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September 4, 2013
European Payments
Monetising mobile money
Equity Research
Implications for key ecosystems; Buy the tech beneficiaries
Smartphones, Millennials driving mobile money revolution
Explosive growth in smartphone penetration (70% by 2015E) is driving
significant innovation and changing the way money is transferred and
transacted in its various forms (banking, payments and commerce). With
consumers led by the Millennial generation spending c.10% of their free
time on a mobile device, the growth of ‘mobile money’ will only accelerate.
Clash of the titans: Technology the net beneficiary
We examine the broader impact of mobile money in Europe. Across the
key ecosystems, we believe that it will create an incremental €15 bn
revenue opportunity (tech spending, micro merchants, mpayments) and
drive revenue share shifts of €8.8 bn (interchange fees, mobile advertising)
by 2017. We believe that technology will be the net beneficiary and
estimate an incremental revenue opportunity of €8 bn by 2017. We expect
a small negative impact on banks’ revenues primarily owing to regulations
related to interchange fees (€4 bn). In our view, there is a nominal impact
on mobile carriers in DM, but EM money transfer provides an attractive
growth opportunity (€3.7 bn). While we do not see significant direct cost
benefits from mobile money, mobile technologies can play a key role in
broader restructuring efforts at banks to reduce their overall costs by c.8%.
On the transactional front, we estimate European mCommerce (€65 bn) to
be c.31% of eCommerce by 2017 with a third of it being new revenues.
Fragmented landscape lends itself to consolidation
The European payments landscape is highly fragmented and we expect
M&A to accelerate in the space as the incumbents and new emerging
vendors acquire for technology or to gain scale to remain relevant. The
recent acquisitions of Ogone and Datacash highlight these trends.
We are now Buy rated on all European payment vendors
We upgrade Wirecard to Buy (Neutral) and add it to the Conviction List and
upgrade Ingenico to a Buy (Neutral) and reiterate our Buy ratings on
Monitise (on Conviction List), Gemalto and AtoS. Beyond the European
payment vendors, additional beneficiaries include SAP (mobile, analytics),
Opera (mobile advertising), Sage (SMB), Millicom (EM money transfers),
ASOS (retail) and US payment networks (MA, V). Non-beneficiaries include
De La Rue, internal IT, non-prime real estate and traditional advertisers.
S.K.Prasad Borra +44(20)7552-2927 [email protected] Goldman Sachs International
Mohammed Moawalla +44(20)7774-1726 [email protected] Goldman Sachs International
Alexander Duval +44(20)7552-2995 [email protected] Goldman Sachs International
Simon F. Schafer +44(20)7552-3631 [email protected] Goldman Sachs International
Jo Blackshaw +44(20)7552-3718 [email protected] Goldman Sachs International
Julio C. Quinteros Jr. (415) 249-7464 [email protected] Goldman, Sachs & Co.
Tim Boddy +44(20)7552-1036 [email protected] Goldman Sachs International
Frederik Thomasen +44(20)7552-9363 [email protected] Goldman Sachs International
Heath P. Terry, CFA (212) 3571849 [email protected] Goldman, Sachs & Co.
Andrew Lee +44(20)7774-1383 [email protected] Goldman Sachs International
Franklin Walding +44(20)7552-9446 [email protected] Goldman Sachs International
Gautam Pillai (212) 934-5827 [email protected] Goldman Sachs India SPL
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investorsshould be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investment decision. For Reg AC certification and otherimportant disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed bynon-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Global Investment Research
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 2
Table of contents
PM summary: Tech sector is the net beneficiary of mobile money 3
Smartphones, Millennials driving mobile money revolution 9
Clash of the titans: Technology is the net beneficiary 12
Banks: Regulation is a key concern; disintermediation concerns by tech appear overdone 15
Mobile carriers: Customer retention in DM; unbanked customer in EM 22
Retail: mCommerce accelerating growth of eCommerce 27
Technology sector: Net beneficiary of the growth of mobile money 31
European payments: Buy the tech beneficiaries 41
Wirecard (WDIG.DE): Multi-channel platform growth; up to CL Buy 54
Monitise (MONI.L): Platform strength underestimated; CL Buy 56
AtoS (ATOS.PA): Attractive value creation opportunity in Worldline; Buy 58
Gemalto (GTO.AS): Digital security provider for mobile payments; Buy 61
Ingenico (INGC.PA): Growth driven by EM rollout and regulation; up to Buy 63
SAP (SAPG.DE): Mobility platform & analytics an ace in the pack; CL Buy 65
Sage (SGE.L): 6m customer base ripe for payment monetisation; Neutral 67
Visa (V): CL-Buy on faster volume growth and capital allocation 68
MasterCard (MA): Buy on faster volume growth and capital allocation 70
EBAY (EBAY): CL-Buy; Established leader in online & mobile payments 72
Other key themes in take up of mobile money- NFC, EMV 74
Payments landscape: Attractive opportunities; complex landscape 100
Disclosure Appendix 113
The prices in the body of this report are based on the market close of August 30,, 2013
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 3
PM summary: Tech sector is the net beneficiary of mobile money
There is an accelerating shift to a non-cash economy driven by explosive growth in
smartphone penetration and the emergence of the Millenial generation as the key
influencers. Newer technology vendors (Square, iZettle) and revenue models (advertising,
couponing) focusing on shifting the benefits from back end of the value chain to the front
end (consumers, merchants) are emerging, creating newer growth opportunities. With an
estimated 70% smartphone penetration by 2015 and consumers led by the Millennial
generation spending c.10% of their free time on mobile devices (source: eMarketer), the
growth of ‘mobile money’ will only accelerate. According to Gartner, global mobile
transaction volume will grow at a 35% CAGR from $163 bn in 2012 to $721 bn by 2017.
Mobile money- banking, payments, commerce
Based on our broader categorisation of the payments related revenue opportunities into
banking, payments and commerce, we see meaningful outsourcing opportunities for
technology vendors in the mobile banking segment as the banks retool themselves to
adapt to the fastest growing channel i.e. mobile. We see mobile payments as a near to long
term opportunity in the form of mobile wallets in developed markets (DM) and tapping the
unbanked customers in emerging markets (EM). In our view, mobile commerce represents
the most significant revenue opportunity in the longer term; however, the landscape is
constantly changing and needs deeper collaboration across financial, retail and mobile
ecosystems to truly realise its potential.
Clash of the titans- collaboration is the key to monetisation
This report examines the broader impact of mobile money and related developments on
the various ecosystems in Europe. We identify Technology, banks, mobile carriers and
retail as the key sectors which will be impacted. Similar to the shift from on-premise to
online, the emergence of mobile money will have a significant impact on related
ecosystems and at a much accelerated pace owing to the high penetration of smartphones.
We believe that greater collaboration is needed among ecosystems (Financial, Mobile,
Retail) to truly realise the potential of mobile money. Additionally, in the context of Europe,
there is no one size fits all and we believe that different models would be best suited for
different countries owing to market share issues, regulations and country specific markets.
Based on our end market analysis, we believe that mobile money will create an
incremental €15 bn revenue opportunity (tech spending, micro merchants, mpayments)
and drive revenue share shifts of €8.8 bn (interchange fees, mobile advertising) across
ecosystems by 2017. While we do not see significant cost benefits from the growth of
mobile money, mobile technologies can play a key role in banks broader restructuring
efforts to reduce their overall costs by c.8%. On the transactional front, we estimate
European mCommerce (€65 bn) to be c.31% of eCommerce by 2017 with two thirds of it
being share gains vs. offline, desktop and a third being incremental (€22 bn).
Our key end market conclusions are as follows:
Technology- Based on our analysis, the technology sector will be the net beneficiary
of the changes brought in by mobile money as companies in various end markets
retool themselves to reduce cost and provide an omnichannel experience. We identify
IT outsourcing and micro merchants as the key incremental opportunities and estimate
a €8 bn revenue opportunity by 2017. Our estimates assume that European payment
vendors under our coverage can capture c.30% of this opportunity. We believe that
Monitise (mobile technology platform) and AtoS (Processing, Mobility services) are
best positioned to benefit from increased outsourcing and the platform development
opportunity. We see Monitise (mobile platform technology), Gemalto (TSM vendor)
and Wirecard (eCommerce platform) as best positioned to benefit from investments by
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 4
mobile carriers due to strong end market expertise. In our view, Wirecard (eCommerce
technology leader) and Ingenico (POS market leader) are key beneficiaries of increased
spending by retail vendors.
Banks- Banks face a more intense landscape (mobile and retail ecosystems) as they
try to extend their dominance in the traditional retail banking processes into payments
and commerce. While technology is perceived as the key risk for banks related revenue
opportunities, our end market analysis and discussions with industry participants
indicates to Regulation posing much more significant risks. We estimate a negative
impact of c.€4 bn by 2017 (vs. 2012) from changes to interchange fees as proposed by
the European Commission (EC). This is small compared to the broader revenue base of
European banks (-0.6%) and hence we expect to see a nominal impact on European
banks from changes proposed by EC. While we do not see significant direct cost
benefits from the growth of mobile money, mobile technologies can play a key role in
the broader restructuring efforts at banks to reduce their overall costs by c.8%.
Mobile carriers - Historically, telcos/mobile carriers had a nominal stake in the money
value chain however the emergence of the mobile as the primary growth channel for
payments is creating interesting newer revenue opportunities. We expect telcos to
successfully tap into an attractive EM money transfers opportunity, however in our
view there are limited revenue opportunities in DM due to high competition and lack of
differentiation. As always we expect developed markets mobile carriers to derive
limited benefits from overlaying services. We believe that Mobile carriers will have
nominal revenue opportunity related to mobile money in DM however they can use
mobile wallets for improving customer retention by integrating loyalty programs with
convenience shopping. We believe that Mobile carriers will be significant beneficiaries
of the mobile payments market in EM (c.6% of their EM revenue stream) due to their
strong distribution presence. Ventures like M-Pesa provide enough evidence of the
significant opportunity related to tapping unbanked customers in EM due to high
mobile penetration. The need for fraud/risk management and compliance with local
regulations may however force the mobile carriers to partner with financial institutions
and/or technology partners.
Retail- Our retail analysts believe that mCommerce will be a major driver of
incremental eCommerce in Europe and we estimate €65 bn European mCommerce
opportunity by 2017 representing 31% of eCommerce sales. While two third of the
mCommerce opportunity is related to share gains from offline, online segments, a
third of the opportunity is incremental mobile related opportunity.
Among other verticals, we believe that media/Internet will be the most impacted,
however incremental revenue opportunities from opportunities like mobile advertising
(€4.6 bn by 2017) are unclear as other ecosystems vie for their share of the revenues.
Fragmented landscape lends itself to consolidation
European payments landscape is highly fragmented, characterised by presence of many
local champions, but limited pan European/global vendors. An emerging class of mobile
payment vendors in addition to the increasing involvement of existing mobile, retail
vendors is further adding to the dynamics. With vendors trying to develop and extend their
own ecosystems, the landscape is in a state of flux and most incumbents and emerging
vendors are either acquiring or organically investing to remain relevant. We expect
acceleration in M&A as a result as highlighted by recent acquisitions of Ogone, Datacash.
In this context, we highlight Monitise (Mobile money platform), Wirecard
(eCommerce/mCommerce platform) and Gemalto (TSM) as strategic vendors in the
European payments landscape. Additionally, we expect companies to actively seek
partnerships or forger alliances to extend their presence across ecosystems.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 5
Investment conclusions
In context of Europe, vendors are significantly smaller in size versus the US, however we
see attractive investment opportunities across the spectrum and favor stocks exposed to
structural themes (mobile platform technology, TSM, eCommerce/mCommerce) and
differentiated positioning in the market namely Monitise (CL Buy), Gemalto (Buy) and
Wirecard (CL Buy). Ingenico (Buy) is well positioned for the attractive EMV opportunity in
the US and EM although the competitive landscape is intensifying with potential mid to
long term implications. We see AtoS (Buy) as a special situation with scope for significant
value creation with the payments business ‘carve out’. All the European payment vendors
have good industry positioning on basis of their niche and differentiated presence in the
high growth payments market and are well positioned on our GS SUSTAIN framework.
Our US analysts believe that global scale and acceptance remain significant barriers to new
entrants and hence are positive on Visa (CL Buy) and Mastercard (Buy).
We are now Buy rated on all the stocks. We upgrade Wirecard to Buy (from Neutral) and
add it to the Conviction List and upgrade Ingenico to Buy (from Neutral) and reiterate our
ratings on Monitise (CL Buy), Gemalto (Buy) and AtoS (Buy). Beyond the European
payments vendors, additional beneficiaries include SAP (Mobile, Analytics), Opera (mobile
advertising), Millicom (EM money transfers), ASOS (retail) and US payment networks. Non-
beneficiaries to this theme include De La Rue, internal IT, non-prime real estate and
traditional advertisers.
September 4, 2013
Europe: Technology
Goldm
an Sachs Global Investm
ent Research
6
Exhibit 1: Tech sector is the main beneficiary of the disruption caused by mobile money
Impact of the mobile money and broader industry trends on various ecosystems
Source: Gartner, IDC, Goldman Sachs Global Investment Research.
Verticals Sector Impact Stock Impact
Incremental IT spend (Outsourcing, Platforms) +4.1 Positive
Micro merchants (mPOS services) +2.9
Disruptive technologies/business models +0.3
TSM opportunity +0.7
Incremental R&D, S&M costs ‐2.0
+8.0 ‐2.0
Small negative
Regulations‐ Loss of Interchange Fees ‐4.0
Disruptive technologies/business models ‐0.3
mPayments (Bill payments, Money transfers) +0.9
Micro merchants (Interchange fees) +0.6
Broader restructuring efforts +30.2
‐2.7 +30.2
mPayments (EM Money transfers and others) +3.7 Small Positive
DM customer retention +0.9
Incremental IT spending ‐0.7
TSM opportunity ‐0.7
+3.7 ‐+0.5
Regulations‐ Gain from Interchange Fees +4.0 Positive
(Positive both for traditional, online retailers) Incremental IT spending ‐1.0
mcommerce (Incremental) +21.6
mcommerce (share shifts) +43.2
Offline commerce ‐43.2
+4.0 ‐1.0 +21.6
Other verticals Positive
Media/Internet Mobile advertising +4.6
Traditional media ‐4.6
Micro merchants (Other related services) +2.2
+2.2
Net impact of mobile money +15.2 +26.8 +21.6Share shift due to mobile money +8.8 +43.2
Mobile Money‐ Broader implications on related European ecosystems
Beneficiaries‐ Monitise, AtoS, Wirecard Non‐Beneficiaries‐De
La Rue
Beneficiaries‐ AtoS, Monitise,
Gemalto, Ingenico,
Wirecard Non‐Beneficiaries‐Internal IT
Beneficiaries‐ Millicom, Vodafone, Telefonica, Telenor
Revenue impact is small in context of total
European Banks revenues (0.5%) but significant opportunity to mitigate losses through cost
savings
Tech is the net beneficiary as it helps retool the end markets to reduce costs and create omnichannel
presence
EM Money transfers is the key opportunity. Improving customer
retention through wallets is focus in DM.
Increase/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)
Technology
Beneficiaries‐ Opera software, Digital agencies; Non‐Beneficiaries‐Outdoor, Print
media
Beneficiaries‐ ASOS, Kinnevik, Ocado,YOOX
Non‐Beneficiaries‐Traditional
retailers, Non prime real estate
owners
Online advertising giants will extend out their
reach into madvertising opportunities
Banks
Mobile carriers
RetailMobile commerce (@7%
EBITDA margins) is becoming a major driver
of incremental ecommerce
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 7
Exhibit 2: Upgrading Wirecard to Buy and add to Conviction List, and upgrade Ingenico to Buy; reiterate ratings on
Monitise (Buy*), Gemalto (Buy), AtoS (Buy) Rating, 12 month price target changes
Source: Goldman Sachs Global Investment Research.
Exhibit 3: High smartphone penetration aligned with untapped EM markets will accelerate growth of ‘mobile money’
Opportunities related to mobile money, non-cash transactions US$
Source: Visa, RBS, Goldman Sachs Global Investment Research.
Payments PT PT changeCoverage Old New Core M&A Blended Core M&A Blended Timeframe %
AtoS Buy Buy 70.0 70.0 85.0 85.0 12 months 21%%u/d 25% 25% 51% 51%
Gemalto Buy Buy 90.0 90.0 115.0 165.0 125.0 12 months 39%%u/d 3% 3% 32% 90% 44%
Ingenico Neutral Buy 59.0 59.0 82.0 82.0 12 months 39%%u/d 12% 12% 55% 55%
Monitise Buy* Buy* 54.0 74.7 60.0 93.6 114.9 100.0 12 months 67%%u/d 17% 62% 30% 102% 148% 116%
Wirecard Neutral Buy* 24.0 24.0 36.0 42.6 38.0 12 months 58%%u/d 1% 1% 52% 80% 61%
Average %u/d 12% 62% 14% 59% 106% 65% 45%
* On the conviction list
Rating Old PT (2014 based) New PT (2015 based) ValuationMethodology
15.4x P/E (from 13.5x)
Core: 14x EV/EBITDA (from 12x)
12x EV/EBITDA (from 11.3x)
Core: 5.7x EV/Sales
Core: 30x P/E (from 24x)
M&A: 4x EVSales
M&A: 7xEVSales
M&A: 7xEVSales
• DM, China smartphone penetration will reach 80% by 2015 (GS)
• 2.5 bn underbanked worldwide,1.7 bn of which have access to a mobile phone (Visa)
• c.$11 trillion cash/check opportunity with $5T DM, $6T EM) (Visa)
• Mobile banking logins are 6x per week per customercompared to 1x for online banking (RBS)
• EU payment and terminal transactions reach c.€3 trillion by 2017 (c.19% of nominal GDP)
• mcommerce will be 31% of total ecommerce by 2017
• 13% adoption of secure mobile payment solutions on handsets globally by 2017 (€1 activation fee)
• US EMV card penetration to reach 60% penetration by 2017 up from 30% in 2012
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 8
Exhibit 4: Clash of the ecosystems - banks face a much tougher landscape as they try to extend their strength in
traditional banking into the payments and commerce segments Various ecosystems in the payments value chain encompassing banking, payments and commerce
Source: Goldman Sachs Global Investment Research.
Mobile Banking
Mobile Payments
Mobile Commerce
Mobile Money
Software vendors
Financial Institutions
Payment Processors
Hardware vendors
Telcos RetailPayment Network
CustomerGovernment /Regulator Merchant
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 9
Smartphones, Millennials driving mobile money revolution
Explosive growth in smartphone adoption is driving significant innovation and
disrupting the way money is transferred and transacted in its various forms (banking,
payments, commerce). With estimated 70% smartphone penetration by 2015 and
consumers led by the Millennial generation on an average spending c.10% of their
free time on mobile, growth of ‘mobile money’ will only accelerate over the next few
years. Various end markets are responding by reprioritising their technology
investments in favor of mobile to capitalise on the various revenue opportunities it
offers and to potentially use mobile technologies to reduce costs.
Exhibit 5: Mobile is emerging as the fastest growing money channel Payments wave chart
Source: Goldman Sachs Global Investment Research.
Broader industry trends are transforming the payments landscape With handling cash becoming more and more of a complex exercise and newer mobile
technologies evolving and developing into credible revenue models, the ongoing shift to
non-cash economy will only accelerate. As per the World Payments Report 2012 (WPR,
Source: Capgemini, RBS, Efma), non-cash payments grew at a healthy 8% in 2011. With
smartphone penetration expected to reach c.70% by 2015, we believe mobile will play a
transformational role in diminishing the role of cash in transactions. In developed markets,
this would be led by newer technology/business models like mPOS (mobile point of sale
terminals), which can help tap micro merchant market and mobile wallets which can
integrate convenience shopping with loyalty programs. In emerging markets, we expect
tapping the unbanked customer base to the dominant theme. With an estimated $11 trillion
(source: Visa) opportunity to convert cash/cheques in developed markets ($5 tr) + emerging
markets ($6 tr), we see this as a significant opportunity for growth of mobile money.
Proximity payments
Form:
Advantages:
Challenges:
Commodities
Exchange mechanism
Storage, security
Coins, notes, cheques
Conveneince
Security, Acceptability
Debit, Credit, prepaid
Conveneince
Security, Eonomic viability for micro merchants
NFC, Cloud based
Conveneince, Newer revenue streams
Security
Barter Cash, Cheques Cards Mobile
Exchange payments
1800s 1920s 2010s
Denomination payments
Paperless payments
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 10
We highlight the following broader industry trends accelerating the growth of ‘mobile
money’:
Ubiquity of smartphones - high penetration of smartphones in developed markets
and accelerating adoption in emerging markets is helping target newer customers and
creating additional business models like couponing, advertising thereby disrupting the
payments landscape. Our Commtech analysts forecasts a 30% CAGR in global
smartphone unit growth over 2012-15E driven by 42% CAGR in emerging markets.
Geographically, they forecast smartphone penetration to reach close to 90% in US and
Western Europe by 2015 with China expected to have 500mn smartphone users by end
of 2013. Additionally, they believe that other emerging markets (EM) will surpass China
and the developed markets (DM) to become the largest smartphone market in 2013.
Mobile has already emerged as the fastest growing payments channel in comparison
to offline and online. We expect significant growth of mobile money in developed
markets as consumers increasingly adopt mobile solutions including mobile banking
and NFC based payments. In emerging markets, we expect both increasing adoption of
smartphone penetration and development of newer business models like m-PESA to
drive growth of mobile money.
Millennial generation emerging as the key influencers- Millennial generation (18-34
years) characterised by high mobile device per capita have emerged as the most
influential segment impacting consumer and enterprise decisions. While cash/cheques
were the mainstay of transactions for the baby boomers generation and generation X
rode the card revolution, Millennial generation is driving the mobile payments era.
According to the Telefonica-Financial Time Millennial Survey, 76% of the Millennials
own a smartphone and c.75% of the global Millennials consider themselves to be on
the cutting edge of technology.
Regulatory support Regulations like SEPA (Single Euro Payments Area) have already
been solid drivers for adoption of online, mobile payments. According to the European
Commission (EC), EU payment market is fragmented and expensive with a cost of
more than 1% of EU GDP or c.€130 bn per year and standardisation of mobile
payments can result in a 68% increase in transactions. The EC has recently proposed
the new revised Payments Services Directive (PSD) which aims to standardise
payments across card, internet and mobile payments and align charging practices
across the EU. Additionally, the EC has recently introduced new proposals for
regulating interchange fees for card based payment transactions which would set a
cap at 0.2% of the value of the transaction for debit cards and 0.3% for credit cards,
which it believes will help improve cards acceptance. In addition, we believe the
decision by key payment networks to enforce EMV requirements at merchants (EMV
terminals) and banks (chip and pin cards) will have a sizeable impact on the Point of
Sale (POS) landscape. US as a market still significantly lags many developed markets
in EMV penetration and is currently losing $16 bn per year through fraud (reinsured
thereby entailing costs to the payment networks). This in our view provides a
meaningful upgrade opportunity for POS terminals and security solution providers like
Gemalto and Ingenico.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 11
Exhibit 6: Increasing smartphone penetration is driving
very large shifts in the payments landscape GS analysts forecast 30% CAGR in smartphone units over
2012-15E
Exhibit 7: Other EM to surpass DM and China as the
largest smartphone market in 2013E making unbanked
customers a huge revenue opportunity Smartphone shipment and penetration in DM, China, and
non-China EM during 2009-2015E
Source: Gartner, Global Mobile, World Bank, and Goldman Sachs Global Investment Research.
Source: Gartner, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research estimates.
Exhibit 8: Internet banking and online shopping are
among the top 10 activities by Millennials Top 10 activities of Millenials
Exhibit 9: We expect the shift to non-cash transactions to
accelerate driven by mobile payments, EM Non cash transactions in billions (2001-10)
Source: Visa (Connecting with the Millennials- A Visa Study)
Source: World payments report 2012, Capgemini Analysis
298
471
680
1,001
1,241
1,456
73%
58%
44%47%
24%
17%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
200
400
600
800
1000
1200
1400
1600
2010 2011 2012 2013E 2014E 2015E
Smartphone shipments (mn) %yoy
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
Smar
tpho
ne s
ubs
pene
trat
ion
Smar
tpho
ne s
hipm
ent (
mn)
Developed market (LHS) China (LHS)Other emerging markets (LHS) Developed market (RHS)China (RHS) Other emerging markets (current, RHS)Other emerging markets (previous, RHS)
12%
13%
23%
23%
40%
37%
38%
37%
41%
48%
53%
56%
60%
61%
62%
63%
66%
70%
72%
82%
Study/do homework
Online shopping
Download music
Internet banking
Use online social networking sites
Use instant messaging or chat room
Share/send pictures
Search for information
Surf the Internet
Send/receive emails
Computer activities Mobile activities
50.6
77.6 81.4 80.8
112.8 116.6
7.7
24.3 27.1
10
28.7 33.1
0
20
40
60
80
100
120
140
Europe2001
Europe2009
Europe2010
NorthAmerica2001
NorthAmerica2009
NorthAmerica2010
MatureAPAC2001
MatureAPAC2009
MatureAPAC2010
BRIC2001
BRIC2009
BRIC2010
5.5%
4.9%
4.2%3.4%
15.5%11.7%
14.1%15.5%
CAGR5.4%
CAGR4.2%
CAGR15.0%
CAGR14.3%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 12
Clash of the titans: Technology is the net beneficiary
With mobile driving large shifts in every aspect of the payments value chain, the
traditional business models are being challenged and are creating a new set of
winners and losers. This report examines the broader impact of mobile money on the
four key end markets where we believe that the impact will be most felt namely
technology, banks, telco and retail. We see technology as the net beneficiary of the
emergence of mobile money and estimate incremental revenue opportunity of €8 bn
by 2017 in Europe. We believe that the argument for disintermediation of banks for
payments in developed markets is overdone and expect telcos to successfully tap
into an attractive EM money transfers opportunity owing to their strong customers’
base. We believe that the true potential of mobile money will only be realised with a
greater collaboration of various ecosystems including financial institutions, channels
(telcos, retail), technology providers (industry standards) and government
(regulations) is achieved.
Clash of the titans- collaboration is the key to monetisation
Similar to shift from on-premise to online, emergence of mobile money will have
significant impact on related ecosystems and at a much accelerated pace owing to a high
penetration of smartphones. Based on our end market analysis, we believe that mobile
money will create incremental €15 bn revenue opportunity and drive revenue share shifts
of €8.8 bn across ecosystems by 2017. While we do not see significant cost benefits from
growth of mobile money, mobile technologies can play a key role in banks broader
restructuring efforts to reduce their overall costs by c.8%. Our key end market conclusions
are as follows:
Technology- Technology sector will be the net beneficiary of growth of mobile money
as companies retool themselves to mobile as the growth channel. We identify IT
outsourcing and micro merchants as the key incremental opportunities and estimate a
€8 bn revenue opportunity by 2017.
Banks- banks have traditionally dominated the banking segment however they face a
more intense landscape (mobile and retail ecosystems) as they extend into the
payments and commerce segments. While technology is perceived as a key risk for
banks related revenue opportunities, our end market analysis and discussions with
industry participants indicates Regulation poses much more significant risks.
Mobile carriers/telcos- we believe that Mobile carriers will have nominal revenue
opportunity related to mobile money in DM, however they can use mobile wallets for
improving customer retention by integrating loyalty programs with convenience
shopping. Ventures like M-Pesa provide enough evidence of the significant opportunity
related to tapping unbanked customers in EM due to high mobile penetration.
Retail- our retail analysts believe that mCommerce will be a major driver of
incremental eCommerce in Europe and we estimate €65 bn mCommerce opportunity
by 2017 representing 31% of eCommerce sales in Europe.
Among other verticals, we believe that media/Internet and transportation will be the
most impacted, however incremental revenue opportunities and share shifts in these
verticals from opportunities like madvertising (€ 4.6 bn) and ticketing (€ 0.7 bn) are
unclear as other ecosystems vie for their share of the revenues.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 13
Exhibit 10: Mobile money landscape spans key ecosystems- financials, mobile, retail
Mobile money landscape
Source: Goldman Sachs Global Investment Research.
Compared to traditional systems, the mobile money value chain is more complicated due
to the additional role of mobile device manufacturer and mobile carriers. We believe that
government and regulatory support are also key to the process and it is important to
ensure that industry standards, regulations develop in parallel with ecosystems, customer
and technological developments to truly monetise the mobile money opportunity. We
highlight France and South Korea (Dominant mobile carrier SK Telecom closed network) as
two of the countries which stand out as the best examples of success of payments driven
by collaboration of various ecosystems, however it has been difficult to extend these
ecosystems into other countries due to a lack of network presence in other countries. In our
view, country success cannot be exploited across boundaries without the networks or the
global tech vendors primarily OEMs. In context of Europe, regulations like SEPA (Single
Euro Payments Area) and Payments Services Directive (PSD) aim to standardise payments
across card, internet and mobile payments and align charging practices across the EU and
hence expect them to be incrementally supportive for growth of mobile money.
Mobile Banking Mobile Payments Mobile Commerce
Mobile Money
Software vendors
Financial Institutions
Payment Processors
Hardware vendors
Telcos RetailPayment Network
CustomerGovernment /Regulator
Merchant
Informational• Alerts• Account
balance
Transactional• Bills
payment• Brokerage
P2P• Money
transfer• Money
remittances
B2B• Replace cash
in supply chain
C2B• Mobile online• At store (Proximity payments)
September 4, 2013
Europe: Technology
Goldm
an Sachs Global Investm
ent Research
14
Exhibit 11: Mobile money-€15 bn incremental revenue opportunity and €8.8bn of revenue share shifts
Technology beneficiaries- Monitise (CL Buy), Wirecard (CL Buy), other verticals- Millicom (Telcos) and ASOS (retail)
Source: Goldman Sachs Global Investment Research, Gartner, IDC, Company data
Payment Networks‐ Visa,Mastercard, Unionpay
Impact of
Mobile
Printing, cash handling‐ De La Rue
Potential Beneficiaries
Technology Telcos RetailBanks Other verticals
Increased volume of transactions driven by online, mobilemCommerce opportunities
Technology outsourcing by end markets, Security solutions,Value added + information based services
Micro merchant opportunity , madvertising, Ticketing
Omnichannel, price transparency, low store investments
Payments value chain
Ecommerce vendorsASOSYOOXZalandoOcado
Banks with better mobile offerings
DM‐ customer retention, value added services, EM‐payments, customer retention
POS manufacturers‐ AtoS, Ingenico
Mobile technology providers‐ Monitise, SAP Telcos with high EM presenceVodafone,TeliaSonera
Telefonica, Millicom
Disintermediation by newer business models, Pressure on Interchange fee, customer churn
Intensifying competitive landscape, disintermediation by newer models, regulations, limited scale
Regulatory issues, disintermediation, low customer loyalty
EM mobile payments (Money transfers)
€3.7bn
Incremental IT spending‐ €4.1bn
Disruptive technologies, €0.3 bn
Mobile advertising€ 4.6bn
mCommerce€65 bn
ATM makers‐Wincor NixdorfPotential revenue losses
TSM Opportunity, €0.7 bn
Disintermediation, intensifying competitive landscape
Lack of collaboration between ecosystems
Loss from changes in Interchange fees €‐4bn
Smartcard, TSM‐ Gemalto, Oberthur, G&D
Processors, Acquirers ‐Wirecard, AtoS
DM customer retention € 0.9bn
Bill payments, money transfers €0.9 bn
Handset makers‐ Apple, Google
Micro merchants Interchange fees, €0.6 bn
Mobile advertising, € 4.6bn
New entrants‐ Square, iZettle
Digital agencies WPP,Publicis
Broader restructuring€27.2 bn
Micromerchants (mPOS, Analytics), €2.9 bnMicro merchants
€ 2.2bn
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 15
Banks: Regulation is a key concern; disintermediation concerns by
tech appear overdone
Banks are facing the 'perfect storm' due to ongoing top line, cost and capital pressures
aligned by toughening regulatory environment in developed markets. In emerging markets,
newer technology providers/business models like mPESA are intensifying the competitive
landscape. According to Capgemini’s World Retail Banking Report 2012, within the next six
months, 10% of retail banking customers surveyed will likely leave their bank and an
additional 41% of customers are unsure whether they will stay or go.
Banks have traditionally dominated the retail banking processes; however they face a more
intense landscape (mobile and retail ecosystems) as they extend into their dominance in
the payments and commerce segments. In spite of continuing concerns around
disintermediation of banks and growing relevance of non-financial institutions in emerging
markets, we believe that banks will remain an integral part of the payments landscape
owing to high barriers to entry (regulatory hurdles to new entrants) and high consumer
retention. We believe that vast majority of mobile payments volume will be driven by
traditional card products, either through mCommerce or through NFC and hence will
benefit banks. Though telcos are clearly accelerating investments in the mobile segment,
we believe that they will have to partner with banks to tap the unbanked opportunity in EM
due to regulatory support as evidenced in countries like India (banks have exclusive access
to interbank mobile payment system IMPS), Nigeria etc. However these opportunities for
banks are not for granted and banks have to proactively invest to provide their customers
with multiple channels with seamless integration to retain customers. Among European
banks, operators such as Barclays are proactively investing in mobile technologies.
Exhibit 12: Trust, regulation are banks key strengths in the mobile money landscape
Analysis of Banks key attributes
Source: Goldman Sachs Global Investment Research.
Based on our end market analysis, we believe that mobile money will impact the revenue
streams for banks in the following ways:
Interchange fee (IF) Regulations- we estimate a revenue loss of c.€4 bn by 2017 (vs.
2012) from changes to interchange fees as proposed by the European Commission
(EC). This is small compared to the broader revenue base of European banks (-0.6%)
and hence we see a nominal impact on European banks from changes proposed by the
EC. The EC expects €3 bn annual cost savings for large merchants from operational
savings related to phase 1 of the IF regulation (capping cross border IF, allowing choice
of IF for cross border transactions) and €6 bn annual cost savings for all card accepting
Opportunities
• Improve returns, reduce costs by reducing branches, automation
• Differentiation vs. other banks
• EM- Tapping unbanked customers through partnership with telcos
Threats
• Disintermediation by other ecosystems in payments
• Loss of market share to peers
Strengths
• High customer retention owing to trust
• Regulatory support for banking system
Weakness
• Regulations like Durbin agreement impact interchange fees
• High investments in existing infrastructure
• Structural pressure on revenues impacting overall spending
Disruption
Convenience
Lower costs
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 16
merchants from operational savings related to phase 2 of IF regulation (capping IF for
debit and credit cards at maximum 0.2% and 0.3% of the transaction value).
Disruptive technologies/business models- while technology has long been perceived
as a key risk for banks related revenue opportunities, our end market analysis and
discussions with industry participants indicates regulation posing a much more
significant risks. We forecast revenue loss of c. €0.3 bn by 2017 (vs. 2012) from new
disruptive technologies.
Mobile payments (bill payments, money transfers) - we forecast revenue opportunity
of c. €0.9 bn by 2017 (vs. 2012) from new disruptive technologies (details in mobile
carriers section).
Micromerchants interchange fees- we forecast revenue opportunity of c.€0.6 bn by
2017 (vs. 2012) as technology vendors tap into the yet untapped segment.
While we do not see significant direct cost benefits from growth of mobile money, mobile
technologies can potentially play a key role in broader restructuring efforts at banks to
reduce their overall costs by c.8%.
Exhibit 13: Regulation is the key risk to banks revenues; mobile technologies provide scope for cost restructuring Impact of mobile money on banks- Illustrative example
Source: IDC, Gartner, Goldman Sachs Global Investment Research.
Exhibit 14: Banks- regulation is the primary risk; impact of technology shifts is more gradual
Impact of mobile money on various revenue streams of banks
Source: Goldman Sachs Global Investment Research.
Verticals Sector Impact Stock Impact
Small negativeRegulations‐ Loss of Interchange Fees ‐4.0Disruptive technologies/business models ‐0.3mPayments (Bill payments, Money transfers) +0.9Micro merchants (Interchange fees) +0.6
Broader restructuring efforts +30.2
‐2.7 +30.2
Beneficiaries‐ Monitise, AtoS, Wirecard Non‐Beneficiaries‐De
La Rue
Banks
Revenue impact is small in context of total
European Banks revenues (0.5%) but significant opportunity to mitigate losses through cost
savings
Mobile Money‐ Broader implications for BanksIncrease/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)
Total revenues
Non-InterestIncome
Fees and commissions
Net InterestIncome
Other non interest income
Credit/Debit card fees
Other fees and commissions
Limited Impact
Potential meaningfulImpact
Potential Interchange fee impact -€4 bn
DM payment fee revenues (Bill Payments) €0.9 bn
Potential Micro merchantopportunity €0.6 bn
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 17
Exhibit 15: High customer retention is banks key strengthPercentage of customers with positive experience who have
trust and confidence in their banks
Exhibit 16: Banks are one of the highest spenders on IT
IT spending as % of group revenues by vertical
Source: Capgemini World Retail Banking Report, 2013
Source: Gartner
Exhibit 17: Banks can reduce costs by promoting mobile
as a channel to service customers Average transaction costs by channel, US$
Exhibit 18: Banks are investing heavily on mobility
solutions Banks and securities spending on Mobility solutions, 2013
Source: Diebold
Source: Gartner (Note: Only a portion of consulting, development and integration and other applications software revenue is specific to mobile but growth rates are indicative of the market segment growth)
Reduction in interchange fees is the key revenue risk
On July 24, 2013, European Commission (EC) proposed a revised Payments Services
directive and a regulation on Multilateral Interchange Fees (MIFs) for EU payments
framework. European Commission (EC) proposes an initial 0.2% ceiling on debit card fees
and 0.3% cap on credit cards for cross-border transactions during a 22-month transition
period. The EC estimates that a cap will slash total debit card fees across the EU from
around €4.8 billion to €2.5 billion, and credit card fees from €5.7 billion to €3.5 billion.
Following are the key events leading to the proposal:
14 May 2013 : Visa Europe proposes to reduce credit cards related interchange fees to
0.3% (lasting for four years)
92.8%
92.1%
91.3%
89.8%
89.6%
86.7%
83% 84% 85% 86% 87% 88% 89% 90% 91% 92% 93% 94%
Middle East & Africa
Central Europe
Asia-Pacific
Latin America
North America
Western Europe 8%
7%
4%4%
3%
2%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Software,Internet
Banking,Financialservices
Telcos Industryaverage
Transportation Retail andwholesale
IT spe
nding as % of reven
ue
$3.00
$0.65
$0.08$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
Branch ATM Mobile, onlinechannels
Average transaction
cost, $
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 18
2012: Mastercard lost a challenge to an EU ban on its cross border card fees at EU
general court
8 Dec 2010 : Visa Europe settled with the EC to reduce debit cards related interchange
fees to 0.2% (in 9 countries)
2009 : Mastercard settled with EC to reduce credit cards related interchange fees to
0.3% and debit cards related Interchange fees to 0.2%
We estimate a potential revenue loss of c.€4 bn by 2017 (vs. 2012) from changes to
interchange fees as proposed by the European Commission (EC). Our analysis is based on
the following key assumptions:
Value of the transactions through EU payment and terminal transactions will grow at
7% for 2013 in line with 2011, but will accelerate to 8% over 2014-15 and to 9% and
10% respectively in 2016E and 2017E driven by improving macro and increasing use of
card, online, and mobile payments. Depending on the pace of growth of mobile
payments, our assumption may prove to be conservative.
We assume credit/debit cards mix to reduce from 36%/64% mix (source: European
Commission) by c.2% on an annual basis till 2017. This is to account for financial
reforms which are limiting overdraft fees and protecting consumers and consumers
increasingly shifting preference to debit cards to avoid debt.
While changes to IF proposed by the EC have not yet been passed into law, for analysis
purpose we assume the new interchange fees (0.3% for credit cards, 0.2% for debit
cards) to be implemented from 2016 onwards.
We have assumed European banks revenues to grow at 2.7% over 2016-17E in line
with the 2015 growth rate of 2.7% as estimated by our European Banks analysts.
Exhibit 19: We estimate 36% potential downside risk to existing IF revenues of banks from new EC proposals Analysis of impact of proposed changes to interchange fees
Source: EU payment and transaction services (ECB); European Commission, Goldman Sachs Global Investment Research.
European Banks Interchange fees, €bn 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
EU payment and terminal transactions, €bn 1,629 1,782 1,915 2,058 2,203 2,379 2,569 2,800 3,080
yoy ‐1% 9% 7% 7% 7% 8% 8% 9% 10%
Mix by value
Credit cards 42% 40% 38% 36% 34% 32% 30% 28% 26%
Debit cards 58% 60% 62% 64% 66% 68% 70% 72% 74%
Interchange fee
Credit cards 0.78% 0.78% 0.78% 0.78% 0.78% 0.70% 0.60% 0.30% 0.30%
Debit cards 0.39% 0.39% 0.39% 0.39% 0.39% 0.35% 0.30% 0.20% 0.20%
Interchange fee
Credit cards, €bn 5.3 5.6 5.7 5.8 5.8 5.3 4.6 2.4 2.4
Debit cards, €bn 3.7 4.2 4.6 5.1 5.7 5.7 5.4 4.0 4.6
Interchange fees, €bn 9.0 9.7 10.3 10.9 11.5 11.0 10.0 6.4 7.0
yoy 5% 8% 6% 6% 5% ‐5% ‐9% ‐36% 9%
Impact from changes to Interchange fee, €bn ‐4.0
2017E vs. 2012 ‐36%
Accumulated loss of Interchange fees 2012‐17E ‐8.7
European Banks revenues, €bn 613.6 580.7 578.2 573.7 591.3 607.2 623.5 640.3
yoy 0.0% ‐5.4% ‐0.4% ‐0.8% 3.1% 2.7% 2.7% 2.7%
Impact of changes in IF on total EU banks revenues ‐0.6%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 19
Disintermediation concerns on banks by disruptive technologies/business models are overdone
We believe that continuing concerns around disintermediation of banks by disruptive
technologies in developed markets is overdone and that banks will remain an integral part
of the payments landscape owing to high barriers to entry (regulatory hurdles to new
entrants) and high consumer retention. Banks remain in a highly defendable position as
changes at the POS, new entrants, and mobile payments options do not currently pose a
threat as most large scale funding mechanisms are currently based on deposit funding and
hence the banks. We believe new entrants will need to ride on existing payment rails to
reach scale, resulting in incremental volume for the networks and banks.
Though non-financial entities (example m-PESA) have seen fast growth partly attributed to
the lack of a regulatory environment for mobile financial services. This situation is slowly
changing as more regulators in EM countries like India, Nigeria are becoming aware of this
issue and putting in place regulations to ensure sustainable growth and align mobile
payment systems with existing financial systems. In a number of countries like India,
Nigeria, Ghana, Colombia and South Africa, financial regulators are reluctant to grant
mobile money licenses to mobile carriers, thereby forcing them into partnerships with
banks to tap the emerging markets opportunity.
In developed markets, historical examples continue to indicate that though technologies
can be disruptive and reduce the role played by banks, need for risk management,
regulatory control, funding and interoperability invariably brings in the role of banks.
Below, we consider a scenario of disruption of banks revenue streams by disruptive
technologies/business models. In this context, we assume that new disruptive
technologies/business models will be twice as disruptive (c.4% of European payments
volume) as Paypal (c.2% of global payments transaction volume), which is widely
considered as the most disruptive payments vendor in the last 10 years. On this basis, we
estimate incremental negligible revenue loss (€0.3 bn) for the European banks.
Other disruptive technologies/business models include Square, iZettle which have growth
rapidly initially focusing on the micro merchants market and MCX (Merchant Customer
Exchange, US) which aims at creating a merchant network to eliminate role of networks.
There is no specific European equivalent of MCX.
Exhibit 20: Paypal processes only c.2% of the global payments volume
Payments volume (US$ bn) of global payment networks updated
Source: Paypal, Visa, MasterCard.
Paypal as % of total payments network 2006 2007 2008 2009 2010 2011 2012Paypal payments volume 36 47 60 72 92 119 145yoy 33% 27% 19% 28% 29% 22%
Visa Inc. payments volume 2,127 2,457 2,727 2,793 3,273 3,768 3,936yoy 16% 11% 2% 17% 15% 4%
Visa Europe payments volume 1,400 1,542 1,711 1,764 1,934 2,198 2,317yoy 10% 11% 3% 10% 14% 5%
Total payments network volume 5,681 6,519 7,210 7,222 8,176 9,506 yoy 15% 11% 0% 13% 16%
Paypal as % of Visa volume 1.0% 1.2% 1.4% 1.6% 1.8% 2.0%Paypal as % of networks 0.6% 0.7% 0.8% 1.0% 1.1% 1.2%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 20
Exhibit 21: We estimate €0.3 bn incremental revenue headwinds from disruptive technologies/business models Analysing revenue impact of disruptive technologies/business models on banks revenue streams
Source: Goldman Sachs Global Investment Research.
Mobile technologies provide scope for significant cost restructuring measures
As evidenced by strategies adopted by banks in Spain, Australia and US, we believe that
banks will adopt various revenue, cost strategies to compensate for the loss of interchange
fees. We believe that these strategies will not be mutually exclusive and will be
implemented in parallel as part of the broader restructuring initiatives. Some of the
possible strategies include:
New annual card fees/raising existing fees- this measure failed in US however
achieved some success in Spain, Australia,
Reduce perks, benefits associated with cards,
Review bank expansion plans and operational models, opting to better use technology.
Additionally increased volumes driven by higher adoption of online, mobile payments can
to an extent compensate for the lost interchange fees.
In addition to reviewing the fees they charge consumers, most US retail banks are also
reviewing their branch/employee cost base as part of their broader restructuring efforts.
Taking advantage of the growth of mobile technologies, banks like Wells Fargo, PNC are
shrinking the size of their branches and introducing the concept of mini branches with
significantly reduced number of teller positions and some relationship/consultant positions.
These mini branches could be relatively paperless and feature large screen ATMs and offer
image deposits, instant issue debit cards and e-receipts. Staff will use smartphones, tablets
to serve customers. The companies expect the size of these mini branches to be a third of
existing branch sizes. According to research conducted internally by Wells Fargo, 80% of
customer transactions do not require employee assistance, but 70% of customers still
visited a branch every six months.
We consider a potential scenario for European banks, where banks can use mobile
technologies to reduce the number of branches and employee headcount as part of
broader restructuring efforts. Based on our analysis, a c.5% reduction in branches and a
c.10% reduction in employee base over 2012-17 could result in gross cost savings of €30 bn
for banks. We consider a potential scenario for European banks, where banks can use
% mix, 2017
2017 Interchange fee, €bn 7.0 Credit cards 26%
Blended Interchange fee 0.23% Debit cards 74%
Interchange Fee
Credit cards 0.30% 0.27% 0.24% 0.22% 0.20% 0.18% 0.16% 0.14% 0.13%
Debit cards 0.20% 0.18% 0.16% 0.15% 0.13% 0.12% 0.11% 0.10% 0.09%
Blended Interchange fee 0.23% 0.20% 0.18% 0.16% 0.15% 0.13% 0.12% 0.11% 0.10%
European Interchange Fee risks (€bn)
0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -10%
0.23% 0.0 -0.1 -0.1 -0.2 -0.3 -0.3 -0.4 -0.5 -0.6 -0.6 -0.7
0.20% -0.7 -0.8 -0.8 -0.9 -0.9 -1.0 -1.1 -1.1 -1.2 -1.3 -1.3
0.18% -1.3 -1.4 -1.4 -1.5 -1.5 -1.6 -1.7 -1.7 -1.8 -1.8 -1.9
0.16% -1.9 -1.9 -2.0 -2.0 -2.1 -2.1 -2.2 -2.2 -2.3 -2.3 -2.4
0.15% -2.4 -2.4 -2.5 -2.5 -2.6 -2.6 -2.7 -2.7 -2.8 -2.8 -2.9
0.13% -2.9 -2.9 -2.9 -3.0 -3.0 -3.1 -3.1 -3.1 -3.2 -3.2 -3.3
0.12% -3.3 -3.3 -3.3 -3.4 -3.4 -3.4 -3.5 -3.5 -3.6 -3.6 -3.6
0.11% -3.6 -3.7 -3.7 -3.7 -3.8 -3.8 -3.8 -3.9 -3.9 -3.9 -4.0
0.10% -4.0 -4.0 -4.0 -4.1 -4.1 -4.1 -4.1 -4.2 -4.2 -4.2 -4.3
% Technology/Business model disruption (Technology risk)
Ble
nded
Inte
rcha
nge
fee
(Reg
ulat
ion
risk)
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 21
mobile technologies to reduce their number of branches and employee headcount as part
of their broader restructuring efforts. Based on our analysis, a c.5% reduction in branches
and c.10% reduction in employee base over 2012-17 can result in gross cost savings of €30
bn for banks. We would expect banks to spend an equivalent of c.10% (i.e. €3 bn) of the
savings on IT/mobile technologies. This most likely will come from repriortisation of
existing IT budgets and therefore we expect European bank IT budgets will be broadly
stable. Additionally, they believe that banks may even insource some of these projects
owing to their strategic importance and in-house expertise.
Compared to the US (75-85K branches), Europe has a significantly higher number of
branches at around c.220K and hence the branch reduction programmes we have assumed
in Europe may prove to be conservative. For 2012, we have assumed bank staff reduction
of 2.3% which is an average reduction over 2009-11. For 2013-17E, we have assumed staff
reduction which is an average of previous three years. Given that customers still prefer
having local branches for banking, we have assumed only c.50% reduction in number of
branches relative to the number of reduction in banks staff for each of the years.
Exhibit 22: Banks can potentially offset IF impact by reducing costs as part of the broader cost restructuring Analysis of broader cost restructuring efforts at banks enabled by IT/mobile technologies
Source: ECB, Goldman Sachs Global Investment Research.
2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E 2012‐17ENumber of Branches EU 27 (in 000's) 216 230 234 238 233 231 224 221 219 217 215 213 211EU 27 1.7% 6.4% 1.8% 1.9% ‐2.2% ‐0.9% ‐3.1% ‐1.1% ‐1.0% ‐0.9% ‐1.0% ‐1.0% ‐1.0% ‐4.8%
Number of banks staff EU 27 (in 000's) 3,151 3,185 3,243 3,264 3,162 3,079 3,045 2,976 2,917 2,865 2,807 2,753 2,700EU 27 1.9% 1.1% 1.8% 0.6% ‐3.1% ‐2.6% ‐1.1% ‐2.3% ‐2.0% ‐1.8% ‐2.0% ‐1.9% ‐1.9% ‐9.6%
Number of employees per branch 14.6 13.9 13.9 13.7 13.6 13.3 13.6 13.4 13.3 13.2 13.1 12.9 12.8yoy 0% ‐5% 0% ‐1% ‐1% ‐2% 2% ‐1% ‐1% ‐1% ‐1% ‐1% ‐1%
Average cost of a branch ($) 2,500,000Average cost of a branch (€) 1,923,077Average cost of an employee (€) 30,000
Total cost savings from broader restructuring measures driven by technology, business model changes (€ bn)
0% -2% -4% -6% -8% -10% -12% -14% -16% -18% -20%0% 0.0 1.8 3.6 5.4 7.1 8.9 10.7 12.5 14.3 16.1 17.9
-1% 4.3 6.0 7.8 9.6 11.4 13.2 15.0 16.8 18.5 20.3 22.1
-2% 8.5 10.3 12.1 13.9 15.7 17.4 19.2 21.0 22.8 24.6 26.4
-3% 12.8 14.6 16.3 18.1 19.9 21.7 23.5 25.3 27.1 28.8 30.6
-4% 17.0 18.8 20.6 22.4 24.2 26.0 27.7 29.5 31.3 33.1 34.9
-5% 21.3 23.1 24.9 26.6 28.4 30.2 32.0 33.8 35.6 37.4 39.1
-6% 25.5 27.3 29.1 30.9 32.7 34.5 36.3 38.0 39.8 41.6 43.4
-7% 29.8 31.6 33.4 35.2 36.9 38.7 40.5 42.3 44.1 45.9 47.7
-8% 34.1 35.8 37.6 39.4 41.2 43.0 44.8 46.6 48.3 50.1 51.9
-9% 38.3 40.1 41.9 43.7 45.5 47.2 49.0 50.8 52.6 54.4 56.2
-10% 42.6 44.4 46.2 47.9 49.7 51.5 53.3 55.1 56.9 58.7 60.4
Gross savings for Banks, €bn 30.2
2009 2010 2011 2012 2013E 2014E 2015EEuropean banks cost base, €bn 395.3 388.5 403.4 377.6 377.8 373.0
yoy -1.7% 3.8% -6.4% 0.0% -1.3%
Gross cost savings from broader restructuring measures driven by technology, business model changes (€ bn) 30.2% reduction in cost base 8.1%
Ban
k br
anch
es re
duct
ion
(%)
% Employee reduction
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 22
Mobile carriers: Customer retention in DM; unbanked customer in
EM
Mobile money landscape is more complicated than traditional systems owing to a more
active role of mobile carriers and OEMs. While telcos had no stake in the traditional value
chain, the emergence of the mobile as the primary growth payments channel is creating
interesting newer revenue opportunities. We expect telcos to successfully tap into an
attractive EM money transfers opportunity, however in our view there are limited revenue
opportunities in DM due to high competition and lack of differentiation. As always we
expect developed markets mobile carriers to derive limited benefits from overlaying
services. European telcos like Vodafone, Millicom, Telefonica have been proactively
investing in technology and emerging markets, to tap mobile money related opportunities
however risks of disintermediation by technology vendors and banks remain significant.
Need for fraud/risk management and technology to further drive these initiatives invariably
brings in the role of banks and technology vendors. Additionally low customer loyalty
remains a key challenge. However increased scope for their role in the burgeoning mobile
payments space should not be underestimated as they remain an integral part of the
mobile money landscape and have strong distribution strength in emerging markets.
Developed markets- Given the strong payments infrastructure (financial services
infrastructure, regulations); we see no significant revenue benefits for mobile carriers from
payments opportunity in developed markets. While European Mobile carriers see a
possible revenue opportunity in growth of mobile money in developed markets, we believe
that mobile wallets by Mobile carriers may become generic and hence see limited revenue
benefits. However, we believe that owing to their presence in the mobile money value
chain and by integrating various customer loyalty schemes and commerce initiatives with
convenience shopping, they can marginally improve their customer retention in developed
markets. Additionally, they can benefit through carrier direct billing efforts and charging
banks and other enterprises for information, advertising based revenues. Mobile carriers
are also actively collaborating to create broader commerce networks like Weve (UK telcos
JV- Vodafone, Telefonica, EE) and ISIS (US telcos- AT&T, Verizon, T Mobile) to achieve this
and are targeting retailers and advertisers. While the benefits of technology and combined
customer database (c.15 mn for Weve) are clear, monetisation remains to be proven.
Emerging markets- According to the World Bank, 48% of the world’s population does not
have access to basic financial services such as a bank account highlighting the significant
revenue opportunity from this segment. Hence, we see a clear revenue opportunity for the
European Mobile carriers to tap the unbanked customers owing to their strong distribution
strength and underpenetrated banking customer base. Additionally, payment schemes also
help improve customer retention in emerging markets. Gartner, forecasts mobile payments
in emerging markets (APAC, Eastern Europe, Middle East, Africa) to grow at 32% CAGR to
$480 mn by 2017E ($119 mn in 2012). According to GSMA, currently there are 150 live
mobile money deployments and an additional 110 deployments are being planned (source
GSMA, January 2013). M-Pesa (JV between Vodafone, Safaricom) in Kenya remains the
number one example in this regard with over 18 million active customers transferring up to
$1.2 bn per month. We see Millicom as a clear beneficiary of its high presence in EM.
In emerging markets, there is more differentiation and there are fewer competitors hence it
makes it easy to capture value. While this is largely an unregulated market currently, we
expect the increased regulatory environment to come into place over the next few years as
evidenced by newer regulations controlling activities of non-financial services entities in
India and Nigeria. Hence we believe that telcos will have to increasingly partner with
technology vendors or financial institutions to tap this opportunity. We note that major
European telcos are partnering with technology/banking providers like Wirecard given their
strong technology knowhow and ownership of banking licenses in some key geographies
like Germany, UK.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 23
Additionally, we believe that same mobile money schemes cannot be replicated into other
countries without significant customisation as evident by lack of good growth of M-Pesa
and other schemes beyond their core geographies.
Exhibit 23: Telcos are an integral part of the mobile ecosystem Analysis of European Mobile carriers key attributes
Source: Goldman Sachs Global Investment Research.
Exhibit 24: EMs present Mobile carriers with significant revenue opportunity Impact of mobile money on mobile carriers
Source: IDC, Gartner, Goldman Sachs Global Investment Research.
Opportunities
• Significant revenue opportunity through payments in EM
• Improving customer retention through mobile wallets thereby reducing customer related costs (retention, acquisition)
• Additional revenues through ads etc.
Threats
• Mobile wallets become generic
• Regulations
• Low ROI
Strengths
• Integral part of the mobile ecosystem
• High distribution presence in emerging markets including Asia, Africa, LatAm
• Better EM differentiation
Weakness
• Low customer retention
• Need for significant investments
• High competition in DM
• Low network differentiationDisruption
Investments
Regulations
Verticals Sector Impact Stock Impact
mPayments (EM Money transfers and others) +3.7 Small PositiveDM customer retention +0.9Incremental IT spending ‐0.7TSM opportunity ‐0.7
+3.7 ‐+0.5
Mobile carriersBeneficiaries‐ Millicom, Vodafone, Telefonica, Telenor
EM Money transfers is the key opportunity. Improving customer
retention through wallets
Mobile Money‐ Broader implications for TelcosIncrease/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 24
Exhibit 25: European telcos have high customer churn
Customer attrition in various markets
Exhibit 26: Customer costs are a significant portion of
costs for European telco majors like Vodafone Customer costs in £ mn (includes acquisition costs and
retention costs)
Source: Vodafone
Source: Vodafone
Exhibit 27: Significant gap between mobile and banking
penetration creates attractive opportunities
Mobile penetration (%), access to financial services (%)
Exhibit 28: M-PESA has seen strong growth over the
years supporting growth of other non-financial initiatives
M-PESA active customers
Source: GSMA Mobile Money Tracker
Source: Safaricom
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Q310/11
Q410/11
Q111/12
Q211/12
Q311/12
Q411/12
Q112/13
Q212/13
Voda
fone
‐Customer chu
rn by marlet
Germany UK Turkey Italy
Spain India Vodacom
19.5%
20.5%
20.0%
19%
19%
19%
20%
20%
20%
20%
20%
21%
8,500
8,600
8,700
8,800
8,900
9,000
9,100
9,200
9,300
9,400
9,500
9,600
FY11 FY12 FY13
Customer costs (£ mn) Customer costs as % of sales
0%
20%
40%
60%
80%
100%
120%
140%
160%
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Mobile
Fin
ancia
l
Tanzania Nigeria Kenya Morocco Ghana South AfricaCote d'IvoireNamibia Algeria Gambia Botswana Gabon
2.08
6.18
9.48
13.8
14.91
17.11
197%
53%46%
8%15%
0%
50%
100%
150%
200%
250%
0
2
4
6
8
10
12
14
16
18
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
M-PESA customers (mn) %yoy growth
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 25
Exhibit 29: Emerging markets provide an attractive opportunity for European mobile carriers List of European telcos initiatives
Source: Company data
EM unbanked customers represent the key revenue opportunity for European Mobile carriers
Based on our end market analysis, we believe that unbanked customer opportunity in the
emerging markets is the clear revenue opportunity for European Mobile carriers and
represents a €3.7 bn revenue opportunity. Our estimates are based on the following:
Gartner forecasts global payments transaction volume to grow from $163 bn in 2012 to
$721bn by 2017E. This includes opportunities related to merchandise purchases,
ticketing, money transfers, bill payments, air time pop ups and others. Excluding
merchandise purchases (to avoid duplication in retail segment), mobile transaction
volume will grow from $129 bn in 2012 to $553 bn by 2017E. 20% of this volume comes
from North America which does not represent opportunity for European telcos. APAC
represents c.28% of the opportunity. Based on GDP, we estimate c.8% is related to
developed markets like Japan which is not a European Mobile carriers revenue
opportunity.
Emerging markets comprising of Eastern Europe (c.2%), Middle East (c.4%), emerging
APAC (c.20%), Africa (c.26%) and Latin America (c.6%) represent c.59% of the global
transaction volume which provides revenue opportunity for the European mobile
carriers. Depending on the transaction range, mobile payment services charge in the
range of 1%-2% of the transaction fees. Assuming an average of 1.5% transaction fees,
it implies a revenue opportunity of €3.7 bn for European telcos, which represents
c.6.3% of the European telcos EM revenues by 2017E.
Developed market opportunity is limited to Western Europe which represents 14% of
the global transaction volume, assuming a similar average of 1.5% transaction fee; it
represents a €0.9 bn revenue opportunity. However we believe that owing to the
strong infrastructure support in developed markets, these opportunities will largely be
a banks related revenue opportunity.
According to Gartner, Telcos spend 4.1% of their revenues on IT. Assuming similar
ratio for incremental IT related spend by European telcos, additional €3.7 bn revenues
from EM represents a nominal €0.2 bn incremental revenue opportunity for technology
vendors. Additionally, we expect a significant reprioritisation of budgets by European
Mobile carriers in favor of mobile money related investments.
Telco provider Partners Initiative Comments
Telefonica Monitise Mobile payments & Commerce services Initial focus on UK
Bango BlueVia Payment Create an enhanced direct-to-bill payment experience for mobile app stores
Mastercard Wanda
Wanda will provide mobile payment solutions to over 87mn Movistar customers
in the 12 markets where it will operate.
Vodafone Visa, Gemalto NFC payments - Wave and pay scheme Initial launch in Germany, the Netherlands, Spain, Turkey, and the UK
Orange Mastercard Mobile payments Initial focus in Spain
Visa Orange money Launching in Botswana
Facebook, Bango internet+ solution Simple and secure system (Two clicks)
Telenor Fortumo Mobile payments
significant part of Telenor’s c.150 mn subscribers come from EMs
in Asia and Central and Eastern Europe
Millicom Tigo cash Focus in Africa
Deutsche Telekom B+S Card Service, Intercard NFC-based mobile payment Initial focus in Germany
Mastercard, Wirecard MasterCard PayPass, DT mobile wallet Rolling out to c.93 mn European subscribers
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 26
Exhibit 30: European Mobile carriers are major beneficiaries of money transfers in EM (€3.7 bn opportunity in 2017) Analysis- EM revenue opportunity for European mobile carriers
Source: Gartner, m-PESA, Goldman Sachs Global Investment Research.
Marginal improvement in customer retention is the key DM opportunity
Based on our end market analysis, we believe that European Mobile carriers can realise
€0.9 bn customer related cost savings by increased investments in mobile money
initiatives like wallets etc. Our estimates are based on the following assumptions:
As per compiled data from various European telcos, customer churn reduces from 14%
(average of 17% related to mobile, 11% related to fixed) to 10% with increased
bundling of packages. Given that mobile wallets by telcos can potentially become
generic and are not as valuable as services like TV or broadband are, we assume
mobile wallets by European telcos manage to achieve 50% of the benefits related to
attrition reduction i.e. 1.8% (50% of reduction from 14% to 10%).
Worldwide mobile payment market, $bn 2010 2011 2012 2013E 2014E 2015E 2016E 2017E2012‐17E CAGR
Merchandise Purchases 9.2 19.8 33.8 50.5 71.0 96.6 129.0 168.3 38%
Ticketing 0.2 0.5 0.9 1.5 2.3 3.4 4.8 6.8 51%
Money Transfers 40.0 74.3 118.0 168.0 230.3 302.4 391.3 497.1 33%
Bill Payments 2.9 5.0 8.1 11.7 16.3 21.6 28.8 36.8 35%
Airtime Top‐Ups 0.5 1.0 1.6 2.5 3.6 5.0 6.6 8.5 40%
Other 0.2 0.6 0.8 1.2 1.6 2.1 2.8 3.9 37%
Total Mobile payment transactions, $bn 52.9 101.1 163.1 235.4 325.2 431.1 563.4 721.4 35%
Total Mobile Payments, $bn (ex‐merchandise purchases) 43.7 81.3 129.3 184.8 254.2 334.5 434.3 553.1 34%
% of global payments transactionsNorth America 9% 13% 15% 16% 17% 18% 19% 20%Asia/Pacific‐ Japan 11% 10% 9% 9% 9% 8% 8% 8%EM (Rest of APAC, Eastern Europe, Middle East, Africa) 70% 66% 64% 63% 62% 61% 60% 59%Western Europe 10% 11% 12% 13% 13% 13% 14% 14%
Mobile Payments, $bn (ex‐merchandise)‐ EM 30.7 53.7 82.8 116.3 157.3 203.1 259.1 324.1
Mobile Payments, $bn (ex‐merchandise)‐ DM (W Europe) 4.2 8.9 15.4 23.1 32.9 44.8 58.9 76.2
Payment fee revenues, $bn (1.5% of transaction)‐EM 0.5 0.8 1.2 1.7 2.4 3.0 3.9 4.9
Payment fee revenues, $bn (1.5% of transaction)‐DM 0.1 0.1 0.2 0.3 0.5 0.7 0.9 1.1
EM opportunity‐ European mobile carriers
Payment fee revenues, $bn (1.5% of transaction)‐EM 0.5 0.8 1.2 1.7 2.4 3.0 3.9 4.9
EUR/USD 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
Payment fee revenues, €bn (1.5% of transaction)‐EM 0.4 0.6 1.0 1.3 1.8 2.3 3.0 3.7
European mobile carriers EM revenues 58.7
EM payment feeas % of total European mobile carriers EM revenues 6.4%
IT spending by telcos as % of total revenues 4.1% 4.1% 4.1%
Estimated incremental IT spending by MNOs/Telcos 0.2
DM opportunity‐ European banks
Payment fee revenues, €bn (1.5% of transaction)‐DM 0.0 0.1 0.2 0.3 0.4 0.5 0.7 0.9
EUR/USD 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
Payment fee revenues, €bn (1.5% of transaction)‐DM 0.0 0.1 0.1 0.2 0.3 0.4 0.5 0.7
Payment fee revenues, €bn (1.5% of transaction)‐ EM+DM 0.4 0.7 1.1 1.6 2.2 2.9 3.7 4.6
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 27
Our European telco analysts forecast European Mobile carriers revenues of €258.7 bn
by 2017. Assuming 20% (in line with Vodafone) of this is spent on customer related
costs (includes customer retention costs, customer acquisition costs); it implies c.
€51.7 bn customer related costs.
We have assumed customer churn for European Mobile carriers at 33% based on
Vodafone customer attrition. Assuming churn reduction of 1.8%, it would imply
customer related cost savings of €0.9 bn.
Exhibit 31: Improved customer retention is the key benefit from mobile money related
investments in developed markets Analysis- DM revenue opportunity for European mobile carriers
Source: Company data, Goldman Sachs Global Investment Research.
Retail: mCommerce accelerating growth of eCommerce
Our retail analysts believe that eCommerce is the most disruptive factor in the retail
industry today and expect acceleration of share gains from store based retail driven by
shrinking store-based retail footprints, favorable demographics, mobile commerce, and
faster growing emerging markets. Based on our US analysts’ proprietary global
eCommerce model, our retail analysts forecast global eCommerce over the next three
years to exceed industry consensus forecasts, growing at 17% annual growth rate (see
Global Ecommerce to accelerate, June 4, 2013).
We identify retail as one of key verticals which will be impacted by changes in the mobile
money landscape as they remain core to the commerce network. As the retailers try to
establish omnichannel, establish price transparency and avoid intermediation, we expect
them to invest heavily in the technology sector and leading online vendors like ASOS to
benefit as a result of their strong presence in the online segment. Some retailers, such as
Tesco in the U.K., Carrefour in France and Starbucks in the U.S., are launching their own m-
European Telcos customer churn1P mobile 1P fixed 2P 3P 4P
Swisscom 13% 12% 13% 7% 5%Telekom Austria 12% 10% 2%TDC 21% 16% 13% 11%FT 21% 7%Average customer churn 17% 11% 10% 10% 8%Reduction in customer churn from 1Package‐>2Package ‐3.5%Reduced customer churn with Mobile Wallets ‐1.8%
European MNOs, in €bn 2013E 2014E 2015E 2016E 2017E
European MNOs revenues 363.8 361.7 363.8 366.1 368.2
European MNOs operating costs 256.1 255.0 256.4 258.2 259.8
Customer costs as % of operating costs 20%
European MNOs customer costs 51.2 51.0 51.3 51.6 52.0
European MNOs customer churn 33.1%
Estimate reduction in customer churn ‐1.8%
Potential cost benefits from churn reduction, € bn 0.9
as % of total European mobile carriers revenues 0.2%as % of total European mobile carriers operating costs 0.4%as % of European MNOs mobile carriers customer costs 1.8%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 28
wallet or contactless-card-based loyalty and payment initiatives to better target customers
and benefit from the strong growth of the mobile commerce segment. Vendors like Ocado
derive more than 30% of their checkouts from mobile apps on smartphones and this
number increases to 40%-45% if tablets are included. We believe that retailers are more
likely to partner with technology vendors like Wirecard, AtoS or Mobile carriers to help
them better understand mobile ecosystems, take care of technical aspects of wallets and
customer support.
Software and IT services vendors like SAP and Capgemini are collaborating to develop
high end analytical applications on SAP’s HANA platform to help large retailers and
consumer product companies to deal with huge amounts of data from internal systems
(POS data) and external systems (social media data, market data). Capgemini’s offerings
include modules like Affinity Basket Analysis and Next Best Action, which aim to help
retailers react more quickly to trends, competitor sales and adapt their up/cross sell and
markdown strategy using predictive analytics capabilities based on a broad set of
customer-centric information including point-of-sale data.
While propositions from European Commission are still in the proposal stage, we estimate
c.€4 bn loss of interchange fees will directly benefit retailers.
Exhibit 32: Retail sector is at the core of the eCommerce opportunity
Analysis of European retailers key attributes
Source: Goldman Sachs Global Investment Research.
Exhibit 33: mCommerce is an incremental driver of eCommerce growth in Europe
Impact of mobile money on retail
Source: IDC, Gartner, Goldman Sachs Global Investment Research.
Opportunities
• Improve returns, reduce costs by reducing brick and mortar shops
• Significant differentiator for market share wins
• Additional revenue streams through ads, information sharing etc.
Threats
• Regulations
• Disintermediation by otherecosystems
Strengths
• Integral part of commerce opportunity
• Ability to create omni channel presence
Weakness
• More prone to disruption due to innovative technology, business models
Disruption
Security
Technology
Verticals Sector Impact Stock Impact
Regulations‐ Gain from Interchange Fees +4.0 Positive(Positive both for traditional, online retailers) +0.0 Incremental IT spending ‐1.0 0
mcommerce (Incremental) +21.6mcommerce (share shifts) +43.2Offline commerce ‐43.2
+0.0+4.0 ‐1.0 +21.6
Retail
Beneficiaries‐ ASOS, Kinnevik, YOOX Non‐Beneficiaries‐Traditional
retailers, Non prime real estate
Mobile commerce (@7% EBITDA margins) is
becoming a major driver of incremental ecommerce
Mobile Money‐ Broader implications for RetailIncrease/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 29
Exhibit 34: Mobile traffic is growing at 3x faster than web
visits % visits from mobile devices
Exhibit 35: Smartphones disrupt the brick & motor
shopping Activities performed in a retail store with Smartphone
Source: ASOS
Source: Comscore
Exhibit 36: Retailers can reduce their costs by reducing
floor space
Change in western Europe 2011 vs. 2004 and 2030 vs. 2011
Exhibit 37: Price comparison, couponing are top focus
items for the customers
Customers mobile shopping preferences
Source: Goldman Sachs Global Investment Research, Euromonitor.
Source: Federal Reserve 2012.
We estimate c.€65 bn European mCommerce opportunity by 2017E
Based on views of our retail analysts, we estimate a c.65 bn European mCommerce
opportunity by 2017E. While two thirds of this revenue opportunity will be derived from
share shifts from offline and desktop, a third of this is expected to be incremental volume.
Key assumptions include:
EuroMonitor forecasts European e-commerce sales of $269 bn by 2017E
Our US retail analysts forecast, US mCommerce to grow at 34% CAGR over 2012-17E
and be 31% of eCommerce sales by 2017 (see Global Ecommerce to accelerate, June 4
2013). In line with these assumptions, we forecast European mCommerce to c.31% of
e-commerce by 2017E implying a revenue opportunity of €65 bn.
Retail sector spends 1.5% of their revenue stream on IT spending. Assuming retail
sector spends 1.5% of their mCommerce revenues on mobile/IT related spending, it
represents a €1 bn revenue opportunity for technology vendors. Additionally, an
42.5%
34.9%
32.7%
30.4%
22.4%
18.5%
18.1%
15.4%
10.2%
5.6%
Took picture of a product
Texted or called friends/ family about a product
Sent picture of a product to family/friends
Scanned a product barcode
Compared product prices
Food coupons or deals
Found store location
Researched product features
Checked product availability
Purchased goods or services (online)
‐20%
‐15%
‐10%
‐5%
0%
5%
10%
2011 vs. 2004 2030 vs. 2011
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 30
analysis of data to better understand behavioral patterns of customers is growing in
importance every day, given we believe that segments like mPOS will not remain
limited to just providing equipment to enable transactions but extend more
importantly into analysing the data from those transactions.
Exhibit 38: mCommerce represents c.€65 bn revenue opportunity in Europe Analysis- European mCommerce opportunity
Source: Euro Monitor, eMarketer, Goldman Sachs Global Investment Research.
Global E‐commerce, $bn 2011 2012 2013E 2014E 2015E 2016E 2017E 2012‐17EE‐commerce 447.0 521.0 609.0 717.0 830.0 949.0 1,074.0 16%E‐commerce as % of GDP 0.7% 0.8% 0.9% 1.0% 1.1% 1.2% 1.3%M‐commerce 24.0 57.0 117.0 183.0 260.0 351.0 423.0 49%M‐commerce as % of E‐Commerce 5.4% 10.9% 19.2% 25.5% 31.3% 37.0% 39.4%
US E‐commerce, $bnE‐commerce 154.0 177.0 206.0 238.0 272.0 309.0 348.0 14%E‐commerce as % of GDP 0.9% 1.0% 1.2% 1.3% 1.4% 1.5% 1.7%US E‐commerce as % of global 34% 34% 34% 33% 33% 33% 32%M‐commerce 14.0 25.0 39.0 53.0 71.0 92.0 109.0 34%US M‐commerce as % of global 58% 44% 33% 29% 27% 26% 26%M‐commerce as % of E‐Commerce 9.1% 14.1% 18.9% 22.3% 26.1% 29.8% 31.3%
Europe E‐commerce, $bnE‐commerce 152.4 162.5 183.4 204.5 226.1 247.7 268.8 11%E‐commerce as % of GDP 0.8% 0.8% 0.9% 1.0% 1.2% 1.3% 1.6%M‐commerce as % of E‐Commerce 9.1% 14.1% 18.9% 22.3% 26.1% 29.8% 31.3%M‐commerce 13.9 22.9 34.7 45.5 59.0 73.7 84.2 30%FX: EUR/USD 1.3 1.39 1.29 1.30 1.30 1.30 1.30 1.30M‐commerce (€ bn) 10.0 17.8 26.7 35.0 45.4 56.7 64.8 29%yoy 79% 50% 31% 30% 25% 14%
2011 2012 2013E 2014E 2015E 2016E 2017EEMEA retail IT spending (Gartner) 32.1 33.3 33.8 34.6 35.5 36.4 37.4
yoy 4.0% 1.5% 2.4% 2.6% 2.5% 2.8%
IT spending as % of retail opex 1.8%IT spending as % of retail sales 1.5% 1.5%
Assuming retail sector spends incremental 1.5% of sales for retooling for omnichannel presence
Incremental IT spending by Retail, €bn 1.0
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 31
Other verticals
Among other verticals, we believe that media/Internet will be the most impacted however
their revenue share in the attractive mobile advertising segment (€4.6 bn by 2017E) is
unclear as other ecosystems vie for their share. According to Gartner, mobile advertising
revenues are expected to reach $4.4 bn by 2016. By assuming, a 2017 growth rate to be
similar to 2016, we believe that European mobile advertising will be a $6 bn market (FX of
USD/EUR 1.3 implies €4.6bn market opportunity).
Exhibit 39: Among other verticals, we believe that media/internet will be the most impacted however their revenue
share in mobile advertising segment is unclear Mobile advertising forecasts, 2012-17E
Source: Gartner, Goldman Sachs Global Investment Research (2017 estimate).
Exhibit 40: Mobile advertising is new revenue growth
opportunity Mobile advertising, US$ mn
Exhibit 41: High growth location based services is a
potential area of conflict Location based services, US$ mn
Source: Gartner
Source: Gartner
Technology sector: Net beneficiary of the growth of mobile money
Based on our analysis, the technology sector will be the net beneficiary of the changes
brought in by mobile money as companies in various end markets retool themselves to
reduce cost and provide an omnichannel experience. We identify IT outsourcing and micro
merchants as the key incremental opportunities and estimate a €8 bn revenue opportunity
by 2017. Our estimates assume that European payment vendors under our coverage can
capture c.30% of this opportunity.
Mobile advertising revenues, ($ bn) 2010 2011 2012E 2013E 2014E 2015E 2016E 2017ENorth America 0.4 1.7 3.2 3.8 4.7 6.6 8.9 11.9Western Europe 0.3 0.8 1.6 1.9 2.4 3.3 4.4 6.0Asia/Pacific 1.1 2.4 4.3 4.9 5.5 7.3 9.5 12.2Rest of the World 0.1 0.3 0.6 0.8 1.0 1.3 1.8 2.4Total 2.0 5.2 9.8 11.4 13.5 18.6 24.6 32.5FX 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3European mobile advertising, €bn 0.2 0.6 1.2 1.5 1.8 2.5 3.4 4.6
1.1
2.4
4.34.9
5.5
7.3
9.5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2010 2011 2012E 2013E 2014E 2015E 2016E
Mob
ile adv
ertising, $
mn
Rest of the World Asia/Pacific
Western Europe North America
0.71.0
1.3
1.8
2.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2010 2011 2012E 2013E 2014E
Consum
er location
based
services, $ m
n
"Consumer location based revenues"
2011‐15E 34% CAGR
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 32
Compared to core banking solutions where replacing legacy infrastructure/software is a
concern for banks shifting to packaged core banking solutions, mobile solutions carry no
legacy and are increasingly critical to serve customers and hence get a disproportionate
share of shrinking IT budgets. Our industry checks indicate that apart from outsourcing,
mobile payments is the only area of IT spending which is growing in the financial services
market. We expect large banks with substantial customer bases to continue to make
significant organic investments in establishing mobile infrastructure; however we see tier
2/3 banks mostly outsourcing platform development to vendors like Monitise. Additionally,
as discussed in earlier sections we believe that the technology sector will be a beneficiary
of mobile opportunities related spending by banks (platform development, outsourcing,
mini branches), telcos (EM payment platforms, TSM) and retail sectors (mCommerce
platforms).
We believe the upcoming deadline for migration to comply with Single Euro Payments
Area (SEPA) regulations in Europe provides a potential impetus towards incremental
spending on IT and especially associated services in the region. As such we see an
incremental opportunity, with potential beneficiaries being the European technology
vendors. We note that the deadline is mandated by legislation, suggesting this can provide
a meaningful impetus to technological migration.
Exhibit 42: Technology- Enabler of mobile money landscape
Key attributes of technology vendors
Source: Goldman Sachs Global Investment Research.
Exhibit 43: Tech is the net beneficiary Impact of mobile money on tech
Source: IDC, Gartner, Goldman Sachs Global Investment Research.
Opportunities
• Newer opportunities related to IT spending
• Additional revenues through ads, information based services.
Threats
• Remain as enablers than participants in the payments chain
• Clash of the ecosytems limiting participation
Strengths
• Integral part of the mobile payments value chain
• Other sectors are dependent on Technology for transformation
Weakness
• Fragmented landscape
• Most relationships are b2b than b2c exception being mobile handset/O/S makers
Disruption
Regulations
Verticals Sector Impact Stock Impact
Incremental IT spend (Outsourcing, Platforms) +4.1 PositiveMicro merchants (mPOS services) +2.9Disruptive technologies/business models +0.3TSM opportunity +0.7
Incremental R&D, S&M costs ‐2.0+8.0 ‐2.0
Mobile Money‐ Broader implications for TechnologyIncrease/(Reduction) in revenue streams (€ bn) Reduction/(Increase) in cost base (€ bn) Transactional impact (€ bn)
Technology
Beneficiaries‐ AtoS, Monitise,
Gemalto, Ingenico,
Wirecard Non‐Beneficiaries‐
Tech is the net beneficiary as it helps retool the end markets to reduce costs and create omnichannel
presence
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 33
Exhibit 44: We estimate €8 bn incremental revenue opportunity for technology vendors from mobile money related
opportunities Analysis- revenue opportunities of technology sector
Source: Gartner, Goldman Sachs Global Investment Research.
Based on our end market analysis, we believe that mobile money will impact the revenue
streams for technology in the following ways:
IT spending/mobile technologies- we estimate incremental €4.8 bn revenue
opportunity for the technology vendors from retooling and enabling various end
markets to benefit from growth of mobile money. We see growth opportunities for
technology vendors which specialise in outsourcing (AtoS, Capgemini),
Platforms/processing (Monitise, Wirecard, Ingenico, AtoS Worldline), Analytics (SAP)
and Security (Gemalto, Ingenico) as a result.
Disruptive technologies/business models- we forecast revenue gains of c.€0.3 bn by
2017 (vs. 2012) from new disruptive technologies (discussed in banks section).
Micromerchants interchange fees- we forecast revenue opportunity of c. €2.9 bn by
2017 (vs. 2012) from micro merchants related opportunity.
As the tech vendors capitalise on the revenue opportunities related to mobile money, we
estimate c.25% of this revenue streams to be spent on R&D and S&M related expenses.
Disruptive technologies (€0.3 bn)
SAP Gemalto Monitise Monitise
Ingenico
EMEA IT Spending, € bn 2011 2012E 2013E 2014E 2015E 2016E 2017E2012‐17 CAGR
Banking 75.7 78.7 79.5 81.6 84.0 86.9 90.0 3%Telecommunications 53.2 55.2 55.6 57.0 58.9 60.6 62.8 3%Retail 32.1 33.3 33.8 34.6 35.5 36.4 37.4 2%Total IT spending by key verticals 160.9 167.2 168.9 173.2 178.4 183.9 190.3 3%yoy 3.9% 1.0% 2.5% 3.0% 3.1% 3.5%
Mobile money related IT spending, € bnBanking 3.0 Telecommunications 0.2 Retail 1.0 TSM opportunity 0.7 Incremental IT spending by key verticals 4.8
Technology market opportunity
Incremental IT spending (€4.8 bn)‐ Banks, Telcos, Retail Micro merchant
opportunity (€2.9 bn) Additional revenue sources
(€4.6 bn)
OutsourcingAtoS
Capgemini
PlatformsMonitise
Wirecard, Ingenico, AtoS Worldline
Security‐TSM, EMV
Advertising CouponingAnalytics Monitise,Ingenico, AtoS
Worldline,Wirecard, Sage
iZettle, SumUp
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 34
Micro merchants: Significant untapped opportunity
Costs of accepting payment cards include fixed costs (POS, phone lines) and variable costs
(per transaction fees, etc.). Therefore, any cost-benefit analysis centers on two issues: (1)
incremental sales volume generated, and (2) profit from those sales after transaction costs.
Micromerchants have largely been an untapped segment due to the high costs of
transactions relative to the incremental revenues generated. However, US mobile point of
sale vendors (mPOS) like Square have championed the concept of using mobile point of
sale terminals (mPOS) to target the micromerchant segment by significantly reducing the
set up costs benefiting from developments in mobile technologies. In Europe, a similar
effort is being lead by vendors including iZettle, SumUp and Payleven. Global POS leader
Ingenico and other European payments vendors Monitise, Wirecard, AtoS have also
launched their own offerings in the space.
We believe that mobile point of sale (mPOS) devices provide an incremental opportunity
for certain European payments vendors, including Monitise (CL-Buy). While these have
been cited as a threat for traditional payment terminal vendors such as Ingenico (Buy), we
do not see this as a near term risk, although we are cognisant of the need to monitor
technological evolution of these closely.
We forecast €5.7 bn European micro merchants related revenue opportunity by 2017 with
key beneficiaries being technology vendors/mPOS (€2.9 bn), banks (€0.6 bn) and other
members of the payments value chain (€2.2 bn). Key assumptions of our analysis:
According to European Commission, there are c.23mn micro merchants in Europe of
which 4.6mn are in UK (Source: Department for Business Innovation & Skills).
Average sales turnover of a UK micro merchant was £136.2K in 2012 (€156.7K,
assuming £/€ 1.15). We assume sales turnover of a European micro merchant is c.85%
of an UK micromerchant (loosely based on UK GDP per capita vs. European GDP per
capita). Additionally, we have assumed that this grows at UK GDP growth rate till
2017E (in line with our economists).
We have assumed that the impact of the changes to interchange fees will be seen from
2016 onwards i.e. 0.2% IF on debit cards and 0.3% on credit cards.
Based on the above assumptions, interchange fees will be a €6.5 bn revenue
opportunity by 2017. On a conservative basis, assuming a conversion of c.10% of the
micromerchants implies a revenue opportunity of €0.6 bn for banks.
Mobile POS vendors like iZettle charge 1.5%-2.75% as transaction fee. On an average,
we assume it is 2%, implying a revenue opportunity of €5.7 bn if 10% of the
micromerchant opportunity is tapped. Assuming 0.23% goes to banks as interchange
fees (€0.6 bn), 1% goes to mPOS vendors (€2.9 bn), 0.77% (€2.2 bn) will go to other
vendors in the payments value chain.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 35
Exhibit 45: We forecast €5.7 bn revenue opportunity related to European micro merchants Analysis- European micro merchant opportunity
Source: UK BIS, European Commission, Company data, Goldman Sachs Global Investment Research.
TSM: Securing the integrity of mobile payments
Trusted Service Manager (TSM) constitutes a key enabling technology for mobile
payments in our view, based on its role in ensuring banking-grade security in the mobile
environment. Moreover, we see potential for its application to non-payment verticals. We
estimate TSM will become a €0.7 bn market by 2017, even based on modest consumer
uptake of associated mobile payments solutions, and we view Gemalto (Buy) as the prime
beneficiary, with almost 20% of its incremental profits for 2012-17 to come from this source.
While TSM is currently at the start of a rollout phase, and adoption rates of TSM-enabled
payments approaches are as yet unknown, we have analysed the market based on plans
announced by telcos and banks, and pricing assumptions from our company discussions.
While we see clear potential for multiple technological approaches to mobile payments to
proliferate, in practice we believe an approach based on embedding payment credentials
within a silicon chip (“secure element” – either a separate chip in the phone or in a SIM)
will be one of the most prominent. As such, we view TSM as a key enabler. The purpose of
TSM platforms is to address the need for a mechanism whereby highly sensitive
credentials required to authenticate transactions at the point of sale can be transmitted
remotely over the air into such chips, given the phone in question cannot be preloaded
with these before the consumer decides which payment apps and providers to use. The
credentials involved include the keys to the bank, the user’s account identification and
other details e.g. spending limits, all of which could be targets of fraud/theft.
European Micromerchants opportunity 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
Total SMEs in Europe (mn) 23.0
Total Micro merchants (mn) 21.4
UK 4.6
Rest of Europe 16.8
Average turnover (in € mn)
UK 0.16 0.16 0.16 0.17 0.17 0.17
Rest of Europe 0.13 0.13 0.14 0.14 0.14 0.15
as % of total
Credit card spending 34% 32% 31% 32% 31% 30% 29% 28% 27% 26%
Debit card spending 66% 68% 69% 68% 69% 70% 71% 72% 73% 74%
Interchange fee
Credit cards 0.78% 0.78% 0.78% 0.78% 0.78% 0.78% 0.70% 0.60% 0.30% 0.30%
Debit cards 0.39% 0.39% 0.39% 0.39% 0.39% 0.39% 0.35% 0.30% 0.20% 0.20%
UK 3.2 2.9 2.5 1.5 1.6
Rest of Europe 10.0 9.1 7.9 4.8 4.9
Micromerchants opportunity‐ Banks, €bn 13.2 12.0 10.4 6.3 6.5
yoy ‐9% ‐13% ‐39% 2%
Micromerchants opportunity‐ Technology, €bn 26.0 26.5 27.1 27.8 28.6
Assuming modest success (10%) in tapping the micro merchant opportunity
Banks Interchange fees (€ bn), 0.23% blended rate 0.6
Incremental technology revenues (€ bn), 1% fee 2.9 Mobile POS vendors charge 1.5%‐2.75% for transactions (Average 2%)Revenue opportunity for other vendors in the value chain (=2%‐1%‐0.23%) 2.2
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 36
Exhibit 46: High level summary of TSM market assumptions TSM market overview
Source: Goldman Sachs Global Investment Research, Company data.
Our expectation that the global TSM market can grow at a 57% CAGR for 2012-17E to
reach a value of roughly €0.7 bn, encapsulates the following core assumptions:
Penetration of NFC SIM cards within the base of mobile subscribers globally within key
geographies to reach 26%. While there is no technological requirement for TSM
services to be linked to use of NFC specifically (and indeed secure chips could be
substituted for SIMs), our NFC SIM card forecasts act as a proxy for deployment by
telcos of secure elements (within mobile devices) on which payment and other
credentials may be stored. Further, there is no need for NFC to be the transmission
mechanism to the reader: the point is that these are secure containers whose contents
must be managed by TSM, even if e.g. Bluetooth were the transmission mechanism.
We assume roughly 40% of telco subscribers on average who are covered with such
cards actually activate at least one payment or other application at some point (even if
not frequent users of it thereafter). We assume 30% of users covered with such cards
activate some kind of payment app, and that 10% activate some kind of other services
app e.g. for transport, retailer loyalty, ticketing, enterprise access etc.
As such, we assume that in total only 10% of the approx. 5.6 bn mobile subscribers in
key geographies globally will activate some kind of TSM managed app by 2017,
whether related to payment or other verticals.
We assume that by 2017 TSM vendors will on average be able to extract just over €1
per activated user globally (including all TSM revenue streams e.g. system setup,
licenses, activation fees, maintenance etc.). This compares to the €4 per user that we
estimate GTO currently charges for an NFC-ready LTE/4G SIM card (which we estimate
will be closer to €2 by 2017, due to double digit declines on hardware ASPs).
Global TSM market summary 2012 2013E 2014E 2015E 2016E 2017E
Global mobile subscribers - key geographies (mn) 3,302 3,675 4,092 4,536 5,035 5,589
Cumulative global subs market subs covered with NFC SIM cards (mn) 6 69 221 498 901 1,456
% penetration of NFC SIM cards within mobile subs base (%) 0% 2% 5% 11% 18% 26%
Global subs actively using NFC SIM based mobile banking services (mn) 0 5 31 106 238 441
% of NFC SIMs where users actively using mobile banking services (%) 0% 7% 14% 21% 26% 30%
Global subs actively using NFC sim based transport/loyalty services (mn) 0 1 9 34 87 142
% of NFC SIMs where users actively using transport/loyalty services (%) 0% 1% 4% 7% 10% 10%
Global subs actively using NFC SIM based banking/other services (mn) 0 5 40 140 325 583% of NFC SIMs where users actively using banking/other services (%) 0% 8% 18% 28% 36% 40%
% of global handsets where NFC SIM based banking/other services used (%) 0% 0% 1% 3% 6% 10%
TSM revenues per active user (€) n/a 22.5 5.6 2.5 1.5 1.2
Global NFC based services projects activated per year 0 33 56 58 62 68
Global NFC based services projects installed base 0.0 33 89 147 209 276
TSM revenues per project (€mn) n/a 3.5 2.5 2.4 2.4 2.4
Global TSM market revenues (€mn) 71 118 223 348 494 675
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 37
Key risks: Complex landscape and execution are the key challenges
We take a positive view on tech sector’s role as an enabler and beneficiary of growth of
mobile money. However with the payments landscape becoming increasingly complex, we
believe that challenges remain high as well. In our view, following are the key risks for the
technology sector:
Complex ecosystem- with the ever increasing list of technology vendors in the
payments landscape, we believe differentiation remains key to success. Lack of
differentiation could lead to technology vendors’ role being reduced to that of enablers
than are beneficiaries of the growth of mobile money. Additionally, we believe that the
fast moving and complex payments landscape necessitates continual investment. Even
though we have modeled continued R&D investments for the European technology
payment vendors, new technologies or customer demands can drive these costs up,
demanding incremental organic and inorganic investments. This in turn could affect
the profitability of the small vendors and pose execution risks.
Execution- mobile money projects are heavily dependent on strong execution owing
to involvement of multiple ecosystems and related regulations. Poor execution could
have disproportionate negative implications.
Competition from other verticals- the broader mobile banking/payments/commerce
landscape remains very dynamic with the space currently going through a hyper cycle.
With many companies growing in this environment, it is yet less clear who is the
winner. We believe that the technology payment vendors could face competition from
in-house IT developments in banks and financial institutions, telecom carriers etc.
Security- data security and fraud prevention would be key points of discussions
involving moving into newer payments model like mobile. Customer apprehensions
around secure mode of transactions can potentially slowdown the adoption of mobile
payment solutions which will limit the revenue potential of tech payments vendors and
pose downside risks to our view and forecasts.
Changes in regulation- regulations like SEPA (Single Euro Payments Area), directives
from European Commission (EC), Payments Services Directive (PSD) etc., have already
been solid drivers for adoption of online, mobile payments. However, any changes to
these and regulatory interventions driven by security concerns and customer
protection can negatively affect faster adoption of mobile payment solutions.
Macro slowdown/ slower than expected take-up of mobile payments solutions in
Emerging Markets - In many African countries, mobile penetration is higher than
financial inclusion which provides a significant opportunity for tech payment vendors.
The story is quite similar in many other emerging nations which explain vendors like
Monitise signing deals in India and China. Any slowdown in the take-up of mobile
payment solutions in emerging markets has been driven by lack of customer interest,
inefficient broadband connectivity or governmental regulations pose downside risks to
future revenue streams for the payment vendors. Additionally a global macro
slowdown would adversely affect broader tech spending and re-prioritisation of newer
payment channels by the stakeholders.
Fragmented landscape lends itself to consolidation
While the mobile money opportunity is growing at an explosive rate, so is the stakeholder
list with both incumbents and newer vendors staking their claims in this business
opportunity. Given that no one entity controls all aspects of the m-payment ecosystem,
enforcing standards that cover consumer and merchant technologies, hardware and
software remains a challenge. Compared to traditional systems, mobile payments value
chain is more complicated due to the additional role of mobile OEMs and mobile carriers.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 38
The European payments landscape is highly fragmented characterised by the presence of
many local champions, but limited pan European/global vendors. Emerging class of mobile
payment vendors in addition to the increasing involvement of existing mobile, retail
vendors is further adding to the dynamics. Specifically, in Europe the complexity is further
enhanced due to country specific ecosystems and the active role played by respective
governments and regulations. With most big vendors in the financials, telco, retail
ecosystems trying to develop and extend their own ecosystems, the landscape is in a state
of flux and most incumbents and emerging vendors are either acquiring or organically
investing to remain relevant. We believe the payments vendors appeals to a range of
ecosystems including, technology, banks, retail and transport and hence expect
consolidation to accelerate over the next few years as the vendors acquire to consolidate
their ecosystems. We highlight recent acquisitions of Clarimail by Monitise, mFoundry by
FIS and Ogone by Ingenico in this regard.
Exhibit 47: Payments landscape- fragmented and increasingly complex owing to multiple ecosystems
European payments landscape (with select US vendors)
Source: Company data, Goldman Sachs Global Investment Research
CONSUMERS
MERCHANTS
Bank Credit Cards
American Express,
CapitalOne, Discover
TSMGemalto, Oberthur,
G&D
eWalletsV.me, Google,
Apple Passbook
Telco WalletsVodafone,
O2, Orange Money
DM JVs
Weve (UK mCommerce,ISIS (US telcos
EM JVs
M‐Pesa,M‐Shwari,
Tigo, Vodafone‐
Business Credit Cards
Tesco, BestBuy, Wal‐mart,
Target, Sears
DM JVsMCX (US)
Flash ‘N Pay
Wallets
Oyster (UK), Touch & Travel
(Deutsche Bahn), ATM
(Barcelona)
BanksTechnology Retail OthersTelcos
NetworksVisa,
Mastercard, American
Express, JCB, UnionPay
Point of Sale TerminalsSquare, iZettleAtoS,
Ingenico,
Technology providers
SAP, Monitise, Gemalto
Payment processors
AtoS, Wirecard,Ingenico , First data,Optimal payments,
AcquirersAtoS, Global payment, First data, Wirecard
BanksBarclays, RBS, HSBC
Carrier BillingBangoBoku
ACH based systemsPaypal
Alipay, BPay
September 4, 2013
Goldman Sachs Global Investment Research
Exhibit 48: Explosive growth of mobile mMobile payments technology vendors lands
Source: Goldman Sachs Global Investment Research.
money has spurred rapid growth of mobile payments tscape
Europe: Technology
39
echnology vendors
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 40
Exhibit 49: c.$56 bn spent since 2007 on M&A in the payments space with higher multiples paid for recent transactions;
we expect M&A to accelerate Historic M&A in the payments landscape, 2005-13E
Source: Company data, Bloomberg, Goldman Sachs Global Investment Research.
Date Acquirer Target SegmentTransaction size (EV)
EV/Sales Multiple
Mar‐13 ACI Worldwide Online Resources Corporation Online banking and bill pay solutions $20mn 1.3xFeb‐13 TSYS NetSpend Prapaid cards $1,400mn 4.0xFeb‐13 LineData Services CapitalStream (HCL Technologies) Credit lifecycle management $45mn 1.5xJan‐13 FIS mFoundry Mobile Payments $165mn NAJan‐13 Ingenico Ogone Payment service provider $484mn 8.6xJan‐13 Digital River, Inc. LML Payment Systems, Inc. Payment processing solutions $67mn 2.1xDec‐12 Sberbank Yandex Money Online payments $60mn 6.4xDec‐12 Monitise Mobile Money Network Mobile Commerce $24mn NADec‐12 Vantiv Litle & Co. Payment processing solutions $361mn 1.3xOct‐12 Electronic Funds Source, LLC T‐Chek Systems, Inc Payment processing solutions $303mn 6.1xOct‐12 Global Payments Inc Accelerated Payment Technologies Electronic transaction processing $413mn NASep‐12 MasterCard DataCash Group plc Multi‐channel payment services $489mn 8.2xJul‐12 Apple AuthenTec Biometric security and authentication solutions $356mn 5.1xJul‐12 PayPal Card.io Mobile Payments NA NAJul‐12 FleetCor Technologies, Inc. CTF Technologies Inc. Fuel payment processing $166mn 3.1xJul‐12 Cielo S.A. Merchant e‐Solutions, Inc. Payments solutions $614mn 5.0xJun‐12 Monitise Clairmail Mobile Payments $174mn 10.0xFeb‐12 ACI Worldwide S1 Corporation Integrated financial solutions $422mn 1.8xDec‐11 Advent International Oberthur Technologies Digital Security $1,495mn 1.4xNov‐11 BankServ FundTech Payments solutions $283mn 2.0xNov‐11 Wirecard AG Systems@Work Pte Ltd Enterprise payment gateway $60mn NANov‐11 BankServ Point Transaction Systems AB Retail payment and gateway provider $1,047mn 4.0xNov‐11 Bankers’ Almanac Accuity, Inc. Payment routing $515mn 5.0xNov‐11 VeriFone Global Bay Mobile Payments $28mn NASep‐11 Fiserv, Inc CashEdge, Inc. Payment processing solutions $465mn NAAug‐11 VeriFone Hypercom Payment security provider $485mn 1.4xJul‐11 PayPal Zong Inc Mobile Payments $240mn NAMar‐11 Visa PlaySpan Online currency $190mn NAFeb‐11 Fiserv M‐Com Mobile Payments NA NAJan‐11 NEOVIA Optimal Payments Online payments $48mn NADec‐10 Google Zetawire Mobile Payments NA NASep‐10 Apollo Management Evertec, Inc. Billing and Payment Solutions $640mn NASep‐10 Fifth Third Processing Solutions, LLC National Processing Company Payment processing services $620mn 2.2xAug‐10 AtoS Venture Infotek Payment processor $100mn 3.3xAug‐10 Bain Capital and Advent International RBS payments unit Payment processor $3,200mn NAJul‐10 Visa CyberSource Online payment processing $1,698mn 6.6xJun‐10 Gemalto Cinterion Wireless M2M application $212mn 1.0xApr‐10 Total System Services, Inc. First National Merchant Solutions Payment processor $150mn 3.2xNov‐09 American Express Revolution Money Online payments $305mn NAOct‐09 FIS Metavante Technologies, Inc. Payment technology $4,575mn 2.7xSep‐09 The Western Union Company Custom House, Ltd. Payment Solutions $371mn 3.7xFeb‐09 Accuity CB.Net Reference data provider NA NAJan‐09 MasterCard Orbiscom Payments solutions $100mn NASep‐08 Gemalto Keycorp (Multos business) Digital Security $22mn 1.0xAug‐08 Great Hill Partners LLC CAM Commerce Solutions, Inc. Payment processing solutions $140mn 4.1xMay‐08 Heartland Payment Systems Inc. Alliance Data’s Network Services Payment processing solutions $76mn 0.6xFeb‐08 Intuit, Inc. Electronic Clearing House Inc Payment processing solutions $135mn 1.8xDec‐07 QUALCOMM, Inc. Firethorn Holdings LLC Mobile Payments $210mn NADec‐07 Fiserv, Inc CheckFree Corp Payment processing solutions $4,369mn 4.5xNov‐07 Dubai International Financial Centre SmartStream Technologies Transaction lifecycle management solutions $200mn 4.3xNov‐07 CyberSource Corporation Authorize.Net Corporation Payment gateway solutions $546mn 4.6xSep‐07 Kohlberg Kravis Roberts & Co (KKR) First Data Corporation Payment Solutions $27,040mn 3.8xAug‐07 First Data Corp PolCard S.A Merchant transaction acquirer $325mn 6.9xMay‐07 Welsh, Carson, Anderson & Stowe TransFirst, LLC Transaction processing services $683mn NADec‐05 Axalto Gemplus Digital Security $1,530mn 1.4x
Average deal multiple 3.7xHigh 10.0xLow 0.6x
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 41
European payments: Buy the tech beneficiaries
Based on our end market analysis, we believe that the technology sector will be the net
beneficiary of the changes brought in by mobile money as companies in various end
markets retool themselves to reduce cost and provide an omnichannel experience. We
identify IT outsourcing and micro merchants as the key incremental opportunities and
estimate in total a €8 bn European revenue opportunity by 2017. Our estimates assume
that European payment vendors under our coverage can capture c.30% of this opportunity.
Exhibit 50: Upgrading Wirecard to CL Buy and Ingenico to Buy; reiterate ratings on Monitise (Buy*), Gemalto (Buy),
AtoS (Buy)
Rating, 12 month price target changes
Source: Goldman Sachs Global Investment Research.
European payment vendors: AtoS, Gemalto, Ingenico, Monitise, Wirecard
Among our European technology coverage universe, we identify the following assets as
the direct beneficiaries of the growth of mobile money. We are now Buy rated on all the
five vendors.
AtoS (Buy) – AtoS is a European leader in IT services (Outsourcing, Systems
integration). Atos Worldline is the payments division of AtoS group. Atos’
management team announced that it intends to ‘carve out’ Worldline, we believe this
will unlock shareholder value. The three main divisions of Atos Worldline are as
follows:
o Merchant Services & Terminals- €353 mn in 2012- Caters to merchants (SMB),
large retailers and online merchants and offers services like commercial
acquiring, online services, private label cards and Terminals.
o Mobility & e-Transactional service- €341 mn in 2012- Caters to public entities,
transport companies, healthcare organisations, Telecom and media
companies and offers services like e-Consumer, mobility, e-Government
collection, e-Ticketing.
o Financial Processing & Software Licensing- €375 mn in 2012- Caters to
financial institutions and offers services like acquiring processing, issuing
processing, online banking and payment software licensing
Gemalto (Buy) – Gemalto is a global digital security vendor and provides solutions
including silicon based secure payment cards (EMV cards), SIM cards (3G/4G/NFC),
secure passports (with secure chips in them) and Trusted Service Manager (TSM).
Payments PT PT changeCoverage Old New Core M&A Blended Core M&A Blended Timeframe %
AtoS Buy Buy 70.0 70.0 85.0 85.0 12 months 21%%u/d 25% 25% 51% 51%
Gemalto Buy Buy 90.0 90.0 115.0 165.0 125.0 12 months 39%%u/d 3% 3% 32% 90% 44%
Ingenico Neutral Buy 59.0 59.0 82.0 82.0 12 months 39%%u/d 12% 12% 55% 55%
Monitise Buy* Buy* 54.0 74.7 60.0 93.6 114.9 100.0 12 months 67%%u/d 17% 62% 30% 102% 148% 116%
Wirecard Neutral Buy* 24.0 24.0 36.0 42.6 38.0 12 months 58%%u/d 1% 1% 52% 80% 61%
Average %u/d 12% 62% 14% 59% 106% 65% 45%
* On the conviction list
Rating Old PT (2014 based) New PT (2015 based) ValuationMethodology
15.4x P/E (from 13.5x)
Core: 14x EV/EBITDA (from 12x)
12x EV/EBITDA (from 11.3x)
Core: 5.7x EV/Sales
Core: 30x P/E (from 24x)
M&A: 4x EVSales
M&A: 7xEVSales
M&A: 7xEVSales
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 42
Ingenico (Buy) - Ingenico provides payment terminals (for accepting card based
payments), which it sells either direct to merchants or via third parties such as banks.
Increasingly it sells transaction services (<30% of the business). It is globally diversified,
with presence in both DM and EM.
Monitise (CL Buy) – Monitise is a UK based leader in mobile money platform and
solutions. We see it as a structural winner in the mobile money space and believe that
its strong relationship with Visa (significant customer, shareholder, JVs) provides
unique advantage.
Wirecard (CL Buy) – Wirecard is a Germany based European technology leader in the
eCommerce segment. It provides technology solutions for payment processing and
issuing products and is fast expanding into Asian markets.
Incorporating end market analysis into our estimates
Based on our end market analysis, we make changes to our 2013-15 estimates and add
2016-17 estimates. We believe that the European payment vendors will derive benefits
from growth in investments related to mobile money and estimate that European payment
vendors under our coverage can capture c.30% of this €8 bn opportunity.
Our key action items include the following:
We raise our 2014, 2015 PF EPS estimates by 4% and 5% respectively. We are now 7%,
10% ahead of PF EPS on 2014, 2015 respectively.
We introduce 2016, 2017 estimates to better reflect the mid-term structural growth
potential of these payment vendors. We estimate payments peer group to grow at 13%
CAGR over 2012-17E, with Monitise significantly outgrowing the group at 50% CAGR
as it is a mobile money pure play.
We shift our valuation timeframe to 2015 to better capture the structural growth
opportunities related to payments and incorporate M&A into our price target
methodology framework for Gemalto and Wirecard. We already have M&A in our price
target methodology for Monitise.
On an average, our 12-month price targets increase by 45% and we now have 65%
upside potential for payment assets.
We upgrade Wirecard to Buy and add to the Conviction List (Neutral), Ingenico to Buy
(Neutral). We reiterate our ratings on Monitise (Buy, on the Conviction List), Gemalto
(Buy) and AtoS (Buy).
Beyond the European payments vendors, additional beneficiaries of the mega trend
include: SAP (mobile analytics), Opera (mobile advertising), Sage (SMB payments),
Millicom (EM money transfers), ASOS (retail). Non-beneficiaries include: De La Rue,
internal IT, non-prime real estate and traditional advertisers.
European payments vendors are well positioned on our GS
SUSTAIN framework
We roll out our long-term forecasts based on our end market analysis. We believe vendors
exposed to structural themes like mobile money stand to benefit versus peers and hence
forecast European payment vendors to grow at 13% CAGR over 2013-17E vs. c.8% for the
European technology universe. Within the payment vendors, we expect Monitise to grow
substantially ahead of the group at 50% CAGR over 2013-18E.
Over the past several years, we believe European payment vendors have made significant
strides in improving industry positioning through substantial R&D investments and
capturing EM growth, we expect this to accelerate over the next few years.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 43
On the cost front, vendors like Gemalto and Wirecard has brought forward their
investments to benefit from the burgeoning mobile money space. However, we expect
investments to normalise from 2015 onwards and forecast expanding margins. We believe
owing to their niche and differentiated positioning (excluding in payment processing);
European payment vendors should enjoy good pricing power.
We believe that mobile platform, TSM, EMV and micromerchant segments have strong
growth potential and traditional payment processing having low pricing power. Hence, we
see Monitise (mobile payments platform), Gemalto (TSM), Wirecard (eCommerce) as
structural growth assets in the space. In considering our long-term forecasts, we see
several notable trends. Central to our view is the ability of well positioned companies to re-
deploy cash at close to/higher than group average returns.
Companies on our Conviction Buy List, Monitise, Wirecard, are Q1 positioned in our GS
SUSTAIN framework. Additionally, Gemalto which we identify as a structural growth asset
is Q1 positioned. Ingenico is Q2 positioned reflecting strong near term growth although we
are cognisant of medium- to long-term risks from mPOS. AtoS is Q3 positioned owing to
the significant IT services segment which carries limited pricing power and has low growth.
Exhibit 51: We forecast the mobile money opportunity for technology vendors to grow at
46% CAGR over 2013-17E European incremental mobile money opportunity for technology vendors, € bn
Source: Goldman Sachs Global Investment Research.
1.2 2.0
2.9
3.9
4.8
0.5
0.8
1.4
1.9
2.9
0.1
0.1
0.1
0.2
0.3
‐
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2013E 2014E 2015E 2016E 2017E
Disruptive technologies Micro merchants Incremental IT spending by key verticals
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 44
Exhibit 52: We believe technology vendors will be the
major beneficiary of the micro merchants opportunity European micro merchant opportunity, € bn
Exhibit 53: We estimate TSM opportunity to grow at 55%
CAGR over 2013-17E TSM opportunity, € bn
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
Exhibit 54: We estimate €8 bn incremental revenue opportunity for technology vendors from mobile money related
opportunities Analysis- revenue opportunities of technology sector
Source: Gartner, Goldman Sachs Global Investment Research.
0.3 0.50.8
1.41.9
2.9
0.10.1
0.2
0.3
0.4
0.7
0.2
0.4
0.6
1.0
1.5
2.2
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2013E 2014E 2015E 2016E 2017E
Other vendors Banks Technology
53% CAGR 2013‐17E
0.1
0.2
0.3
0.5
0.7
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2013E 2014E 2015E 2016E 2017E
55% CAGR 2013‐17E
Disruptive technologies (€0.3 bn)
SAP Gemalto Monitise Monitise
Ingenico
EMEA IT Spending, € bn 2011 2012E 2013E 2014E 2015E 2016E 2017E2012‐17 CAGR
Banking 75.7 78.7 79.5 81.6 84.0 86.9 90.0 3%Telecommunications 53.2 55.2 55.6 57.0 58.9 60.6 62.8 3%Retail 32.1 33.3 33.8 34.6 35.5 36.4 37.4 2%Total IT spending by key verticals 160.9 167.2 168.9 173.2 178.4 183.9 190.3 3%yoy 3.9% 1.0% 2.5% 3.0% 3.1% 3.5%
Mobile money related IT spending, € bnBanking 3.0 Telecommunications 0.2 Retail 1.0 TSM opportunity 0.7 Incremental IT spending by key verticals 4.8
Technology market opportunity
Incremental IT spending (€4.8 bn)‐ Banks, Telcos, Retail Micro merchant
opportunity (€2.9 bn) Additional revenue sources
(€4.6 bn)
OutsourcingAtoS
Capgemini
PlatformsMonitise
Wirecard, Ingenico, AtoS Worldline
Security‐TSM, EMV
Advertising CouponingAnalytics Monitise,Ingenico, AtoS
Worldline,Wirecard, Sage
iZettle, SumUp
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 45
GS SUSTAIN is our long-term investment framework for identifying companies well
positioned to sustain high returns on capital relative to peers. It combines financial analysis
of companies’ returns with the structural drivers of those returns (‘industry positioning’).
Among our European Technology coverage, we view European payment vendors as being
fundamentally well positioned on our GS SUSTAIN framework owing to their exposure to
structural growth, niche positioning and improving cash returns.
We capture the industry drivers for the sector through our industry positioning metrics:
Segment growth: We weight each company’s segment exposures and blended
expected revenue growth based on industry forecasts that determine the attractiveness
of the categories. We forecast mobile money related opportunity for technology
vendors to grow at 46% CAGR over 2013-17E. However given all the payment vendors,
excluding Monitise, are not pure play vendors their growth rates are lower.
Relative market share: We analyse companies’ market shares in each of the
categories/segments in which they participate to determine potential scale and pricing
power, and whether these segments are concentrated or fragmented. We calculate a
relative market share score, which is defined as the company’s market share relative to
that of the top three players in the segment.
o AtoS Worldline- Outsourcing and processing platforms for banks is a very
fragmented market c.5% market share for Worldline in Europe and c.25%
relative market vs. top 3 vendors. Owing to market fragmentation, its core
segments like financial processing are price sensitive and dependent on
volume for growth. However mobility and merchant services have good
pricing dynamics.
o Gemalto has by far the best execution track record in terms of digital security
implementations on a global basis. It also has over c.50% market share in the
emerging TSM segment and c.45% market share in its two largest segments.
o Ingenico has c.40% market share in the POS segment and has significantly
gained market share over the recent quarters. We believe that near term
concerns around market share loss to mPOS vendors are overdone and
continue to see it benefiting from EMV deployment in US.
o Monitise has a relatively small market share in the market due to its limited
history however we believe that its strong mobile money platform and
customers references will enable it to track strong growth over the next few
years.
o We forecast Wirecard to have c.37% relative market share versus the top three
vendors in the eCommerce technology vendor segment. While pricing
pressure continues, volume growth substantially negates the impact and we
forecast Wirecard to continue to gain market share in the segment.
Expected company organic revenue growth. We use our forecasts for each company
over the next three calendar years, as these capture factors such as any expected
market share gains/losses or company-specific fundamental strengths/weaknesses.
o We estimate AtoS Worldline business growth to accelerate from 5% in 2013 to
9% by 2017E benefiting from increased focus following managements ‘carve
out’ and macro. We estimate Worldline to be 15% of revenues and 35% of
operating profits by 2017 compared to 12%/27% of revenues/operating profits
in 2012.
o We believe Gemalto will be a continuing beneficiary of digital security
solutions like EMV and emerging TSM opportunity (36% CAGR over 2013-17E)
and forecast 12% group revenue CAGR over 2012-17E. We estimate TSM to be
6% of revenues by 2017E, driving 13% of incremental growth over the period.
We expect TSM to become increasingly profitable as it gains scale. We
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 46
estimate TSM EBIT margins to expand from 0% in 2013 to 26% in 2017, with
TSM driving 19% of group incremental profit growth from 2013-17.
o We believe that Ingenico is a key beneficiary of the shift to EMV technology in
US and we estimate group revenues to grow at 12% CAGR over 2013-17E. We
expect North America revenues at Ingenico to grow at a 16% CAGR from 2013-
17, driving 12% of incremental group revenues over the period.
o Given Monitise is the only pure mobile money play, we forecast Monitise
revenues to grow significantly above peer group at 50% CAGR over FY2013-
18E.
o We forecast Wirecard to grow at 20% CAGR over 2012-17E benefiting from
acceleration in eCommerce/mCommerce and expanding presence in emerging
markets like Asia. We expect incremental revenues from Asia to be of higher
margin profile than group profits due to low cost base in Asia and benefits
from replication of core platform.
Risk adjustment. We measure risk associated with each company’s ability to maintain
its market position and returns, as well as deliver on growth. The two metrics we use
for software assets like Monitise, Wirecard and AtoS Worldline are: (1) percentage of
recurring revenues, to determine revenue predictability and cash flow; and, (2) product
diversification (the number of different products/categories in which the company
participates), to assess risks to the delivery of growth. For hardware assets we use (1)
long term R&D/sales, as a proxy for each company’s ability to innovate and (2) an
adjustment factor to reflect productivity of R&D spend (ranging from 0.8 to 1.2).
o We estimate AtoS Worldline revenues to be c.70% recurring owing to its good
revenue visibility in the Mobility and Financial processing segments.
Additionally, we see three revenue streams from Merchant services &
Terminals, Mobility & e-Transactional services and Financial Processing &
Software Licensing to provide multiple revenue streams.
o Gemalto had an average R&D/sales ratio for 2005-12 of 6%, with a productivity
factor of 1.2. Such a productivity factor is at the top end of scores for hardware
assets within our European coverage, and reflects Gemalto’s success in being
first to market versus its competitors on the latest products within its key
verticals. Nevertheless, an overall 7% risk adjustment score suggests Gemalto
is in the lower half of the ranking of companies within our European hardware
coverage.
o Ingenico had an average R&D/sales ratio for 2005-12 of 8%, with a productivity
factor 1.2. Such a productivity factor is at the top end of scores for our
hardware coverage, and is based on Ingenico’s proactive approach to
developing point of sale solutions that accommodate a broad array of
payment interfaces and mobility requirements. Overall, its risk adjustment
score of 9% puts it towards the middle of the ranking of hardware assets
within our European coverage.
o Given the growing importance of the user generated revenues for Monitise,
we estimate c.62% of revenues to be having high revenue visibility. We expect
Monitise to participate across mobile banking, mobile payments and mobile
commerce segments.
o We forecast c.70% of revenues representing the payment processing and risk
management segment to be carrying high revenue visibility. Payment
processing segment also has better margin profile than group level.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 47
Exhibit 55: European payments vendors are well positioned on our GS SUSTAIN framework Our tech coverage Universe- cash returns in context of strategic positioning
Source: IDC, Gartner, Goldman Sachs Global Investment Research.
0%
25%
50%
75%
100%
0% 25% 50% 75% 100%
Bel
ow A
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Below Average <=== Industry positioning percentile ===> Above Average
AIXGn.DE
ALUA.PA
ARM.L
ASMI.AS
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AMS.S
CSR.L
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GTO.ASIMG.L
IFXGn.DE
INGC.PA
LOGN.S
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SPT.L
STM.PA
TCH.PA
TOM2.ASWLF.L
DAST.PA
AVV.L
FDSA.L
SAPG.DE
SOWG.DE
BLNX.L
NEKG.DETEMN.S
SGE.L
OPERA.OL
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UNI4.AS
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ATOS.PA
IDR.MC
TIE1V.HE
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WDIG.DE
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 48
Exhibit 56: Payment asset valuations are still attractive relative to our growth framework and vs. history Current PEG (Y axis) vs. 2010-12 trailing observed PEG (x axis) for growth stocks in our coverage
Source: Goldman Sachs Global Investment Research.
0.00x
0.25x
0.50x
0.75x
1.00x
1.25x
1.50x
0.00x 0.25x 0.50x 0.75x 1.00x 1.25x 1.50x 1.75x 2.00x 2.25x 2.50x 2.75x
PEG Current (2
014)
Average trading PEG 10‐12
ARM.L, Q1 IP, Q1 CROCI, 32% EPS CAGR (12‐15E)
IMG.L, Q1 IP, Q2 CROCI, 19% EPS CAGR (12‐15E)
GTO.AS, Q1 IP, Q2 CROCI, 27% EPS CAGR (12‐15E)
INGC.PA, Q2 IP, Q2 CROCI, 29% EPS CAGR (12‐15E)
TCY.L, Q2 IP, Q3 CROCI, 21% EPS CAGR (12‐15E)
WDIG.DE, Q1 IP, Q2 CROCI, 22% EPS CAGR (12‐15E)
INXN, Q1 IP, Q3 CROCI, 19% EPS CAGR (12‐15E)
AVV.L, Q1 IP, Q1 CROCI, 24% EPS CAGR (12‐15E)
BLNX.L, Q2 IP, Q1 CROCI, 31% EPS CAGR (12‐15E)
DAST.PA, Q1 IP, Q1 CROCI, 16% EPS CAGR (12‐15E)
HEXAb.ST, Q1 IP, Q4 CROCI, 19% EPS CAGR (12‐15E)
OPERA.OL, Q1 IP, Q1 CROCI, 33% EPS CAGR (12‐15E)
SAPG.DE, Q1 IP, Q1 CROCI, 15% EPS CAGR (12‐15E)
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 49
Exhibit 57: Payment vendors are well positioned with respect to industry positioning in our GS SUSTAIN framework European Tech GS SUSTAIN framework- Wirecard, Monitise, Gemalto are best positioned payment vendors
Source: IDC, Gartner, Goldman Sachs Global Investment Research.
A B A * BCAGR Company Top 3 Positioning 2012-15E Sales Growth R&D / Sales Productivity R&D R&D
Company Market Growth Percentile Market Share Market Share Percentile Percentile Sales CAGR Percentile 2005-12 Factor Productivity Percentile Percentile QuartileAixtron 7% 43% 40% 100% 70% 54% 13% 79% 14% 0.8 10% 41% 59% Q2 IPASM International NV 8% 52% 25% 95% 50% 52% 10% 63% 15% 1.2 18% 88% 72% Q2 IPASML Holding NV 10% 72% 75% 95% 100% 95% 14% 86% 15% 1.2 18% 70% 97% Q1 IPAMS AG 12% 86% 13% 53% 47% 72% 8% 56% 18% 1.0 17% 52% 61% Q2 IPCSR plc 13% 88% 26% 60% 79% 93% 1% 13% 23% 0.8 18% 94% 56% Q2 IPInfineon 8% 56% 12% 40% 54% 56% 6% 52% 16% 1.2 19% 100% 68% Q2 IPSTMicroelectronics 8% 56% 19% 48% 65% 68% 3% 25% 22% 0.8 18% 76% 43% Q3 IPWolfson Microelectronics Plc 10% 72% 4% 50% 20% 38% 12% 75% 23% 0.8 17% 58% 50% Q3 IPAlcatel-Lucent 4% 11% 6% 77% 15% 13% -3% 4% 15% 0.8 12% 47% 6% Q4 IPEricsson 5% 40% 31% 62% 93% 70% 3% 34% 15% 1.2 18% 82% 52% Q2 IPGemalto 11% 79% 50% 85% 97% 97% 12% 77% 6% 1.2 7% 17% 86% Q1 IPIngenico SA 7% 47% 40% 85% 86% 72% 12% 72% 8% 1.2 9% 29% 70% Q2 IPLogitech 5% 22% 30% 54% 95% 43% -1% 9% 6% 1.2 7% 11% 15% Q4 IPNokia 8% 54% 12% 59% 43% 45% -4% 2% 13% 0.8 10% 35% 22% Q4 IPPace 2% 6% 20% 54% 61% 27% 3% 36% 7% 1.0 7% 23% 27% Q3 IPSpirent Communications Plc 9% 61% 38% 96% 68% 81% 3% 20% 17% 1.0 17% 64% 45% Q3 IPTechnicolor 1% 4% 31% 73% 77% 22% -1% 6% 4% 0.8 3% 0% 2% Q4 IPTomTom 0% 0% 38% 76% 88% 0% -5% 0% 8% 0.8 7% 5% 0% Q4 IP
A B A * BCAGR Company Top 3 Positioning 2012-15E Sales Growth Recurring Product Risk Assessment
Company Market Growth Percentile Market Share Market Share Percentile Percentile Sales CAGR Percentile Revenues Diversification Percentile Percentile Percentile QuartileARM Holdings plc 15% 93% 45% 90% 90% 100% 18% 88% 65% 4.0 92% 71% 100% Q1 IPImagination Technologies 14% 90% 20% 80% 45% 77% 14% 81% 40% 1.0 0% 14% 79% Q1 IPSAP (Ordinary Share) 9% 70% 20% 49% 75% 88% 10% 65% 56% 4.0 92% 67% 88% Q1 IPHexagon AB 8% 50% 20% 45% 81% 77% 8% 59% 39% 3.0 69% 37% 63% Q2 IPDassault Systemes 9% 63% 13% 28% 84% 90% 11% 68% 66% 4.0 92% 73% 90% Q1 IPAveva 9% 68% 9% 22% 72% 86% 19% 93% 69% 2.0 38% 61% 95% Q1 IPNemetschek 5% 25% 1% 28% 9% 15% 5% 43% 47% 1.0 0% 20% 25% Q4 IPMonitise 42% 100% 0% 5% 11% 34% 56% 100% 62% 3.0 69% 59% 77% Q1 IPSage Group 5% 25% 6% 44% 31% 31% 4% 38% 66% 1.0 0% 41% 36% Q3 IPUnit 4 5% 25% 3% 44% 13% 25% 9% 61% 54% 2.0 38% 40% 40% Q3 IPExact Holding 5% 25% 1% 44% 2% 6% 3% 31% 68% 1.0 0% 44% 18% Q4 IPIFS 5% 25% 2% 44% 6% 11% 5% 45% 34% 1.0 0% 7% 20% Q4 IPOpera Software 23% 97% 8% 48% 34% 63% 32% 97% 28% 2.0 38% 17% 81% Q1 IPBlinkx 22% 95% 5% 50% 25% 47% 22% 95% 0% 1.0 34% 14% 54% Q2 IPSoftware AG 0% 2% 4% 55% 18% 4% 5% 40% 40% 2.0 38% 27% 13% Q4 IPTemenos 5% 25% 12% 41% 56% 36% 6% 47% 44% 1.0 0% 18% 38% Q3 IPFidessa 5% 38% 11% 31% 63% 50% 6% 50% 84% 3.0 69% 83% 47% Q3 IPSDL 7% 45% 8% 46% 36% 40% 2% 18% 66% 2.0 38% 54% 34% Q3 IPMicro Focus 3% 9% 5% 50% 27% 18% 0% 11% 55% 2.0 38% 43% 11% Q4 IPCapgemini 4% 13% 2% 13% 29% 29% 3% 29% 51% 3.0 69% 50% 31% Q3 IPAtos 4% 13% 1% 13% 22% 20% 3% 22% 72% 3.0 69% 80% 29% Q3 IPTieto 4% 13% 0% 13% 0% 0% 1% 15% 40% 2.0 38% 29% 4% Q4 IPIndra 4% 13% 0% 13% 4% 9% 3% 27% 32% 2.0 38% 19% 9% Q4 IPTelecity 12% 81% 5% 24% 40% 61% 11% 70% 90% 1.0 0% 58% 75% Q1 IPInterxion 12% 81% 4% 23% 38% 59% 14% 84% 95% 1.0 0% 60% 84% Q1 IPWirecard 11% 77% 12% 37% 59% 84% 18% 90% 71% 1.0 0% 50% 93% Q1 IPAtos Worldline 9% 65% 7% 25% 52% 65% 7% 54% 70% 3.0 69% 76% 65% Q2 IP
Softw
are
----- Company Growth Profile ---- ----- Risk Assessment -----
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September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 50
Exhibit 58: Reflecting thematic views into estimates- our estimates assume that European payment vendors
under our coverage can capture c.30% of this opportunity. European payment vendors revenues, 2012-17E
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 59: Our estimate changes reflect our positive view on mobile money, however near
term EPS growth may be impacted by investments to drive structural growth Estimate changes
Source: Goldman Sachs Global Investment Research.
Total Revenues (€ mn) 2012 2013E 2014E 2015E 2016E 2017EIncremental
2012-17E
ATOS.PA Atos 8,844 8,796 9,059 9,404 9,786 10,192 1,348
GTO.AS Gemalto 2,236 2,505 2,795 3,130 3,506 3,927 1,691
INGC.PA Ingenico SA 1,206 1,400 1,590 1,790 1,970 2,170 964
MONI.L Monitise 69 117 184 277 402 570 501
WDIG.DE Wirecard 395 474 567 678 816 990 596
12,750 13,292 14,195 15,278 16,479 17,850 5,100
Newer opportunity revenues (€ mn) 2012 2013E 2014E 2015E 2016E 2017EIncremental
2012-17E
ATOS.PA AtoS Worldline 1,069 1,126 1,208 1,318 1,439 1,575 506
GTO.AS Gemalto 648 722 806 916 1,030 1,147 498
INGC.PA Ingenico SA 225 307 388 483 584 699 474
MONI.L Monitise 69 117 184 277 402 570 501
WDIG.DE Wirecard 395 474 567 678 816 990 596
European Payments coverage 2,406 2,747 3,153 3,672 4,271 4,981 2,575
Incremental benefits to Technology vendors 7,958
% benefit to European payments vendors 32%
2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E
Ingenico 1% 1% 1% 5% 5% 6% 7% 17% 20%
Wirecard 0% -1% -2% -2% -2% -1% -1% -2% -3%
Gemalto 1% 0% 1% 1% 0% 0% -3% -3% -1%
Average 1% 0% 0% 1% 1% 1% 1% 4% 5%
Sales EBIT PF EPS
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 51
Exhibit 60: We forecast payment vendors to grow above tech peer group European payment vendors - key KPIs
Source: Goldman Sachs Global Investment Research.
Exhibit 61: Our forecasts are above consensus
Our estimates vs. Bloomberg consensus
Source: Bloomberg, Goldman Sachs Global Investment Research.
Exhibit 62: We are valuing payment vendors at premium/in line to historical multiples European payment vendors- price target methodology (all price targets are 12-months)
Source: I/B/E/S, Datastream, Goldman Sachs Global Investment Research.
Payment Vendors Reporting
Currency 2013E 2014E 2015E 2016E 2017E 2013E 2014E 2015E 2013E 2014E 2015E 2016E 2017E 2013E 2014E 2015E 2016E 2017E 2013E 2014E 2015E 2016E 2017E
Atos EUR 8,796 9,059 9,404 9,786 10,192 886 1,018 1,088 660 731 788 849 911 4.37 5.12 5.49 5.92 6.33 11% 10% 10% 10% 10%
Gemalto EUR 2,505 2,795 3,130 3,506 3,927 417 525 597 360 448 522 604 697 3.27 4.44 5.27 6.32 7.74 14% 17% 18% 20% 20%
Ingenico SA EUR 1,400 1,590 1,790 1,970 2,170 280 335 383 240 290 334 368 404 2.63 3.40 4.07 4.80 5.76 15% 15% 17% 17% 17%
Monitise GBP 75.2 124.4 189.8 283.7 401.6 -17.0 7.0 35.6 -30.3 -9.7 14.9 39.6 73.2 -1.79 0.02 1.74 3.36 5.21 -3% 9% 19%
Wirecard EUR 474.0 566.9 677.7 815.5 990.3 125.0 156.9 192.8 101.8 134.2 169.1 210.9 261.7 0.74 0.96 1.21 1.53 1.96 19% 20% 21% 21% 22%
Margins
Atos 10.1% 11.2% 11.6% 7.5% 8.1% 8.4% 8.7% 8.9%
Gemalto 16.6% 18.8% 19.1% 14.4% 16.0% 16.7% 17.2% 17.7%
Ingenico SA 20.0% 21.1% 21.4% 17.1% 18.2% 18.7% 18.7% 18.6%
Monitise -22.6% 5.6% 18.8% -40.2% -7.8% 7.9% 14.0% 18.2%
Wirecard 26.4% 27.7% 28.4% 21.5% 23.7% 24.9% 25.9% 26.4%
Average 10.1% 16.9% 19.9% 4.1% 11.6% 15.3% 16.9% 18.0% 11% 14% 17% 17% 17%
Median 16.6% 18.8% 19.1% 14.4% 16.0% 16.7% 17.2% 18.2% 14% 15% 18% 19% 19%yoy growth
Atos -0.5% 3.0% 3.8% 4.1% 4.2% 12% 15% 7% 14% 11% 8% 8% 7% 14% 17% 7% 8% 7%
Gemalto 12.0% 11.6% 12.0% 12.0% 12.0% 14% 26% 14% 18% 24% 17% 16% 15% 24% 36% 19% 20% 22%
Ingenico SA 16.0% 13.6% 12.6% 10.1% 10.2% 25% 20% 14% 27% 21% 15% 10% 10% 36% 29% 20% 18% 20%
Monitise 108% 65% 53% 49% 42% 63% -141% 410% 85% -68% -253% 165% 85% -18% -101% 8687% 93% 55%
Wirecard 20.1% 19.6% 19.5% 20.3% 21.4% 14% 25% 23% 9% 32% 26% 25% 24% 9% 30% 25% 27% 28%
Average 31% 23% 20% 19% 18% 26% -11% 94% 30% 4% -38% 45% 28% 13% 2% 1751% 33% 26%
Median 16% 14% 13% 12% 12% 14% 20% 14% 18% 21% 15% 16% 15% 14% 29% 20% 20% 22%
EBITDA (ex-SBC, ex-exceptionals) EBIT (ex-SBC, ex-exceptionals)Total revenues PF EPS CROCI
2013E 2014E 2015E 2013E 2014E 2015E
Atos 0% 1% 2% -2% 4% 3%
Gemalto 2% 2% 4% -1% 7% 10%
Ingenico SA 1% 3% 4% 15% 18% 24%
Monitise 3% 10% 19% 22% 102% 148%
Wirecard 1% 2% 4% -2% 1% 5%
Median 1% 2% 4% -1% 7% 10%
GS vs. Consensus
PF EPSRevenues
Price Target Methodology
EV/EBITDA based valuation EV/EBITDA based valuation
2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E
Atos 17.2x 14.6x 13.7x 7.5x 6.1x 5.4x 0.8x 0.7x 0.6x 17.2x 14.6x 13.7x 7.5x 6.1x 5.4x 0.8x 0.7x 0.6x
Gemalto 33.0x 24.2x 20.4x 19.9x 15.8x 13.9x 3.3x 3.0x 2.6x 38.2x 28.1x 23.7x 22.1x 17.5x 15.4x 3.7x 3.3x 2.9x
Ingenico SA 31.3x 24.2x 20.3x 16.6x 13.8x 12.1x 3.3x 2.9x 2.6x 31.3x 24.2x 20.3x 16.6x 13.8x 12.1x 3.3x 2.9x 2.6x
Monitise NM NM NM NM NM NM 8.8x 5.5x 3.9x NM NM NM NM NM NM 8.8x 6.0x 3.9x
Wirecard 39.6x 28.5x 25.3x 25.1x 20.4x 16.8x 6.7x 5.7x 4.8x 39.6x 31.1x 25.3x 25.1x 20.4x 16.8x 6.7x 5.7x 4.8x
Core valuation
30%, 7x CY14EVSales
P/E based valuation EV/Sales based valuation
Blended valuation
P/E based valuation EV/Sales based valuation
30%, 7x FY14EVSales
20%, 4x CY14EVSales
M&A valuation
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 52
Exhibit 63: We believe that historical valuation does not capture structural growth from mobile payments Historical valuation
Source: I/B/E/S, Datastream, Goldman Sachs Global Investment Research.
Exhibit 64: Payment vendors are attractively valued in context of the strong growth prospects
Growth screen: EPS CAGR vs. current PEG
Source: Goldman Sachs Global Investment Research.
Historical Valuation Current Valuation (on 2014E) EVEBITDA based valuation EVSales based valuation
P/E EV/EBITDA EV/Sales Mean Low High Mean Low High
Atos 11.2x 4.5x 0.5x 8.1x 2.7x 21.4x 0.6x 0.3x 1.0x
Gemalto 18.9x 12.0x 2.2x 6.9x 1.3x 13.7x 1.1x 0.3x 2.3x
Ingenico SA 14.8x 10.5x 2.2x 10.4x 4.2x 21.6x 1.1x 0.5x 2.1x
Monitise NM NM 4.3x NM NM NM 4.8x 0.0x 13.8x
Wirecard 24.8x 16.5x 4.5x 11.1x 0.0x 23.4x 2.9x 0.0x 5.0x
Average 17.4x 10.9x 2.7x 9.1x 2.0x 20.0x 2.1x 0.2x 4.9x
Median 16.9x 11.2x 2.2x 9.3x 2.0x 21.5x 1.1x 0.3x 2.3x
y = ‐0.1381x + 0.3596R² = 0.3633
10%
15%
20%
25%
30%
35%0.4x 0.6x 0.8x 1.0x 1.2x 1.4x 1.6x
EPS CA
GR (201
2‐15
)
PEG Current (2014)
ARM.L, Q1 IP, Q1 Returns,32x 2014 P/E
IMG.L, Q1 IP, Q2 Returns,15x 2014 P/E
GTO.AS, Q1 IP, Q2 Returns,20x 2014 P/E
INGC.PA, Q2 IP, Q2 Returns,14x 2014 P/E
TCY.L, Q2 IP, Q3 Returns,19x 2014 P/E
WDIG.DE, Q1 IP, Q2 Returns,25x 2014 P/E
INXN, Q1 IP, Q3 Returns,26x 2014 P/E
AVV.L, Q1 IP, Q1 Returns,19x 2014 P/E
BLNX.L, Q2 IP, Q1 Returns,24x 2014 P/E
DAST.PA, Q1 IP, Q1 Returns,22x 2014 P/E
HEXAb.ST, Q1 IP, Q4 Returns,16x 2014 P/E
OPERA.OL, Q1 IP, Q1 Returns,17x 2014 P/E
SAPG.DE, Q1 IP, Q1 Returns,14x 2014 P/E
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 53
Exhibit 65: Global payment vendors Key Valuation comparables
Source: I/B/E/S, Datastream, Goldman Sachs Global Investment Research.
Exhibit 66: Global payment vendors KPIs
Source: Goldman Sachs Global Investment Research.
Comp GroupShare Price Market Cap
(USD)EV(USD)
LT EPS growth PEG based on
30/08/2013 2013 2014 LT EPS growth 2013 2014 2013 2014 2013 2014
European NamesAtos €56.2 6,354 5,659 12.9x 11.0x 32% 0.3x 5.7x 4.8x 0.6x 0.5x 11.4x 6.9xIngenico SA €52.8 4,084 4,042 17.9x 13.8x 29% 0.5x 11.4x 8.9x 2.2x 1.8x 24.5x 14.5xGemalto €87.07 9,803 9,043 26.7x 19.6x 27% 0.7x 16.5x 12.3x 2.7x 2.3x 13.7x 11.8xMonitise 46.25p 555 853 NM NM NM NM 47.8x 6.0x 4.1x NM NMWirecard €23.675 3,444 3,304 32.1x 24.5x 23% 1.1x 20.8x 16.5x 5.3x 4.5x NM 55.8xEdenred €22.66 6,750 6,703 24.1x 21.0x 13% NM 16.1x 14.6x 6.0x 5.5x 16.7x 13.7xAverage 22.4x 17.2x 28% 0.7x 13.6x 18.1x 3.4x 2.6x 16.6x 22.2xMedian 22.3x 16.7x 28% 0.6x 13.9x 12.3x 2.7x 2.3x 13.7x 13.2xPrepaidHigher One Holdings, Inc. $7.42 359 429 11.8x 10.6x 8% 1.4x 9.3x 6.8x 2.1x 1.6x 11.3x 9.6xGreen Dot Corp. $22.96 1,020 661 19.3x 17.2x 6% NM 6.7x 4.6x 1.2x 0.7x 2.9x 1.5xAverage 15.5x 13.9x 7% 1.4x 8.0x 5.7x 1.6x 1.2x 7.1x 5.6xMedian 15.5x 13.9x 7% 1.4x 8.0x 5.7x 1.6x 1.2x 7.1x 5.6xOther Processesing/FIG TechFidelity National Information Svcs. $44.46 13,085 16,678 15.6x 14.0x 12% 1.1x 9.0x 8.1x 2.7x 2.5x 14.2x 22.4xFiserv, Inc. $96.27 12,929 15,314 20.6x 17.1x 9% 1.9x 10.3x 8.9x 3.2x 2.9x 15.8x 14.8xAverage 18.1x 15.5x 11% 1.5x 9.6x 8.5x 3.0x 2.7x 15.0x 18.6xMedian 18.1x 15.5x 11% 1.5x 9.6x 8.5x 3.0x 2.7x 15.0x 18.6xMerchant AcquirersEvertec Inc. $23.87 1,884 2,521 16.1x 13.4x 21% 0.6x 15.1x 12.4x 6.9x 6.4x 30.5x 17.3xGlobal Payments Inc. $47.65 3,652 4,177 14.1x 13.1x 6% 2.3x 7.7x 6.7x 1.6x 1.4x 5.5x 10.8xHeartland Payment Systems, Inc. $36.95 1,383 1,323 15.2x 13.3x 24% 0.5x 6.4x 5.4x 2.2x 1.8x 8.8x 7.3xTotal System Services, Inc. $27.67 5,222 6,177 19.0x 15.9x 14% 1.1x 13.4x 11.3xVantiv, Inc. $26.41 5,607 6,607 16.9x 14.8x 20% 0.7x 12.6x 10.1x 6.0x 4.9x 13.7x 12.0xAverage 16.3x 14.1x 17% 1.1x 10.4x 8.6x 4.2x 3.6x 14.4x 11.7xMedian 16.1x 13.4x 20% 0.7x 10.1x 8.4x 4.1x 3.3x 13.4x 11.3xPayment NetworksMastercard Inc. $606.08 73,851 67,674 23.2x 19.4x 19% 1.0x 14.0x 11.5x 8.3x 6.8x 20.3x 15.9xVisa Inc. $174.42 113,547 110,776 23.0x 19.4x 19% 1.0x 13.9x 11.5x 9.0x 7.6x 97.9x 19.9xAverage 23.1x 19.4x 19% 1.0x 13.9x 11.5x 8.7x 7.2x 59.1x 17.9xMedian 23.1x 19.4x 19% 1.0x 13.9x 11.5x 8.7x 7.2x 59.1x 17.9x
Overall Average 19.0x 15.8x 18% 1.0x 11.4x 11.7x 4.0x 3.3x 20.3x 15.5xOverall Median 17.9x 14.8x 19% 1.0x 10.8x 8.9x 2.7x 2.5x 13.7x 12.0x
P/E EV/SalesEV/EBITDA EV/FCF
2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E
European coverageAtos -0.5% 3.0% 3.8% 10.1% 11.2% 11.6% 7.5% 8.1% 8.4% 14% 17% 7% 11% 10% 10%Gemalto 12.0% 11.6% 12.0% 16.6% 18.8% 19.1% 14.4% 16.0% 16.7% 24% 36% 19% 14% 17% 18%Ingenico SA 16.0% 13.6% 12.6% 20.0% 21.1% 21.4% 17.1% 18.2% 18.7% 36% 29% 20% 15% 15% 17%Monitise 108.4% 65.4% 52.6% -22.6% 5.6% 18.8% -40.2% -7.8% 7.9% -18% -101% 8687% -3% 9% 19%Wirecard 20.1% 19.6% 19.5% 26.4% 27.7% 28.4% 21.5% 23.7% 24.9% 9% 30% 25% 20% 20% 21%AtoS payments 5.4% 7.3% 9.1% 14.9% 15.9% 17.6%Edenred 2.9% 7.3% 11.3% 36.9% 38.0% 39.8% 33.8% 35.0% 36.9% 2% 14% 19% 24% 23% 26%
US coveragePrepaidHigher One Holdings, Inc. 11.9% 8.2% 7.1% 24.2% 25.8% 26.7% 20.1% 21.6% 22.4% -10% 13% 7% 19% 27% 28%Green Dot Corp. -0.2% 7.3% 9.3% 15.9% 15.8% 16.1% 11.6% 11.5% 11.8% -18% 7% 13% 70% 71% 75%
Other Processesing/FIG TechFidelity National Information Svcs. 5.2% 5.8% 5.9% 30.5% 30.8% 31.1% 23.8% 24.5% 24.8% 19% 17% 15% 10% 10% 11%Fiserv, Inc. 10.1% 4.7% 4.8% 32.6% 34.1% 35.0% 30.0% 30.6% 31.5% 16% 12% 11% 12% 12% 13%
Merchant AcquirersEvertec Inc. 7.0% 7.8% 7.7% 49.8% 52.6% 55.1% 41.3% 45.8% 48.8% 32% 17% 14% 16% 30% 31%Global Payments Inc. 9.3% 8.1% 8.5% 21.6% 21.4% 20.3% 19.2% 19.3% 19.1% 4% 12% 12% 18% 17% 18%Heartland Payment Systems, Inc. 11.4% 6.4% 6.7% 9.5% 9.5% 9.6% 5.8% 6.1% 6.4% 23% 3% 9% 19% 21% 21%Total System Services, Inc. 6.1% 9.0% 6.0% 28.5% 28.6% 29.5% 22.4% 23.7% 24.7% 10% 13% 11% 16% 16% 16%Vantiv, Inc. 18.7% 11.4% 11.3% 49.3% 50.1% 50.0% 32.2% 34.7% 35.9% 36% 25% 18% 16% 15%
Payment NetworksMastercard Inc. 9.2% 12.9% 12.9% 58.1% 58.6% 59.0% 54.9% 55.9% 57.0% 14% 19% 18% 99% 113% 129%Visa Inc. 11.8% 12.4% 12.1% 64.6% 66.8% 67.9% 61.2% 63.1% 64.1% 21% 19% 16% 20% 30%
CROCITotal revenues, yoyEBITDA (ex-SBC, ex-exceptionals)
marginsEBIT (ex-SBC, ex-exceptionals)
margins PF EPS, yoy
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 54
Wirecard (WDIG.DE): Multi-channel platform growth; up to CL Buy
Source of opportunity
We upgrade Wirecard to Buy (from Neutral) and add it to our
Conviction List. We raise our 12 month blended price target to €38 (was
€24). We believe the stock’s outperformance can continue as the
company maintains its strong revenue growth momentum, successfully
penetrating mCommerce, and following a period re-investment,
delivering operating margin expansion in years ahead. We forecast a
20% revenue CAGR from 2012-17E, above consensus estimates of 18%,
driving a 5-year PF EPS CAGR of 24%. Following a period of re-
investment we forecast EBITDA margins to rise from 27.7% in CY12 to
29.9% by CY17. In our view Wirecard’s multi-channel presence across
on-line, off-line and mobile, and strong proven technology platform
(notable for fraud prevention/risk management) and product portfolio
positions it very well to capture growth across both eCommerce and
mCommerce. Specifically we believe there is a €65 bn mobile
commerce related opportunity for Wirecard spread across mobile
carriers, retailers and other verticals. Geographically we expect
Wirecard to augment its strong presence in Germany and across
Europe with continued expansion in Asia where it is now generating
transaction volume of 1.8 bn as of 2Q13. In our view deal win
momentum in recent quarters illustrates that Wirecard is taking the
right steps in capturing the mobile opportunity while managing
potential cannibalisation to its existing online/eCommerce revenues.
We believe there is the potential for additional value if Wirecard is
successful in fully capitalising the opportunity relating to mobile. The
key medium/long term risk remains deciphering pricing pressure
against volume growth. We believe Wirecard’s channel and product
footprint together with its two banking licenses (in Germany and UK)
are sources of competitive advantage which strengthen its strategic
appeal, hence our decision to incorporate an M&A weighting in our
price target.
Catalyst
Wirecard is due to report its 3Q13 results on November 19. Wirecard
CEO Dr. Markus Braun is due to present at the GS Corporate
Conference in Munich on September 24. In the intermediate term we
expect positive ongoing news flow with regard to new deal wins with
mobile carriers, retailers and in other verticals for Wirecard’s payment
processing platform.
Valuation
Our new 12-month blended price target is €38, based on a 70%
weighting to our core valuation of €36/share valuing Wirecard on 30x
(from 24x) 2015E PF EPS (1.2x PEG, 21% PF EPS CAGR over 2013-17)
reflecting strong medium-term growth potential and a 30% weighting to
our M&A valuation of €42.6/share (7x 2015 EV/sales, mid-point of
strategic M&A).
Key risks
Higher/lower-than-expected volumes/fee margins, M&A approach,
mobile related growth, merchant chargebacks, increased investments.
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Wirecard (WDIG.DE)
Europe Technology Peer Group Average
Key data Current
Price (€) 24.11
12 month price target (€) 38.00
Upside/(downside) (%) 58
Market cap (€ mn) 2,659.5
Enterprise value (€ mn) 2,554.1
12/12 12/13E 12/14E 12/15E
Revenue (€ mn) New 394.6 474.0 566.9 677.7
Revenue revision (%) 0.0 0.0 0.0 0.0
EBIT (€ mn) New 93.6 97.8 130.6 156.0
EBIT revision (%) 0.0 0.0 0.0 0.0
EPS (€) New 0.66 0.70 0.92 1.10
EPS (€) Old 0.66 0.70 0.92 1.10
EV/EBITDA (X) 14.5 21.1 16.8 14.6
P/E (X) 23.7 34.7 26.1 22.0
Dividend yield (%) 0.6 0.6 0.8 1.0
FCF yield (%) 2.6 0.4 0.7 1.2
CROCI (%) 20.8 20.1 20.5 20.7
320
330
340
350
360
370
380
390
400
410
16
17
18
19
20
21
22
23
24
25
Sep-12 Dec-12 Mar-13 Jun-13
Price performance chart
Wirecard (L) FTSE World Europe (EUR) (R)
Share price performance (%) 3 month 6 month 12 month
Absolute 8.4 20.1 41.6
Rel. to FTSE World Europe (EUR) 8.2 15.2 25.5
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/02/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 55
Wirecard: Our thesis in six charts
Exhibit 67: We forecast 20% organic revenue growth in
the next five years (2012-17E)…
Revenues (€ mn) and org revenue growth (%yoy, ex-fx)
Exhibit 68: …with EBITDA margins reaching c.30% by
2017E EBITDA ex-exceptionals (€ mn) vs margins
Source: Company data, Goldman Sachs Global Investment Research. Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 69: We expect Wirecard to augment its strong
presence in Germany and Europe with continued
expansion in Asia Revenues by geography, 2012
Exhibit 70: We expect PP&RM and A&I segments to grow
at c.20% revenue CAGR in 2012-17E Revenues by segment, 2012
Source: Company data, Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 71: Given strong revenue growth, WDI trades at a
premium to history on P/E… WDI historical 2-yr fwd P/E
Exhibit 72: …and EV/sales WDI historical 1-Yr fwd EV/sales
Source: Datastream, I/B/E/S.
Source: Datastream, I/B/E/S.
82 134197
229 272 325
395474
567
678
816
990
67%64%
35%
18%16%
19%
13% 15%19% 20% 20% 21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
200
400
600
800
1000
1200
2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
Revenu
e grow
th (%
yoy, org ex‐fx)
Revenu
es (E
ur,m
n)
Revenues (Eur,mn) Revenue growth (%yoy, org ex‐fx)
20 3552
61 7390
109125
157
193
239
29624.0%
26.2% 26.6% 26.6% 27.0% 27.6% 27.7%26.4%
27.7% 28.4% 29.4% 29.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0
50
100
150
200
250
300
350
2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
EBITDA margin
EBITDA, ex‐ecep
tion
als (Eur,m
n)
EBITDA, ex‐eceptionals (Eur,mn) EBITDA margin
Germany, 49%
Europe, 45%
Others, 7%
Payment
Processing & Risk
Management
(PP&RM), 71%
Acquiring &
Issuing (A&I),
36%
Call Center &
Communication
Services
(CC&CS), 1%
WDI 2-Yr fwd P/E
6
8
10
12
14
16
18
20
22
24
26
28
30
32
2006 2007 2008 2009 2010 2011 2012 2013
1Jan2006 2Sep2013
First LastHigh Low
Mean Std
18.0701 25.161516Mar06 20Nov0830.9057 7.157617.1796 4.7978
evsales for wdig.de as of Aug 31 2013
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
2006 2007 2008 2009 2010 2011 2012 2013
1Jan2006 2Sep2013
First LastHigh Low
Mean Std
2.3034 4.580414May08 8Oct08
5.0339 0.94133.2843 0.8863
Average: 3.3x
Average: 17.2x
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 56
Monitise (MONI.L): Platform strength underestimated; CL Buy
Source of opportunity
We reiterate our CL-Buy on Monitise and believe the stock is at a
positive inflection point. We believe new product launches and major
customer and contract wins in the past 12 months lend significant
credibility to its technology platform which also increases its strategic
appeal and paves the way for a 50% revenue CAGR over the next 5
years with a clear path toward 25%+ EBITA margins. Given increased
conviction, we raise our 12m price target to 100p. With a potential
addressable market of €22 bn and assuming Monitise can execute, we
see scope for additional valuation re-rating with our scenario analysis
suggesting a risk/reward of 10:1 at current levels.
Catalyst
MONI is due to report FY13 results on September 5 where we expect it
to demonstrate a significant acceleration in 2H13 organic growth to
65% yoy. We also expect positive FY14 revenue growth guidance and a
re-affirmation of a breakeven/profitability time-frame in line with
consensus. With a strong pipeline we expect continued positive news
flow around new contract and customer wins as well as strategic
partnerships.
Valuation
Our new 12-month blended price target is 100p (from 60p) as we shift
our valuation methodology to CY15 estimates from CY14. We derive
our price target by assigning a 70% weighting to our core EV/sales-
based valuation of 94p/share, valuing Monitise on 5.7x CY15E EV/sales,
representing a c.10% discount to US SaaS vendors with a similar
growth and earnings profile (high growth & recurring revenues, low
profitability). We also incorporate a 30% weighting for our M&A
valuation of 115p/share, valuing the stock at 7x FY15E EV/sales, mid-
point of the global software deal range (normalized).
Key risks
Visa relationship, competition, management changes, customer
concentration, integration/execution related to M&A (Clairmail), lack of
scale and execution affecting expansion, delayed ramp-up of user
revenues.
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Monitise (MONI.L)
Europe Technology Peer Group Average
Key data Current
Price (p) 47.25
12 month price target (p) 100
Upside/(downside) (%) 112
Market cap (£ mn) 366.6
Enterprise value (£ mn) 563.5
6/12 6/13E 6/14E 6/15E
Revenue (£ mn) New 36.1 75.2 124.4 189.8
Revenue revision (%) 0.0 0.0 1.2 2.2
EBIT (£ mn) New (16.4) (30.3) (9.7) 14.9
EBIT revision (%) 0.0 0.0 1.1 5.7
EPS (p) New (2.11) (2.75) (0.82) 0.76
EPS (p) Old (2.77) (2.60) (0.83) 0.72
EV/EBITDA (X) NM NM NM 24.5
P/E (X) NM NM NM 61.9
Dividend yield (%) 0.0 0.0 0.0 0.0
FCF yield (%) (8.5) (9.2) (2.5) 1.0
CROCI (%) (14.4) (9.8) 2.8 14.0
320
350
380
410
440
470
25
30
35
40
45
50
Sep-12 Dec-12 Mar-13 Jun-13
Price performance chart
Monitise (L) FTSE World Europe (GBP) (R)
Share price performance (%) 3 month 6 month 12 month
Absolute 11.2 30.3 47.7
Rel. to FTSE World Europe (GBP) 12.0 27.7 22.6
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/02/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 57
Monitise: Our thesis in six charts
Exhibit 73: We forecast 50% organic revenue growth in
the next five years (FY14-18E)… Revenues (£ mn) and org revenue growth (%yoy)
Exhibit 74: …as the proportion of user revenue growth
increases to c.80% of mix by FY16 Mix of development, user generated and license revenues
Source: Company data, Goldman Sachs Global Investment Research. Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 75: We expect improved profitability driven by
increasing user generated revenue mix User generated revs as % of total revenues vs. gross margins
Exhibit 76: We expect EBITDA/cash breakeven by FY14 as
a result Cash flow from operations vs. EBITDA (adjusted)
Exhibit 77: MONI trades at a discount to high growth
SaaS companies on EV/sales MONI vs. high growth SaaS companies, 1-yr fwd EV/sales
Exhibit 78: Our M&A based valuation is at the mid-point
of global software historical range MONI historical EV/sales
Source: Datastream, I/B/E/S. Source: Datastream, I/B/E/S.
0 1 3 6 1536
75124
190
284
402
571
99%
217%
68%
126%
151%137%
50%
65%53% 49%
42% 42%
0%
50%
100%
150%
200%
250%
0
100
200
300
400
500
600
20
07
20
08
20
09
20
10
20
11
20
12
20
13E
20
14E
20
15E
20
16E
20
17E
20
18E
Org
. re
v.
gro
wth
, %
yo
y
Rev
enu
es,
UG
BP
mn
Revenues Org. rev growth
7%18%
47%54%
35%
51%
69%76% 81% 85% 88%
100%
66% 40%
24%
46%
65%
49%
31%24% 19% 15% 12%
27%42%
29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E
User generated revs Development revs License revs
7%
18%
47%
54%
35%
51%
69%
76%81%
85%88%
57.8%56.1%
63.2%61.5%
66.4%
68.9%
74.6%
76.8%78.3%
79.5% 80.3%
50%
55%
60%
65%
70%
75%
80%
85%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20
08
20
09
20
10
20
11
20
12
20
13E
20
14E
20
15E
20
16E
20
17E
20
18E
Gro
ss M
argin
s
Use
r gen
erat
ed r
evs
as %
of
tota
l
User generated revs - % of total Gross margins
-9 -11 -11-14 -12 -12
-21
9
35
61
99
158
-8-12
-11 -13 -12-10
-17
7
36
65
102
165
-50
0
50
100
150
200
20
07
20
08
20
09
20
10
20
11
20
12
20
13E
20
14E
20
15E
20
16E
20
17E
20
18E
GB
P m
n
Cash flow from ops EBITDA ex-excep ex-SBC
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
Jan-
08
Ap
r-0
8
Jul-0
8
Oct
-08
Jan-
09
Ap
r-0
9
Jul-0
9
Oct
-09
Jan-
10
Ap
r-1
0
Jul-1
0
Oct
-10
Jan-
11
Ap
r-1
1
Jul-1
1
Oct
-11
Jan-
12
Ap
r-1
2
Jul-1
2
Oct
-12
Jan-
13
Ap
r-1
3
MONI US SaaS companies average evsales for moni.l as of Aug 31 2013
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
1Jan2008 2Sep2013
2008 2009 2010 2011 2012 2013
First LastHigh Low
Mean Std
13.4242 5.3666 2Jan08 8Apr0913.4242 0.02804.6412 2.0307
Average: 4.6x
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 58
AtoS (ATOS.PA): Attractive value creation opportunity in
Worldline; Buy
Source of opportunity
We believe the market is underestimating the scope for value creation
through the ‘carve out’ of AtoS’ payments business, WorldLine. Our
sum of the parts valuation suggests an Atos group valuation of €85-
€101, by ascribing a global payments peer group average valuation
multiple to Worldline (2.8x 2015E EV/sales and 14x 2015E EV/EBIT
respectively).The payments business is the centre piece of the group
and currently generates €1 bn in revenues and 14.7% EBIT margins (vs.
€7.8 bn in revenues and 5.4% margins for the remainder of the group).
The Worldline business plays across three main streams in the
payments landscape: (1) Back end processing (35% of Worldline
revenues) which we estimate will grow at a stable c.5% revenue CAGR,
but generate a healthy c.19% EBIT margin); (2) merchant acquiring (33%
of Worldline revenues) which we estimate will grow c.6% CAGR and
generate a 20% margin; (3) mobile technologies (32% of Worldline
revenues), which we estimate will grow at a 13% CAGR and generate a
16% margin. Following the ‘carve-out’, we believe more dedicated focus
and increased partnerships should result in organic growth for the
WorldLine entity to increase gradually from c.5% currently to 9% by
2017 driven by the merchant acquiring and mobile solutions business.
We expect Atos to be a beneficiary in the outsourcing and platform
categories for the tech sector, representing a potential addressable
market of up to €4 bn. More strategically, we would not be surprised if
management utilises the balance sheet to undertake additional M&A to
expand both geographic and solution footprint of WorldLine as well as
an eventual potential IPO to crystallise further value. In our view, AtoS’
management has a strong track record of value creation as evidenced
by the successful acquisition, integration and synergy realisation from
the Siemens IT Services business. We make nominal changes to our
estimates.
Catalyst
Atos is due to report 3Q sales on October 25. We also expect an analyst
day focusing on the company’s payment business, Atos Worldline,
during 4Q, where we expect the company to spotlight the breadth of its
payments portfolio and the scope for growth acceleration as the
business is split into a separate entity with renewed focus.
Valuation
Our 12 month price target is €85 (was €70), valuing AtoS at 15.4x CY15
P/E (was 13.5x), at a premium to its historical P/E mean (2003-13) of
11.5x. Our price target is supported by our sum-of-the-parts valuation of
€85-€101, which is in our view better captures the value creation
opportunity from carving out the Worldline business.
Key risks
Integration/execution risks (M&A); macro and management changes.
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Atos (ATOS.PA)
Europe Technology Peer Group Average
Key data Current
Price (€) 56.68
12 month price target (€) 85.00
Upside/(downside) (%) 50
Market cap (€ mn) 4,859.8
Enterprise value (€ mn) 5,873.3
12/12 12/13E 12/14E 12/15E
Revenue (€ mn) New 8,844.3 8,795.8 9,058.8 9,403.7
Revenue revision (%) 0.0 0.0 0.0 0.0
EBIT (€ mn) New 580.0 660.3 731.2 787.8
EBIT revision (%) 0.0 0.0 0.0 0.0
EPS (€) New 2.48 3.67 4.64 5.16
EPS (€) Old 2.48 3.67 4.65 5.20
EV/EBITDA (X) 5.4 5.8 4.8 4.3
P/E (X) 18.8 15.4 12.2 11.0
Dividend yield (%) 0.4 0.6 1.2 1.8
FCF yield (%) 6.2 3.1 4.2 5.5
CROCI (%) 10.4 10.7 9.9 10.1
320
330
340
350
360
370
380
390
46
48
50
52
54
56
58
60
Sep-12 Dec-12 Mar-13 Jun-13
Price performance chart
Atos (L) FTSE World Europe (EUR) (R)
Share price performance (%) 3 month 6 month 12 month
Absolute 0.5 0.3 21.8
Rel. to FTSE World Europe (EUR) 0.4 (3.7) 7.9
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/02/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 59
Atos: Our thesis in six charts
Exhibit 79: We expect Worldline to be 15% of Atos
revenues medium term…. Worldline/IT Services revenue mix (2012-17E)
Exhibit 80: …driving revenue growth improvement… Worldline/IT Services revenue growth (2013-17E)
Source: Company data. Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 81: …and operating margin expansion Worldline/IT Services operating margins (2012-17E)
Exhibit 82: We expect highest growth in mobility and e-
Transactional services Worldline revenue segments
Source: Company data, Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 83: AtoS trades at a discount to US payments
peers on 2-Yr fwd P/E… AtoS vs. US payment peers, 2-yr fwd P/E
Exhibit 84: …and 1-Yr fwd EV/Sales AtoS vs. US payment peers, 1-yr fwd EV/sales
Source: Datastream, I/B/E/S. Source: Datastream, I/B/E/S.
12% 13% 13% 14% 15% 15%
88% 87% 87% 86% 85% 85%
0%10%20%30%40%50%60%70%80%90%
100%
2012 2013E 2014E 2015E 2016E 2017E
Worldline IT services
5.4%
7.3%
9.1% 9.2% 9.4%
‐1.4%
2.4%3.0% 3.2% 3.3%
‐0.5%
3.0%3.8% 4.1% 4.2%
‐2%
0%
2%
4%
6%
8%
10%
2013E 2014E 2015E 2016E 2017E
Revenu
e grow
th (%
yoy)
Worldline IT services AtoS (Group)
14.7% 14.9% 15.9%17.6% 18.6%
20.0%
5.4% 6.4% 6.9% 6.9% 7.0% 6.9%
6.6% 7.5% 8.1% 8.4% 8.7% 8.9%
0%
5%
10%
15%
20%
25%
2012 2013E 2014E 2015E 2016E 2017E
Ope
rating
margins (%
)
Worldline IT services AtoS (Group)
353 371 393 420 450 481
341 368 412 474 545 627375 387 403423
444466
0
500
1000
1500
2012 2013E 2014E 2015E 2016E 2017E
Revenu
es, EURm
n
Financial Processing & Software Licensing
Mobility & e‐Transactional services
Merchant Services & Terminals
0x
5x
10x
15x
20x
25x
30x
35x
2006 2007 2008 2009 2010 2011 2012 2013
ATOS TSS HPY GPN
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
2006 2007 2008 2009 2010 2011 2012 2013
ATOS TSS HPY GPN
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 60
Exhibit 85: Our new 12 month price target of €85 is derived from our SOTP analysis AtoS SOTP analysis
Source: Company data, Goldman Sachs Global Investment Research.
European Payment peersEV/2014E
SalesEV/2014E EBITDA
EV/2014E EBIT
EV/2015E Sales
EV/2015E EBITDA
EV/2015E EBIT Sales EBITDA EBIT EPS
WDIG.DE Wirecard 4.4x 16.4x 19.2x 5.6x 21.0x 24.2x 20% 18% 19% 18%INGC.PA Ingenico SA 2.0x 9.6x 11.0x 1.9x 9.2x 10.4x 14% 20% 21% 28%WING.DE Wincor Nixdorf 0.7x 7.2x 10.3x 0.7x 7.2x 10.1x 4% 5% 7% 9%GTO.AS Gemalto 2.5x 13.2x 16.0x 2.4x 12.5x 14.8x 12% 18% 24% 27%MONI.L Monitise 4.2x 50.0x 284.3x 3.0x 17.9x 26.6x 59% ‐230% ‐203% ‐181%EDEN.PA Edenred 6.7x 17.7x 19.2x 7.0x 17.5x 18.9x 7% 9% 10% 12%Median 3.3x 14.8x 17.6x 2.7x 15.0x 16.8x 13% 14% 14% 15%
US Payment peersEV/2014E
SalesEV/2014E EBITDA
EV/2014E EBIT
EV/2015E Sales
EV/2015E EBITDA
EV/2015E EBIT Sales EBITDA EBIT EPS
FIS Fidelity National Information Svcs. 2.8x 9.0x 11.3x 2.8x 8.9x 11.2x 4% 5% 6% 11%FISV Fiserv, Inc. 3.0x 9.2x 12.0x 3.0x 8.9x 11.1x 5% 6% 9% 12%EVTC Evertec Inc. 6.9x 13.5x 20.7x 6.9x 12.7x 18.3x 6% 13% 24% 20%GPN Global Payments Inc. 1.6x 7.8x 9.8x 1.6x 7.5x 9.3x 6% 4% 5% 8%HPY Heartland Payment Systems, Inc. 2.3x 7.0x 10.4x 2.3x 6.7x 9.7x 7% 7% 13% 19%TSS Total System Services, Inc. 2.0x 7.5x 10.7x 2.0x 7.1x 10.0x 13% 12% 14% 19%VNTV Vantiv, Inc. 5.5x 11.4x 15.7xWEX WEX Inc. 4.3x 8.8x 10.5x 4.4x 8.8x 10.1x 8% 11% 16% 11%FLT FleetCor Technologies, Inc. 7.8x 13.8x 15.8x 7.5x 13.1x 15.2x 14% 17% 17% 18%CIEL3.SA Cielo 7.0x 13.2x 14.8x 6.7x 12.9x 14.5x 3% ‐1% ‐1% ‐3%Median 3.6x 9.1x 11.7x 3.0x 8.9x 11.1x 6% 7% 13% 12%
Payment peersEV/2014E
SalesEV/2014E EBITDA
EV/2014E EBIT
EV/2015E Sales
EV/2015E EBITDA
EV/2015E EBIT Sales EBITDA EBIT EPS
European payment vendors 3.3x 14.8x 17.6x 2.7x 15.0x 16.8x 13% 14% 14% 15%US payment vendors 3.6x 9.1x 11.7x 3.0x 8.9x 11.1x 6% 7% 13% 12%
Global Payment vendors 3.5x 11.9x 14.6x 2.8x 12.0x 14.0x 9% 10% 13% 13%AtoS Worldline 7% 14%
Worldline 1,208 192 1,318 232Payments peer group 3.5x 14.6x 2.8x 14.0xImplied EV for Worldline 4,201 2,811 3,730 3,238
IT Services peers 2014E 2015EEV/2014E
SalesEV/2014E EBITDA
EV/2014E EBIT
EV/2015E Sales
EV/2015E EBITDA
EV/2015E EBIT Sales EBITDA EBIT EPS
CAPP.PA Capgemini 0.7x 6.9x 8.7x 0.7x 6.8x 8.6x 2% 6% 7% 11%TIE1V.HE Tieto 0.6x 4.5x 7.1x 0.6x 4.6x 7.0x ‐1% 1% 3% 50%Median 0.7x 5.7x 7.9x 0.7x 5.7x 7.8x 1% 4% 5% 30%
Atos IT Services 7,851 539 8,086 556IT services peer group 0.7x 7.9x 0.7x 7.8xImplied EV for Atos IT Services 5,199 4,242 5,464 4,325
Total implied EV 9,400 7,053 9,194 7,563(Add) Net Debt ‐1,176 ‐1,176 ‐1,683 ‐1,683(Add) Minorities 37 37 40 40(Add) Pension liability 736 736 736 736MV 9,803 7,455 10,101 8,470No. of shares O/S (diluted) 99.0 99.0 100.0 100.0Implied valuation per share 99.0 75.3 101.0 84.7% Upside/Downside 75% 33% 78% 49%
2014E 2015E
2012‐15 CAGR
2012‐15 CAGR
2012‐15 CAGR
2014E
2014E
2014E
2015E
2015E
2015E
2014E 2015E
2012‐15 CAGR
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 61
Gemalto (GTO.AS): Digital security provider for mobile payments;
Buy
Source of opportunity
We remain confident in in our estimated double-digit top-line growth
trajectory for Gemalto in 2013-15, based on our continued expectation of
accelerating LTE and NFC SIM card product cycles, and positive view on
the company’s ability to benefit from the rollout of EMV technology in
the US. We also highlight GTO’s strong competitive positioning overall,
with dominant shares in concentrated markets. Looking further out, we
believe multiple remote management software platform opportunities
remain firmly in place, both within the mobile carriers segment, but also
in security, where we expect initiatives to expand to new verticals e.g.
employee authentication for corporates. Moreover, our incremental
analysis of the longer term Trusted Services Manager (TSM) opportunity,
which factors in applications not only within payments, but also other
verticals, suggests this can become a market worth c.€700 mn, even with
only 10% adoption on handsets within five years. While we make only
minor changes to 2013-15 EPS (1%-3%), we estimate TSM will drive
almost 20% of GTO’s incremental adjusted EBIT for 2012-17.
Catalyst
As such, we expect GTO to provide investors with a bold, but credible,
four-year forward (2017) profit plan at its CMD on September 5,
underpinning our thesis of secular growth opportunities. Given GTO has
exceeded its initial targets in previous plans one year ahead of schedule,
we anticipate it may cite an adjusted EBIT (PFO) target of €550 mn-
€600 mn for 2017 (vs. our 2016 estimate of €605 mn).
Valuation
Based on our valuation framework for growth assets, our 12-month price
target rises to €125 (from €90), as we roll forward our target multiple to
2015, and apply a target multiple of 14x EV/EBITDA (12x). Additionally,
we apply a 20% M&A weighting, based on a takeout multiple of 4x
EV/sales, in line with historical transactions in the space. While we do not
see M&A as a base case, it is possible given strength in TSM implies
potential strategic asset status. Our price target thus implies a PEG of
0.8x on 2014, broadly in line with historical trading PEG.
Key risks
Slower than expected rollouts of LTE/4G, NFC and EMV technology.
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Gemalto (GTO.AS)
Europe Technology Peer Group Average
Key data Current
Price (€) 87.37
12 month price target (€) 125.00
Upside/(downside) (%) 43
Market cap (€ mn) 7,459.9
Enterprise value (€ mn) 6,882.8
12/12 12/13E 12/14E 12/15E
Revenue (€ mn) New 2,235.9 2,505.0 2,795.0 3,130.0
Revenue revision (%) 0.0 0.8 0.0 1.0
EBIT (€ mn) New 266.4 334.9 431.0 505.0
EBIT revision (%) 0.0 1.5 (1.6) (2.5)
EPS (€) New 2.63 3.27 4.44 5.27
EPS (€) Old 2.63 3.37 4.57 5.35
EV/EBITDA (X) 12.1 16.5 12.3 10.0
P/E (X) 21.6 26.8 19.7 16.6
Dividend yield (%) 0.5 0.4 0.4 0.4
FCF yield (%) 3.3 3.8 5.6 6.0
CROCI (%) 14.3 13.8 16.9 18.3
320
330
340
350
360
370
380
390
55
60
65
70
75
80
85
90
Sep-12 Dec-12 Mar-13 Jun-13
Price performance chart
Gemalto (L) FTSE World Europe (EUR) (R)
Share price performance (%) 3 month 6 month 12 month
Absolute 35.2 24.9 38.7
Rel. to FTSE World Europe (EUR) 35.0 19.9 22.9
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/02/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 62
Gemalto: Our thesis in six charts:
Exhibit 86: GTO has top-quartile industry positioning
given dominant share allows in concentrated markets
Industry positioning vs. CROCI percentiles for EU Tech (%)
Exhibit 87: Over time GTO has diversified its business,
reducing volatility of earnings streams
GTO EBIT by segment (€ mn)
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research, Company data.
Exhibit 88: GTO is well positioned to benefit from a
LTE/4G ramp that is more powerful than was seen for 3GGlobal LTE units (mn)
Exhibit 89: GTO mix shifting to software as infrastructure
is rolled out to manage mobile payments credentials GTO group hardware vs. software mix (%)
Source: Goldman Sachs Global Investment Research, Company data.
Source: Goldman Sachs Global Investment Research, Company data.
Exhibit 90: We expect margins to continue expanding in
all of Gemalto’s key segments…
Segmental EBIT margins (%)
Exhibit 91: … driving expanding cash return on cash
invested vs. historical levels and a multiple rerating
Gemalto CROCI (%)
Source: Goldman Sachs Global Investment Research, Company data.
Source: Goldman Sachs Global Investment Research, Company data.
0%
25%
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-50
-
50
100
150
200
250
300
350
400
450
2008 2009 2010 2011 2012 2013E 2014E
Mobile Op Profit Secure Transactions Op Profit Security Op Profit
0
50
100
150
200
250
300
YR1 YR2 YR3 YR4 YR5
Subs
crib
ers
(mn)
LTE subs
WCDMA subs
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2008 2009 2010 2011 2012 2013E 2014E
Hardware % of Group Sales
Software % of Group Sales
-28%
-23%
-18%
-13%
-8%
-3%
2%
7%
12%
17%
22%
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
Mobile Comm. Margins Secure Transactions Margins Security Margins
0%
5%
10%
15%
20%
25%
2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
CROCI (%)
average historicCROCI
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 63
Ingenico (INGC.PA): Growth driven by EM rollout and regulation;
up to Buy
Source of opportunity
We upgrade Ingenico to Buy (from Neutral) based on a more positive
view on profit growth and returns. In tandem with our European
Payments report published today Monetising mobile money, we analyse
its competitive advantage, and risks, especially around mobile POS
terminals. While the market is focused on concerns about barriers to
entry, we believe recent consolidation leaves Ingenico with a strong
share in a quasi-duopoly market structure, suggesting sound second-
quartile industry positioning. As such, it is a beneficiary of regulatory
change around the EMV standard and EM terminals rollouts, allowing for
double-digit revenue growth in 2012-17E.
Catalyst
We raise our revenue estimates by 1% for 2013-16. Our adjusted EBITDA
estimates rise 4%/5%/5% for 2013/14/15, as we assume moderate gross
margin expansion, as natural price deflation is offset by harnessing
purchasing scale, and better build-to-cost. We continue to take a
relatively conservative view on opex needs, given a rapidly changing
payments landscape. Our EBITDA estimates are 3%/8%/8% ahead of
Thomson Reuters consensus in 2013/14/15, given a more positive view
on operating leverage, suggesting the potential for continuing earnings
beats in coming quarters.
Valuation
Based on our EU tech growth-to-value framework, we raise our 12-
month price target to €82 (€59), driven by higher estimates, rolling
forward the multiple to 2015E (from 2014E) and using 12x EV/EBITDA
(was 11x) and higher net cash assumptions. This implies a PEG on 2015
of 0.6x, bringing our valuation into line with Ingenico’s historical 3-year
average. We now have a 12-month price target (from 6-month),
consistent with other European payment assets. Given >50% potential
upside, we upgrade to Buy.
Key risks
Worse traction in transaction processing; cannibalisation by mobile POS
in the long term; heightened investment requirements diluting cash
returns.
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Ingenico SA (INGC.PA)
Europe Technology Peer Group Average
Key data Current
Price (€) 54.29
12 month price target (€) 82.00
Upside/(downside) (%) 51
Market cap (€ mn) 3,184.4
Enterprise value (€ mn) 3,194.9
12/12 12/13E 12/14E 12/15E
Revenue (€ mn) New 1,206.4 1,400.0 1,590.0 1,790.0
Revenue revision (%) 0.0 1.1 0.6 0.6
EBIT (€ mn) New 189.2 240.0 290.0 334.0
EBIT revision (%) 0.0 5.4 5.4 5.8
EPS (€) New 2.19 2.96 3.84 4.59
EPS (€) Old 2.19 2.79 3.32 3.86
EV/EBITDA (X) 9.4 11.6 9.1 7.6
P/E (X) 17.2 18.3 14.2 11.8
Dividend yield (%) 1.9 0.5 1.4 2.3
FCF yield (%) 6.2 6.4 8.5 8.2
CROCI (%) 16.0 15.7 16.7 18.5
320
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380
400
420
35
40
45
50
55
60
Sep-12 Dec-12 Mar-13 Jun-13
Price performance chart
Ingenico SA (L) FTSE World Europe (EUR) (R)
Share price performance (%) 3 month 6 month 12 month
Absolute 3.0 17.9 28.7
Rel. to FTSE World Europe (EUR) 2.8 13.2 14.1
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/02/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 64
Ingenico: Our thesis in six charts
Exhibit 92: INGC.PA has solid second-quartile industry
positioning …
Industry positioning vs. CROCI percentiles for EU Tech (%)
Exhibit 93: … given strong market share in a quasi-
duopolistic market
Market shares by revenue, 2012 (%)
Source: Goldman Sachs Global Investment Research, company data
Source: Goldman Sachs Global Investment Research, company data
Exhibit 94: Low EM penetration levels and high R-Sqd.
with GDP/capita suggest terminal growth potential POS terminals per thousand pop (x-axis) vs GDP per capita
Exhibit 95: Ingenico can capitalise on the bankcard
segment opportunity in the US given EMV strength Overview of nr. of merchants in US market segments
Source: Euromonitor, IMF, Goldman Sachs Global Investment Research
Source: Goldman Sachs Global Investment Research, Company data.
Exhibit 96: We expect gross margins to continue
expanding albeit less than seen historically… Ingenico gross profit (€ mn.) and gross margins (%)
Exhibit 97: … driving EBIT margin expansion given
double digit revenue growth and operating leverage Ingenico revenues and adj. EBIT (€ mn.) and margins (%)
Source: Goldman Sachs Global Investment Research, Company data.
Source: Goldman Sachs Global Investment Research, Company data.
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39%
Verifone,
42%
Pax, 5%
Equinox, 2%
Small local
players, 12%
R² = 85%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
0 5 10 15 20 25 30 35 40
ChinaIndia
Indonesia
Malaysia BrazilMexico
Russia
S. Africa
UK
US
France
Australia
Italy
Canada
Mature country average
8,000k
750k
85k
125kTier one large
retailers
Tier two large
retailers
Tier three large
retailers
Bankcard segment
merchants
35%
36%
37%
38%
39%
40%
41%
42%
43%
44%
45%
-
100
200
300
400
500
600
700
800
900
1,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E
Gross profit gross margin (%)
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
0
500
1,000
1,500
2,000
2,500
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E
Adj. EBIT Total revenues Adj. EBIT margin (%)
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 65
SAP (SAPG.DE): Mobility platform & analytics an ace in the pack;
CL Buy
Source of opportunity
Although SAP is not a direct participant in the mobile money value
chain today we believe it has some important technology capabilities
that should enable it to have a more prominent presence in the future.
We believe SAP has two important products of significant strength it
can leverage: the Sybase Unwired Platform (via the acquisition of
Sybase in 2010) and its real time analytics platform HANA. But most of
important of all in our view, SAP has the connectivity to enterprise back
end platforms that today drive over 60% of the world’s transactions. We
expect SAP to intersect the payments value chain likely initially through
partnerships leveraging its analytics prowess given less sophisticated
offerings by incumbent payment vendors in this domain. Given SAP is
the gatekeeper to the back end transaction system we believe it can
deliver advanced analytics solutions to retailers, banks and telcos. We
also believe SAP will organically invest around the Sybase Unwired
Platform (SUP) moving into providing security (e.g. at SAPPHIRE NOW
in 2013 SAP launched a simple and complete offering for mobile device
management for €1 per device per month), ad platforms and mobile
apps (both B2B and B2C). We believe SAP’s product capabilities will see
it not compete for merchant acquirer business, but rather build
complementary software based solutions. SAP believes in a multi-
channel approach and thus looks to leverage its capabilities in the core
banking market to provide both online and mobile banking solutions.
Finally, with regards to EMs, SAP believes it can use its SUP to build
mobile wallets – e.g. offer payroll and remittance services to the
unbanked population, potentially in partnership with telcos. As a result
we expect SAP to be a beneficiary of the €4 bn market opportunity we
have outlined in the outsourcing & platform segment for the tech
sector. We forecast SAP’s mobility business to grow at a 47% CAGR
from 2012-15 and expect its revenue (SSRS) contribution to increase
from 1% in 2012 to 3% by 2015E. We expect SAP to make acquisitions
on the periphery of the mobile money value chain which may
eventually make it a bigger challenger to incumbents. The recent
acquisition of Hybris, in the e-commerce segment, which if married
successfully with SAP’s mobility platform could carry interesting
implications longer term.
Catalyst
SAP is due to report 3Q results on October 21.
Valuation
Our 12-month, P/E-based price target is €77, valuing SAP at 19.5x 2014E
PF EPS of €3.94, in line with its historical mean valuation.
Key risks
Slower developed markets recovery; investments limiting operating
margin; lack of traction for newer products; integration/execution of
acquisitions, emerging market slowdown.
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
SAP (Ordinary Share) (SAPG.DE)
Europe Technology Peer Group Average
Key data Current
Price (€) 56.11
12 month price target (€) 77.00
Upside/(downside) (%) 37
Market cap (€ mn) 67,051.5
Enterprise value (€ mn) 67,951.5
12/12 12/13E 12/14E 12/15E
Revenue (€ mn) 16,221.1 17,195.3 19,358.2 21,383.1
EBIT (€ mn) 4,063.5 4,464.4 5,422.9 6,340.3
EPS (€) 2.37 2.73 3.28 3.83
EV/EBITDA (X) 12.9 12.4 9.9 8.1
P/E (X) 21.6 20.6 17.1 14.6
Dividend yield (%) 1.7 1.5 1.8 2.0
FCF yield (%) 4.8 4.1 7.1 8.0
CROCI (%) 21.9 20.0 25.2 27.8
CROCI/WACC (X) 2.6 2.3 2.9 3.2
EV/GCI (X) 3.2 3.2 2.9 2.6
320
330
340
350
360
370
380
390
52
54
56
58
60
62
64
66
Sep-12 Dec-12 Mar-13 Jun-13
Price performance chart
SAP (Ordinary Share) (L) FTSE World Europe (EUR) (R)
Share price performance (%) 3 month 6 month 12 month
Absolute (3.3) (7.0) 7.1
Rel. to FTSE World Europe (EUR) (3.5) (10.8) (5.1)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/02/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 66
SAP: Our thesis in six charts
Exhibit 98: SAP has a history of major product cycles,
and HANA + mobile are likely to be the next leg up SAP group license revenues by product cycle, € mn
Exhibit 99: We expect slower license growth after a
disappointing 1H13 Organic license growth (ex-fx), 2010-15E
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 100: Our estimates assume a c.4% cost/head
increase Non-IFRS operating margin vs. cost/head – 2007-14E
Exhibit 101: SAP trades at a premium to MSFT, ORCL… 2-year forward P/E
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 102: … however SAP’s revenue growth is much
higher Revenue growth % yoy
Exhibit 103: SAP is outgrowing peers and therefore we
believe it deserves a premium valuation 2-year forward P/E vs. revenue CAGR
Source: Datastream, I/B/E/S. Source: Datastream, I/B/E/S.
‐
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E
SAP Licenses, €
mn
New products (HANA, Mobile) SAP core (ERP 6, BS) + BImySAP BS R3 & NDA
New Products (HANA, Mobile)
Business Suite + BI
mySAP
R3
R2
17%16%16%
25%
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‐3%
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2013E
2014E
2015E
SAP Licenses yoy
growth (O
rgan
ic,ex‐fx basis)
0
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5%
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E
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Jun‐14
E
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E
Dec‐14E
Cost/H
ead (T EUR )
Ope
rating
Margins (e
x‐excep, ex Amor, ex SB
C)
Operating margins (ex‐excep, ex‐Amor, inc SBC) Cost/head
Our margin estimates assume c.4% CAGR increase in cost/head 2012‐2015E
0x
5x
10x
15x
20x
25x
30x
35x
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
SAP MSFT ORCL
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%
25%
30%
2001
2002
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2005
2006
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E
2013
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E
2015
E
ORCL MSFT SAP
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
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16.0x
‐8.0% ‐6.0% ‐4.0% ‐2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
2 yr fw
d P/E
Revenue CAGR 2012‐14
ORCL 4.0%,10.5x
MSFT 4.4%,12.6x
SAP 10.9%,14.8x
CSCO 5.9%,10.4x
HPQ ‐6.3%,6.1x
IBM 0.0%,10.1x
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 67
Sage (SGE.L): 6m customer base ripe for payment monetisation;
Neutral
What’s changed
We analyse the potential monetisation opportunity for Sage in the
wider payments landscape given its growing presence in the space
through its offerings in North America (Sage Payment Solutions), South
Africa (NetCash) and Europe (Sage Pay).
Implications
We believe Sage is well positioned to capture potential monetisation
opportunities in the wider payments value chain given its strong
position as a provider of accounting and business management to over
6m SMB customers worldwide. Sage has built up a small but growing
presence in payments through the acquisitions of Verus and Protx (in
2006) and Netcash and Integral (in 2012). Sage’s payment offerings
capture a broad variety of applications and services including a
payment gateway that allows eCommerce and phone based payments,
card machine terminals, merchant services, fraud screening tools and
back end integration with accounting software. We believe Sage is still
early in the monetisation of its installed base, as it currently has only
200,000 customers (3% of the installed base) adopting its payments
solutions. We believe Sage can maintain 25%-30% growth for payments
as the Sage pay solutions are further integrated into new product
offerings such as Sage One (entry level) and Sage ERP X3 (mid market).
We also expect Sage to expand geographic footprint of payment
solutions from its current focus areas of UK, US, South Africa and
Ireland into mainland Europe. Specifically, based on our research we
believe Sage could actively participate in capturing the €2.9 bn m-POS
opportunity we have outlined in our report. With its captive base of
6 mn small and medium sized business worldwide, Sage is in a prime
position to integrate micro merchant payment solutions alongside its
accounting and HR software solutions. It also has the advantage of its
existing large scale customer support operation which it can leverage in
driving the cross selling. We also expect Sage to be actively involved in
the consolidation process as it may seek to add regional/technology
footprint in payments via M&A and partnerships
Valuation
Our 12-month P/E-based price target is unchanged at 366p, valuing
Sage on 14x 2014E PF EPS, in line with its historical mean valuation.
Key risks
(1) Continued weakness in the SMB segment; (2) faster improvement in
US business; (3) accretive/dilutive M&A; (4) competition from MSFT and
INTU.
Source: Company data, Goldman Sachs Research estimates, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Sage Group (SGE.L)
Europe Technology Peer Group Average
Key data Current
Price (p) 349.6
12 month price target (p) 366
Upside/(downside) (%) 5
Market cap (£ mn) 4,024.9
Enterprise value (£ mn) 4,383.3
9/12 9/13E 9/14E 9/15E
Revenue (£ mn) 1,340.2 1,377.2 1,363.7 1,419.3
EBIT (£ mn) 349.3 350.5 357.8 381.9
EPS (p) 19.57 9.20 22.72 25.98
EV/EBITDA (X) 10.8 11.6 10.6 9.5
P/E (X) 15.4 38.0 15.4 13.5
Dividend yield (%) 3.5 7.8 3.6 4.1
FCF yield (%) 6.9 7.8 6.4 7.7
CROCI (%) 13.0 14.2 12.2 12.8
CROCI/WACC (X) 1.4 1.6 1.4 1.5
EV/GCI (X) 1.6 1.8 1.6 1.5
320
340
360
380
400
420
440
460
480
500
300
310
320
330
340
350
360
370
380
390
Sep-12 Dec-12 Mar-13 Jun-13
Price performance chart
Sage Group (L) FTSE World Europe (GBP) (R)
Share price performance (%) 3 month 6 month 12 month
Absolute (9.0) (2.3) 12.2
Rel. to FTSE World Europe (GBP) (8.3) (4.3) (6.9)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/02/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 68
Visa (V): CL-Buy on faster volume growth and capital allocation
Source of opportunity
Visa is on the Conviction Buy List and we continue to view the name as
one of the best positioned to benefit from positive long-term secular
trends in payments, including mobile payments, expanding acceptances
and emerging market exposure. Relative to the street our differentiated
view focuses on the contribution international markets volume growth as
well as faster than expected transaction growth as a result of new
mediums of purchase and expanding acceptance. We also note that
while potential US debit rule changes have weighed on sentiment risk
we view the impact to networks as manageable given several mitigating
factors.
With regards to mobile, our view is that currently no viable alternative
exists to replace the basic functions provided by the networks (i.e.,
authorisation, clearing, and settlement). While mobile remains a highly
fluid environment, Visa is well positioned to adapt to changes and is
investing in emerging technologies. We note Visa benefits from its
dominant industry position, a leading mobile wallet offering, and early
investments in NFC that will make disruption a substantial hurdle.
Ultimately we view the firm’s strong global acceptance lies in its
incumbent relationship with issuers and acquirers as a formidable
advantage relative to new entrants.
Catalyst
We see two key drivers behind our CL-Buy view on V: 1) international
growth remains an underappreciated driver of transaction and
volume growth. We see international generating 49% of V’s volume but
60% of growth in FY13. We also note that emerging markets have PCE of
10tn, and a CAGR of 10%. Moreover cash still represents 70% of all EM
transactions suggesting a long and significant ramp for international
payments. 2) Visa sits at the intersection of multi-channel payments
and expanding acceptance which position’s the firm to benefit from
faster than expected transaction growth. While E/M commerce users
are a smaller piece of overall transaction volume, the potential for
increased usage contribution is high due to the frequency of E/M
environments (e.g., iTunes). We note that US debit payment volume
ramp showed a similar trend in which smaller more frequent purchases
contributed favorably to overall growth. In summary, we believe that the
intersection of multiple long term secular trends will power the next leg
of EPS growth for V. We see the shares as attractive give a robust
earnings growth profile and would use recent weakness as a rare
opportunity to enter a best in class name.
Valuation
Our 12-month price target of $215 is based on a weighted average model
Including our sector-relative framework, CY2014E P/E, and EV/EBITDA.
Key risks
Better/worse than expected traction in new transaction processing
activities; potential cannibalisation by mobile POS terminals in the long
term; heightened investment requirements diluting cash returns.
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Visa Inc. (V)
Americas Technology Peer Group Average
Key data Current
Price ($) 174.42
12 month price target ($) 215.00
Market cap ($ mn) 113,547.4
Dividend yield (%) 0.8
Net margin (%) 42.1
Debt/total capital (%) 0.0
9/12 9/13E 9/14E 9/15E
Revenue ($ mn) 10,421.0 11,813.9 13,278.6 14,983.5
EPS ($) 6.19 7.58 8.99 10.49
P/E (X) 18.3 23.0 19.4 16.6
EV/EBITDA (X) 11.2 14.6 12.1 10.1
ROE (%) 15.5 18.1 20.0 20.7
6/13 9/13E 12/13E 3/14E
EPS ($) 1.88 1.84 2.20 2.25
1,350
1,400
1,450
1,500
1,550
1,600
1,650
1,700
1,750
120
130
140
150
160
170
180
190
200
Aug-12 Dec-12 Mar-13 Jun-13
Price performance chart
Visa Inc. (L) S&P 500 (R)
Share price performance (%) 3 month 6 month 12 month
Absolute (3.7) 9.9 37.7
Rel. to S&P 500 (2.4) 2.0 18.0
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 8/30/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 69
Visa: Our thesis in six charts
Exhibit 104: PCE growth supports Visa’s attractive profileEM consumption likely to expand in double digits for years
Exhibit 105: But penetration is a larger source of growth Visa PCE penetration by region
Source: Company data.
Source: Company data.
Exhibit 106: Visa global payment volume mix by region
Int’l is expected to grow from 47% in F2012 to 51% in F2015
Exhibit 107: Visa’s connected network is its core
advantage Replicating V’s diverse connections has proved difficult
Source: Goldman Sachs Global Investment Research, Company data.
Source: Goldman Sachs Global Investment Research, Company data.
Exhibit 108: V transaction mix by area of purchase We see E/M transactions gaining share, albeit slowly
Exhibit 109: Potential impact from shift in US sig. debit Which could impact EPS -8% for V and +13% for MA.
Source: Goldman Sachs Global Investment Research, Company data.
Source: Goldman Sachs Global Investment Research, Company data.
12 13 13 13
89
10 10
0
5
10
15
20
25
2009 2010 2011 2012
PCE
for V
isa
Inc.
Cou
ntrie
s ($
T)
Emerging market PCEDeveloped market PCE
2021
23 24
PCE CAGR
6%
10%
3%
2021
23 24
PCE CAGR
6%
10%
3%
19%20%
22% 22%
6%7%
8%9%
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012
Visa
a PC
E Pe
netr
atio
n
Visa PCE penatration in emerging markets
Visa PCE penatration in developed markets
57.5% 54.6% 52.5% 51.4% 50.7% 49.4%
42.5%
45.4%47.5%
48.6%
49.3%
50.6%
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
F2010 F2011 F2012 F2013E F2014E F2015E
V P
aym
ent
volu
me
mix
(%
)
International US
Global access
Interoperability
Complexity
Standardization VISA
Online/ecommerce
Mobile
payments/w
allet
mPOS
Mob
ile b
anki
ng
45.8% 45.6% 47.9%
49.6% 48.6% 48.0%
5.4% 5.9% 6.1%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
F2013E F2014E F2015E
% o
f tra
nsac
tions
Total transactions - Int'l Total transactions - US Total number of transactions E/M
V Downside MA upsideFY2015 2015
Total FY14E revenue $13,278.57 $10,645.85
Signature revenue $1,991.78 $1,064.58
Market share shift -$796.71 $796.71Percentage hit to revenue -6% 7%
After-tax earnings impact -$553.72 $549.73
EPS impact -$0.88 $4.77Percentage EPS impact -8% 13%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 70
MasterCard (MA): Buy on faster volume growth and capital
allocation
Source of opportunity
We continue to rate MasterCard a Buy, like Visa we view the name as
well positioned to benefit from long-term secular trends in payments,
including mobile payments, expanding acceptances and emerging
market exposure,. MasterCard also uniquely has the potential for market
share gains (particularly in light of potential US debit rule changes).
With regard to mobile, MasterCard is well positioned, with similar
incumbent advantages to Visa. The firm is investing in NFC technology
(paypass), and has developed an emerging mobile wallet. Although the
mobile landscape remains very fluid, at this point we do not believe it is
likely that new entrants will bypass incumbent networks such as
MasterCard and Visa; barring eBay’s ACH-based option which does
bypass the networks.
Catalyst
Long term we view MA as one the most compelling names in our
payments coverage offering sustainable solid double digit sales growth
and high teens EPS growth. Relative to Visa we note that MasterCard has
somewhat higher exposure to credit (70% of global payments volume for
MA in 2013 vs. 63% for V). We note MasterCard also benefits from
greater international exposure, with a significant presence in Western
Europe (unlike Visa), and exposure to emerging markets. MasterCard
also has the potential to benefit from continued share gain prospects in
developed economies, notably Western Europe and potentially US debit
depending on the outcome of reform initiatives underway.
In particular, we highlight MA’s positioning in key emerging markets,
where its recent moves in markets such as China and Brazil give it access
to some of the largest and fastest growth electronic payment markets.
Looking out over the next several years, we believe that MA’s aggressive
diversification efforts will fuel a continued strong contribution from its
international segment. In addition, and consistent with our approach on
the V model, we are more optimistic about the mid- to longer term
transaction volume prospects for the model, which should likewise
benefit from the shift towards E/M payments.
Valuation
Our 12-month price target of US$690 is based on weighted average
model incorporating our sector-relative framework, CY14E P/E, and
EV/EBITDA
Key risks
Better/worse than expected traction in new transaction processing
activities; potential cannibalisation by mobile POS terminals in the long
term; heightened investment requirements diluting cash returns,
competition, and litigation.
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Mastercard Inc. (MA)
Americas Technology Peer Group Average
Key data Current
Price ($) 606.08
12 month price target ($) 690.00
Market cap ($ mn) 73,850.8
Dividend yield (%) 0.3
Net margin (%) 39.0
Debt/total capital (%) 0.0
12/12 12/13E 12/14E 12/15E
Revenue ($ mn) 7,391.0 8,113.8 9,301.9 10,645.8
EPS ($) 22.04 26.14 31.17 37.00
P/E (X) 19.6 23.2 19.4 16.4
EV/EBITDA (X) 11.8 14.0 11.5 9.4
ROE (%) 43.3 44.0 44.1 40.9
6/13 9/13E 12/13E 3/14E
EPS ($) 6.96 6.91 6.03 7.35
1,350
1,450
1,550
1,650
1,750
1,850
1,950
400
450
500
550
600
650
700
Aug-12 Dec-12 Mar-13 Jun-13
Price performance chart
Mastercard Inc. (L) S&P 500 (R)
Share price performance (%) 3 month 6 month 12 month
Absolute 5.2 17.0 44.0
Rel. to S&P 500 6.6 8.6 23.4
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 8/30/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 71
MasterCard: Our thesis in six charts:
Exhibit 110: Global PCE growth and mix Debit/credit is expected to represent 43% of PCE by 2016
Exhibit 111: MasterCard’s digital network is growing MA’s PayPass is among the most robust digital offerings
Source: EIU, Euromonitor, Company data.
Source: Company data.
Exhibit 112: MA global payment volume mix by region Int’l is expected to grow from 63% in 2012 to 67% in 2015
Exhibit 113: Traditional four party open loop network The complexity of numerous interactions among divergent
parties makes disruptive displacement difficult
Source: Goldman Sachs Global Investment Research, Company data.
Source: Goldman Sachs Global Investment Research, Company data.
Exhibit 114: MA transaction mix by area of purchase We see E/M transactions gaining share, albeit slowly
Exhibit 115: New entrants straddle multiple points To date they have not taken significant share from networks
Source: Goldman Sachs Global Investment Research, Company data.
Source: Goldman Sachs Global Investment Research, Company data.
64% 52% 41%
13%15% 16%23%
33%
43%
0
10
20
30
40
50
60
2006 2011 2016E
Glo
bal P
CE
expe
nditu
re ($
tns)
Debit/Credit EFT Cash & Check
$30tn
$42tn
$53tn Digital Wallet Partners
Citi
BMO
Other Partners
Fifth Third Bank
Digital Acceptance
devices
NFC terminals
Cell Phones
Tablet and PC
Digital enables consumer
choice
MasterCard Network
39.7% 37.1% 36.4% 35.2% 34.4% 33.4%
56.5%60.3%
62.9%63.6%
65.6%
66.6%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2010 2011 2012 2013E 2014E 2015E
MA
pa
yme
nt v
olu
me
mix
(%
)
US International
Payee (Merchant)
Transaction Acquirer
AcquirerProcessor
Issuer Processor
Payer (Consumer)
Card Issuer
Network
Credit Debit Prepaid
Money Transfer
Emerging
Loyalty Risk Services Information Services
eCommerce Mobile Access
Supporting Value Added Services
39.6% 39.3% 38.8%
56.2% 56.1% 56.1%
4.2% 4.6% 5.1%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2013E 2014E 2015E
% o
f tra
nsac
tions
Total transactions - US Total transactions - Int'l Total number of transactions E/M
Software POS• Micros, Radiant, Elo, CAP
Software, Celerant/CAM, Retalix, Microsoft POS,
Hardware POS• VeriFone,
Ingenico, Toshiba Tec, NCR, Casio
Merchant acquiring • Global Payments, First
Data, Heartland, Vantiv, Evertec
Payment Networks• Visa,
MasterCard, American Express, Discover
PayPalSquare
GrouponIntuit
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 72
EBAY (EBAY): CL-Buy; Established leader in online & mobile
payments
Source of opportunity
EBAY is on the Americas Conviction Buy List and we continue to view it
as one of the best positioned to benefit from the accelerating growth in
ecommerce being driven by growth in mobile usage. While this growth
benefits both eBay’s marketplaces and payments business, PayPal has
greater market share in mobile than online, due to its ease of use and
key relationships like Apple. PayPal is in the early stages of building an
offline payments network through Discover and direct merchant
relationships that will allow users to pay via a PayPal card that defaults
to the funding option of the user’s choice. PayPal Here, the company’s
mobile card reader is expected to launch a chip and pin solution for
Europe later this year. Management is focused on driving consumer
adoption and adding merchant acquirers, with 2mn merchants targeted
by year end. More broadly, eBay is focused on improving the user
experience in both marketplaces and payments through investment in
search technology, mobile apps, merchant services, shipping, and trust
and safety. We believe this will drive accelerating growth in the second
half of 2013, serving as a catalyst for the stock.
Catalyst
There are three key components of our view on PayPal (1) Mobile.
PayPal had over 4 million sign-ups on mobile in 1H13 and expects to do
$20 bn in payment volume through mobile in 2013 (c.11% of total).
PayPal over indexes on mobile allowing it to take share as consumer
spending on Mobile grows. (2) Extending TAM. PayPal is currently
available on 68% of the top 100 retailers in the US but has lower
penetration amongst smaller retailers and overseas. PayPal also has
ample room to move into new addressable vertical markets, and it sees a
large opportunity to continue to extend credit which leads to higher
transaction margins, increased annual spend, a lower funding cost and
higher conversion rates and engagement. (3) Offline. PayPal expects to
expand its merchant coverage to 7+ mn in 2015 from 18,000 in 2012.
11,000 merchants in the UK signed up for PayPal Here’s chip and pin
device in the first four weeks of its offering.
Valuation
Our 12-month SOTP-based price target of $63 implies 12x 2014E
EV/EBITDA vs. the Internet median at 12x. Our target assumes a $33 bn
valuation for PayPal or 13X 2014E EV/EBITDA.
Key risks
Macro weakness; regulation; competition; take-rate pressures.
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
eBay Inc. (EBAY)
Americas Internet Peer Group Average
Key data Current
Price ($) 50.32
12 month price target ($) 63.00
Upside/(downside) (%) 25
Market cap ($ mn) 66,195.2
Enterprise value ($ mn) 60,885.1
12/12 12/13E 12/14E 12/15E
Revenue ($ mn) New 14,071.0 16,261.8 18,918.1 21,703.0
Revenue revision (%) 0.0 0.0 0.0 0.0
EBIT ($ mn) New 3,007.0 3,437.8 3,988.3 4,745.7
EBIT revision (%) 0.0 0.0 0.0 0.0
EPS ($) New 1.99 2.20 2.55 3.03
EPS ($) Old 1.99 2.20 2.55 3.03
EV/EBITDA (X) 11.1 11.0 9.0 7.1
P/E (X) 21.2 22.9 19.8 16.6
Dividend yield (%) 0.0 0.0 0.0 0.0
FCF yield (%) 4.9 5.0 6.4 7.8
CROCI (%) 21.2 21.1 22.1 23.5
1,350
1,450
1,550
1,650
1,750
1,850
1,950
46
48
50
52
54
56
58
Sep-12 Dec-12 Mar-13 Jun-13
Price performance chart
eBay Inc. (L) S&P 500 (R)
Share price performance (%) 3 month 6 month 12 month
Absolute (5.8) (8.3) 6.0
Rel. to S&P 500 (5.7) (15.1) (9.1)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/03/2013 close.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 73
EBAY - Our thesis in six charts
Exhibit 116: PayPal total transaction volume and take
rate
$ bn and % of TPV
Exhibit 117: EBAY marketplaces GMV and yoy growth $ bn and yoy % change
Source: Company data, Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 118: PayPal total revenues and yoy growth $ mn and % change yoy
Exhibit 119: We expect PayPal’s share as a % of EBAY’s
total revenues to continue to increase
EBAY segmental revenue share
Source: Company data, Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 120: PayPal active registered accounts and yoy %
change Registered users (mn) and yoy % change
Exhibit 121: PayPal segment revenue split $ mn
Source: Company data.
Source: Goldman Sachs Global Investment Research, company data.
3.6%
3.7%
3.7%
3.8%
3.8%
3.9%
3.9%
$0
$50
$100
$150
$200
$250
2010 2011 2012 2013 2014
$ bn
TPV Take Rate
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2010 2011 2012 2013 2014
$ bn
Gross Merchandise Volume yoy % change
20.0%
21.0%
22.0%
23.0%
24.0%
25.0%
26.0%
27.0%
28.0%
29.0%
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2010 2011 2012 2013 2014
Revenues yoy % change
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014
Marketplaces PayPal Enterprise
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2011 2012 2013
Users yoy % change
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2010 2011 2012 2013 2014
Transaction Marketing Svcs & Other
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 74
Other key themes in take up of mobile money- NFC, EMV
We highlight other key themes in the technology sector which have meaningful
implications for the European vendors including NFC growth, EMV growth in US and
Trusted Service Manager opportunity globally.
NFC set to be one of the key drivers of mobile payments
Use of mobile phones is helping strong growth of proximity payments with two main
variants being quick response [QR] code and Near Field Communication [NFC]-based
systems. While barcodes are more popular now, they are largely a transitional technology.
This is not to say that barcodes will decline, merely that as NFC availability starts to catch
up, it will be a more popular method for proximity payments.
QR codes- QR codes make use of standard features of the modern smartphone, such
as a high-resolution digital camera for barcode reading. Example, Starbucks mobile
payment application, which utilises QR codes and barcode technology has gained
significant consumer traction since its January 2011 launch and has processed 45
million mobile payment transactions since launch and 19 mn in 2012 ytd.
NFC- may include special hardware support (as in the case of NFC) or Cloud Wallets
While the Near Field Communication (NFC) ecosystem has taken longer than initially
expected to develop, and various credible competing mechanisms for mobile payment
have become increasingly prominent, we believe it will ultimately play a meaningful role.
We believe certain conditions are now falling into place, which suggest NFC is likely to gain
meaningful adoption, even if the mobile payments landscape will fragmented for some
time. We believe Gemalto (Buy) will benefit as one of the providers of secure SIM cards
telcos favour for mobile payments.
NFC based mobile payments (tapping a phone on a terminal to conclude a transaction),
offers key advantages to consumers, financial institutions and retailers:
First, it is fast and convenient, enabling reduction in queue lengths at busy retailers.
Gemalto research has shown that a contactless EMV card transaction is 53% faster
than once made with a traditional credit card and 63% faster than using cash: we
expect a similar differential for NFC smartphones.
Second, NFC involves two-way communication with a payment terminal (facilitated by
an NFC radio incorporating a modem and antenna). As such, it offers scope for a
potentially more dynamic payments experience than e.g. barcode-based approaches,
as targeted offers may be pushed to the user rapidly as he/she approaches (or taps) the
point of sale terminal.
Third, while other approaches to mobile payments, such as QR codes, barcodes or
geolocation are relatively efficient and cost effective, we believe these may offer a less
secure approach and tend to be “close-loop”/tied to specific merchants as opposed to
offering broad interoperability. As such we see this as more of a transitional
mechanism, albeit one that could have the potential to retard the speed of adoption of
NFC based solutions.
In our view, the reasons NFC has not yet gained widespread adoption include:
First, NFC relies upon proliferation of handsets that have relevant radio technology,
which has been slower to occur than originally anticipated.
Second, payment terminals must be rolled out which are compatible with contactless
payments. Absent NFC compatible phones in consumers’ hands the case for retailer
adoption of such terminals was arguably unclear, while replacement cycles for POS
terminals tend to be multi-year.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 75
Third, consumer education takes time. A key concern appears to be security, despite
the fact that, correctly implemented, there is nothing safer than paying using a phone,
as Monitise has explained, mobile payments may leverage secure smartcards, and
phones may be remotely de-activated.
Fourth, other mobile payment approaches e.g. QR codes, barcodes or location
awareness tend to be multiple times cheaper to implement, and allow NFC-
compatibility of the handset and POS terminal to be circumvented.
Finally, further developments are needed for ease of use. We note for example
Oberthur Technologies’’ technologies work with Authentec (later bought by Apple) to
integrate biometric authentication at the point of sale with NFC SIM products, but
further work is needed by tech players in this and other areas e.g. mobile wallet
interfaces.
Exhibit 122: Please indicate why you are not interested in using your mobile phone as a
replacement or substitute for a credit or debit card. Please select all that apply Responses to survey on mobile payments
Source: Smartphone Intelligence Survey, Compete.
However, we believe there are several reasons NFC technology is now likely to see more significant adoption in coming years:
NFC technology is starting to become a standard feature on mid and high end
smartphones. Over 160 NFC-enabled handsets models are now available,
according to NFC World. We estimate the cost of enabling NFC in a phone from a
bill-of materials standpoint is minimal: c.US$0.6-$0.9 compared to the e.g. US$500
unsubsidised retail cost of a mid-range smartphone. As such almost all major
phone OEMs (excluding Apple) have announced NFC handsets., including
Samsung, HTC, Nokia, ZTE, Huawei, Sony, LG and Blackberry. We note Samsung’s
alliance with Visa, whereby the latter’s payment app will be directly embedded
into a separate secure element on each of the former’s next generation phones.
Over 1 million NFC-enabled Android devices are shipped every week, and this
number is growing, according to Google I/O. We estimate
200mn/380mn/600mnNFC mobile devices will ship in 2013/14/15E, constituting
16%/24%/32% of mobile devices shipped (Informa estimates 302mn/633mn NFC
enabled handsets in 2013/2015).
Multiple telcos globally have announced NFC project deployments, including
Verizon, T-Mobile and Verizon in the US (ISIS joint venture), Softbank and KDDI in
Japan, Vodafone, Telefonica and Orange. Moreover, multiple countries are set to
go live with NFC projects, including the ISIS JV in the US, which will launch
nationwide by the end of 2013. Gemalto, which provides platforms for managing
17%
21%
26%
27%
39%
52%
56%
58%
I do not carry my mobile phone with me all the time
I'm not sure if I will need a data plan to use this
technology
I prefer to pay with cash
If my mobile phone battery died, I would not be able
to make payments
I am concerned there will be hidden fees for this
service that will show up on my monthly bill
I am concerned that if I lose my mobile phone,
people could access my bank accounts
I am concerned with the security around using my
mobile phone as a payment option
I prefer to only use my mobile phone for
communication
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 76
multiple mobile payment projects, expects a number of these to be switched on by
the YE13 (Oberthur believes the pilot phase of NFC is ending).
100% of major payment networks support NFC, including Visa, MasterCard
and American Express. By the end of 2013, Visa will have certified roughly 80
NFC devices, while network-driven NFC initiatives include Visa payWave and
Mastercard PayPass.
The merchant ecosystem is starting to respond to NFC and contactless
payments more broadly. There is increasing recognition contactless technology,
whether embedded in a payment card or handset, can help reduce improve
customer convenience and reduce queue times. As such, 25 of the top 100 retailers
in the US have deployed or are deploying contactless payment terminals; while
Aite Group estimates 1.3mn locations in the US will have contactless-ready
terminals by YE13. Several prominent multinationals such as McDonalds are
taking a proactive approach to deployment of contactless terminals while on a
more local level, the UK experience underscores the trend, with major brands
accepting contactless including Boots, WH Smith and Waitrose. Ingenico sees
merchants as increasingly keen to use NFC to push real-time targeted adverts.
Major payment terminal makers are now shipping POS devices with contactless
capabilities on board. As such, while only around 15%-20% of installed POS
terminals in the US (and globally) are NFC capable, we expect this to gradually rise.
For example, a central part of Ingenico’s strategy is to be able to accept mobile
contactless payments on its terminals. All its terminals now shipping are NFC
capable (even if not turned on), and 40% of payment terminals it shipped in 2012
were contactless enabled (30% in 2011). Verifone and Equinox have also confirmed
nearly all terminals shipped last year have functional capability to accept NFC or
contactless (although the merchant decides whether to turn this capability on).
Berg Insight predicts that 86% of POS terminals will be NFC-enabled in North
America by 2017, with 78% and 38% in the EU and rest of world respectively at
that point.
Major banks are putting resources behind contactless payments. Aside from
specific mobile-related initiatives e.g. by Barclays and Chase, multiple institutions
e.g. HSBC, Lloyds and Royal Bank of Scotland, have launched contactless card
payment card initiatives. For example, Visa states one in four cards in circulation in
the UK are contactless, while Eurosmart expects roughly 33% of payment cards
issued globally will be contactless in 2013. Secure EMV payment cards are
significantly underpenetrated in the US, but as these rollout over coming years, we
expect c.30% to be contactless. As contactless cards enter the hands of consumers,
we believe this further incentivises merchants to adopt payment terminals that are
contactless-read, thereby increasing the presence of NFC-ready infrastructure.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 77
Exhibit 123: We expect continued ramp-up of NFC devices over time NFC penetration in devices
Source: Company data, Goldman Sachs Global Investment Research.
In practice, whether NFC based communication with the terminal or other techniques
become the most frequently seen approaches to mobile payments, we believe the practice
of embedding payment credentials (required to authenticate transactions) within a silicon
chip (secure element) in the handset will be one of the most prominent. We see Gemalto
(Buy), as a significant beneficiary of such an outcome.
We are cognisant such a method is by no means the only one: e.g. the MCX retailer
consortium, whose members process >$1 trillion of transactional volume per year, is
relying initially upon a cloud based solution, not chips. Moreover, the use of a cloud
based approach is not limited to closed-loop systems: PayPal, MasterCard (PayPass)
and Visa (V.Me) all have cloud based wallets.
Further, there is no reason in theory (albeit depending on regulation) that large
mobile/cloud ecosystem players such as Google, Amazon and Apple could not develop
scaled solutions which leverage existing cloud infrastructures, expertise and
aggregated user payment details.
In practice, however, it is likely the chip based approach will garner a meaningful
portion of the market, most likely via the chip being incorporated in SIM cards. First,
such an approach will tend to be one of the most secure i.e. less liable to hacking
(analogous to EMV payment cards). Second, while it is clearly possible for the secure
chip to be embedded directly within the handset (e.g. as Samsung is doing with its
latest smartphones, using Oberthur chips) or even for a micro SD to be used, telcos
will tend to prefer the SIM based approach. They are ultimately the ones subsidising
most handsets, and are keen to monetise user relationships by charging fees to third
parties wishing to place credentials within the SIM card.
40
100
200
380
600
802
1033
8%
15%
19%
29%
39%
47%
55%
0%
10%
20%
30%
40%
50%
60%
0
200
400
600
800
1000
1200
2011 2012 2013E 2014E 2015E 2016E 2017E
NFC smartphones/tablets shipped (mn) NFC as % of devices shipped (RHS)
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 78
Exhibit 124: The secure element may be located in either the handset directly, a removable
memory card, or directly in the SIM card; we think the latter will be the most common Three possible secure element configurations on NFC enabled phones
Source: Goldman Sachs Global Investment Research.
We see Gemalto (Buy) as the European vendor best placed to benefit from roll out
of secure SIM-based chip cards for NFC (and other mobile payments methods). As
such, we believe this can drive €100 mn (11%) of incremental revenues from 2012-
15E for the company. We believe GTO has invested significantly more than
competition such as Oberthur and Giesecke & Devrient in developing NFC-ready
SIM cards, as a function of its scale advantage, giving it a competitive advantage.
This is manifested in our view in roster of credible mobile payment project wins
with telcos where we see it as likely to provide these products (see Exhibit 8).
Competitors such as Oberthur appear to have announced fewer wins with large
telcos (although they will catch up).
We note, however, that while telco’s appear most keen to push payment solutions
based on NFC and SIM cards for now, Gemalto’s ability to benefit from mobile
payments is not totally reliant upon such an approach. It can benefit from mobile
payments rollouts whether or not the transmission mechanism to the terminal is
NFC. The value GTO provides is in its secure software for encrypting credentials,
and the transmission mechanism could equally be e.g. bluetooth. Further,
payment credentials do not have to sit in a SIM card. For example, Samsung’s
latest approach to payments is based upon credentials being embedded in a chip
with secure software on it that sits within the phone and which is separate to the
SIM (see Exhibit 7). While Oberthur Technologies is supplying the technology
solution in this case (we note GTO is engaged litigation with Google) there is no
reason GTO could not sell secure software to Samsung and others for use on
embedded chips.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 79
Exhibit 125: Overview of telco mobile payment projects where Gemalto appears well placed to provide NFC SIM cards Overview of announced projects with telcos where Gemalto appears well placed to provide secure mobile payment SIM cards
Source: Goldman Sachs Global Investment Research, Company data.
NFC sim cards Announcement date Country/region deployed Mobile subs (mn) CommentsTelco
Softbank Jan-11 Japan 33.0 Cards & TSM trial announced
NTT Feb-11 Japan 61.0 Stategic cooperation announced
Turkcell May-11 Turkey 30.0 Cards announced
M1 Oct-11 Singapore 2.0 TSM announced
Singtel Oct-11 Singapore 3.5 TSM announced
Starhub Oct-11 Singapore 2.0 TSM announced
ISIS - ATT Dec-11 US 107.0 TSM announced
ISIS - Vz Dec-11 US 117.0 TSM announced
ISIS - TMo Dec-11 US 34.0 TSM announced
Orange France Jun-12 France 27.0 TSM and cards announced
Vodafone global Oct-12 Europe select geographies 95.2 TSM and cards announced
Germany 32.4 TSM and cards announced
UK 19.2 TSM and cards announced
Spain 14.4 TSM and cards announced
Italy 29.2 TSM and cards announced
Rogers Oct-12 Canada 9.4 Cards announced
DT global (ex US) Oct-12 Select geographies ex-US 76.0 Announced TSM & cards for Poland
Germany 37.0 Announced TSM & cards for Poland
Austria 4.0 Announced TSM & cards for Poland
Poland 16.0 Announced TSM & cards for Poland
Netherlands 5.0 Announced TSM & cards for Poland
Greece 8.0 Announced TSM & cards for Poland
Czech Republic 6.0 Announced TSM & cards for Poland
Telecom Italia Nov-12 Italy 32.2 TSM and cards announced
Feb-13 Brazil 70.0 TSM and cards announced
China Unicom Feb-13 China 220.0 Cards announced
KDDI Feb-13 Japan 40.0 Cards and TSM announced
MTS - Russia May-13 Russia 70.0 Cards announced
Telus May-13 Canada 8.0 Cards announced
Total subscribers of telco taking GTO product (mn) 1,037
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 80
Exhibit 126: We see Gemalto as well placed to benefit from the rollout by telcos of SIM cards for mobile payments Gemalto NFC / LTE (4G) SIM card revenue streams analysis
Source: Goldman Sachs Global Investment Research, Company data.
TSM: Securing the integrity of mobile payments
The central value proposition of the TSM (Trusted service manager) is ensuring sensitive
credentials are properly encrypted, securely transmitted (outside of human sight), and that
credentials and associated apps arrive in (and are removed from) the secure element in a
seamless fashion. Moreover, such credentials must be compartmentalised in the secure
element in such a way that no entity that has uploaded data can see information uploaded
by others, while transmission must not at any point be conducted by one actor in such a
way that data of other actors is rendered insecure.
LTE/NFC product uplift analysis 2011 2012 2013E 2014E 2015ETotal SIM card units GTO ex NFC (mn) 1,360 1,428 1,556 1,711 1,855 Regular SIM card units GTO ex NFC (mn) 1,353 1,386 1,493 1,620 1,687 Regular SIM card units growth (yoy) 2% 8% 9% 4%Market SIM card units growth (yoy) 5% 9% 10% 8%Cannibalisation rate by new LTE cards (%) 100% 100% 100% 100%
Regular SIM card ASP (EUR) 0.58 0.52 0.47 0.42 0.37
Regular SIM card revenues (EURmn) 790 721 699 689 631 Regular SIM card revenues (yoy) -9% -3% -1% -8%
4G market adds (mn) 60 125 225 420 4G unit market share (%) 70% 50% 40% 40%4G SIM card units GTO (mn) 7 42 63 91 168 4G SIM card units GTO (yoy) 530% 49% 45% 85%
4G SIM card ASP (EUR) 3.7 3.5 2.6 2.1 1.7 4G SIM card ASP (yoy) -4% -25% -20% -18%Implied multiple of regular SIM ASP 6.3x 6.7x 5.6x 5.0x 4.6xImplied multiple of Group card ASP 3.8x 3.5x 2.6x 2.1x 1.7x
4G SIM card revenues (EURmn) 24 147 164 192 291 4G SIM card revenues (yoy) 502% 12% 17% 52%
NFC market device unit adds (mn) 40 100 200 380 600 NFC SIM card based proportion (%) 6% 32% 40% 46%NFC SIM market share (%) 100% 80% 65% 50%NFC SIM card units (mn) 5.9 50.3 98.8 139.8 NFC SIM card ASP factor vs LTE (x) 0.5x 0.5x 0.5x 0.5xNFC SIM card add-on ASP (EUR) 1.9 1.4 1.2 1.0
NFC SIM card add-on revenues (EURmn) 0 11 72 115 133
Total SIM card units inc. NFC (mn) 1,360 1,434 1,606 1,810 1,995 Total SIM card units growth (yoy) 10% 5% 12% 13% 10%
Implied total SIM card ASP (EUR) 0.60 0.61 0.58 0.55 0.53 Implied total SIM card ASP (yoy) -9% 2% -5% -6% -4%
Total SIM card revenues (EUR mn) 814 879 935 995 1,055 Total SIM revenues growth (yoy) -4% 8% 6% 6% 6%
Total MC SW/servs revenues (EUR mn) 162 211 249 295 362Total MC SW/servs growth (yoy) 30% 18% 18% 23%
Implied total MC revenues (EURmn) 976 1,090 1,184 1,290 1,417 Implied total MC revenues (yoy) 12% 9% 9% 10%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 81
Exhibit 127: TSM platforms help ensure secure transmission of sensitive credentials into
the secure element. TSM schematic overview
Source: Company data, Goldman Sachs Global Investment Research.
Although, in theory, it would be possible for each and every telco, bank, or other entity,
that wishes to upload information into the secure element to conclude bilateral agreements
with each and every other one, stipulating transmission must be done in a fully secure way,
this appears impractical: tens, hundreds or even thousands of such entities will participate
over time. Thus, TSM platforms act as a centralised mode of guaranteeing data
compromise will not occur and managing the chain of trust. Any stakeholder can be
confident in end-to-end integrity of its information.
In our view, the degree of success of TSM as a technology will not necessarily be tied to
consumer uptake of payments based on NFC (or even SIM card based implementations),
but rather that of a broad variety of mobile payment approaches that rely upon credentials
being securely stored in chips in the handset, whether SIM or separate chip. To the extent
that we are incorrect and the mobile payments landscape evolves in such a way that chip-
based applications are marginalised, this would reduce the TSM opportunity. Nevertheless,
we think it likely that TSM will end up playing at least a meaningful role in mobile
payments and, as we explain below, shall constitute a significant revenue opportunity.
TSM is more than merely a concept: multiple deals have now been signed with both telcos
and banks. Gemalto has signed projects with various telcos e.g. the ISIS JV (AT&T, Verizon,
T-Mobile etc), Vodafone, Deutsche Telekom, Softbank and KDDI. Meanwhile, Oberthur has
secured deals with SFR and Bouygues, and Giesecke & Devrient has a contract with
Telefonica. Blackberry’s solution (“Secure Element Manager”, SEM) is being employed by
Enstream, the mobile payments JV of Bell, Rogers and TELUS. While it had originally been
anticipated that TSM solutions would generally be limited to telcos, demand has also
materialised at large financial institutions who want their own licenses and to retain control
of their own TSM, rather than connecting via telcos. Thus, for example, Gemalto has won
deals with Chase, Barclays and China Union Pay and Oberthur Technologies is serving e.g.
Societe Generale.
TelcosRetailBanks GovernmentTransportcompanies
Other
SP TSM
SP TSM
SP TSM
SP TSM
SP TSM
SP TSM
SE TSM
SECURE ELEMENT
Telcos appRetail appBanks app Government app
Transport app
Other app
SE Issuer
SIM
Secure SD Card
Embedded Chip
Others
Mobile Phone
Wallet App
Onlineservices
Web based services
NFC contactless services
Proximity Infrastrcuture
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 82
Beyond payments, we note that TSM technology is starting to be to applied various new
verticals, further broadening the addressable market. Significant players in retail and
automotive have already signed deals, and we see an expansion in the opportunity set to
encompass multiple other areas including enterprise security. We factor these into our
TSM market analysis:
Retail – retailer demand for TSM platforms stems from a desire to have control of the
ability to monitor user purchasing behaviour and adapt marketing strategies
dynamically to the specific user, rather than surrendering this capability to Google or
other players. Gemalto has already signed up, Carrefour, a large player from France,
which wants to benefit from GTO’s technology so as to monetise mobile payments.
Automotive - Audi has signed a deal with Gemalto, as its TSM technology offers a
means whereby the firmware in the car can be securely and remotely managed over
the air without data being compromised, while also offering the ability to securely
store and transmit mileage data from the vehicle for insurance-related purposes /
charging.
Enterprise security – we believe that TSM may be applied over time to upload and
manage credentials within secure elements of phones of employees in large
enterprise; for example, rather that using RSA tokens, it would be more secure to store
keys for access to email systems and/or remote logins at major corporates on the
secure element (harder to crack).
Gaming – the process of users purchasing additional in-game functionality could be
managed seamlessly and securely via remote TSM systems.
Digital media - TSM transmission of secure signatures for digital media can in our view
become more widespread and help reduce piracy. Gemalto is already working with
Amazon to facilitate this on the Kindle (as well as providing services to ensure data
gets routed via the cheapest route on the network). GTO also provides certain
technology to Netflix.
We note that TSM systems are gradually being adopted in a broader range of geographies,
beyond traditional developed markets. Whereas the first implementations of TSM tended
to be skewed geographically towards the US (e.g. ISIS), Japan (e.g. KDDI) and Western
Europe (e.g. Barclays), TSM now appears likely to gain further traction over coming years
in EMs. For example, in China, Gemalto is working to architect a nationwide NFC
ecosystem (including TSM collaboration) with China UnionPay. This is the leading payment
scheme in the country (similar to VISA) with the world’s largest network of payment cards.
China had originally determined to pursue its own form of contactless mobile payments
technology, but the decision to switch to NFC (similar to the move made by Japan) is an
attempt to ensure Chinese travelers will be equipped to conduct mobile payments while
abroad.
It is clear multiple TSM implementations have moved beyond the pure trial stage, with real
monetary deals signed, and we see pricing models crystallising around two key
approaches. Gemalto, for example, which has secured the lion’s share of larger deals, has
contracts which involve significant monetary commitments of up to millions of euros per
month on a non-refundable basis. Such deals encompass either a capex or an opex
(Software as a Service – SaaS) approach, and we use these as a basis for analysing the
TSM opportunity.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 83
Exhibit 128: Lifecycle of a TSM project Overview of TSM project lifecycle - Gemalto
Source: Goldman Sachs Global Investment Research, Company data.
The opex approach is more front-end-loaded and is based on an initial license for a
certain number of anticipated users (and future licenses once further user uptake
thresholds are met); the capex model sees less emphasis on up-front payments, and
sees revenues scale more gradually as incremental consumers activate the platform.
We see three key phases for TSM projects:
o The first phase, under both approaches, is typically a 9-12 month integration
phase, where back-office systems are set up and the TSM can only recognise a
small amount of revenues under IFRS, and sees lower margins.
o The second phase starts when the TSM system is switched on.
If the client opts for the capex model, they will pay for the license(s) at
this point, based on the number of initial adopting consumers
anticipated (e.g. for €5 mn for an initial license to encompass e.g. 5mn
subscribers). There will also be maintenance fees (and in parallel, one
typically should see the rollout of high-end LTE/NFC cards to telco
subscribers).
If opting for the opex/SaaS model the client will pay hosting fees from
switch-on onwards. This phase will typically last for another 18-24
months.
o The third stage begins typically at the 24 month mark:
Usually, under the capex model, extra fees will be paid for additional
license(s) if certain activated user thresholds are surpassed and/or
anticipated;
On the SaaS model there will be a fee for each user activated on each
particular payment/other app service (via downloading
apps/credentials).
Both approaches will also typically yield some revenues for periodic
updates (e.g. patches, security fixes) to the payment apps sitting in
the secure element on board the smartphone of the user.
It is apparent that regardless of ultimate consumer take-up, the provider will under the
capex approach get (a) initial set-up fees, and (b) a license fee when the system is
switched on (e.g. €5 mn), plus (c) recurring maintenance revenues and updates
revenues although, (d) further licenses, will depend on adoption levels.
Under the opex/SaaS approach the vendor will see (a) initial set-up fees (b) hosting
revenues and (c) updates revenues, irrespective of user adoption, although (d)
activation revenues will depend on user uptake.
Stage 1 Stage 2 Stage 3
Length of phase 9-12 months 18-24 months Undefined
Phase type System integration Post system activation User activation
Monetisation Low revenues and margin Higher revenues / margin High incremental margin/user
Capex vs Opex -Capex model yields: -Capex model yields: -Capex model yields:models integration/setup revenues a) license(s) (scaled to no. users) a) revenues when hit Xmn extra users
b) maintenance fees a) updates revenuesc) product rollout (NFC cards)
-Opex model yields: -Opex model yields: -Opex model yields:integration/setup revenues hosting revenues a) activation fee for every user
b) updates revenues
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 84
Exhibit 129: We expect the global TSM market to experience rapid growth on the way to a
yearly value of €675mn by 2017. TSM market revenues over time
Source: Goldman Sachs Global Investment Research
We see Gemalto as the vendor best placed to monetise the TSM opportunity, and our
assumption it can achieve €250 mn of revenues per year by 2017 implies roughly 37%
market share by that time (vs. our conservative estimate of 60% today). We do not believe
that such a long term share projection is overly aggressive, given GTO’s continuous re-
investments in TSM appear to be providing a competitive advantage, with the company so
far manifesting a significant lead technologically on TSM solutions and winning the
majority of announced large TSM deals with banks and financial players. The company has
been able to invest significantly for multiple years and leverage its scale for amortisation of
development costs. GTO has significantly greater scale than its main TSM competitors in
the established (adjacent) SIM card and payment card markets.
Exhibit 130: Gemalto is able to leverage its dominant
position in the concentrated SIM cards/services market…Share of SIM card market revenues, current (%) 2012
Exhibit 131: … and in the payment cards market to
amortise higher levels of R&D than competitors Share of payment card market revenues, current (%) 2012
Source: Goldman Sachs Global Investment Research. Note: G&D stands for Giesecke & Devrient
Source: Goldman Sachs Global Investment Research. Note: G&D stands for Giesecke & Devrient
71
118
223
348
494
675
-
100
200
300
400
500
600
700
800
2012E 2013E 2014E 2015E 2016E 2017E
TS
M O
pport
unit
y, €
mn
57% CAGR
Gemalto,
45%
Oberthur,
20%
G&D, 20%
Gemalto,
45%
Oberthur,
20%
G&D, 20%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 85
Gemalto’s superior positioning for provision of TSM is evidenced in market share which
we estimate to be at least 60% today. While several competitors have multiple projects on
TSM, these appear to be with fewer institutions in general, whereas Gemalto has actively
pursued and won a large number of large-scale projects, e.g. ISIS (AT&T/Verizon),
Vodafone, Softbank. Chase, Barclays, Orange and Carrefour. We note that Gemalto has
traditionally viewed Ericsson as its main competition for TSM and LTE over-the-air
management of devices, but given it beat Ericsson in various bidding processes recently
for TSM, the two have actually teamed up and the latter will resell GTO’s technology.
We believe that in the long run it is realistic to assume that Gemalto will occupy a
leadership position (along with Oberthur and potentially a couple of others) in a relatively
concentrated market. We believe there is potential for up to four scaled players in TSM,
and see market fragmentation as unlikely based on the following points:
Only three or four players in the market currently have a significant track record of
managing sensitive credentials for banks and telcos.
Banks may not necessarily trust a startup’s ability to keep the virtual “keys to the cash
register” safe.
Typically banks/telcos will want to be convinced as to the longer term capital stability
of the TSM provider. TSM projects require the vendor to invest upfront and wait
several years until revenues can be harvested at higher margins. This may be hard for
newer, smaller entrants. Several smaller players have either failed already or will take
years to achieve sufficient scale.
Larger tech majors may not enter organically given the complexity involved and need
to build know-how in working with LTE/4G SIM cards; however they may partner with
existing players or look at M&A.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 86
Exhibit 132: Gemalto has a broad array of TSM projects with major telcos Overview of Gemalto key TSM projects with telcos
Source: Goldman Sachs Global Investment Research, Company data.
Exhibit 133: Selected Gemalto TSM deals with financial institutions
Gemalto financial institutions TSM projects overview
Source: Company data.
Client Announcement Country/region deployed Mobile subs (mn)NTT Feb-11 Japan 61.0
Singapore Oct-11 M1 - Singapore 2.0
Singtel - Singapore 3.5
Starhub - Singapore 2.0
ISIS (AT&T/Verizon) Dec-11 ATT US 107.0
Vz US 117.0
TMo US 34.0
Orange France Apr-12 France 27.0
DT global (ex US) Oct-12 Select geographies ex-US 76.0
Germany 37.0
Austria 4.0
Poland 16.0
Netherlands 5.0
Greece 8.0
Czech Republic 6.0
Vodafone global Oct-12 Europe select geographies 95.2
Germany 32.4
UK 19.2
Spain 14.4
Italy 29.2
Telecom Italia Nov-12 Italy 32.2
Feb-13 Brazil 70.0
KDDI Feb-13 Japan 40.0
Softbank Jun-13 Japan 33.0
Subs of telco taking GTO TSM - core geographies (mn) 700
Subs of telcos taking GTO TSM - non-core geographies / unannounced deals (mn) 300
TOTAL SUBS OF TELCOS TAKING GTO TSM 1,000
Client Announcement Country/region deployedBarclays Jan-11 UK
JPMorgan Chase Feb-12 US
China UnionPay Feb-13 China
SIA May-13 Italy
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 87
As detailed in above exhibits, our TSM revenue assumptions for Gemalto are
predicated on the following assumptions.
Just over 1bn NFC-enabled mobile devices will be shipping per year by 2017
i.e. equivalent slightly over 50% of all smartphones shipping per year.
Roughly 50% of all NFC-enabled mobile devices will be equipped by that point
with SIM card based secure elements (or secure chips), as opposed to security
functionality relying purely upon the cloud.
Approx. 1.5bn telco subscribers globally will have devices with NFC SIMs
onboard, of which almost 0.8bn will be supplied by Gemalto (i.e. c.50%). This
compares to c1bn wireless subscribers in key geographies of telcos with
whom Gemalto has signed mobile payments deals (explicitly incorporating
NFC SIM card deals or where supply of such smartcards can in our view be
assumed). This would imply that 14% of global handset subscribers in key
geographies will have a Gemalto SIM card in their phone that is NFC capable
(vs. 26% penetration of the base for all providers combined).
We assume that of the installed base of NFC SIM cards that Gemalto rolls out,
50% of such devices will be managed by a TSM operating under the capex
(license-based) model and the rest under an opex (SaaS) model.
Capex (license) model:
We estimate 18% of the installed base of users covered with Gemalto’s NFC
SIM cards will have activated some kind of mobile payment application based
on a license based TSM by 2017. This equates to roughly 2.5% of the overall
handset subscriber base.
We assume that the license deals are structure in such a way that in 2013,
each million consumers who activate a license translates into €1 mn of license
fees. However, we model this degrading at a double digit rate over time as
TSM platforms scale up.
Maintenance fees, in our view, will equate to roughly 20% of the value of the
initial license. This is similar to SaaS deals for companies covered by our
European Software team.
Gemalto’s TSM project pipeline currently stands, based on our estimates, at
roughly 45 projects but we believe this can be replenished over time as deals
are delivered. We assume capacity for up to 50 projects at any one time, but
believe a run rate of up to 15 projects delivered per year (including both large
and small deals) is realistic. We assume that each delivered deal results in a
one off TSM setup fee of €4 mn currently: this is an average amount, with
much smaller deals being far below this. We assume this will fall at a 5%
CAGR from 2013-2017, as TSM platforms become more widespread.
Updates/change requests will be required for each and every active user e.g.
for security patches. We assume that these will be worth roughly €0.2 per
active user per year (i.e. significantly smaller than the fee per active user of
c.€1 determined by the license in 2013).
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 88
Exhibit 134: Gemalto TSM model: license based customers
Gemalto TSM model: license based customers assumptions and metrics
Source: Goldman Sachs Global Investment Research, company data.
Opex (SaaS) model:
We assume that the one-time fee for setup of SAAS-based TSM projects will
be lower than that for license-based projects at €1mn per project.
We estimate 12% of the installed base of users covered with Gemalto’s NFC
SIM cards will have activated some kind of mobile payment application based
on a SaaS based TSM by 2017. This equates to roughly 1.7% of the overall
handset subscriber base.
The hosting fee per user will in our view be roughly €0.5 in 2013 (i.e. lower
than the €1 per active user on the license approach) and we assume double
digit yearly declines in pricing in future years.
We assume that each user that activates banking credentials i.e. a virtual bank
card will trigger a one off payment to Gemalto in 2013 of €1. We assume
double digit yearly declines in the value of such fees per activation over time.
We further assume that in 2013 each incremental SaaS based subscriber who
decides to activate banking credentials on their phone will only do this on
average only do this for one financial institutions payment app. However, we
believe that over time as mobile payments become more widespread, each
user will on average activate two such apps (by 2017).
Full License 2012 2013E 2014E 2015E 2016E 2017ESmartphones shipping per year 680 1,058 1,319 1,552 1,707 1,878 yoy growth (%) 56% 25% 18% 10% 10%NFC device shipping per year (mn) 100 200 380 600 802 1,033
% devices shipped per year with NFC functionality 15% 19% 29% 39% 47% 55%% of NFC devices driven by SIM cards 6% 32% 40% 46% 50% 54%
NFC SIM cards shipped per year market (mn) 6 63 152 277 402 555Subscribers in market covered with NFC SIM cards (cumulative, mn) 6 69 221 498 901 1456
% GTO share of yearly NFC SIM cards shipped 100% 80% 64% 50% 50% 50%
GTO NFC SIM cards shipped per year (mn) 6 50 97 140 203 280Subscribers covered with GTO NFC SIM cards (cumulative, mn) 6 56 153 293 495 775Gemalto NFC SIM telco current customers' subs total (core geographies) (mn) 1,000 1,000 1,000 1,000 1,000 1,000
% of subs covered of GTO's NFC SIM telco customers 1% 6% 15% 29% 50% 78%
Global handset market subs (mn) 3,302 3,675 4,092 4,536 5,035 5,589
% of global handset market subs covered with GTO NFC SIMs 0% 2% 4% 6% 10% 14%
License based cards % of total GTO NFC SIM cards shipped per year 50% 50% 50% 50% 50% 50%
NFC license based potential consumers adds / year (mn) 3 25 48 70 101 140NFC license based SIM covered consumer installed base (mn) 3 28 76 146 248 388Telco's expected NFC license based customer adoption / year (%) 7% 18% 29% 39% 50%Telco's expected NFC license based adds / year (mn) 2 9 20 40 70
Telco's expected NFC license based subs (cumulative, mn) 2 10 30 70 140Cumulative subs taking license as % of cumulative GTO NFC SIM cards covered base 3% 7% 10% 14% 18%Cumulative subs taking license as % of GTO TSM customers' total subs 0% 1% 3% 7% 14%
Cumulative subs taking license as % of total global handset subcriber base 0.0% 0.3% 0.7% 1.4% 2.5%Licence cost per consumer covered (€) 1.0 0.9 0.8 0.7 0.7License fees (€ mn) 2 8 16 29 46
Maintenance fees % of license value 20% 20% 20% 20% 20%
Maintenance fees (€ mn) 0 2 5 11 20
GTO TSM project pipeline (License-based and SAAS-based) 45 40 35 30 26 23New TSM projects signed up 15 20 20 21 22License based TSM projects delivered per year 15 15 15 15 15SAAS based TSM projects delivered per year 5 10 10 10 10GTO TSM license based projects setup one-time fee (€ mn) 4.0 3.8 3.6 3.4 3.3TSM integration/setup fees (€ mn) - License model 60 57 54 51 49
Installed base of NFC cards for licensing model (mn) 2 10 30 70 140Updates/change requests fee / year (€) 0.2 0.2 0.2 0.2 0.2
Updates/change requests revenues (€ mn) 0 2 6 14 28
Total license based TSM revenues (€ mn) 62 69 81 105 143
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 89
We factor in small update-related revenues for each consumer in the base with
SaaS based payments apps on their phone.
We assume that 10% of telco subscribers covered with Gemalto’s NFC SIM
cards will use non-payment related apps management by the TSM (equivalent
to 20% of telco subs covered with NFC SIMs managed on a SaaS TSM
platform). Examples include apps for public transportation, retailer loyalty
programs, hotel access keys, digital media and enterprise access.
Exhibit 135: Gemalto TSM model: SAAS based customers
Gemalto TSM model: license based customers assumptions and metrics
Source: Goldman Sachs Global Investment Research, Company data.
SAAS 2012 2013E 2014E 2015E 2016E 2017ESAAS based TSM projects delivered per year 5 10 10 10 10GTO TSM SAAS projects setup one-time fee (€ mn) 1.0 1.0 1.0 1.0 1.0
TSM integration/setup fees (€ mn) 5 10 10 10 10
NFC SIM cards shipped per year GTO (mn) 6 50 97 140 203 280SAAS based cards % of total GTO NFC SIM cards per year 50% 50% 50% 50% 50% 50%
NFC SAAS covered consumer adds per year (mn) 3 25 48 70 101 140
NFC SAAS SIM covered consumer installed base (mn) 3 28 76 146 248 388SAAS consumer installed base adoption of banking (%) 7% 15% 22% 25% 25%SAAS consumers in base with banking credentials on phone (mn) 2 11 32 61 95Cumulative subs taking SAAS as % of NFC SIM cards covered base 4% 7% 11% 12% 12%Cumulative subs taking SAAS as % of GTO TSM customers' total subs 0% 1% 3% 6% 9%
Cumulative subs taking SAAS as % of total global handset subcriber base 0.1% 0.3% 0.7% 1.2% 1.7%Hosting fee per user (€) 0.5 0.5 0.4 0.4 0.3Hosting fees (€ mn) 1 5 13 22 31
Extra SAAS consumers uploading bank credentials / year (mn) 2 9 21 29 34Fee per SAAS banking upload (€) 1.0 0.9 0.8 0.7 0.6Bank cards uploaded per user 1.0x 1.5x 2.0x 2.0x 2.0xBanking upload revenues via SAAS system (€ mn) 2 13 34 42 42
Consumers requiring bank related updates (mn) 2 11 32 61 95Fee per bank related phone update (€) 0.1 0.1 0.1 0.1 0.1Bank updates per year 2.0x 2.0x 2.0x 2.0x 2.0x
Bank updates revenues (€ mn) 0 2 5 9 12
SAAS consumer installed base adoption loyalty/transport/phys. access (%) 2% 8% 14% 19% 20%SAAS consumers in base with loyalty/transport/phys. Access on phone (mn) 1 6 20 48 76SAAS consumers uploading loyalty/transport/phys. access (mn) 1 5 14 28 28Fee per loyalty/transport/phys. access card upload (€) 0.2 0.2 0.2 0.1 0.1Loyalty/transports/phys access cards uploaded per user 1.0x 1.5x 2.0x 2.0x 2.0xLoyalty/transport/phys access card upload revenues (€ mn) 0 1 4 8 7
Consumers requiring loyalty/transport/phys. access related updates (mn) 1 6 20 48 76Fee per loyalty/transport/phys. access related phone update (€) 0.05 0.05 0.04 0.04 0.03Loyalty/transport/phys. access updates per year 2.0x 2.0x 2.0x 2.0x 2.0x
Loyalty/transport/phys. access updates revenues (€ mn) 0 1 2 3 5
Total SAAS based revenues (€mn) 9 32 68 95 107
TOTAL TSM REVENUES (€ mn) 50 71 100 150 200 250
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 90
Exhibit 136: We see Gemalto TSM revenues growing 5x between 2012 and 2017 Gemalto TSM revenues
Source: Goldman Sachs Global Investment Research.
Exhibit 137: Gemalto longer term revenues: segmental breakdown Gemalto segmental analysis
Source: Goldman Sachs Global Investment Research, company data
Integration and
prof services
revenues (€ mn)
Hosting and
maintenance
revenues (€ mn)
Licensing and
transaction fees
revenues (€ mn)
0
50
100
150
200
250
2013E 2014E 2015E 2016E 2017E
Revenue breakdown 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
Mobile Comm. SIM cards 848 814 879 935 995 1,055 1,123 1,196 Mobile Comm. TSM - 20 51 72 100 150 200 250 Mobile Comm.other platforms/services 152 142 160 177 194 213 238 273
Mobile Comm. total 1,000 976 1,090 1,184 1,290 1,417 1,562 1,719
Secure Transactions EMV cards 374 432 453 522 593 684 766 854 Secure Transactions platforms/services 88 99 115 130 148 169 196 231
Secure Transactions total 462 531 568 652 741 853 962 1,085
Security ID cards 273 270 318 366 423 476 540 613 Security platforms/services 12 40 66 75 86 99 115 134
Security total 285 310 384 441 509 575 655 747
Machine to Machine 81 174 192 210 239 267 302 345 Other 33 9 2 18 16 18 25 30 Gemalto revenues 1,862 2,000 2,236 2,505 2,795 3,130 3,506 3,926
Smartcards/other revenues 1,610 1,699 1,844 2,051 2,266 2,500 2,757 3,038 Platforms & Services revenues 252 301 392 454 529 630 749 888
of which TSM revenues - 20 51 72 100 150 200 250 of which P&S revenues ex-TSM 252 281 341 382 429 481 549 638
Smartcards/other revenues % of group sales 86% 85% 82% 82% 81% 80% 79% 77%Platforms & services revenues % of group sales 14% 15% 18% 18% 19% 20% 21% 23%
Revenue growth yoy (%)Mobile Comm. SIM cards -4% 8% 6% 6% 6% 6% 6%Mobile Comm. TSM n/a 153% 42% 39% 49% 34% 25%Mobile Comm.other platforms/services -7% 13% 10% 10% 10% 12% 14%Mobile Comm. total -2% 12% 9% 9% 10% 10% 10%
Secure Transactions EMV cards 16% 5% 15% 14% 15% 12% 11%Secure Transactions platforms/services 13% 16% 13% 14% 14% 16% 18%Secure Transactions total 15% 7% 15% 14% 15% 13% 13%
Security ID cards -1% 18% 15% 16% 13% 13% 13%Security platforms/services 233% 65% 14% 15% 15% 16% 17%Security total 9% 24% 15% 15% 13% 14% 14%
Machine to Machine 114% 10% 9% 14% 12% 13% 14%Other -73% -76% 745% -11% 10% 42% 20%Gemalto revenues 7% 12% 12% 12% 12% 12% 12%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 91
We believe Gemalto’s TSM activities will enjoy EBIT margins above the group
average by 2016/2017. We expect integration and professional services related (i.e.
system setup) margins to be a drag on overall TSM margins initially, given these are
hardware and people intensive. However, we expect margins to expand overall as licensing
and transaction fee revenues (i.e. user activation related with higher incremental gross
margin) scale over time.
Exhibit 138: We expect Gemalto to enjoy TSM margins above group average by 2016.
Gemalto TSM revenues and EBIT by sub segment
Source: Goldman Sachs Global Investment Research, Company data.
(€) 2012 2013E 2014E 2015E 2016E 2017E
TSM OUTPUT SUMMARY
Integration and prof services revenues (€ mn) 65 67 64 61 59
Hosting and maintenance revenues (€ mn) 2 12 31 59 96
Licensing and transaction fees revenues (€ mn) 4 22 54 79 95
Total TSM revenues for Gemalto (€ mn) 50 71 100 150 200 250
Gemalto group revenues (€ mn) 2,236 2,485 2,795 3,130 3,506 3,926 TSM as % of GTO group revenues 2% 3% 4% 5% 6% 6%
Integration and prof services EBIT (€ mn) 4 5 5 6 6
Hosting and maintenance EBIT (€mn) 0 3 8 15 24
Licensing and transaction fees EBIT (€mn) 1 5 19 36 48
Investments (€mn) -5 -6 -7 -10 -12
Gemalto TSM adj EBIT (€mn) -0 7 24 46 65
Integration and prof services margins (%) 5% 6% 7% 8% 9% 9%
Hosting and maintenance margins (%) 15% 20% 25% 25% 25% 25%
Licensing and transaction fees margins (%) 10% 15% 25% 35% 45% 50%
Investments as % of TSM revenues -7% -6% -5% -5% -5%
Gemalto TSM adj EBIT margins (%) 0% 7% 16% 23% 26%
Gemalto group adj EBIT (PFO) (€mn) 305 355 448 522 605 697 TSM as % of GTO group EBIT (PFO) 0% 2% 5% 8% 9%
Group adj. EBIT margins (%) 14% 14% 16% 17% 17% 18%
GTO TSM market share assumptionsTotal TSM market revenues (€ mn) 71 118 223 348 494 675 Total TSM market share 70% 60% 45% 43% 41% 37%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 92
Based on our analysis, we believe TSM can drive 12%/17% of GTO’s incremental
revenues/EBIT from 2012-17, based on our longer term scenario analysis. On this
basis, we expect the company to provide a bold but credible longer term profit goal
at its upcoming investor presentation on September 5. We believe the company could
target adj. EBIT (PFO) of €550 mn-€600 mn by 2017, given the company typically in the past
has aimed to exceed its previous multi-year targets, normally one year ahead of schedule.
Exhibit 139: We believe TSM profit streams can drive 17% of incremental adj. EBIT between 2012-17
TSM revenues and EBIT in the context of longer term group metrics
Source: Goldman Sachs Global Investment Research, Company data.
EMV: Underpinning security in global payments
We highlight the global transition towards the Europay MasterCard & Visa (EMV), as one of
the key themes in the payments landscape, and identify Gemalto (Buy) and Ingenico (Buy)
as the two European vendors who stand to benefit the most. In particular, we believe that
the US, which significantly lags many other developed market regions in terms of EMV
penetration, is now on a clear path towards migration, and we see both of these two
companies well positioned to capitalise on this opportunity.
EMV involves adoption of “chip and pin” technology, whereby credentials are embedded
in chips on payment cards that are either inserted into, or tapped on, payment terminals
with EMV functionality. In contradistinction to magnetic stripe card technology that is
currently found in the vast majority of US payment cards, EMV cards are hard to hack and
dynamic data is used: each transaction carries a unique “stamp” which precludes
transaction data being fraudulently reused post theft of transaction data from a database
and card cloning.
While there is room for increases in penetration of EMV capable cards / payment terminals
in multiple geographies (44%/76% global penetration respectively ex-US), we see the
largest potential for proliferation in the US, where we estimate current penetration of only
2%/30%, given a historical lack of regulatory impetus. We believe the decisions by key
payment networks to enforce EMV requirements at merchants (EMV terminals) and banks
(chip and pin cards) will have a significant impact and are underpinned by robust logic.
There is currently $16bn of fraud per year in the US overall, which is being reinsured
(entailing costs to the payment networks). Given regulation is driving interchange fees in
the US down, payment networks’ desire to preserve margins implies a need to deal with
fraud by alternative means. As such, driving the adoption of EMV in the payments
ecosystem is a cost-effective means of achieving this.
CAGR CAGR Delta % of group delta2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2015E-17E 2012-17E 2012-17E 2012-17
Revenues 1,654 1,862 2,000 2,236 2,485 2,795 3,130 3,506 3,926 12% 1,690 YoY (%) -2% 13% 7% 12% 11% 12% 12% 12% 12% 12%3-year trailing uplift (%) 35% 41%CAGR 09-12 11%CAGR 12-16E 12%
PFO (adj. EBIT) 194 203 239 305 355 448 522 605 697 18% 392 PFO (adj EBIT) margin (%) 11% 12% 14% 14% 16% 17% 17% 18%PFO drop-through (%) 5% 25% 28% 20% 30% 22% 22% 22%3-year trailing uplift (%) 57% 70%3-year CAGR (%) 16% 19%CAGR 12-16E 19%PFO drop through 12-16E 24%
Mobile Comm. TSM - 20 51 72 100 150 200 250 38% 199 12%
TSM EBIT - (0) 7 24 46 65 65 17%TSM EBIT margin (%) 0% 0% 7% 16% 23% 26%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 93
Exhibit 140: The US significantly lags other regions in terms of EMV adoption. Penetration of EMV payment cards
Source: Goldman Sachs Global Investment Research.
We believe the impetus toward US EMV adoption is strong and is intensifying.
Key payments ecosystem players in the US have implemented concrete incentive
structures for migration, which leads us to believe that the rollout of EMV cards will start in
late 2013, with higher volume rollouts in 2014/2015, with adoption of EMV capable
terminals continuing in coming years. Regulatory milestones include:
Counterfeit liability shift: Dates set by Visa, MasterCard an American Express for
fraud liability to shift to merchants without EMV in PoS terminals.
PCI audit relief: Dates set for lesser audit requirements from
Visa/MasterCard/AmEx for merchants that reach a certain threshold percentage of
transactions originating from EMV PoS terminals.
PCI account data compromise relief: MasterCard milestone for when merchants
are relieved of part of/all penalties for hacking if a certain percent of transactions
originate from EMV PoS terminals.
Acquiror/sub-processor compliance: Date when acquirors/acquiror processors
must be enabled to handle full chip data transactions for authorisations and, for
some payment brands, clearing and settlement.
38.0%
25.6%20.2%
80.6%
13.3%
0.1%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Can, Latam,
and Carrib
Asia Pacific
Africa & the
Middle East
Europe Zone 1
Europe Zone 2
US
Adop
tion
rate
of c
ards
for E
MV
(%)
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 94
Exhibit 141: Concrete incentive structures are now in place to drive adoption of EMV at US banks and merchants Milestones for adoption of EMV technology by Payment Network
Source: Smart Card Alliance, Goldman Sachs Global Investment Research.
Moreover, we believe fraudulent transactions may tend to migrate from countries where
there are payment safeguards (i.e. EMV) to countries with lesser safeguards (i.e. no EMV),
strengthening the case for EMV in the US. Some fraud activity has recently migrated from
countries (Canada/Mexico) that have recently experienced a shift toward chip & pin-based
payment card systems (EMV) into the US (where EMV adoption remains very low). This
continues the historic trend of fraud migrating from geographies where EMV technology is
in place to those lacking it e.g. from Malaysia to Thailand; UK to Europe; from
Canada/Mexico to the US.
We believe Gemalto (Buy) will be a significant beneficiary of the rollout of EMV payment
cards in the US. We note that the US constitutes roughly half of the global market for
payment cards, presenting a significant incremental opportunity. We expect Gemalto to
generate incremental revenues of US $157 mn between 2012-2017 based on the US EMV
card rollout, driving 9% of incremental growth.
Our key revenue assumptions for the US EMV card market as a whole are as follows:
We assume that given the US is a large market, it will take over six years from YE2013
to reach full penetration. We assume the market will see two phases of migration, with
the first lasting until 2016, by which time we expect 45% penetration (more
conservative than GTO’s expectation of 60%).
We do not believe our assumptions are overly aggressive, based on the experience of
EMV card migrations in other countries. In other smaller countries, typically it has
taken 3-5 years for penetration of EMV to be achieved once concrete decisions have
been taken to pursue EMV. Examples include Canada, where once there was a strong
commitment to adopt EMV from pivotal payments players, it took 4-5 years for full
adoption.
We do not believe there are currently any specific technical barriers to achieving EMV
penetration in the US. Indeed, we estimate that the current installed base of payment
terminals with EMV on board is c30% and we expect the existing estate of terminals to
migrate to EMV according to the usual replacement cycle over coming years (see
further below).
We assume blended ASPs of c.€2 in 2013, with 10% price erosion per year. Bulk
ordering of SIM cards by certain large banks may lead to relatively low ASPs for pure
entry level cards (€1). However, as in other countries, the US will see a significant
EMV Deployment milestones Key Dates Visa MasterCard Discover American Express
PCI Audit relief October, 2012 Y Y TBA NOctober, 2013 Y
PCI Account Data Compromise Relief75% - 50% October, 2013 N Y TBA N95% - 100% October, 2015 N Y TBA NAcquiror/Sub-Processor Compliance
April 2013 Y Y Y Y
Counterfeit Liability Shift (excl. fuel dispensers)
October 2015 Y Y TBA Y
ATM Counterfeit Liability Shift April 2013 N Y - cross border Maestro
TBA N
October 2016 N Y - all MasterCard branded products
TBA N
Lost of Stolen Liability Shift October 2015 N Y TBA NCounterfeit Liability Shift for Automated Fuel Dispensers
October 2017 Y Y TBA Y
Lost or Stolen Liability Shift for Automated Fuel Dispensers
October 2017 N Y TBA N
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 95
proportion of cards that are contactless (“tappable”), as issuers aim to avoid pre-
empting eventual consumer preferences for tapping with a mobile device or a card.
These have higher ASPs given capability to offer power usage without an onboard
battery. GS models 30% penetration of such cards, in line with Eurosmart forecasts for
2013. The trend toward contactless continues globally. Some countries like Poland
started migration to EMV incorporating contactless from the outset, while Europe, Asia
and LatAm are moving towards contactless.
The US market may also tend to see the greater incidence of personalisation than
average i.e. outsourced loading of user and bank credentials and data both onto the
physical card and of a virtual companion card in a user’s phone (boosting overall
ASPs). For now we assume 10% companion card penetration.
We assume Gemalto can achieve roughly 30% market share of US EMV cards:
GTO is likely to come up against both local competitors and its traditional competition,
G&D and Oberthur Technologies; the latter will fight intensively, given 80% of its
footprint is in US, UK and France. However, we think our assumptions are not overly
aggressive, viewed in the context of global value share of 45%.
Moreover, as Gemalto has a significantly larger R&D budget than other smarcard
players, as a function of its scale, we expect it to enjoy a technological advantage. We
note local players appear to have know how centred on plastic card components,
rather than necessarily expertise in working with EMV.
GTO may have a particular edge over competitors as integration of contactless via the
card and via the phone may become increasingly important. These are areas in which
it has gathered expertise through its strategic investments and involvement with the
ISIS mobile payments JV.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 96
Exhibit 142: US EMV card migration modeling framework US EMV payment card overview
Source: Goldman Sachs Global Investment Research, company data.
We also believe Ingenico (Buy) will benefit from the rollout of EMV technology in the US,
specifically EMV payment terminals. North America payment terminals constitute roughly
7% of Ingenico’s revenue base, and we estimate an 18% CAGR in 2012-17 for this segment,
which expect to drive 12% of incremental group revenue growth over this period. Our key
assumptions are as follows:
While the date of the counterfeit liability shift for non-fuel retailers is October 2015, our
checks with industry participants suggest that it is unlikely the full installed base of
point of sale (POS) terminals in the market will have been migrated to EMV by this date.
We assume the first stage of migration will see larger retailers adopting EMV given
greater exposure to fraud, with a second and subsequent wave encompassing smaller
retailers. Thus, we expect full migration (from estimated 30% current EMV penetration
levels) will take until 2017. We expect full migration will be quicker than for cards,
given that the US EMV card base penetration levels are currently lower than for POS
terminals.
This would in our view imply a replacement rate for the market’s existing terminal
estate largely in line with current levels which would therefore in our view be
supportive of current yearly US market revenues levels, rather than substantially
accelerating market growth.
However, we note that in addition to regular countertop POS devices, the US has a
large number of electronic cash registers (ECRs) found in venues such as restaurants
where payments are currently taken using magnetic stripe card swipers: employees
2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E Key assumptions
US population (census ests.) 316 319 322 326 329 332 335 337
Cards per person (implied) 3.2x 3.1x 3.1x 3.1x 3.0x 3.0x 3.0x 3.0x
Total cards in US (mn) 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Percentage customers migrated (%) 2% 6% 15% 30% 45% 60% 75% 90% Migration by 2016 (%) 45%
New first time signup per year (mn) 20 44 86 150 150 150 150 150 Penetration limit (%) 90%
US EMV users (mn) 20 64 150 300 450 600 750 900
US EMV churners (mn) 0 0 50 100 150 200 250 300 Churn rate (years) 3
US EMV card units sold per year (mn) 20 44 136 250 300 350 400 450
Contact cards (% of total cards) 70% 70% 70% 70% 70% 70% 70% 70% Contact (%) 70%
Dual interface (% of total cards) 30% 30% 30% 30% 30% 30% 30% 30% Dual interface (%) 30%
Companion card (% of total cards) 10% 10% 10% 10% 10% 10% 10% 10%
Companion card (%) 10%
Contact cards per year (mn) 14 31 95 175 210 245 280 315
Dual interface cards per year (mn) 6 13 41 75 90 105 120 135 Contact ASP (EUR) 1
Companion card (mn) 2 4 14 25 30 35 40 45 Dual interface (EUR) 5
Companion card (EUR) 2
Contact cards market sales (EURmn) 14 28 79 133 146 156 162 167
Dual interface market sales (EURmn) 31 63 177 297 326 347 362 372 GTO market share (%) 30%
Companion card market sales (EURmn) 4 9 27 50 60 70 80 90 Px erosion per year (%) 10%
Total US market sales (EURmn) 49 100 284 480 532 572 604 629
102% 185% 69% 11% 8% 6% 4%
Implied GTO extra card sales (mn) 7 15 45 83 99 116 132 149
GTO incremental yearly sales US EMV (EURmn) 15 30 85 144 159 172 181 189
Implied ASP 2.2 2.1 1.9 1.7 1.6 1.5 1.4 1.3
GTO ST segment revenues GS (EURmn) 568 652 741 853 962 1,085
GTO ST division revenues GS (yoy) 7% 15% 14% 15% 13% 13%
GTO ST segment implied revenues ex US EMV (EURmn) 553 622 656 709
ST division implied revenues ex US EMV (yoy) 4% 12% 5% 8%
ST segment revenues from US EMV (EUR mn) 15 30 85 144
ST division US EMV revenues (yoy) n/a 102% 185% 69%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 97
currently take the customer’s card away and swipe at the ECR. Such a setup will not be
compliant with EMV. As such, we expect that additional (wireless) POS terminal
devices will be required, which will help drive incremental market volumes. Moreover,
while today in a restaurant there may be e.g. one or two ECRs, in highly busy venues it
is likely there could be e.g. five new wireless POS terminal devices required per
location. We estimate that an extra 1.6mn such devices will be needed, which implies a
roughly 13% uplift to the current installed base of POS terminal devices (cf. Verifone
estimates up to 3mn). Wireless terminals tend to have higher ASPs.
As explained in our note Double digit growth driven by regulation and EM; up to Buy,
September 4, published in conjunction with this report, our estimates assume that
Ingenico can significantly grow share in the US, given its expertise in EMV technology,
given experience with earlier projects in Europe, and the opportunity to take share
from Equinox (subscale following its carve out from Hypercom) in the “bank card”
segment
Exhibit 143: North America market: overview of key our assumptions for Ingenico
North America POS terminal market overview
Source: Goldman Sachs Global Investment Research, company data
2012 2013E 2014E 2015E 2016E
N.America
USExisting base of terminals US market 12.0 12.0 12.0 12.0 12.0Base in market converted to EMV (%) 30% 45% 60% 75% 90%Existing base converted to EMV (mn.) 3.6 5.4 7.2 8.9 10.8Market replacement EMV terminals / year 1.8 1.8 1.8 1.7 1.9Implied replacement cycle vs original base (years) 6.9 6.7 6.7 6.9 6.3Additional w/less terminals in market 0.1 0.2 0.3 0.4 0.6Cumulative shipments wireless 0.1 0.3 0.6 1.0 1.6Uplift to existing installed base from wireless 1% 3% 5% 8% 13%Market Shipments / year (mn.) 1.9 2.0 2.1 2.1 2.5Ingenico Units / year (mn.) 0.22 0.35 0.50 0.64 0.76US ASP market ($) 250 240 231 222 217US ASP market (€) 192 185 178 171 167Market revenues (€mn) 356 370 364 366 425Market share yearly shipments INGC (%) 12% 18% 25% 30% 30%Total installed terminals in market 12.1 12.3 12.6 13.0 13.6INGC US terminals revenues (€mn) 43 65 89 110 127
11%CanadaMarket units / year 0.9 0.9 0.9 0.9 0.9Ingenico Units / year (mn.) 0.21 0.21 0.21 0.21 0.21Canada ASP market ($) 250 240 231 222 217Canada ASP market (€) 192 185 178 171 167Market revenues (€mn) 163 157 151 145 142Market share INGC (%) 25% 25% 25% 25% 25%
INGC Canada terminals revenues (€mn) 41 39 38 36 35
INGC NA terminals revenues 84 104 127 146 163N.A. Maintenance portion (%) 10% 10% 10% 10% 10%N.A. Maintenance revenues (€ mn) 9 11 13 15 17Total N.A. revenues (€ mn) 92 115 140 161 180Total N.A. revenues growth yoy (%) 24% 22% 15% 12%
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 98
Mobile Point of Sale (mPOS): Attractive growth opportunity
A key debate is whether third party mPOS solutions like Square, iZettle could negate the
need for traditional POS terminals. Such solutions typically include dongles with a card
“swiper” connected to smartphones. Certain such solutions involve minimal or no fees for
the hardware/setup up-front, with charges typically on a per transaction basis rather than
via fixed monthly fees (although sometimes with pay-monthly options). Given a skew
towards variable fees, such structures are more geared to micro-merchants in our view.
While we are certainly positive on the mPOS opportunity within the micromerchants
segment, and cannot rule out longer term risks to traditional terminals, we do not expect
these near term. For now, we see mPOS as a significant incremental opportunity for
various technology providers (including Ingenico) to target an untapped segment i.e.
micromerchants who might be disinclined to use traditional terminals given cost structures
(tending to rely more on cash).
Exhibit 144: We view the low end mPOS market as an incremental opportunity for POS
terminal makers for now and see niche applications for their high end, EMV compliant,
queue busting mPOS Overview of Ingenico mobile POS solutions
Source: Company data.
It appears unlikely medium- or large- sized merchants would rely predominantly on
dongle based mPOS for now. While we see a significant opportunity for such devices in the
micro merchant segment, we are unsure such devices would meet requirements for
robustness/reliability at the moment at larger merchants e.g. in merchant contexts where
there is a high velocity of transactions. Further, we are yet to see large adoption in such
contexts. For example, Square’s win at Starbucks was for a geolocation wallet, not a full
mPOS card solution (and did not replace regular terminals).
Typical mPOS fee structures appear less favorable for large volume retail for now,
whereas they may be more attractive to micro merchants conducting a lower value of
transactions. We believe the full cost of a mid-sized or larger retailer adopting mPOS needs
to be considered. For example, a micro merchant who processes only a few transactions
per day will be happy to use his existing smartphone to attach the mPOS dongle device; by
contrast in even a small shop, the merchant would likely want to have a dedicated
smartphone to attach the dongle to. This is an additional cost that needs to be factored in
(although we are cognisant the monthly cost of a suitable smartphone will continue to
come down over time).
iCMP iSMP ROAM swipe device
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 99
Further, mPOS solutions will need to be EMV capable, which may have ramifications in
terms of pricing. While EMV (“chip and pin”) terminals have not historically been required
in the US, there is now a transition underway driven by the major payment networks, and
an increasing global impetus towards this. We note Square, for example, is not EMV
certified and would need to achieve this to proliferate more broadly beyond the
micromerchant segment in Europe and other regions. We believe it is likely only a matter
of time before Square launches an EMV compliant solution for Europe (e.g. iZettle is EMV
compliant). However, in such a case it would likely need to integrate a separate pinpad, as
required by regulations, rather than a pure swiper. Arguably this would go some way
towards reducing the economic attractiveness to a regular merchant (rather than
micromerchant) of mPOS vs. lower-end traditional POS terminals (at least outside the
micromerchant segment). For example, latest chip and pin EMV ready solutions from
iZettle and PayLeven both cost £82.50 ex. VAT for the hardware in the UK (c.€115 incl. VAT)
vs. we estimate Ingenico ASP of c.€120 for low end countertop devices. Further, though
Visa wavers in favour of “chip and sign” are possible, the trend appears in favour of EMV
“chip and pin”.
We believe the payments market remains highly localised and that the proliferation of
new entrant mPOS vendors globally outside the micromerchant context could be to some
extent slowed down by this. Any POS device that is to be deployed by banks in the regular
merchant context must be certified by each bank it is connected to in each country, with
lengthy testing required and associated costs. Moreover, each financial institution will
request development of a variety of applications, and certain modifications.
That said, we see niche applications for higher end mPOS: e.g. Apple uses Ingenico’s (EMV
compliant) iSMP in its stores, and we estimate it has ASPs significantly above group
average. We doubt these will fully cannibalise existing countertops.
We note that Ingenico is also present in the micro merchant segment, through its ROAM
swipe devices (it recently announced an EMV chip and sign device). Customers include
Groupon and Vantiv. Revenues from ROAM were c.€10mn in 2012.
Exhibit 145: We believe third party mPOS offer capabilities which for now make them more suited to the micro
merchant segment than larger retailers (although functionality will likely evolve over time). Overview of capabilities of various payment devices
Source: Goldman Sachs Global Investment Research, company data; Note two tick denotes ubiquitous features; one tick moderately widespread features; no tick limited/no capabilities.
Ingenico regular POS
Ingenico ROAM swiper
Ingenico ISMP
Third party mPOS
Valu
e ad
ded
serv
ices
/ an
alyt
ics
Mag
strip
e
EMV
chip
and
pin
EMV
cont
actle
ss
Chi
p an
d si
gn
Bar
code
s
Cer
tifie
d by
num
erou
s ba
nks
glob
ally
Inte
grat
es n
umer
ous
reta
iler l
oyal
ty p
rog
Mob
ility
Mic
ro m
erch
ant -
tailo
red
fees
Med
ium
/larg
e m
erch
ant -
tailo
red
fees
Secu
rity
Num
erou
s pa
ymen
t sch
emes
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 100
Payments landscape: Attractive opportunities; complex landscape
Payments revenue opportunities - banking, payments, commerce
Business models have also evolved in parallel with technology further accelerating growth.
We categorise the payments related revenue opportunities into banking, payments and
commerce.
Exhibit 146: Payments related revenue opportunities can be categorised into banking,
payments and commerce segments Payments revenue opportunities
Source: Monitise, Goldman Sachs Global Investment Research.
Revenue opportunities associated with payments opportunities:
Banking- Banking includes core activities including taking deposits, account
management and transfers and includes financial ecosystem at the core. In spite of
continuing concerns around disintermediation of banks and growing relevance of non-
financial institutions in emerging markets, we believe that banks will remain core to
the payments landscape owing to strong regulatory support and high levels of trust
and stickiness associated with banks. We expect banks to invest in mobile technologies
to retool themselves to the burgeoning mobile banking/commerce segments in
developed markets and mobile payments segment in emerging markets. We see
meaningful outsourcing opportunities for technology vendors in the mobile banking
segment as the banks retool themselves to adapt to mobile.
Payments- Payments (in narrow sense compared to broader payments i.e. banking,
payments, and commerce) is the process of using a platform (offline/online/mobile) to
pay for a service and primarily includes the TMT ecosystem (payment networks,
hardware, software, telcos) at the core.
BankingMobile, fastest growing channel -------------------------------------
•Account management
•Account transfers
•ATM & Branch locator
•Alerts
•Business Banking
•Balance Enquiry
•Call agent
•Channel authentification
•Remote Deposit capture
•Personal Finance
•Transaction history
PaymentsWallets, Micromerchants (DM)
Unbanked customers (EM)
---------------------------------------
•Bill payment
• International remittance
•Stored value/Prepaid Account Reload
•Mobile Phone Top up
•NFC
•Credit card payment
•Point of sale
•Peer to Peer
•Charity donation
•Travel Money
Commercemcommerce driven by NFC, cloud based systems
----------------------------------------
•Online Checkout
•Merchandising recommendations
•Coupons
•Vouchers
•Data management and Analysis
•Loyalty and Rewards
•Geo-location
•Mobile Marketing
•Marketplace
• Instant Mobile checkout
•Offers
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 101
o Developed markets- Newer technology/business models like mPOS (mobile
point of sale terminals) can help tap micro merchant market and mobile
wallets can integrate convenience shopping with loyalty programs thereby
driving volume growth.
o Emerging markets- In our view, emerging markets mobile payment trends
are redefining the payments landscape owing to the significant untapped
market of 2.5 bn unbanked customers (source: Visa) and establishment of
stable business models like m-PESA (c.18 million active users currently). Non-
banking networks in EM like m-PESA are enabling person-to-person transfers,
bill payments and agent-based cash-in/out services. Additionally, newer
services like the Visa Mobile Prepaid product are bringing in new payment
functionality for retail/e-commerce as well as withdrawals from Visa-enabled
ATMs. According to Gartner, currently EM contributes most of the mobile
payment volume, with Asia and Africa representing 74% of users in 2012. As
the NFC related infrastructure is rolled out in developed markets, it expects
North America plus Western Europe to be c.33% of the transaction volume by
2017.
The fast growth of mobile payment services in EM can be partly attributed to
the lack of a regulatory environment for mobile financial services, which
means service providers can scale services at the expense of proper risk
control and fraud management. This situation is slowly changing, though, as
more regulators in EM like India, Nigeria are becoming aware of this issue and
putting in place regulations to ensure sustainable growth and align mobile
payment systems with existing financial systems.
The following points highlight the significant EM opportunity in our view:
According to Visa, around 2.5 bn adults lack access to formal financial services
with a high concentration in EM. BRIC nations having a significant percentage
of unbanked customers (China 61%, Brazil 57%, India 52%, Russia 31%). It
estimates that 1.7 bn will have a mobile phone but not a bank account in 2012.
According to Euromonitor, in India and Africa, over 90% of personal
consumption is cash-based.
Exhibit 147: Global mobile payment volume as % of total
global payment volume Based on our current forecasts for combined payment
volumes of American Express, Discover, MasterCard, and
Visa we estimate that mobile payments will make up 2.2% of
total payment volume by 2015.
Exhibit 148: APAC and Africa are likely to be the most
dominant mobile payments markets in 2017. Mobile payments by region (mn).
Source: Gartner, company data, Goldman Sachs Global Investment Research.
Source: Gartner
1.0%
1.3%
1.7%
1.9%
2.2%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
$0
$100
$200
$300
$400
$500
$600
2011 2012 2013 2014 2015
Glo
bal m
obile
pay
men
ts a
s a
% o
f tot
al
volu
me
Glo
bal m
obile
pay
men
ts (
$ bn
)
Global mobile payments % of total global payment volume
0
50
100
150
200
250
2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Mob
ile paymen
ts ($
mn)
Western Europe North America Asia/Pacific Eastern Europe
Middle East Africa Latin America
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 102
Exhibit 149: Money transfer in EM and mobile commerce
in DM will be top drivers of mobile transactions globally Mobile payment transactions by type
Exhibit 150: SMS (in EM) and mobile web (in DM) will be
the dominant technologies for mobile payments Mobile payments by technology
Source: Gartner
Source: Gartner
Exhibit 151: MOBILE CARRIERSs/Telcos are leading the investments in EM mobile money initiatives
Key mobile payments initiatives in emerging markets
Source: Company data.
Commerce- It is the act of buying or selling of products/services and has the retail
vertical at the core. mCommerce represents the next stage of evolution of the digital
shopping experience and is emerging as the fastest growth driver for Ecommerce in
Europe and worldwide. The value proposition for consumers is to make purchasing
faster and easier which potentially translates into increased purchasing and more
transaction fees for the payment networks and banks. Although a nascent consumer
form factor for global commerce, there has been a significant push across the
payments ecosystem to roll out NFC enabled smartphones, new digital wallets, drive
acceptance at the point-of-sale (POS), deploy new POS infrastructure and connectivity
to payment networks all intended to accelerate the rate of deployment and consumer
adoption of mobile commerce. Further, mobile services like price checking, loyalty
0
50
100
150
200
250
300
350
400
450
500
2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Mob
ile Paymen
ts, $mn
Merchandise Purchases Ticketing Money Transfers
Bill Payments Airtime Top‐Ups Other
0
50
100
150
200
250
300
350
2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Mob
ile Paymen
ts, $mn
SMS Mobile web USSD NFC
Payments Initiative Founded Geography Vendors Services Comments
M‐Pesa 2007 Kenya Vodafone, Safaricom Mobile payments 22 mn customers by end of March 2013
M‐Shwari 2012 Kenya Vodafone, Safaricom Savings, loans Ksh 976mn savings, Ksh 123 mn loans
Tigo 2010‐12 Africa, Latam Millicom Mobile wallet 17 mn customers by end of 2012
MTN Mobile Money Africa MTN Mobile wallet >10 mn customers
Orange Money Africa Orange Mobile payments 5.6 mn customers as of February 2013
Flous 2011 MEA and AsiaEtisalat, MasterCard, Oberthur
Technologies mCommerceIn 2012, $1.8bn of financial transactions were completed through Etisalat Commerce
m‐Commerce 2012 Nigeria Etilasat mCommerce potential customer base of over 180 million people in Nigeria
G‐Cash 1998 Philippines Globe Telecom Mobile wallet 30 million mobile subscribers for Globe Telecom
BebaPay Kenya Google Mobile paymentsService allows users to pay for transport by tapping an NFC card onto Andriod phone which acts as a card‐reader
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 103
rewards and research tools are increasingly blurring the lines of offline and online
consumer purchasing behavior.
Merchant discount rate (MDR) is the mainstay of the payments value chain however
newer revenue models (advertising, couponing) focusing on shifting the benefits from
back end to front end i.e. consumer are emerging, creating growth opportunities
beyond MDR. This is also resulting in further dilution of the boundaries between
payments and commerce. Additionally, value added services and information based
services are new revenue opportunities in the commerce segment as vendors look to
monetise retail sales data to gain insights into their customers behavior.
mCommerce represents the most significant payments related revenue opportunity in
the longer term however the landscape is more fluid and needs deeper collaboration
across ecosystems to realise its true potential.
Four party systems to remain the dominant payment systems
There are broadly three types of payment systems in practice today with four party
systems/open loop systems like Visa and Mastercard being the dominant systems.
Based on the number of parties involved, payment systems can be classified into:
Two party systems- The merchant issues the cards and also manages the systems.
These systems are rare in practice because of the multiple non-core activities a retailer
needs to perform and lack of network presence.
Three party systems- In three-party or closed loop systems, a single vendor issues
cards, manages the network and provides merchant card acceptance. Examples
include American Express, Discover.
Four party systems- Four party or open loop systems are the most dominant systems
owing to their strong network presence internationally. In this system, the payment
networks (Visa, Mastercard, JCB, Union Pay) license various banks to issue payment
cards. Merchant acquirers (subsidiaries of banks or third party vendors) collect the
Merchant Discount Rate (MDR) from the merchant and pass on the interchange fees,
network fees to the issuing banks and payment networks respectively.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 104
Exhibit 152: Four party systems are the most dominant payment systems owing to their strong network presence Types of payments systems based on the number of parties involved
Source: Company data, Goldman Sachs Global Investment Research.
Issuer
Two party system‐ Cardholder, Merchant
Consumer Merchant
Submits card to merchant
Issuer approves purchaseand sends approval to Merchant
Consumer Issuer
Submits card to merchant
Merchant approves transaction
Consumer Merchant
Submits card to merchant
Three party system‐ Cardholder, Merchant, Issuer
Four party system‐ Cardholder, Acquirer, Merchant, Issuer
Merchant
Transaction data to issuer
Card network
Acquirer
Asks network to determine
cardholder’s bank
Network validates card features and forwards to Issuer
Approves purchaseNetwork sends approval
Sends approval to merchant
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 105
Exhibit 153: Traditional and new mobile payment systems continue to rely on existing four party system and MDR Broader payments value chain- traditional, paperless, mobile, P2P money transfers
Source: Goldman Sachs Global Investment Research.
MDR remains mainstay of the payments value chain
Merchant Discount Rate (MDR) is the per transaction fee paid by a merchant in exchange
for the ability to accept and generate sales from card-based transactions. MDR ranges
between c.1%-c.4% (mostly 1%-2%) depending on the interchange fees in the country, size
of the merchant and mode of payment (offline/online/mobile). It has several components:
(1) interchange fee (paid to the issuer), (2) acquiring fee (paid to the merchant acquirer),
and (3) network fee (paid to the card network) (4) transaction processing fee (paid to the
acquirer, payments processor).
Customer
Cheque
Cash
Family, Friends
Merchant
Acquiring bank
Payment Processor
Payment Network
Issuing bank
ACH
Emerging (Mobile)
Debit cards
Credit cardsE
lect roni c
Paper
Money transfer
POS
Acquiring bank
Clearing centre
Exchange centre
Issuing bank
Acquiring bank
Clearing & Settlement network
Issuing bankAccess
Channel(Online, mobile)
Payment Gateway(Acquirer, payment processing)
Payment Gateway(Acquirer, payment processing)
Traditional value chain
Paperless payments value chain
Money transfers
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 106
Exhibit 154: MDR is the key source of funds for the payments value chain Payments value chain- rough fee split across various participants
Source: Company data, Goldman Sachs Global Investment Research.
Interchange fees is the portion of the MDR which is paid to the issuing bank to
compensate for taking on itself the risk of default on the payment transaction. Interchange
fees vary dramatically across various countries in Europe depending on country
legislations and are on an average 70% of the MDR. New proposals by European
Commission aim to standardise the interchange fees across Europe and cap it at 0.2% of
the value of the transaction for debit cards and 0.3% for credit cards.
Consumer Merchant
Issuing banks Payment network
Acquiring banks
Goods and services
Capture & Authorisation
Transaction amount (minus interchange fees)
Merchant Receives€98
Authorization & Fraud
Clearing & Settlement Clearing & Settlement
Transaction amount (minus interchange fees)
Credit/debit card payment
Customer pays€100
Merchant service charge
€2.00
Interchange fee€1.00
Acquiring fee€0.55
Payment processor
Network fee€0.10
Transaction processing fee
€0.35
Barclays, HSBC, RBS, Llyods
Visa, Mastercard, UnionPay
Wirecard, AtoS, Ingenico (Ogone)
Barclays, HSBC, RBS, Llyods
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 107
Exhibit 155: Interchange fees varies significantly across various European countries Average domestic Multilateral Interchange Fees in the EUMember states
Source: European Commission.
Key participants in the payments value chain include:
1. Issuer is a financial institution that provides a customer with payment cards and
assumes responsibility for default, fraud in payment card transactions. They generate
revenues from interchange fee and related fees on credit and debit cards. In general,
card issuing banks also encourage card usage by providing cardholder rewards and
other incentive schemes. Examples include HSBC, Barclays, RBS. Banks typically get
the majority of the economics because they take on credit risk and some of the fraud
risk.
2. Merchants accept payment cards as a form of payment for products and services.
3. Acquirer The merchant acquirer/processor is authorised to connect merchant POS
systems to electronic payment networks and facilitate the clearing and settlement of
payments by transferring funds to merchants to cover card purchases.
Front-end transaction processing services include capturing transaction data at
the POS and routing it to the cardholder’s bank, which then verifies the card
information and authorises/declines the transaction.
Back-end processing services include clearing transactions, which involves the
payment processors transferring merchant data to payment networks that then
collect the funds from the issuing banks. The acquirer then assists in the
settlement of transactions, which ends with the merchant receiving funds from the
payment card purchase. Back-end processors accept settlements from front-end
processors and move the money from the issuing bank to the merchant bank. This
entails checking the details received by forwarding them to the respective card’s
issuing bank or card association for verification, and also carrying out a series of
anti-fraud measures against the transaction.
Prominent acquirers include subsidiaries of financial institutions like Barclays as well
as AtoS, Wirecard, Ingenico (Ogone). Increasingly banks in Europe are outsourcing
their transaction processing business to third-party firms like AtoS, given their: (1) lack
of processing technology, and (2) expertise in maintaining banking relationships with
merchants.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 108
4. POS terminals/Payment Gateway- Point of sale (POS) terminals are physical or
virtual device used by the merchant to communicate information to the Acquirer’s
Front-End Network to complete a retail transaction.
Significant disruption After being relatively static for long, the POS (Point of Sales)
segment is seeing significant disruption across the board in terms of factor change
(plastic to mobile payments), new business models (loyalty, promotions, and location-
based offers) and expansion of electronic payment options to micro and small
merchants. While vendors like Square, iZettle have led the trend with mobile POS to
target micro merchants, the incumbents (Ingenico, AtoS) and mobile payment vendors
(Monitise) are catching up by launching their own offerings to extend their presence in
the value chain and makes themselves omnichannel. While we acknowledge that new
age mPOS vendors are driving significant disruption in the market and that long term
threats in the form of a combination of smart phone-enabled acceptance and tablet-
based POS devices are real, we believe that near term obsolescence concerns related
to traditional POS makers are overdone.
Key emerging vendors in the space include Stockholm based iZettle, Germany based
Payleven, Sumup, Jusp, mPowa.
Exhibit 156: mPOS vendors are disruptive but pose limited near term risks to traditional vendors Key emerging mPOS vendors
Source: Company data, Goldman Sachs Global Investment Research.
Micro merchants to large retailers: The SMB segment is currently ripe for adoption of
mPOS systems and has seen good adoption rates in the US and Nordics. However it is
early days, given big retailers in Europe are traditional POS solutions providers and they
still maintain direct relationships with retailers and have deep integration with retailers.
The US market has seen some early adopters like Nordstrom and Home Depot who are
using it to help their staff to better serve customers on the store floor, check inventory and
price, make suggestions, take orders and accept payment. These mobile POS functions are
not replacing normal cash registers and are an additional investment. Hence we do not see
this as a real threat to the traditional payment acquiring solution providers at this level.
New entrant models: Most new entrant models in the mPOS/alternative payments space
can be categorised into the following:
Partner models: These vendors work within the existing payments infrastructure.
Examples include UK Mobile carriersJV Weve, PayPal, Google and US telcos JV ISIS.
Aggregator model: These vendors are mainly focused on the payments economics and
compete with incumbents by directly signing up small merchants to accept electronic
payments. Examples include iZettle, Square, SumUp.
Vendor Geographies Rate charged Key comments
iZettle Sweden, Norway, Denmark, Finland,
UK, Germany, Spain, Mexico
1.5-2.75% €5mn investment by Banco Santander
Payleven Germany, Netherlands, Italy, UK, Poland, Brazil 2.70% Partnerships wih Apple, Telefonica
Sumup Germany, Austria, UK, Ireland 2.75% Received funding from Groupon, AmEx and BBVA
Jusp Italy 2.70% $6mn funding secured from VCs
mPowa UK NA
Signed white label deal with Potugal Telecom,
secured $76mn first round investment
Monitise UK, US, Canada, China, India, Indonesia NA Lloyds mPOS partnership
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 109
Integrator model: These are vendors with existing merchant relationships that can
bundle payments processing with other services. Examples include Groupon, LevelUp.
Exhibit 157: Most emerging European vendors are characterised as Aggregators
New entrant models- Partner, Aggregator, Integrator
Source: Goldman Sachs Global Investment Research (For details see: A closer look at the threats and opportunities posed by new entrants, December 12 2012).
5. Payment networks The payments card network connects the merchant side to the
bank side of the transaction, and performs the following key functions: (1) establish the
rules for participation in the network, (2) facilitate the authorisation and settlement of
electronic payments by transmitting critical transaction information between the
merchant acquirer and issuer, and (3) determine the interchange fee in compliance
with regulations set by EU member states and the European Parliament/Commission.
Network operators include MasterCard and Visa (“open-loop”) and American Express
(“closed-loop”).
Card associations Visa and MasterCard each comprise over 20,000 card issuing banks
globally. Networks take on minimal risk on transactions and thus get the smallest
share of the purchase volume. Visa and Mastercard have around 20 million payment
points globally. Our US analysts highlight the following key attributes of payment
networks (see A closer look at the threats and opportunities posed by new entrants,
December 12, 2012):
Highly defensible position- Payment networks remain in a highly defendable
position as changes at the POS, new entrants, and mobile payments options do
not currently pose a threat as most funding mechanisms are currently based on
credit- and debit-based accounts, and no mobile payment option aims to address
the core network function of authentication, clearing, and settlement services.
Given their essential role in payments and wide global merchant adoption, we
believe new entrants will need to ride on existing payment rails to reach scale,
resulting in incremental volume for the networks. DFS’ recent partnership with
PayPal highlights how the company can monetise its payment network payment
network by partnering with new entrants.
Long term risks- For the longer term we acknowledge that there are some risks
from new entrants and alternative payments that can take away volume from the
networks in particular we note efforts to move payment volume through the ACH
network (automated clearing house; essentially electronic checks), with PayPal’s
efforts the best known on this front. Given PayPal’s push into retail, ACH could
begin to take incremental share of volume, though we expect it to be modest. For
context, PayPal has been successful at migrating accounts to ACH funding online,
but traditional credit/debit cards still fund at least 50% of accounts. In addition, we
see the intersection of mobile payments and private label or decoupled debit
Partner Aggregator IntegratorRevenue model Broader commerce Payment economics Total revenue/client
Advertising, Loyalty
Per account basis (Issuers)
Target segments Large merchants Large merchants Large merchants
SMB Micro merchants SMB
Infrastructure Existing New + Existing New + Existing
Strengths Consumer relationships Focused on economies of scale Merchant relationships
Quickest to scale Most disruptive due to bundling
Weaknesses Revenue share complications Economics less benign to target SMB Opaqueness in pricing
Examples Weve (UK m-commerce JV) Paypal Groupon (Breadcrumb)
Google Wallet Square LevelUp
Paypal-Discover iZettle
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 110
(issued by or on behalf of retailers) as other options that could potentially take
away from credit and debit payment volume. However, we see the risk associated
with these payment alternatives as relatively modest given the size differential of
credit and debit which totals in the trillions of dollars.
Merchant Customer Exchange- Although still in its early days, MCX (Merchant
Customer Exchange) a merchant-backed mobile payments platform in US could end
up as new competition for networks to consider, especially given the relative size (90K
store, $1 trillion payments per annum) of merchants behind this venture include Best
Buy, CVS, Target, Wal-Mart and others. MCX has selected European TSM vendor
Gemalto to build the group’s mobile wallet.
In addition, with over 400 mn active accounts on iTunes with credit cards, Apple’s
efforts in mobile payments remain an important development for the payments
industry that could either be competitive, should they choose to move volume off of
existing payment rails, or additive, should they simply enable payments using the
existing payment infrastructure which is funded with existing credit and debit cards.
6. Automated Clearing House (ACH) is an electronic network for financial transactions.
ACH processes large volumes of credit and debit transactions in batches. The Payflow
ACH (Automated Clearing House) Payment Service enables merchants to electronically
collect payments from customers by directly debiting a customer's checking or saving
accounts. ACH credit transfers include direct deposit payroll and vendor payments.
ACH direct debit transfers include consumer payments on insurance premiums,
mortgage loans, and other kinds of bills. On the Internet, ACH is primarily used for
person-to-person (P2P), business-to-customer (B2C), and business-to-business (B2B)
payments. Examples of ACH based models include PayPal, Alipay (China) and BPAY
(Australia).
Non-MDR revenue opportunities: Focusing on the front end
MDR still remains the key source of funds for the payments value chain. The current
construct of the payments industry relies heavily on the four party system and the MDR
and hence any emerging technologies, business models have to either disintermediate any
of the existing vendors in the value chain or have to create alternate models including
value added/information based services. We believe that newer technology vendors are
incentivised to either target newer target customer (micro merchants) or enable new
revenue models for quicker uptake and accelerated growth.
Beyond MDR, we believe that the rapid growth of mobile technologies is creating the
following revenue opportunities which are meaningful our view. However some of these
services like Analytics may end being bundled with basis POS offerings to differentiate vs.
competition.
Mobile Advertising- Google Wallet
Managed services- IT services companies like AtoS
Value added services (Analytics, Loyalty)- iZettle, Square, Paypal
Information based services (Coupons)- Google, Groupon, Keypons, Yowza, gopons
Security- Trusted service manager opportunity- Gemalto, Oberthur Technologies, G&D
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 111
Exhibit 158: MDR continues to dominate the payments revenue model but newer models are emerging Payment revenue models-MDR and new revenue models
Source: Goldman Sachs Global Investment Research
SEPA- key regulation driving IT investments and mobile payments
We believe the upcoming deadline for migration to comply with Single Euro Payments
Area (SEPA) regulations in Europe provides a potential impetus towards incremental
spending on IT and especially associated services in the region. As such we see an
incremental opportunity, with potential beneficiaries being the European technology
vendors. We note that the deadline is mandated by legislation, suggesting this can
provide a meaningful impetus to technological migration.
The SEPA stands for the European Union payments integration initiative, and has
established clear deadlines for legal compliance, with the aim, set out by EU
governments in the Lisbon Agenda, March 2000, of making Europe more dynamic and
competitive. The ultimate goal of SEPA is to create a borderless payment environment
for Euro payments within participating countries. SEPA currently consists of the 28 EU
Member States plus Iceland, Norway, Liechtenstein, Switzerland and Monaco.
February 1, 2014 is the deadline in the Euro area for compliance with the core
provisions of this regulation. In non-euro area countries, the deadline will be October
31, 2016.
Key requirements of SEPA include: (1) consumers from a particular European country
must be able to use their home debit card anywhere in the Euro area. (2) Cross border
payment should be received within a guaranteed time, and banks will not be allowed
to make any deductions from the amount transferred. (3) Direct debits to one part of
the Euro area will be able to be made from anywhere in the Euro area. (4) Businesses
and individuals must be able to operate in such a way that it is no longer necessary to
hold separate bank accounts linked to local ACH clearing systems in each country
where business is done. Instead, businesses can manage payments in Europe and
collections out of just a few accounts or even a single account. (5) SEPA establishes a
single standard for multi-country payments using XML formatting. (6) IBANs will
become the sole payment account identifier for both domestic and cross-border Euro
credit transfers and direct debits in the Euro area. As such, companies need to begin
collecting and using IBANs now. (7) Businesses will only need one card payment
terminal to accept all SEPA-compliant cards (this aims to avoid the situation whereby
European businesses in one country lose sales because they do not have a terminal
that accepts the customer's domestic payment card and/or businesses have to pay
extra costs to operate additional terminals accepting foreign cards).
Money transferTraditional Alternate revenue models
Consumer-Merchant transactions
MDR Alternative
payment rail(ACH)
Advertising
Value addedservices
(Analytics, Loyalty)
Peer to peer payments
Trusted service
manager
Managedservices
Informationbased
services
Newer revenue models
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 112
Given mixed progress across Europe in terms of migration to the relevant new
standards, and based on the limited amount of time left before the migration deadline,
we believe that technology providers will be in demand to facilitate the relevant
changes. In June, the ECB published updated qualitative SEPA indicators to assess
SEPA preparedness.
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 113
Disclosure Appendix
Reg AC
We, S.K.Prasad Borra, Mohammed Moawalla, Alexander Duval, Simon F. Schafer, Jo Blackshaw, Julio C. Quinteros Jr., Tim Boddy, Frederik
Thomasen, Heath P. Terry, CFA, Andrew Lee, Franklin Walding and Gautam Pillai, hereby certify that all of the views expressed in this report
accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our
compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
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market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites
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Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate
of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend
yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.
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Disclosures
Coverage group(s) of stocks by primary analyst(s)
S.K.Prasad Borra: Europe-IT Services, Europe-Software. Mohammed Moawalla: Europe-Software. Alexander Duval: Europe-Communications
Technology, Europe-Semiconductor & Tech Hardware. Simon F. Schafer: Europe-Communications Technology, Europe-Semiconductor & Tech
Hardware. Julio C. Quinteros Jr.: America-ATM/POS and Self-Service, America-IT Consulting and Outsourcing, America-Transaction Processors. Tim
Boddy: Europe-Telecom Services. Frederik Thomasen: Europe-Pan-Euro Banks. Heath P. Terry, CFA: America-Internet. Andrew Lee: Europe-Telecom
Services. Franklin Walding: Europe-Food Retail, Europe-General Retail.
America-ATM/POS and Self-Service: VeriFone Systems, Inc..
America-IT Consulting and Outsourcing: Accenture Plc, Amdocs Limited, CGI Group Inc., CGI Group Inc. (US), CSG Systems International, Inc.,
Cognizant Technology Solutions, Computer Sciences Corp., Convergys Corporation, ExlService Holdings, Inc., Fidelity National Information Svcs.,
Fiserv, Inc., Genpact Ltd., Lender Processing Services, Inc., NeuStar, Inc., Performant Financial Corp., Sapient, Synchronoss Technologies, Inc.,
Towers Watson & Co., WNS (Holdings) Ltd., West Corporation.
America-Internet: AOL Inc., Amazon.com Inc., Bankrate, Inc., Demand Media, Inc., Expedia Inc., Groupon, Inc., HomeAway, Inc., IAC/InterActiveCorp,
LinkedIn Corporation, Millennial Media, Inc., Netflix, Inc., OpenTable, Inc., Orbitz Worldwide, Inc., Pandora Media, Inc., Priceline.com Incorporated,
RetailMeNot, Inc., Shutterfly, Inc., TripAdvisor, Inc., Trulia, Inc., ValueClick, Inc., WebMD Health Corp., Yahoo! Inc., Yelp Inc., Zillow, Inc., Zynga Inc.,
comScore, Inc., eBay Inc..
America-Transaction Processors: Automatic Data Processing Inc., Blackhawk Network Holdings. Inc., Equifax, Inc., Evertec Inc., FleetCor Technologies,
Inc., Global Payments Inc., Green Dot Corp., Heartland Payment Systems, Inc., Higher One Holdings, Inc., Mastercard Inc., MoneyGram International,
Inc., Paychex, Inc., Total System Services, Inc., Vantiv, Inc., Visa Inc., WEX Inc., Western Union Co..
Europe-Communications Technology: Alcatel-Lucent, Alcatel-Lucent (ADS), Ericsson, Ericsson (ADR), Gemalto, Nokia, Nokia (ADR), Spirent
Communications Plc, Technicolor, TomTom.
Europe-Food Retail: Ahold, Booker Group PLC, Carrefour, Casino, Colruyt, Delhaize, J Sainsbury, Jeronimo Martins, Metro, Morrison (Wm), Ocado
Group PLC, Sligro, Tesco.
Europe-General Retail: ASOS plc, Brunello Cucinelli, Burberry, Debenhams, Essilor, Geox, Hennes & Mauritz, Hermes International, Hugo Boss AG,
Inditex, Kering, Kingfisher, LVMH Moet-Hennessy Louis Vuitton, Luxottica (Italy), Marks & Spencer, Moleskine SpA, Mulberry Group Plc, Next,
Pandora, Prada SpA, Puma, Richemont, Salvatore Ferragamo SpA, Signet Jewelers, Sports Direct International Plc, Ted Baker, The Swatch Group
(Bearer share), Tod's, adidas.
Europe-IT Services: Atos, Capgemini, Indra, Interxion, Telecity, Tieto, United Internet, Wirecard.
Europe-Pan-Euro Banks: Alpha Bank, BBVA, BNP Paribas, BRE Bank, Banca Monte dei Paschi di Siena, Banca Popolare di Milano, Banco BPI, Banco
Comercial Portugues, Banco Espirito Santo, Banco Popolare, Banco Popular Espanol, Banco Sabadell, Banco Santander, Bank Handlowy, Bank Pekao,
Bank Zachodni WBK, Bank of Cyprus, Bank of Ireland, Bank of Piraeus, Bankinter, Barclays plc, CaixaBank SA, Commerzbank AG, Credit Agricole SA,
Credit Suisse, DNB, Danske Bank, Deutsche Bank, EFG International, Erste Bank, Eurobank Ergasias SA, HSBC, ING Groep N.V., Intesa Sanpaolo,
Julius Baer Group, KBC Group NV, Komercni Banka, Lloyds Banking Group Plc, National Bank of Greece, Natixis, Nordea, OTP Bank Plc, PKO BP,
Raiffeisen Bank International, Royal Bank of Scotland, SEB, Societe Generale, Standard Chartered, Svenska Handelsbanken, Swedbank, UBI Banca,
UBS, UniCredit, Vontobel.
Europe-Semiconductor & Tech Hardware: AMS AG, ARM Holdings plc, ASM International NV, ASML Holding NV, Aixtron, CSR plc, Imagination
Technologies, Infineon, Ingenico SA, Logitech, Pace, STMicroelectronics, STMicroelectronics (ADR), Wolfson Microelectronics plc.
Europe-Software: Aveva, Blinkx, Dassault Systemes, Exact Holding, Fidessa, Hexagon AB, IFS, Micro Focus, Monitise, Nemetschek, Opera Software,
SAP (ADR), SAP (Ordinary Share), SDL, Sage Group, Software AG, Temenos, Unit 4.
Europe-Telecom Services: BT Group, BT Group (ADS), Belgacom, Bouygues, Cable & Wireless Communications, Deutsche Telekom, Elisa
Corporation, Eutelsat Communications, Iliad, Inmarsat Plc, Jazztel, Kabel Deutschland AG, Liberty Global, Plc, Millicom International Cellular SA,
September 4, 2013 Europe: Technology
Goldman Sachs Global Investment Research 114
Mobistar, OTE, Orange, Portugal Telecom, Royal KPN NV, SES S.A., Swisscom, TDC A/S, TalkTalk, Tele2 (B), Telecom Italia, Telecom Italia (Savings),
Telefonica, Telefonica Deutschland, Telekom Austria, Telenet, Telenor, TeliaSonera, Vodafone, Vodafone (ADR), Ziggo, Zon Multimedia.
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Ratings, coverage groups and views and related definitions
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