Mobile Payments Now entering mass adoption phase · transactions mostly for traditional point of sale (“POS”) transactions, according to Worldpay. Mobile payments and e-wallet

Mobile PaymentsNow entering mass adoption phase

APRIL 2020

YOUR ASSET MANAGEMENT COMPANY

www.atonra.ch • [email protected] • +41 22 906 16 16 • 7 rue de la Croix d'Or, 1204 Geneva, Switzerland

2

MOBILE PAYMENTS

MOBILE PAYMENTS – TOWARDS MASS ADOPTION

• Infrastructure and Services are in place — Mass adoption of mobile payments is now.

◦ Better user experience, enhanced security, enhancedv alue-added services better ergonomics.

• Covid-19 acting as addition catalyst for digital payments.

◦ Fears of contamination from bank notes and coins, mobile-money as a public-health tool.

• Governments pushing for a cashless society.

◦ Cash limits are increasing across the world, better oversight of money flows.

• Total addressable market expands thanks to new forms of mobile payments.

◦ In-car payments, personalized shopping (including VR) experience, financial services.

Investment Case

JPMorgan Chase Bank

XS1668108845

JMLNARMP

USD

1.50% management fee + 15%

performance fee, HWM

Issuing bank

ISIN

Ticker

Currency

Fees

Issuing bank

ISIN

Ticker

Currency

Fees

SG

CH0239657494 (USD Retail)

IND1AMPU

USD

2.00% management fee+ 15%

performance fee, HWM

Share classes in EUR for retail (CH0239656603) and institutional (CH0239656462) available

Mobile Payments Certificate details

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MOBILE PAYMENTS

The Ecosystem of Mobile Payments

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processors & net works

hardware vendors


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MOBILE PAYMENTS

• The Global Payment industry generated revenues of $1.9tn in 2018. It is expected to generate $3.0tn by 2025 (CAGR of 6%)!

◦ Non-banking revenues account for more than 60% of this huge pie.

◦ Asia-Pacific is the largest region in terms of revenues (45%), fuelled by commercial clients.

• All revenue verticals of the payment industry are today disrupted by the use of smartphones and dedicated apps.

Overview of the Payment Industry

Revenue breakdown as of 2018SOURCE: McKinsey, AtonRâ Partners

AtonRâ MobilePayments universe:a $1.8tn totaladdressable market (2025)

40%

Net interest income & Overdraft

24%

Credit cards revenues

24%

Domestic transactions

12%

Cross-bordertransactions

GLOBAL PAYMENTS REVENUE BREAKDOWN


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MOBILE PAYMENTS

A $162bn Market by 2025 growing at 22% p.a. (2020-2025)

¹Based on transactions volume of $4.5tnSOURCE: Nester Research, IHL Group, Market Research Future, McKinsey, AtonRâ Partners

DRIVERS

• Reduced transaction costs• Surgein E - & M - commerce• Improved experience thanks to APIs and apps• Rewards revolution• Impulse from the largest tech players• Gen Z, the largest population cohort globally

RISKS

• Security & fraud• Data privacy• Regulatory compliance

Mobile payments processing ($90bn¹) 25%

21%mPOS/hardware ($21bn)

17%NFC chips ($48bn)

12%mPOS software ($3bn)

14%Payment cards ($560bn)

4%Loyalty programs ($220bn)

TOP DOWN ANALYSISIndustry experts internal quantitative market analysis

Related markets

BOTTOM UP ANALYSISPublic and Private companies’ guidance internal qualitative and quantitativecompanies’ analysis

CAGR 2020–2025

AtonRâ Mobile Payments


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MOBILE PAYMENTS

By 2022, 1/3 Of Smartphone Users Will Use It For Mobile Payments

SOURCE: Statista

• Mobile payments refer to all payment transactions made from or via a mobile device and debited either on a bank account or on a mobile operator bill.

◦ At the end of 2019, there were approx. 3.2bn smartphone users worldwide. By 2022, 1.1bn people will use their smartphone to make payments by 2022.

• All smartphones currently allow contactless payments via an electronic mobile wallet.

◦ They can also become POS terminals for merchants.

Mobile ProximityPayments

Web/In-appPurchases

Person-to-PersonPayments

MOBILE PAYMENTS CATEGORIES

NFC<wireless

exchange data>

Mobilemoney(SMS)

Mobile as apoint-of-sale

terminal

QR code


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MOBILE PAYMENTS

Growth To Accelerate In Every Part Of The World

SOURCE: MordorIntelligence, Statista, eMarketer, Newzoo, AtonRâ Partners

• The annual transaction volume via mobile payments crossed the $1tn mark in 2019.

◦ By 2024, this volume should reach $3.7tn, implying a growth rate of 30%!

• Disparities between countries are wide but growth is accelerating everywhere.

◦ Highest penetration rates in Asia-Pacific, as early adopters of the technology.

◦ Growth potential in North America and Europe remain important.

ANNUAL TRANSACTION VOLUME OF MOBILE PAYMENTS ($BN)

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BN

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0%

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20%

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50%

60%

45.7%

54.2%

22.9%

31.7%

13.8%

23.1%

11.0%

19.6%

8.8%

15.7%

6.8%

12.4%

MOBILE PAYMENTS USERS (% OF SMARTPHONES USERS)

Asia–Pacific NorthAmerica

WersternEurope

Central &WersternEurope

Latin America

Middle East& Africa

2017 2022

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MOBILE PAYMENTS

Digital Transactions To Overtake Cash Transactions By 2022

SOURCE: Worldpay, AtonRâ Partners

• Mobile payments use is increasing at the expense of cash transactions mostly for traditional point of sale (“POS”) transactions, according to Worldpay.

◦ Mobile payments and e-wallet transactions will overtake cash and credit cards by 2022.

◦ The use of cash varies by region In Europe, approx. 75% of retail transactions are still done in cash.

GLOBAL POINT OF SALE PAYMENT METHODS (%)

2018 2022

0%

5%

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15%

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25%

30%

35%

Cash Debit Card Credit Card Wallet/MobilePayments

Other

16%

28%

31%

17%


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MOBILE PAYMENTS

Best Days of E-commerce are ahead of us

SOURCE: eMarketer, Statista, Fred, Worldpay, AtonRâ Partners

• E-commerce, as a percentage of total retail sales, is globally on the rise.

◦ In China over 60% of retail sales could be done online by 2022.

◦ COVID-19 shock likely to accelerate the online shopping transition everywhere in the world.

• The switch from traditional POS to e-commerce benefits mobile payments.

• By 2022, e-wallet and mobile payments will account for 47% of global e-commerce transactions.

0%

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70%

SHARE OF E-COMMERCE IN TOTAL RETAIL SALES (%)

GLOBAL CHINA UNITED STATES

2015 2016 2017 2018 2019 2020 2021 2022 2023

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70%

MOBILE PAYMENTS USE FOR POS & E-COMMERCE (%)

NORTH AMERICA LATIN AMERICA EMEA ASIA-PACIFIC

POS 2018 eCom 2022eCom 2018POS 2022


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MOBILE PAYMENTS

E-Wallets Becoming Mainstream

Non-exhaustive list of eWallets. Latest data availableas of November 2019.SOURCE: Company Statements, AtonRâ Partners

• E-wallets in China benefit from high penetration rates of mobile payments in the country.

• In developed countries mobile payments are approaching an inflection point.

◦ P2P digital services like Venmo and Square Cash will reach $574bn by 2023 in the U.S.

AC

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ACTIVE USERS ON TOP MOBILE PAYMENT PLATFORMS (MN)

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MOBILE PAYMENTS

The Mobile Payment Landscape

Assessment Fees (to the credit card company)

Markup Fees(to the processor)

Interchange Fees(to the issuing bank)

Total Feesthe merchant pays

Hardware & Issuance Merchant Services Connection

• Payment card

◦ Card issuance

◦ Security

◦ Semiconductor

• POS / ATM terminal

• Acquiring services

◦ Route the encrypted transaction to the card network

◦ Most large acquirers do the processing part

• Processing

◦ Technological side – clearing & settlement

• Payment networks

◦ Credit & debit cards

• Connectivity

◦ Internet, Phone line


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MOBILE PAYMENTS

The Payment's Processors Landscape

• Payment processor represents the best way to capture the volume growth of digital transactions.

◦ Highly scalable business models hint at significant earnings leverage.

◦ High barriers to entry.

◦ Strong balance sheets and cash-flow generation give ammo for M&A in a highly fragmented industry.


PROCESSINGTHE AQUIRER AND PROCESSOR

Identify the appropriate networkcorresponding to card

ISO (independent sales organizations)resell the processing services

POINT OF SALE

1CAPTURES

BANKING DATA

4TRANSACTION

APPROVALOR REJECTION

REQUESTS THEAUTHORIZATION

3

5

2

NETWORKSIdentify which financial

institution issued the card and re-route

CARD ISSUING BANKVerification

(fraud, balance, etc.)

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MOBILE PAYMENTS

Covid-19 To Accelerate The Growth Of Digital Payments

SOURCE: Emarsys

• The World Health Organization recommended in February 2020 to switch to contactless payments to slow down the COVID-19 outbreak. Governments and retailers around the world embraced this recommendation as the disease was quickly spreading.

◦ The limit for contactless credit cards payments without PIN codes has been increased almost everywhere.

◦ The only way to fully avoid a point-of-sale keypad is to pay with a mobile phone.

• E-commerce, and hence mobile payments, will benefit from the lockdown and social distancing measures.

◦ More than 50% of the world population has been under lockdown. People extensively used home-delivery services.

SURGE IN ONLINE ORDERS FOR RETAILERS DURING THE LOCKDOWN

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WTH

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12–Jan–20 26–Jan–20 9–Feb–20 23–Feb–20 8–Mar–20 22–Mar–20

SWITZERLAND ITALY FRANCE GERMANY

DISEASES SPREAD THROUGH BANKNOTES

COVID-19

Salmonella

Acid fast bacilli

Shigella

E coli

Candidia

Aspergillus

Enterococcus


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MOBILE PAYMENTS

Governments Pushing For Digital Payments

• Governments see many advantages in a cashless society.

◦ Fighting tax evasion, money laundering, criminal activities.

◦ Improving the collection of economic data.

◦ Reducing disease transmission.

• Political decisions and incentive accelerates the transition to a cashless society.

◦ Japan’s VAT increase in 2019 was partially offset by rebates on electronic payments.

◦ China’s credit system relies on individuals’ economic data which is collected through smartphones.

• Cash in circulation depends on payment’s habits.

◦ As infrastructure, relevance and popularity of digital and mobile payments increase so will the decrease of cash in circulation.

BANKNOTES & COINS IN CIRCULATION (AS % OF GDP, 2017)

0%

* DATA FROM 2016

10%5% 15% 20%

Japan

Switzerland

India

Russia

China

US

Mexico

South Korea

Australia

Canada

Turkey

UK*

Brazil

South Africa

Sweden


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MOBILE PAYMENTS

E-money To Further Pressure Banks

Central Bank Digital Currency (CBDC)

• Central banks are facing the competition of e-money through central banks digital currencies (CBDCs), a digital version of cash.Research and pilot programs are ongoing worldwide.

◦ Digital money maybe more convenient than cash and bank deposits as a means of payment. E-money would add further pressure on banks.

◦ Monetary authorities may partner with e-money providers to make central bank digital currency (CBDC) effective.

• Central bank digital currencies (CBDCs) aims at precise objectives.

◦ Improved effectiveness of monetary policy.

◦ Users’ data protection from third parties and widespread financial inclusion.

◦ Enhanced payments system efficiency and augmented financial system stability.

Notes: Electronic money (e-money) is defined as an electronic store of monetary value stored on a technical device that may be widely used for making payments to other entities. (from ECB)SOURCE: IMF, BIS

CBDCs – PROJECT ADVANCEMENT

PILOT PHASE RESEARCH PHASE


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MOBILE PAYMENTS

SOURCE: BIS

A Short Guide To Implement CBDCs

• CBDCs technological fundament revolves around correctly addressing users’ and policy makers’ needs.

◦ Indirect vs direct claims: Do central banks still need intermediaries to handle retail payments or are they better off without intermediaries?

◦ Conventional vs distributed ledger technology (DLT) based infrastructure: Should one entity store all data or is a slower but safer network of players preferable?

◦ Token- or account-based access: What is more valuable between complete users’ privacy and AML procedures?

◦ Wholesale or retail level: Are CBDCs exchangeable across borders or do they have domestic usage?

The CBDC pyramid maps consumer needs (LHS) onto theassociated design choices for the central bank (RHS). The four layers of the RHS form a hierarchy in which the lower layers represent design choices

that feed into subsequent, higher-level decisions.

THE CBDC PYRAMID

FROM CONSUMER NEEDS... ...TO CBDC DESIGN CHOICES

Architecture : indirect or direct claims, and what operational role for the central bank?

DLT-based or conventional central bank infrastructure?

Account or token-based access technology?

Accessible to all

Ensure privacy

in lawful exchange

Cross-borderpayments

Resilient androbust operations DLT

Convenient real-time payments

Cash-like with peer-to-peer functionality

Wholesale or retail interlinkages?


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MOBILE PAYMENTS

Smartphones Can Replace Anything

• Near-field communication chips can be found in all smartphones and offer infinite possibilities to the users.

◦ Working distance of less than 10cm reduced the likelihood of unwanted interception.

◦ Transfer of data can be validated with biometrics, e.g. fingerprints, adding an extra layer of security.

◦ Data can be encrypted.

• Smartphones facilitate the convergence between mobile ID, digital payments, keys, etc.

Tickets

Mobilepayments

Digital ID

Buildingaccess

Car keyHotel roomkey

Publictransport

Computerlogin

Medicaldata

Loyaltyprogram


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MOBILE PAYMENTS

The Future Is Taking Shape

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hand payment (biometrics) microchip impl ant

automated stores

in-car payment

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MOBILE PAYMENTS

SOURCE: CBInsights, KPMG, FinTech Global

Private Companies Commands The Lion's Share

• Since 2012, mobile payments companies have been among the most attractive fintech sub-segments for private equity.

◦ Internet giants are very active on the PE stage.

• Most prominent mobile payments unicorns (Brex, Klarna, Monzo, N26, Revolut, TransferWise, Stripe) are worth over $58bn combined.

◦ Further M&A activity and IPOs are to be expected.

MOBILE PAYMENTS PRIVATE MARKET INVESTMENTS

2012 2013 2014 2015 2016 2017 20180

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MOBILE PAYMENTS NUMBER OF DEALS (RHS)


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MOBILE PAYMENTS

An Investment Example: Square


Notes: Gross Payment Volume is the total dollar amount of all card payments processed by sellers using Square, net of refunds. It includes Cash App activity and Cash for Business.SOURCE: AtonRâ Partners, Square company reports

• Square built its success on micro and small merchants and then started to tackle the large merchant segment.

◦ Smaller businesses are more profitable for Square but now generate less Gross Payment Volume (GPV). As of 4Q19, GPV from larger sellers grew to 55% of total.

• The company is growing its user base and increasing engagement as well monetization of its services.

◦ Cash App had 24mn monthly active users in December 2019 (up 60% y/y). It generates $30 in annualized revenue per monthly active customer, twice up from 2017.

◦ Square Capital offers business loans ($2.3bn originated in 2019).Delinquency rate remains low as only Square merchants are eligible.

◦ The firm is net-debt free and FCF positive – the acquisition path to bring new services and customers on board will continue.

• U.S. small and medium businesses alone represent a $3tn GPV total addressable market opportunity.

◦ Around 21mn SMEs are active in the U.S.. Globally, more than 120mn businesses may be reached expanding the potential market six-fold.

• Jack Dorsey donated $1bn worth Square stock for Covid-19 relief (girl's health, education, universal basic income).

◦ Based in San Francisco, California (USA) ◦ Approx. 3’835 employees ◦ Founded in 2009, listed in 2015 ◦ In 2019, over $106bn of Gross Payment Volume, generated by nearly 2.3bn

card payments from 407mn payment cards

Quick facts

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MOBILE PAYMENTS

Investment Conclusion

• Our Smartphones Become Our Wallets.

• Countries Are Pushing Towards A Cashless Society.

• Mobile Payments Offer Fast, Cheap, And Safe Transactions.

• Next-Generation Of Apps Are More Convenient And User-Friendly.

• Mobile Point-Of-Sale Directly Built Within The Smartphone (Tap To Phone).

• Actions To Reduce The Contagion Rate Of Covid-19 Will Increase The Number Of Users.

• Value-Added Services Such As Loyalty Program, Coupons, Spending Analysis, Etc., Drive Usage.

Mass adoption on its way – not a question of "if"... but "when"


SOURCE: CBInsights, KPMG, FinTech Global

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Invest Beyond The Ordinary

Explore our investment themes:www.atonra.ch/investment-themes/

BIONICSBIOTECHNOLOGYAI AND

ROBOTICSSECURITY

AND SPACESUSTAINABLE

FUTUREHEALTHCARE

M&AMOBILE

PAYMENTSFINTECH

23

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Disclaimerof publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such.

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Documents

Mobile Payments Now entering mass adoption phase · transactions mostly for traditional point of sale (“POS”) transactions, according to Worldpay. Mobile payments and e-wallet