mobile money

CITI MOBILE UPDATE MARCH 24, 2010

Dion F. Lisle Executive Vice President

Citi Growth Ventures

2

Full Disclosure

•  I work in Citi Growth Ventures

•  I am not a real banker – I just work at a bank

•  I worked for Obopay – a mobile payments startup

•  I belong to 12 different mobile groups on LinkedIn

•  I have worked in technology as a non-technologist for 20 years and the past 10 in startups.

•  I love gadgets (my iPad is already on order)

Time Flies

I will Google

that

There is an app for that

Elapsed Time = 1 Year

Mobile Background

5

Phone Interaction

SMS

160 Character limit

Not guaranteed delivery

Simple

No download to phone

APPLICATION

Download to Phone

Requires Discoverability

High level of functionality

Brand able

App Stores changed everything WAP

Wireless Internet

Covers 60% of phones

Not easy to use

Doesn’t require Phone Carrier Cooperation

6

Phone OS Wars

This is NOT the PC Wars – Eventually you will wish it was

What Makes a Smartphone Smart ?

Smartphone Vendors

Good Business for Apple

Apple’s iPhone is 6% of the market but 32% of profit

Unabashed Commercial for the Greatest Mobile Device Ever

No I am not a Paid Spokesperson – just a fan

Thoughts Before Apple Launched the iPhone

“We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.”

“$500? Fully subsidized, with a plan? It is the most expensive phone in the world and it doesn’t appeal to business customers because it doesn’t have a keyboard…….So, I kinda look at that and I say, well, I like our strategy, I like it a lot.”

“Apple is slated to come out with a new phone….And it will largely fail.”

“”The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks.”

12

1

Check email for UAL Alerts

2

Check Weather for NYC

3

Kill Time on Flight Video Game and Music

Check Into Hotel

Find Train from JFK to Mid-Town

4

5 Look Up Restaurant on LocalEats

6 Recharge iPhone and Listen to Music

7 Take Pictures and email to

Family

Text Kids

and go to Bed

8

Fly to NYC

13

iTunes as an App Delivery Mechanism

Total Active Apps (currently available for download): 159,611

Number of Active Publishers in the US App Store: 32,183

App Submissions This Month (Games): 2,009 ( 84 / day ) This Month (Non-Games): 14,387 ( 599 / day ) This Month (Total): 16,396 ( 683 / day ) Current Average Overall Price: $2.85 Most Popular Categories 1 - Books (28705 active) 2 - Games (24551 active) 3 - Entertainment (20656 active) 4 - Education (11056 active) 5 - Utilities (9788 active)

14

iPhone Drives Mobile Web Usage

Activity iPhone Smartphone Market

Any news or info via browser 84.8% 58.2% 13.1%

Accessed web search 58.6% 37.0% 6.1%

Watched mobile TV and/or video 30.9% 14.2% 4.6%

Watched on-demand video or TV programming 20.9% 7.0% 1.4%

Accessed Social Networking Site or Blog 49.7% 19.4% 4.2%

Listened to music on mobile phone 74.1% 27.9% 6.7%

Source: M:Metrics

15

AT&T Investment Pays Off

•  30% of US consumers who purchased Apple iPhone 3G in the summer of 2008 switched from other mobile carriers to join AT&T, –  47% switched from Verizon Wireless –  24% switched from T-Mobile –  19% switched from Sprint.

•  3G iPhone Impact on the SmartPhone Market –  Pre-3G iPhone – Apple’s share was 11% –  Post-3G iPhone – Apple’s share was 17%

Not just in the USA

Japan has enjoyed the most advanced mobile phones for years – with the exception of Apple – every phone in their top 10 list is made in Japan

What Apple Taught Us

A Great User Experience is Key

Build a Complete Ecosystem

Partner with the Carriers

The Network

2G

2nd Generation

GSM or TDMA/CDMA

Digitally Encrypted

Digital NOT Analog

1G Signal could decay slowly

3G

3rd Generation

GSM / EDGE / UMTS and CDMA2000

Capable of Data and Voice Simultaneously

Being rolled out now

4G

100% IP Packet Enabled

Smoother roaming and transitions between networks

Still mostly being developed by standards bodies

The Downside to Success

•  AT&T has taken a great deal of grief for their network speed

•  Verizon took advantage of the opening with an ad that plays up the weakness of AT&T 3G

•  Note: The iPhone accounts for most of the traffic usage on AT&T

20

Global SMS v 3G - Disparity

0

20

40

60

80

100

120

0% 5% 10% 15% 20% 25%

United States

Canada

Mexico

Brazil

U.K.

Spain

Hong Kong

Singapore

0

20

40

60

80

100

120

0% 5% 10% 15% 20% 25%0

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40

60

80

100

120

0% 5% 10% 15% 20% 25%

United States

Canada

Mexico

Brazil

U.K.

Spain

Hong Kong

Singapore

SM

S U

sage

– S

MS

Sen

t per

S

ubsc

riber

per

Mon

th

3G Penetration – As a % of All Subscribers

India

Czech

Philippines

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Sensitivities for Each Attribute •  Caching •  Concurrency •  System Throughput •  Thin Client: Avg,. Web

page size •  Thick Client: Data refresh

rate

PERFORMANCE SECURITY •  Encryption •  Intrusion Detection •  Code Security •  Role Based Security •  Authentication •  URL Spoofing •  Audit Trail

FUNCTIONALITY •  Business Rules •  Expectations •  User Experience

•  Product Scalability •  Hardware Scalability

VARIABILITY •  3rd Party Integration •  Change Configuration

MODIFIABILITY •  Hardware Compatibility •  OS Compatibility •  Application Compatibility

PORTABILITY

Mobile Sensitivities

Carriers Want……

New Revenue Sources

Avoid being a big dumb pipe

Less churn – more customer loyalty

Less Regulation

Reduction in CapEx – big investment in networks

New customers – often at the expense of current customers

Mobile Money

Mobile Money Taxonomy

Mobile Commerce Mobile Banking

M-Coupons Mobile Payments

Mobile Advertising

Bank Account Services

BillPay By Phone

Proximity Payments

Remote Payments

P2M P2P

NFC or Contactless

Money Transfers

P2M Transit

A Three Level Basis to Offer Mobile Financial Services

III. Advanced:

location-based services (LBS),

contactless capability, full-featured browser,

mobile social networking II.

Progressive: Peer-to-peer payments,

investments/trading, richer rewards management

I. Basic Consumer Mobile Financial Services:

Account balances, bill presentment/payment, marketing response, basic rewards

Service Progression

Platform Progression

SMS

Thick/ Thin

Handset Modification

Technology Enablers

Network Capability Handset Development

Most networks not yet enabled for Advanced Services

5-10% of Phones Equipped to handle Advanced Services

50-60% coverage of wireless data connections sufficient to support Progressive services

40-60% of Phones already equipped to handle Progressive Services

Most networks support Basic Services; SMS is a standard feature

~95% of Phones Equipped to handle Basic Services

Mobile today is a cluttered arena with multiple stakeholders

Mobile Ecosystem

Regulators Technology Drivers Finance

Ecosystem

GTS Cards Retail Pvt Bank

Geographies

Mobile Money Ecosystem

Card Issuer

Handset Maker

Mobile Carrier

Software Developer

Chipset Maker

Payment Networks

Card Acquirer

Processor Card Associations

SIM Card

Consumer

Merchant

Mobile Applications

POS Vendor

Around the World

Across the Globe – Mobile Financial Services are Growing

The number of consumers using Mobile Financial Services across the world is forecast to

grow to nearly 1 Billion by 2014

15 Million U.S. consumers use mobile banking services each month

3.5 Million Bank of America customers

are active users of BofA’s mobile banking services

$61 Million Was deposited by USAA Federal Savings Bank customers via mobile check capture in only 6 weeks

$200 Million Handled per month by GCash and Smart Money in the Philippines by the end of 2008

$140 Million Value of transactions handled by M-Pesa in Q3 2008 3 Years

Before mobile banking is predicted to surpass Internet banking for Banco do Brasil

100% Growth In number of customers using mobile to

access Barclays’ banking services in the U.K. in the first 6 months of 2009

35 Million Mobile handsets with Osaifu-Keitai NFC payments and eWallet capabilities in Japan

Market Leader

Market Leader

Market Leader

Market Leader

Market Leader

Market Leader

Kenya

•  Kenya has a population of 40 million people

•  Kenya has 300,000 landlines

•  Kenya has nearly 4 million internet subscribers

•  Kenya has nearly 20 million mobile phone subscribers

•  Kenya has a Per Capita income of $1,400

•  Kenya has nearly 9 million mobile money users –  It is estimated that 40% of Kenyan Adults use the MPESA

service.

•  MPESA has changed the financial lives of millions of Kenyans.

The Secret to MPESA’s success in Kenya

•  Nearly 14,000 Agents –  By the time you read this it has probably grown by 5%

•  A Human ATM Network across Kenya – Rural and Urban

Reality – Mom goes to an agent to pick up

the Money Brochure – Send Mom

Money Anywhere

Be an MPESA Agent

Research by: Mark Pickens, Sarah Rotman, Ignacio Mas, Olga Morawczynski

Mobile Payments in ME and Africa to Rise to $5 + Billion in 2013

The Philippines

•  The Philippines has 2 successful mobile money systems – Gcash – offered by Globe Communications –  Smart Money – offered by SMART Communications

•  Like MPESA in Kenya – the Philippines relies on a network of incented and trained agents

•  Unlike Kenya – the central bank was very involved in the design and rollout of Mobile Payments in the Philippines. –  In accordance with BSP Circular 471, which was issued in January 2005,

non-bank agents must first attain a Remittance Agent license to perform cash in/out.

•  The Philippines has been a Texting country since the advent of their mobile phones – this Texting literacy made the transition much easier.

India – The RBI Weighs In

•  Mobile Payment in India - Operative Guidelines for Banks

•  2.1 Only such banks which are licensed and supervised in India and have a physical presence in India will be permitted to offer mobile payment services to residents of India.

•  2.2 The services should be restricted to only to bank accounts/ credit card accounts in India which are KYC/AML compliant.

•  2.3 Only Indian Rupee based services should be provided.

The RBI only took 12 pages to outline what can and can’t be done with mobile payments in India.

Osaifu-Keitai (Mobile Wallet)

•  Japan is the most advanced Mobile Money Market in the World !

•  NTT DoCoMo drove the entire ecosystem to deliver a complete Mobile Wallet – Get on a train, buy a soda, pay at a store………

•  It is the unique dynamics of the Japanese Market that allowed such a complete solution to be delivered

•  Even with NTT driving – it took 10 years

•  30 million users out of a subscriber base of 60 million

•  Osaifu Keitai is accepted at 700,000 retail locations

22%

17%

7%

27%

22%

9%

0%

5%

10%

15%

20%

25%

30%

eMoney Holder IC card Mobile

2007

2008

Prepaid and eMoney usage (to total population)!

21 22 2530 33

38

4

4

1212

12

12

13

14

3

221

3436

39

45

50

56

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010

Suica, Pasmo… Edy Others Total

B USD

Felica Market Size both Prepaid (plastic) and eMoney (mobile)!

Ministry of Internal Affaires, 2009

C Media, 2006

Prepaid (plastic)

eMoney (mobile)

eMoney (mobile) Prepaid (plastic)

Yano Institute, 2008

Felica Market in Japan

Service type Vendor Issued(MM)

(in mobile,MM) #shop (M)

Monthlytransaction

(MM)Charging touch point (pre-paid) Negative points note

Edy Pre-paidBitwallet(RakutenGroup)

48.4 8.0 132.0 22.5

Credit card, Bank, POS, Charger,Point exchange

5000 websites accept Edy forpayment. Rakuten obtained over50% of Bitwallet shares in Nov.2009.

Suica Pre-paid JREast 27.5 1.5 63.2

42.9

Creditcard, Bank, POS, Ticketvending machine, Point exchange,USB Reader/Writer with JRE creditcard, Auto top up with JRE creditcard

Mobile Suica requires 10USD forannual service fee.

ICOCA Pre-paid JRWest 4.7 unavailable 49.2 0.9Charger, Ticket vending machine

PASMO Pre-paid Pasmo 13.5 unavailable 50.0Charger, Auto top up with credit card No mobile service is provided so far. Convertible with Suica.

nanaco Pre-paid Seven I 7.9 0.9 23.5 26.0POS, Seven BK ATM, Charger, IYCard (credit card)

Charging/accept point is limited in Sevengroup shops and cards.

Transaction number is the largestamong eMoney.

WAON Pre-paid Aeon 10.0 n.a. 29.0 25.3Aeon BK ATM, POS, Charger, Autotop up from Aeon bank account

Available at McDonald's

iD Credit Docomo,SMVC.. 10.0 6.4 390* n.a.

- Currently other carriers don't implementiD in their handsets. One handset canhave 2 card numbers of iD.

*Shows # of available terminalinstead of # of shop.

PiTaPa Credit Railway companies inWestern Japan 1.1 unavailable 18.0 0.9 - No mobile service is provided so far.

QUICPay Credit JCB, Toyota 4.6 n.a. n.a. n.a. - AU pre-loads this into some handsets.One handset can have only 1 card

VISATOUCH/SmartPlus Credit MUFJ Nicos 0.8 n.a. 12.8 n.a. - One handset can have 5 card numbers.

Total 128.5 16.8 377.7 118.5

Suica (Kanto area), Icoca (Kansai area),and other e-money issued by traincompanies are becoming interoperableinteroperatable.

eMoney Usage in Japan

Successful – Yes Complex - Definitely

Other Merchants

Transportation companies

Pre-paid (cost reduction)

- Edy (SONY, Rakuten). Transaction fee at payment. Not profitable. Rakuten got 50% of Bitwallet (Edy issuer) shares in Nov. 2009. Rakuten also bought eBank in Feb. 2009.

-  Suica (JR East), PASMO and ICOCA (Bus, Subway). Reduce maintenance cost of auto ticket gate and ticket itself. Now JRE is leveraging it to payments (plastic & mobile).

- Nanako and Waon (merchants). Fast cashing and reward points to loyal customers

Post-paid (not widely accepted)

•  NTT Docomo launched iD on Docomo handsets. Fee at transaction. They became an issuer of credit card and network provider for other credit card companies.

•  JCB provides its electronic credit, called Quick Pay. Available on all 3 carriers.

•  VISA and MUFJ also provide its scheme called Smart Plus and its convertible with VISA Touch.

JR group JR compatible

Pitapa is Post-paid

Pre-paid

Post-Paid

Pay pass is still trial in Japan

Felica Types in Japan

Overseas Lessons So Far……

•  Carriers offer successful services – so far no banks have been successful

•  Regulators have been both active (Philippines) and nearly invisible (Kenya)

•  Texting based services rule the day…..so far –  This is self-selecting as Smartphones have not yet proliferated in

underbanked countries. –  Except Japan

•  Low ATM penetration combined with high mobile penetration –  Except Japan

•  Domestic remittances is the best use case so far. –  Except Japan

At Citi

ATM

Primary Bank Relationship

Primary Bank Relationship

Debit C

ard

Money Transfer

Bill Pay

Regular Savings

Auto deposit Payroll

Mobile

Internet

ATM, Mobile and Internet channels allow Citibank to maintain stickiness with customers through their primary bank relationship

The five pillars of Retail Payments and Deposits are supported by the 3 key technology channels

•  First major U.S. bank to offer a downloadable banking app

•  For Cards-only customers, Cards opened access Oct 2008

through Firethorn app

•  Bank and Cards apps available to AT&T and Sprint customers as well as to Verizon, T-Mobile

and Alltel BlackBerry users

•  View account info, make transfers, pay bills, find branch/

ATM, connect to Customer Service

Downloadable Citi Mobile (Original)

(aka “Thick Client”) Bank launched April 2007

Downloadable Citi Mobile iPhone app

Bank launched February 2009; Cards-only access coming 4Q09

Mobile Browser (aka “Thin Client” or

“Citi Mobile for smart phones”) Bank launched June 2009;

Cards-only access coming 4Q09, behind joint “front door” with Bank

Text Banking (aka “SMS” for Short-Message Service, or

“MyCiti On Demand”) Cards launched March, 2009; Bank support coming 1H10

•  Adapted the original Citi Mobile for use as a native app on iPhone;

support for Cards-only users is being added 4Q09 behind a joint

“front door” with Bank

• Available on iTunes and on the App Store

•  View bank/cards account info, make transfers, pay bills, find

branch/ATM automatically, one-touch to reach Customer Service

•  Built on Citibank Online and AO technology, but optimized for mobile

browsers

•  No downloads, installation, updates or enrollment—sign on with CBOL or

AO User ID and Password

•  View more account info (bank / cards / brokerage), transfer funds, add payees, pay bills, self-service

options, find branch/ATM and connect to Customer Service

•  Cards customers can request balances, recent activity, locations

•  Bank accounts coming 1H10, on same short code of MYCITI (692484)

•  Phase 2 (2H10): “Actionable Alerts” (e.g.. “Minimum

payment of $10.00 is due 2/7/09 on loan 574. Reply PAY to make payment.”)

Building on our 2007 head start, this year is seeing an unprecedented push forward

43 Citibank Online Business: Citi Mobile Citi Internal Copyright © 2009 Citigroup Inc.

Citi Mobile – Current Banking Suite

44

SMS versus Application

Be Honest – which do you prefer ?

Citi Mobile – What’s Next

Location Based Services (LBS)

Near-Field Communication (NFC)

Peer to Peer Payments (P2P)

3 Strategic Initiatives: 1 2 3

Obopay: A Silicon Valley P2P service that allows clients and customers to send and

receive money using their mobile phones. Citi made a strategic equity investment in the company in 2007 (3.1% equity stake) and

partnered with Obopay to bring Citi-Obopay ventures to market in the US.

Tap &Pay : World’s largest NFC trail in Bangalore, India. Goal is to validate customer acceptance of technology, pioneer definition of and business model for contactless payment

ecosystems, and capitalize on resulting brand-shift

Citi wants to be a leader in being Ubiquitous for our customer’s and client’s financial needs

46

Tradeoffs

•  Customers require Easy to Use Services

•  Customers demand convenience from their banks

•  The average bank customer is NOT an 18 year old heavy mobile user, but a 38 year old light mobile user

•  Money transfer products are under attack from external fraudsters

•  Mobile is an unknown dimension to a bank’s security teams

•  Banks can not afford negative headlines in regards to mobile payments.

Easy & Secure

47

Mobile Risk Management

•  New Risk – most banks don’t have true mobile expertise, but it is growing

•  Old rules don’t always work – Citibank required a 6 digit alphanumeric PIN as compared to

Obopay’s 4 digit PIN. •  Go Ahead – Try Alphanumeric on your non-QWERTY phone

InfoSec View Business View

•  Weekly project call had over 50 participants from INSIDE of Citibank

•  To ensure compliance, the team included –  ARR – Audit Risk Review – Compliance

•  Two groups – legal and internal policy –  Information Security

•  Two groups – Business and IT –  Financial Accounting –  Legal – 2-3 lawyers every week –  Financial Risk – Operations – Marketing of many kinds –  And more…………………………………

Weekly Mobile Money Project Meetings

LBS Fraud Prevention

•  Imagine that you have a payment service, such as a benefit card that can only operate when you are near it.

500 Feet Radius

2 Miles Away

LBS Based Fraud Prevention Rules

The system sees a Transaction out of your Geographic Range

You get a Text requesting Authorization

Amazing….but True

•  A carrier in Mozambique issued tokens for airtime that became accepted as Currency because their national currency was devaluing so quickly. –  There are other examples of airtime as currency

•  Nokia says “Nokia should get a percentage of every transaction carried on one of it’s devices.”

•  The MPESA service failed in Afghanistan due to illiteracy – No one could read the text messages

•  A mobile payment service in Latin America claimed 1 million users –  1 million registrations led to less than 30,000 users