Get Out Your Phone, Not Your Wallet: Mobile Payments in the U.S. Moderator Edward Kountz Senior Analyst, Payments Research JupiterResearch

Federal Reserve Bank of Chicago 2007 Payments Conference May 10, 2007

Phones as wallets…have we been here before? Mobile Payments 1.0—1998-2002 The Vision: Payment tokens in mobile phones would be faster and more convenient than mag-stripe wallet cards, with additional services (such as location-based couponing) not presently possible. Trials ensued. “Cell phone fuel service launches in Lubbock, sparking traffic jams”—Cellenium, 3/12/02 The Reality: Outside of Asia-Pac, available offerings not able to support the vision. Back to the drawing board.

Mobile Payments 2.0—2005-present The Vision: Same as before…but faster, better & easier to use. The Reality: This time, it will be different. 2

© 2006 JupiterResearch a division of JupiterKagan, Inc.

Source: Jupiter Research

Percentage of Cell Phone Owners

Differences, part 1—Mobile data uptake is happening 100%

15%

9Payments for digital content are happening

15% 39%

75%

53% 74%

50% 25%

34%

9Improved devices, data networks and content

37% 18%

0%

11%

5%

Ages 18- Ages 25- Ages 35- Ages 45- Ages 55+ 24 34 44 54

Buyers

Trialers

Prosumers

Txt'ers

Talkers

Question: During the past six months, which of the following activities did you do at least once on a cellphone? (Select all that apply)

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© 2006 JupiterResearch a division of JupiterKagan, Inc.

9Young Adults driving mobile as the “lifestyle device”

9Ubiquity of devices…2.5 billion globally 9Low-value…but a good boost to ARPU (Average Revenue per User)

Source: JupiterResearch/ Ipsos Insight Consumer Survey (01/06) n=1,945 (online cell phone owners, US only)

Source: Jupiter Research, industry estimates

Differences, part 2: The evolution of payments ¾Consumers’ Payment Habits are Changing 9Cash and checks declining // electronic payments growing 940% of consumers carry less cash than 5 yrs ago 9Time-Compression = Convenience, Security and Rewards

9Young Adults 18-34 driving many of these changes 9Higher overall usage of plastic, higher preference for debit / P2P vs. credit

9Seeking an improved experience

¾Issuers targeting new opportunities 9Cash Displacement…Speed and Convenience at POS 9Contactless (RF) Payment Cards/ Tokens—ISO 14443 A/B 9EY 2006—19 million contactless cards/ tokens in U.S. market 9Contactless Acceptance Infrastructure...the gateway to Near-Field (NFC)? 4

© 2006 JupiterResearch a division of JupiterKagan, Inc.

Source: Jupiter Research, Research industry estimates

Several options for enabling mpayments ¾Near-Field Communications 9Contactless Radio-Frequency technology supporting handset payments, data-transfers from posters or ads and other content 9Multiple trials, including U.S., but no critical mass of devices/ users 9NFC-equipped devices won’t reach U.S. market until 2008

9“Any-Device” Mobile Payments 9Obopay—Handset application download, browser or SMS; companion MasterCard debit card for POS purchases // Personto-Person (P2P) or Business-to-Consumer Transactions 9PayPal Mobile, MobileLime, TextPayMe and many others… 9Banks/ Operators return to mobile banking (Firethorn Mobile/ AT&T) 5

© 2006 JupiterResearch a division of JupiterKagan, Inc.

Source: Jupiter Research

Asia is pioneering, but some key differences do exist ¾Sophisticated data demand, strong mobile operators and unique cultural factors ¾I-Mode---NTT DoCoMo’s pioneering mobile data/ digital content payments service ¾DoCoMo has stakes in Sumitomo and UC Credit Card…and is now issuing mobile credit cards ¾20 mil. “Osaifu-Keitai” devices sold so far ¾2.6 million users have signed up for payments. But acceptance lags, and downloads complex ¾Technology Differences…Sony’s FeliCa platform (not ISO 14443 A/B still standard in Japan

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© 2006 JupiterResearch a division of JupiterKagan, Inc.

Source: Jupiter Research

Open questions for U.S. mobile payments include: ¾A complex value chain 9Ownership/ support of customer and payment token 9Where in device is payment token housed? 9When will NFC devices reach critical mass? 9What partnerships / business cases make most sense?

¾How to build out a critical mass of users/ acceptance? 9What do consumers want to do?

¾What architecture(s) / payment environments will dominate? 9What infrastructure buildout required? 9How long will it take to do so? 7

© 2006 JupiterResearch a division of JupiterKagan, Inc.

Source: Jupiter Research

Our Distinguished Panelists… -Dion LisleVice President, Business Development, Obopay -Niki ManbySenior Vice President of Product Innovation, Visa USA -Spencer WhiteDirector of Mobile Financial Services and Business Development, Cingular – now part of the new at&t