joining the mobile payment chase
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Deloitte Consulting LLP
Anna Huang
Starling Shan
May 12, 2012
Joining the Mobile Payments Chase
Second City National Bank
Merchant
Organization
CarrierManufact
urer
Developer
Desired Outcome
The Fragmented Mobile Payment Market – Position of Second City National Bank
Second City
National
Driving Force
Joint Force
Demand Side Supply Side
Ecosystem coordination
Interoperability
Adaptable Innovation
Merchant readiness
Acceptance and Adaptation
Confusing message
Lack of sufficient knowledge
Fragmented Individual
Bypass
• Developer
• Authorizer
• Agent
• Virtual Account
Bridged
• Financial
Institution
• Developer
• Carrier
• Manufacturer
Initiated
• Financial
Institution
• Developer
• Carrier
• Manufacturer
• Network
Majority, Passive, Fragmented
• Not centralized
• Non- collaborative
• Individual attempts
• Low coverage
Trial, Observation
Collaborative
Transaction
focused
Slow expansion
Current Situation and Challenge
Q&A
Win On The Value Chain– Direction of Second City National Bank
• Plays an essential role
• Currently only tapping on 1/3 of the value chain
• Not yet established relationships with carriers/operators
• Passive position on value chain
Fast and Flexible
Adaptable
Inexpensive
Secure
Optimized
Shared Value Proposition (FAISO)
Objectives and Direction for Growth
Q&A
Fierce Competition – The Gateway For Breaking Through
Q&A
1. Lack of direct benefit
2. Operational issues unresolved
3. Not a necessary approach for
financial institutions
4. Less control
5. Financial Institution in passive
position
Partnership with Google Wallet, ISIS and Others
Security and privacy
Limitation to retail
Multiple layers for transfer
Low trust towards technical
companies
Not the best option for Second City National Bank
Technical Operational Issue
Partnership Strategic Issue
Most Beneficial Option
One Stop Process
Proactive Control
Direct Revenue Benefit
Security and Optimization
Achieved
Second City National Bank Initiation by Technical
Acquisition
Lead with Initiation – Acquire Strong Technical Development Core
Q&A
Approach for Acquisition
Criteria Measurement Target
1. NFC Technology
2. Talent Experience
3. Growth Potential
4. Market Power
5. Cost to Acquire
6. Current Liabilities
An Example of Target Companies – Blue Bite
1. Number of current account in NFC
2. Number of technicians
3. Yearly revenue growth rate in past five
year timeline
4. Market share in the mobile industry
5. Next five year cash flow NPV plus
intangible and tangible assets
6. Total liabilities
1. At least 40% of the business portfolio
2. Above industry average
3. At least 15% in average
4. At least 10%, less than 40%
5. Between 70 to 100 million
6. Total liabilities able to be cleared
before acquisition
1. NFC Technology - One of the best NFC innovator in the field
2. Talent Experience - Highly technical talent specifically for NFC and mobile
3. Growth Potential – about 15%
4. Market Power - Expected 15+ Mobile engagement in the industry
5. Cost to Acquire – about 80 million
6. Current Liabilities – unknown, currently not publically held
Risk Incorporated – Challenges of Acquisition
• Requires both sides to be
on rock solid foundation
• Requires base company’s
pre-acquisition orientation in
place
• Requires mutual
understanding between both
parties of expected changes
• Requires investment heavily
in the process of due diligence
• Requires investigating all of
the potential hidden liabilities
of the target company.
• Requires readiness from all
levels, especially financial and
accounting
• Requires acquired talent on
board and able to achieve
expectations and goals
• Requires niche technology
development
• Requires technical progress
communicated at all levels
Transition
Process
Innovation
ProcessTime &
Financials
Risk Areas
Risk Management
Q&A
Financial Perspective – Estimated Revenue Stream in Card Component
Q&A
6858
5128.55
Launch Year2480.30014
Establish Network with other Banks
Establish Merchant Network
3050.456
0
1000
2000
3000
4000
5000
6000
7000
8000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Best Case
Nuetral Case
Worst Case
In millions
Expected Acquisition Cost: $150 - $340 Million
Assumed Growth peek at 2018 and 2020
FY23
Path to Success – Long Term Timeline
FY16-20
Acquisition
- Prepare internally for
acquisition
- Transition
- New company
orientation
- Adaptation stage
-Complete
Research
&Development
- Focus largely on
the current
technology fraud
- Security
development
-invite insight from
value chain players
Launch &Marketing
- Ensure accurate
message
communication
- Ensure value chain
player support
aligned
- Efficient and
accessible training
for users
- Establish customer
feedback channel
Feedback, Further
R&D
- Ensure Message
communicated in all
level
- Proactive
response
- Ensure changes
adaptable to all
players
New Market Leader
- Achieved one stop
process
- Eliminated security
concerned resulted
from multiple layers
- Gain significant
market share
- Achieve long term
benefits
FY13 FY15 FY16
Q&A
Critical Stage for Long Term Success:
1. Technical development
2. Support system development
3. Merchant network development
Strategic Development – Critical Stages for Long Term Success
Establishment of
Technical Core
Establishment of Financial Institution Network
Establishment of Merchant Network
Step 1 Step 2 Step 3
Complete the innovation of
NFC based payment
technology
Milestones
1) Develop secure NFC
connection
2) Develop payment application
3) Customized application based
on FAISO objectives
4) Issue application, system and
infrastructure all under
Second City National Bank
Address the need of small
to midsize businesses by
establishing firm merchant
reward network
Gain sufficient coverage and
encourage adaptability by
working with other banks at
similar size
Milestones Milestones
1) Connect with banks at similar
size, encourage a joint network
2) Other major banks adapt
technology, system, and
infrastructure initiated by Second
City National Bank
3) A set membership fee connected
at a set time
4) Develop new source of revenue
1) Build merchant reward network by
eliminating transaction cost for member
of the network
2) Local small to mid size business
discount on membership fee
3) Exclusive marketing channel via Second
City National Mobile Payment App
4) Promised increasing stream of customer
Q&A
Conclusion
Customer MerchantNetwork
Second City National Bank
NFC Technology Infrastructure System
Bank Associations Initiated by SCNB
Localized , connected small to mid size merchant community including retail, restaurants and
hotels
Appendix
• Further analysis of the three options
• Financials
• NFC Power
• NFC Power 2
• How it works for consumers
Partner
Acquire
In House
0 2 4 6 8 10 12 14
Fast Inexpensive
Flexible
Fast
Adaptable
Inexpensive
Secure
Optimized
Options for Technology Development
Long Term Approach
• Feasible only with unlimited available resource
• Tremendous cost and major time consuming
• Total Control
Best Realistic Head Start Option
• Practical with current available resource
• Great talent and expertise acquisition at manageable cost
• Still maintain control
Least Viable Option
• Practical with current available resource
• Great talent and expertise acquisition at manageable cost
• Lost control
Q&A
No Effect 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2443.2322455.5262467.882 2480.32492.7812505.324 2517.93 2530.62543.3342556.1312568.993
Revenues
Best Situation Launch Banking Network Merchant Network
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Revenues 2443.2322455.5262467.882 2480.32703.5273000.9153451.052 3968.714762.4525714.943 6858
Neutral Situation
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Card Component 2443.2322455.5262467.882 2480.32629.1182786.8653065.5523372.1073877.923 4459.6115128.553
Worst Situation
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Card Component 2443.2322455.5262467.882 2480.32554.709 2631.352710.291 2791.62875.3482961.6083050.456
Financial Analysis
Q&A
List of Sources
• http://www.readwriteweb.com/mobile/2011/03/nfc-2011-wells-fargo-tests-mobile-payments-in-san-francisco.php
• http://www.infotouch.net/home/about.asp • https://www.x.com/devzone/articles/9-companies-watch-mobile-
payments-space • https://www.nacha.org/userfiles/File/The_Internet_Council/Resources/M
obile%20payments%202010%20-%20Innopay.pdf http://www-935.ibm.com/services/us/gbs/pdf/GBW03136-USEN-00.pdf
• http://www.egonzehnder.com/us/practices/industries/financialservices/thoughtleadership/article/id/17500695
• http://www.mpf.org.in/pdf/Mobile%20Payment%20Systems%20and%20Services.pdf http://www.slideshare.net/victori98pt/mobile-payments-2788055
• http://www.slideshare.net/fullscreen/DanTrigub/blue-bite-presentation-11887953/2
Q&A
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