The Rise of IoP and

Connected Payments

April 26, 2017

JAVELIN

Today We Will Talk About…

IoP – The Internet of Payments

These are the digital payments being made in the cloud to conduct

commerce for companies, cities, governments and people (most are

real, a few are nefarious and soon, some will be robotic)

Connected Payments

These the payments being made by the devices we collectively

deploy which are connected to the cloud. They make purchases on

our behalf, either by direct instruction or on a pre-programmed basis

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JAVELIN

But First, IoT Or Internet of Things Definition – From A Shampoo And Toothpaste Guy!

“If we had computers that knew everything there

was to know about things—using data they

gathered without any help from us -- we would be

able to track and count everything, and greatly

reduce waste, loss and cost. We would know

when things needed replacing, repairing or

recalling, and whether they were fresh or past their

best. We need to empower computers with their

own means of gathering information, so they can

see, hear and smell the world for themselves, in all

its random glory. RFID and sensor technology

enable computers to observe, identify and

understand the world—without the limitations of

human-entered data.”

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Kevin Ashton

@Kevin_Ashton

He first coined the phrase in 1999

while working at Procter &Gamble

Source: RFID Journal, Kevin Ashton

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What It Means To Consumers – More Order And More Chaos

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I need service –

let’s schedule

11am on 8/15

Cool the

house, we’re

on way home Accident ahead,

take the new

recommended route

I’ll start the wash

after house cools

and you are

home

License plate

recognized –

charge toll

Responsible driver - eligible

for safe driver discount

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What It Means To Businesses – Control And Predictability

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Barometric

readings so far let

us predict it will

be a hot Spring

Consumers are

cooling homes

down more

Shoppers are buying more

shorts and mini skirts.

Sweaters, jackets and long

pants are staying on shelves

Ship more warm

weather clothes

to stores

Scanners confirm

change request

compliance

Boatload of long pants and

sweaters ready to ship

STOP! Do not leave

port. Repack ship for

warm weather clothes!

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What It Means To Cities – Manageability, Finally!

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Barometric

readings so far let

us predict it will

be a hot Spring

London Toll

reports more cars

coming into city in

past few weeks

Institute surge pricing on city

entry tolls for next 30 days

Air quality sensor detect

continued elevated levels of

ozone and NOX

The smart grid

detects more power

usage earlier in day

Institute Plan B

power

management

policies

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So Who Plays In This Space – Just To Name A Few

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The More Detailed View…

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Confidential Source: FirstMark Capital

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Why Is IoT Important – $11 Trillion Industry By 2025

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Source: Information Week June 29, 2015 Issue

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Venture Capital Is Funding Billions $ In IoT Startups

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Source: Pitchbook

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So What Is The Nexus Between IoT And Payments…

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+

… It’s That Our Connected Devices Can Buy Things On Our Behalf Using Our Payment Credentials!

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By 2020 There Will Be 50 billion Connected Devices – 6.6 Devices For Every Person On The Planet

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Billions o Devices

Billions o Peo le

ource Census, The Connectivist sing Cisco Data

More connected

devices than

people!

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The Types Of Payment Enabled (And Soon To Be) Connected Devices Is Diverse And Growing

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The Combination Of IoT And Payments Will Do Four Things In Commerce

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Captures events that will occur 100% of the time,

such as buying food and paying the electric utilities

Raises the conversion rate of things that may occur,

such as buying flowers and timely vehicle servicing

Creates new opportunities that do not yet exist –

such as watching a movie in a self-driving car

Brings in new customers and sales to ecommerce

that traditionally occur in physical stores, allowing

greater efficiency and upselling – such as seniors

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Demand For Convenience Is Creating Opportunities – Ecommerce Is Booming / Embedded Payments

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Average monthly number and size of mobile purchases (by age)

Today Gen Y Makes 3+ Mobile Purchases A Month – With IoP, That Will Change Everything

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$44.82

$33.27

$48.60

$59.87

$39.50$36.40

$25.45

2.8

3.1

3.4

2.8

2.21.9

1.2

0.0

1.0

2.0

3.0

4.0

5.0

$0.00

$25.00

$50.00

$75.00

$100.00

Allconsumers

18-24 25-34 35-44 45-54 55-64 65+

Purc

hasesD

olla

rs

Average dollar value of a single typical purchase Average number of purchases in a typical month

© GA Javelin LLC

*Does not include contactless transactions made on mobile devices

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IoT Will Enable A Generation Currently Disengaged – IoP Will Help Them Spend Money Digitally

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Seniors Are The Fastest Growing Segment Of Uber Riders – Imagine The Impact Of Self-Driving Cars

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IoP Is Happening Now: Visa – IBM Partnership Extending Payments To IoT

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• IBM will give its 6,000+ clients of its IoT platform,

supported by the Watson machine learning platform,

access to Visa through its Visa Token Service

Providers

• This will allow IBM IoT customers to embed

payment card tokens into their connected devices to

enable connected commerce from launch

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So Who Could Enter This Market With Little Or No Payments Experience Yet Have Consumer Trust? – And Many Already Have With Partners

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Why Are Perceived Market Entry Barriers So Low? – Consumers Are Demanding 24/7/365 Commerce

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Yesterday Today Tomorrow

On Their Terms On Our Terms Expectations

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Yet IoT And IoP Will Still Be Vulnerable to Security Breaches As Are Businesses of All Sizes; Payments Are Very Attractive Targets

In 2016 there were

4,149 disclosed breaches

Which represented

1 billion records at risk

According to Data Breach Quick/View Report January 25, 2017

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Government, Privacy Advocates, CFPB Are All Watchdogs + The “Cree y Factor”

Regulatory Scrutiny Of IoT And IoP Is Looming: Not A Matter o “IF” But When And How Much

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JAVELIN

FIs, Payment Firms And Card Networks Will Continue To Be Relevant In The Age IoP Due To…

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Experience with KYC, Patriot Act, BSA, AML, OFAC, SDN

Existing C.A.R.L. Infrastructure*

Regulators want to work with companies they know and trust

Understand Payments, Fraud and Security

*C.A.R.L. stands for Compliance, Audit, Regulatory and Legal

…And Consumers Want To se Them!

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What Do Consumers Need From Their FIs In The Age of IoT and IoP

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Greater Controls

• Payment controls/alerts

• Device management

(via tokens)

• Conflict resolution

Cash Flow Management

• NOT PFM!

• Projected cash flows

• Products to bridge gaps

Enhanced Security

• Tokenization of

embedded payments

• Improved Fraud &

Security controls

JAVELIN

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Partner – FIs need to work with payment networks and IoT

providers to offer tokenization for payment devices.

Products – Develop products that help consumers manage

their cash flow and bridge the gaps between paychecks.

C.A.R.L. – Be proactive in addressing the regulatory, privacy and fraud pitfalls.

Recommendations

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Engage – Empower the customer to manage their IoP and deputize them to combat fraud – In return or “To o Wallet ”

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Additional Information or Questions?

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Michael Moeser Director of Payments michael.moeser@javelinstrategy.com

@michaelmoeser22