+ SocialLocal

BigData

AlternativePayments:Turning Virtual Into Reality

Mobile

2+Your Presenters

Tracy Duprey - Host

Andy Schmidt – CEB TowerGroup

Esmeralda Swartz – MetraTech, Corp.

3+Overview

Next Generation Payments: What, Why

User Experience

Building it

Optimize, Analyze, Act

Make Money

Create an Economy

+US Noncash Payment Volumes Continue to Grow Despite Market Turmoil

Noncash Transaction Volume by TypePercentage of Total Transaction Volume by Type of Transaction, 2011.

Trends in Noncash Transaction Volume by TypeNoncash Transaction Volumes (in millions) by Type 2005 – 2016(E).

Source: TowerGroup Payments Database

4

5+Virtual Currencies Replace Paper and Coins with Bits and Bytes

Transactions are often peer to peer without the use of a central authority

Relies upon “the network” to self-police

Concept drives regulators crazy

­ Can’t rely on the network to stop/filter transactions

­ Proponents claim attention is just a ploy by banks to impede adoption

Source: Bitcoin, Facebook, MintChip, CEB TowerGroup

6+

Freemium:

Product or service is provided free of charge

Premium is charged for advanced features, functionality, or virtual goods.

“Freemium” Model has Taken Hold in Many Games and Other Applications

7+

DEAD AGAIN? Maybe you need a bet t er swor d – cl ick her e t o

come t o t he auct ion house Now

Source: Blizzard Entertainment, CEB TowerGroup

Diablo III Brings Real-Money Auctions (RMA) to Gaming

Moves items from eBay to monitored channel

Buyers can pay in “gold” or 9 different currencies

Fee structure is $1 per item and 15% percent of the purchase price

8+Swarms of New Payment Partnerships in the Real and Virtual Worlds

9+What Questions Should the Market be Asking?

Questions for Banks

How do I get there from here?

What is the risk?

How do I get involved?

How do I automate this?

Questions for Regulators

What about AML?

What can we do – if anything – about vendors who switch currencies to avoid taxes?

10+Three Simple Drivers

Traditional players must innovate to remain relevant

Clear market needMake currency

ubiquitous

11+

Online4%

Offline96%

Online6%

Web-in-fluenced Offline

37%Offline

Online+

Offline

TomorrowYesterday Today

2008 = $325B

2013 = $ 10T

Source: Forrester, Euromonitor and Economist Intelligence Unit Source: Forrester Source: Economist Intelligence Unit

Commerce Today

12+Establishing Alternative Payments Brand

Trust and simplicity to drive customer behavior

Strong organization/brand behind product

Clear value proposition for: Consumer, Merchant, Biller, and Financial Institutions

Convenience and ease of use

13+Adapt or Don’t Bother

Indirect Monetization

Direct MonetizationFreemium/Causium

Pay to use

m/ecommerce

Premium content

Subscriptions

Virtual currency

Reselling

Digital goods

Offers

Ads

Referrals

14+Back to BasicsUnderstand the Buyer/User

Where, when, why they buy

How they behave

What they prefer

When are they at risk

How to retain them

15+No Perfect Answer, Only Better One(s)

Cannot spend months before launch worrying about pricing FACT: Pricing, bundling, and offers will be revised over time

Lots of data, how do you maximize expected lifetime value of the customer

Data has to be interpreted, source of data is critical

If you double prices, double short-term revenue, but triple churn not a good idea

16+Acquire & Analyze: Data to Better Serve Customers

Heuristics

+ Aggregated Metadata

= Meaningful Benchmark Stats/KPIs

17+Billing Data Makes an Impact

18+A3 The New Model

• Enroll• Meter• Pay

Acquire

19+Creating Value to Accelerate Adoption

Access to customer data is key

Delivering relevant, personalized

promotions

Rewards integration (earn & burn)

Convenience parity with other payment solutions

Examples:

ConsumerAccount (s)

Consumers

Merchants

Non-TraditionalMerchants

Merchant Intermediarie

s

Alternative Payments

P2P, Mobile, POS, Alt.

Currencies, Prepaid

+Case Study: Reconciliation

Reconciliation: calculate aggregate net amount per merchant and generate ACH & merchant statements

Problems: manual process, poor integration, inaccurate calculations, delays in issuing statements, poor visibility to profitability

Solution: simplified and automated reconciliation process

Cash Management

ACH Files

Merchant Interchange Billback

Bank Admin File (BAI)

Gateway Files ACH reports, Bank/

Merchant Statements

Accounting System

Billing and Payment System

“Compare, Identify, Adjust,

Prepare”Daily Reconciliation:• Cash

Management• Gateway• Bank Account• Merchant

Funding Is this automated process between systems? Ease of adjustment for line item & aggregate?

Higher conversion & sales

Happier customers

Ease of online selling

More targeted marketingShorter time-to-market

Profitability analysis

Accurate statements

More resources to focus on core capabilities

20

21+Pricing

Difference in pricing is no longer whether online or offline or virtual or real

Timeliness of offers

Functional goods drive more users to pay

Price points need to be experimented with

Understand user demographics and customize when appropriate

22+Summary

The experience economy is powering virtual and physical worlds Growing Virtual Economy

More users More channels Convert users to spenders Get spenders to spend more money Serve and retain high spenders

Offline and Online Commerce Blurring Social Commerce Acquire, Analyze, and Act

Release product Change it, change it yet again

Simplicity Locality

23+

aschmidt@towergroup.com

eswartz@metratech.com

Questions?