1. Joining the Mobile Payments Chase
Second City National Bank
Deloitte Consulting LLP
Anna Huang
Starling Shan
May 12, 2012
2. Q&A
The Fragmented Mobile Payment Market – Position of Second City National Bank
Current Situation and Challenge Desired Outcome
Demand Side Supply Side
Second
Fragmented Individual Merchant readiness City
National
Lack of sufficient
Adaptable Innovation
knowledge Driving Force
Confusing message Interoperability
Merchant
Acceptance and
Ecosystem coordination
Adaptation
Organizati
Developer
on
Bypass Bridged Initiated
• Developer • Financial • Financial
• Authorizer Institution Institution
Joint Force
• Agent • Developer • Developer
• Virtual Account • Carrier • Carrier
• Manufacturer • Manufacturer
Manufact
• Network urer
Carrier
Majority, Passive, Fragmented Trial, Observation
• Not centralized Collaborative
• Non- collaborative Transaction
• Individual attempts focused
• Low coverage Slow expansion
3. Q&A
Win On The Value Chain– Direction of Second City National Bank
Shared Value Proposition (FAISO)
Fast and Flexible
Adaptable
Inexpensive
Secure
Optimized
• Plays an essential role
• Currently only tapping on 1/3 of the value chain
Objectives and Direction for Growth
• Not yet established relationships with carriers/operators
• Passive position on value chain
4. Q&A
Fierce Competition – The Gateway For Breaking Through
Partnership with Google Wallet, ISIS and Others
Technical Partnership Most Beneficial
Operational Issue Strategic Issue Option
Second City National Bank
Initiation by Technical
Multiple layers for transfer Acquisition
1. Lack of direct benefit
2. Operational issues unresolved
Security and privacy
3. Not a necessary approach for One Stop Process
financial institutions
Limitation to retail 4. Less control Security and Optimization
Achieved
5. Financial Institution in passive
Low trust towards technical
position Proactive Control
companies
Direct Revenue Benefit
Not the best option for Second City National Bank
5. Q&A
Lead with Initiation – Acquire Strong Technical Development Core
Approach for Acquisition
Criteria Measurement Target
1. At least 40% of the business portfolio
1. Number of current account in NFC
1. NFC Technology
2. Above industry average
2. Number of technicians
2. Talent Experience
3. At least 15% in average
3. Yearly revenue growth rate in past five
3. Growth Potential
4. At least 10%, less than 40%
year timeline
4. Market Power
5. Between 70 to 100 million
4. Market share in the mobile industry
5. Cost to Acquire
6. Total liabilities able to be cleared
5. Next five year cash flow NPV plus
6. Current Liabilities
before acquisition
intangible and tangible assets
6. Total liabilities
An Example of Target Companies – Blue Bite
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
6. Q&A
Risk Incorporated – Challenges of Acquisition
Risk Areas
Innovation
Transition Time &
Process
Process Financials
Risk Management
• Requires both sides to be • Requires acquired talent on • Requires investment heavily
on rock solid foundation board and able to achieve in the process of due diligence
• Requires base company’s expectations and goals • Requires investigating all of
pre-acquisition orientation in • Requires niche technology the potential hidden liabilities
place development of the target company.
• Requires mutual • Requires technical progress • Requires readiness from all
understanding between both communicated at all levels levels, especially financial and
parties of expected changes accounting
7. Q&A
Financial Perspective – Estimated Revenue Stream in Card Component
8000 In millions
7000 6858
Best Case
6000
Nuetral Case
5128.55
5000 Worst Case
4000
3050.456
3000
Establish Merchant
Establish Network with Network
2000 Launch Year other Banks
2480.30014
1000
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Expected Acquisition Cost: $150 - $340 Million
Assumed Growth peek at 2018 and 2020
8. Q&A
Path to Success – Long Term Timeline
Acquisition Research Launch &Marketing Feedback, Further New Market Leader
- Prepare internally for &Development - Ensure accurate R&D - Achieved one stop
acquisition - Focus largely on message - Ensure Message process
- Transition the current communication communicated in all - Eliminated security
- New company technology fraud - Ensure value chain level concerned resulted
orientation - Security player support - Proactive from multiple layers
- Adaptation stage development aligned response - Gain significant
-Complete -invite insight from - Efficient and - Ensure changes market share
value chain players accessible training adaptable to all - Achieve long term
for users players benefits
- Establish customer
feedback channel
FY13 FY15 FY16 FY16-20 FY23
Critical Stage for Long Term Success:
1. Technical development
2. Support system development
3. Merchant network development
9. Q&A
Strategic Development – Critical Stages for Long Term Success
Establishment of Establishment of Financial Establishment of Merchant
Technical Core Institution Network Network
Step 1 Step 2 Step 3
Complete the innovation of Gain sufficient coverage and Address the need of small
NFC based payment encourage adaptability by to midsize businesses by
technology working with other banks at establishing firm merchant
similar size reward network
Milestones Milestones Milestones
1) Develop secure NFC 1) Connect with banks at similar 1) Build merchant reward network by
connection size, encourage a joint network eliminating transaction cost for member
2) Develop payment application 2) Other major banks adapt of the network
3) Customized application based technology, system, and 2) Local small to mid size business
on FAISO objectives infrastructure initiated by Second discount on membership fee
4) Issue application, system and City National Bank 3) Exclusive marketing channel via Second
infrastructure all under 3) A set membership fee connected City National Mobile Payment App
Second City National Bank at a set time 4) Promised increasing stream of customer
4) Develop new source of revenue
10. Conclusion
Customer Second City National Bank Merchant
Network
NFC Technology Infrastructure System
Bank Associations Initiated
by SCNB
Localized , connected small
to mid size merchant
community including
retail, restaurants and
hotels
12. Appendix
• Further analysis of the three options
• Financials
• NFC Power
• NFC Power 2
• How it works for consumers
13. Q&A
Options for Technology Development
Fast Inexpensive
In House Flexible
Fast
Adaptable
Acquire
Inexpensive
Secure
Partner Optimized
0 2 4 6 8 10 12 14
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