Embracing NFC for Retail Mobile Transactions Evolution

1. Preparing RetailFor the Mobile NFC Transactions Evolution Prepared for VeriFone Andy Castonguay Director acastonguay@yankeegroup.com

2. Why Near Field Communications Should BeOn Your Short-term Radar – An NFC Overview From the telecom salad of acronyms, one that has potential to make a real impact What is NFC? • A Technology Standard that permits important personal account details to be delivered quickly to a “contactless” or “touch” reader • Near Field Communication (NFC) is an evolution of contactless and short range RFID technologies. NFC enables easy and straight forward use of cards and mobile phones with touch-based technology – operating at a distance of only a few centimeters. • Leverages current payment infrastructure in use through out the world • Currently: A chip and an antenna residing in debit, credit, stored value, and special purpose cards • In the future, NFC will be embedded in mobile phones When will NFC reach the U.S. market? • NFC-style implementations have been a small but growing part of the payments market for years Why is it important to retail and commerce? • Fast, secure payment – Ideal for high volume establishments • Growing demand and usage among US consumers • Future mobile phone deployments have explosive volume potential and dynamic interface

3. NFC Is Growing Independently of Mobile Operators – Providing Retailers w/ Short and Long-term Benefits US Issuing Banks Estimate Over 15m Have Been Issued Since 2005 NFC cards will outpace mobile wallets,creating behavior that is potentially difficult to alter unless 3-point balance becomes more advantageous. Merchants Deploying POS • McDonalds • CVS • 7-Eleven • Subway • AMC Theatres • Fry’s • Walgreens • NYC’s MTA • Eckerd • Ritz Camera • Wawa • Cold Stone Creamery • KFC • Arby’s • Carl’s Jr. • Duane Reade • Regal Cinemas • Sheetz • QuickChek Credit Card Offerings • MasterCard PayPass • Embedded cards being issued since 2005. • Bank partners include Citi, HSBC, MBNA, KeyBank • Visa Blink • Embedded cards being issued since 2005 • Chase is key bank partner • Upwards of 5m cards already issued • American Express ExpressPay • Embedded in Blue cards and key FOBs since 2005 • Exclusive to Amex

4. Primary NFC Activities 1. Purchases at POS 2. Ticketing & Transport Pass 3. Content Discovery & Info Exchange NFC-based Programs and ProductsQuickly Evolving Public Transportation • New York City, MTA • Boston, MBTA Charlie Cards • Parisian Metropolitan Subway System • London Oyster Card for the Underground Gasoline Stations • Mobil Speedpass Mobile Operator Trials (for US) • AT&T/Cingular • Verizon Wireless • Sprint/Nextel Social Spending Programs • Health and Food Benefit Programs in US and Western Europe

5. Mobile Provides Scale, Distribution & Dynamic Interaction Total Mobile Users in US, 2003-2011 Source: Service provider’s reports and Yankee Group, 2Q07 Mobile phones represent the next great focusfor transactions, advertising and marketing

6. US Mobile Services Market is Maturing & Consolidating 1Q2007 Market Share, by Subscribers* • Provides retailers with a “short list” of potential marketing partners to drive usage of mobile NFC in stores • Heavy competition drives Mobile Operators to constantly offer service technology innovations to gain marketing edge – NFC is among key priorities for 2008 • Competition also ensures constant effort to offer newest, most robust handsets. Like Bluetooth and Wi-Fi, NFC will become a necessary standard for future mobile phones *includes direct, reseller/affiliates, and wholesale subs within each carrier Source: Service provider’s reports and Yankee Group, 2Q07

7. Handset Manufacturer Card Associations Mobile Carriers Banks Mobile NFC Contactless Ecosystem POS Terminals Merchants OTA Provisioning SIM/NFC Chip Manufacturers The Mobile NFC Ecosystem Involves Significant Number of Players with Unique Strengths

8. How Will Mobile NFC Work in Real Life?Over-The-Air (OTA) Provisioning Facilitates Ease of Use Source: Venyon

9. Defining the Leading Edge of Mobile Transactions Mobile Transactions • Involves any type of transaction initiated or completed on a mobile device. These transactions fall into activities of Marketing, Selling, and Servicing customers via mobile devices • Sub categories of Mobile Transactions include: • M-Payments (e.g. point-of-sale, peer-to-peer, remote) • M-Coupons (e.g. discounts, loyalty programs) • M-Service (e.g. M-Banking alerts and account management, situation-aware Airline customer service, etc.) • Examples: • Using a mobile device as a cash replacement at a fast food restaurant to pay for a meal • Receiving and redeeming a coupon at a retail POS • Accessing real-time financial account information or executing a trade with your mobile device • Purchasing a ticket to a sporting event online and receiving an “m-ticket” on your mobile device which you use to enter the event • Checking in for your flight over you mobile device • Remittance payments in lesser developed countries • This is primarily and Interactive activity that involves both the end-user and brand, merchant, agency, enterprise to take action Mobile Transactions is a Disruptive technology and a key area of focus for YG

10. Understanding the Importance of NFCIn Mobile Commerce MobileCommerce MobileContent MobileAdvertising MobileTransactions M-Payments M-Coupons M-Service

11. Despite Outstanding Potential, Mobile Payments Have Suffered By Not Leveraging the Existing Point-of-Sale Payment Infrastructure – NFC Changes That Core Payment Focus Regional Players Global Players Core Billing/PRM Focus

12. Cost Efficiency Convenience Security Defining the Value Proposition to Consumers & Retailers Mobile Wallet Payments Have Important Benefits Over Existing Mechanisms to Gain Traction With Consumers – Striking Important Balance of Primary Payment Characteristics

13. Who is Successfully Leading the M-Commerce Charge? Japan’s NTT DoCoMo Expanding With Diversified Financial Services Device distribution provides entry point for m-commerce iD Credit Platform services • DoCoMo-branded DCMX/iD mobile credit services • Operator expanding into retail credit sector • Partnering with other financial institutions like Mizuho Bank and UC Card • Leveraging distribution infrastructure for handsets to drive credit card uptake • Currently over 3m subscribers and 150,000 iD payment terminals • Edy contactless payments • Utilizing Sony FeLiCa technology and bitWALLET platform • ToruCa data retrieval service • Allows storage of coupons on handsets • Coupons and information can be accessed and stored by reader/writers at retail outlets

14. US Mobile NFC-Based PaymentsEcosystem Is Defining Structure

15. US Mobile Wallet Initiatives –Moving From Trial to Implementation US Market Identifying Business Models That Benefit Whole Mobile Wallet Ecosystem • For NFC deployments, the key business model is transaction fee participation – operators see little upside to other potential revenue streams (e.g. content discovery, slot leasing, subscriber fees, couponing, etc) that will benefit card associations and retailers • ISO/IEC 14443 standard is gaining final structure. multiple trials for mobile phone contactless payments: • Atlanta (Cingular, Chase, Nokia, Philips, Visa, & VivoTech) • Dallas (MasterCard, Nokia, AT&T & JP Morgan Chase) • Ramp up period for handset volumes 6 to 12 months • SMS-based payments gaining acceptance • PayPal & Obopay SMS-based payments facing difficult push to critical mass

16. NFC-enabled POS Will Support Payments & More Strong Future Opportunity for Retailers in Mobile Marketing/Coupons • Coupons delivered to the phone as a text or dynamic message • Can use real time analytics from the merchant and real time location from the carrier to deliver the right messages to the right person at the right time • Can scan the bar code directly off the phone • Problems with screen resolution, scratch on the screen, etc…leads to an inability to scan a coupon directly from the device • Merchants want the ability to scan directly from the device to eliminate human error and to identify whether this coupon is unique or has been forwarded • Coupons should be time based and location based • Loyalty programs • Can be stored on the phone so you don’t need to remember all of your cards • Can be combined with a coupon such as buy 9 get the 10th free promotion

17. Thank you! Andy Castonguay Director, Consumer Research Yankee Group acastonguay@yankeegroup.com