Joining the Mobile Payments Chase
Second City National Bank
Deloitte Consulting LLP
Anna Huang
Starling Shan
May 12, 2012
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
Network Manufact
Carrier
urer
Majority, Passive, Fragmented Trial, Observation
Not centralized Collaborative
Non- collaborative Transaction
Individual attempts focused
Low coverage Slow expansion
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
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
Security and privacy
2. Operational issues unresolved One Stop Process
3. Not a necessary approach for
Limitation to retail Security and Optimization
financial institutions
Achieved
4. Less control
Low trust towards technical
companies 5. Financial Institution in passive Proactive Control
position
Direct Revenue Benefit
Not the best option for Second City National Bank
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
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 companys 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
Q&A
Financial Perspective Estimated Revenue Stream in Card Component
8000 In millions
7000 6857.93
Best Case
6000
Nuetral Case
5128.55
5000 Worst Case
4000
2875.35 3050.46
3000 2710.29
2480.3
2000
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
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
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 technology, system, and 2) Local small to mid size business
based 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
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
Appendix
Appendix
Further analysis of the three options
Financials
NFC Power
NFC Power 2
How it works for consumers
Q&A
Options for Technology Development
In House
Optimized
Secure
Inexpensive
Acquire Adaptable
Fast
Flexible
Partner
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
Q&A
Financial Analysis
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 2480.3 2629.1182786.8653065.5523372.1073877.923 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
Q&A
NFC Power
Q&A
NFC Power
Q&A
How it works for consumers
Q&A
List of Sources
http://www.readwriteweb.com/mobile/2011/03/nfc-2011-wells-fargo-tes
ts-mobile-payments-in-san-francisco.php
http://www.infotouch.net/home/about.asp
https://www.x.com/devzone/articles/9-companies-watch-mobile-payme
nts-space
https://www.nacha.org/userfiles/File/The_Internet_Council/Resources/
Mobile%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%20
Services.pdf
http://www.slideshare.net/victori98pt/mobile-payments-2788055
http://www.slideshare.net/fullscreen/DanTrigub/blue-bite-presentatio
n-11887953/2
