Contents

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Payments M&A activity heating up…………………...……………………………...………...Page 12 1. 2.

Vantiv - Worldpay………………………………………………………………...…………..Page 17 Ingenico - Bambora………………………………………………………………...………..Page 19

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Are banking licenses the next USP?…………………………………………………...……...Page 21

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Visa 3DS 2.0 rollout - are you ready?………………………………………...………...……...Page 23

The contents of this document are copyright of Gropay BV. You may share and distribute this content as long as it is passed along unchanged, in whole and Gropay BV is credited as the content owner

Insights July 2017 - Page 2

Gropay - growing your payment profits Overview of Gropay

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Gropay was founded in 2008 with a mission to help clients grow through a creative application of our payments knowledge, experience and network

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Gropay provides payment focused management consulting, interim management and focused executive search services globally

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Our services focus on the areas of online, mobile and point of sale (POS) payments. Gropay clients span the entire payments value chain from schemes to merchants and also include private equity investors, technology and mobile network operators (MNOs)

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Gropay regularly publishes insights on the most important developments in the payments industry. Our insights are a direct result of our innovative work with our clients and our decades of experience

Gropay is an experienced, knowledgeable and well connected group of industry professionals ready to work with your team to help your company grow to the next level


Gropay - growing your payment profits Experienced team

Manoj Kheerbat - 23 years global experience. Experience from Bibit, Worldpay, eMerchantPay, King.com and Fanduel

Micah Thorner - US bar admitted lawyer. Ex General Counsel Ingenico. Expert in cross-border technology, data protection and e-commerce law

Jeannie Gorissen - Masters Human Resources, experience New York, London managing complex HR requirements

Dominic Guardino - 23 years experience with ISO, MSB, PayFac, Bank Relationship and global eTailers for P&L, Sales &Marketing

The Gropay team consists of proven industry leaders with extensive experience both on the demand (merchant) and supply (Payment Service Provider, acquirer, scheme) sides with a focus on sales and business development, operations, risk, compliance, valuation and due diligence


Gropay - growing your payment profits Wide range of services

Gropay services span the full range of requirements for our clients including: ● ● ● ● ● ● ● ● ●

Strategy development Business development Relationship management Operations management Talent acquisition Under-writing Legal and compliance Risk management Product development.

Gropay also tailors services for bespoke requirements Insights July 2017 - Page 5

Gropay - growing your payment profits Satisfied clients













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Vantiv - Worldpay………………………………………………………………...…………..Page 17 Ingenico - Bambora…………………………………………………………………………..Page 19

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Payments M&A activity heating up European focus

There has been a marked increase in M&A activity amongst European payments companies recently Insights July 2017 - Page 13

Payments M&A activity heating up Drivers ●

We believe this recent increase in M&A activity is driven by two main factors:

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There is a long term growth trend for payments as more payments become electronic (at the expense of cash). This trend has been given a boost recently through the popularity of mobile devices. This s the primary cause of private equity investment and acquisition activity

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The payments industry is entering the maturity stage in its natural growth cycle towards an oligopoly. This is the primary cause of corporate merger and acquisition activity

We explore these factors in more details in the next pages Insights July 2017 - Page 14

Payments M&A activity heating up Growth trend for payments - mobile and emerging markets

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Percentage of ecommerce sales versus total retail continues to increase steadily as more purchases move online (blue line in the picture on the right)

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CAGR of growth to ecommerce declining as major western markets (US, EU) starting to mature and saturate (red line in the picture on the right)

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The combination of these trends still means continuing strong growth of ecommerce with sales expected to reach $4 trillion by 2020 (black bars in the picture on the right)

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This growth trend boosted by mobile commerce which is expected to see a CAGR of 23% from 2016 to 2021 (not plotted in the picture on the right)

Payments continues to be an attractive growth sector. The growth in ecommerce is helped by the popularity of mobile devices. Future growth expected to come from emerging markets and we would expect to see M&A activity from players in mature geographic (US, EU) and product (POS) markets attempting to buy this ecommerce and emerging market growth Insights July 2017 - Page 15

Payments M&A activity heating up Is the payments industry heading into a mature lifecycle stage? Model of Industry life cycle stages: Introduction Phase: Losses, Few competitors Growth Phase: Increasing sales and profits, New competitors appear Maturity Phase: Saturation, Declining profits, Standardised features, Industry shakeout, M&A Decline Phase: Replaced by substitute products, Profitability falls, Few large scale players survive resulting in formation of Oligopoly: ● Few firms ● Strategic interdependence We believe the payments industry is entering the mature stage of its industry lifecycle. Mature incumbents are seeing declining profits and commoditization. They will attempt to buy growth through M&A Insights July 2017 - Page 16


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Vantiv - Worldpay………………………………………………………………...…………..Page 17 Ingenico - Bambora…………………………………………………………………………..Page 19

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The contents of this document are copyright of Gropay BV. You may share and distribute this content as long as it is passed along unchanged, in whole and Gropay BV is credited as the content owner.


Payments M&A activity heating up Vantiv - Worldpay

Worldpay 2016 volumes $588 billion and EBITDA $610 million. EBITDA to volume ratio of 0.10% low reflecting ● ● ●

A high percentage of of the total volume is low margin, high cost POS transactions Worldpay has fought hard recently to compete with price fighters like Adyen Focus on low risk / low margin e-commerce industries

Strategic benefits ● ●

Vantiv accessing primarily EU and to some extent Asian market through acquisition as US growth matures Worldpay can focus on growth in EU, LatAm and Asia instead of competitive US market

Vantiv - Worldpay play helps Vantiv to grow as its primarily US and POS market matures. Meanwhile the merger helps Worldpay to focus on e-commerce and emerging market growth, withdrawing resources from the competitive and mature US market Insights July 2017 - Page 18


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Vantiv - Worldpay………………………………………………………………………...…..Page 17 Ingenico - Bambora……………………………………………………………………….....Page 19

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Payments M&A activity heating up Inegnico - Bambora

Bambora $65 billion in annual processing volume across 110,000 predominantly SME/SMB merchants Ingenico Group EBITDA of $550 million in 2016 declined by 6% from 2015. At market cap of $6.3 billion Ingenico Group valued at 11.5X EBITDA. The low multiple perhaps reflecting the declining EBITDA and growth prospects Assuming multiple on EBITDA of 16 on purchase price of $1.75 billion will give Ingenico Group an additional $110 million (or 20%) in EBITDA and access to SME segments across Canada, Nordics and Australia

Ingenico EBITDA is in decline despite recent purchases of Ogone (also an e-commerce SME play) and Global Collect (e-commerce, corporate). We believe the relative mature market (Canada, Nordics and Australia) presence of Bambora will give Ingenico a temporary and minor boost only in EBITDA growth. Ingenico must begin to build out its mobile and emerging market strategy organically or alternatively focus on a suitable acquisition that addresses these growth areas Insights July 2017 - Page 20


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Vantiv - Worldpay…………………………………………………………………………….Page 17 Ingenico - Bambora………………………………………………………………………….Page 19

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Are banking licenses the next USP? Adyen and Klarna leading the pack

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Banking licenses offer a number of advantages to payment processors and acquirers:

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No more reliance on banking partners for correct and timely settlement of transactions

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Strategic platform for potential lending operations to merchants and consumers

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Additional float revenue and margins

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Strategic platform for potential entry into the lucrative and growing global remittance business valued at $500 billion

Just as many payment providers attempted to achieve differentiation via acquiring licenses we predict a trend towards banking licenses in the coming years Insights July 2017 - Page 22


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Vantiv - Worldpay…………………………………………………………………………….Page 17 Ingenico - Bambora………………………………………………………………………….Page 19

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Visa 3DS 2.0 rollout 1 of 3 Are you ready?

Global 3DS 2.0 activation date 12 April 2019 Nothing changes with regards to 3DS 1.0 and associated charge back liabilities Before 12 April 2019, merchants will not receive fraud-related chargeback protection for merchant- attempted 3DS 2.0 authentication transactions when the issuer BIN does not yet support the 3DS 2.0 authorisation request After 12 April 2019, merchants will receive fraud-related chargeback protection on attempted 3DS 2.0 authentication transactions No consumer nor merchant will know whether their transaction is authenticated via 3DS 1.0 or 2.0.


Visa 3DS 2.0 rollout 2 of 3 Are you ready? The card issuer and its 3DS protocol version supported will determine whether an authentication takes place in the 3DS 1.0 vs 2.0 environment If a 3DS 2.0 attempted authentication is made against a card issuer that does not yet support 3DS 2.0 before 12 April 2019, that transaction will be treated as unauthenticated ecommerce with an ECI value of 07 (non-3D, no fraud-related chargeback protection) – the only exception is temporary unavailability of a card issuer Nothing will change with respect to fully-authenticated 3DS transactions, and merchants will receive fraud-related chargeback protection on both full and attempted 3DS 2.0 authentication transactions after 12 April 2019 Insights July 2017 - Page 25

Visa 3DS 2.0 rollout 3 of 3 Are you ready? Nothing will change with respect to fully-authenticated 3DS transactions, and merchants will receive fraud-related chargeback protection on both full and attempted 3DS 2.0 authentication transactions after 12 April 2019 The possibility exists that a merchant may incur fraud-related chargebacks for 3DS 2.0 attempted authentication transactions due to issuer non-participation during the transition from 3DS 1.0 to 2.0. After 3DS 2.0 goes live on 12 April 2019, both issuer-authenticated and merchant-attempted 3DS 2.0 transactions will receive fraud-related chargeback protection once again


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JULY 2017