Markets & Markets – Analyst Briefing Research Analyst – Varun Jain

1. A New Look at Merchant Remote Deposit Capture Markets & Markets – Analyst Briefing Research Analyst – Varun Jain

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3. RDC – A Time & Cost Saver Reduces the overall workflow by 30-40% Eliminates costs associated with conventional process of depositing checks – visiting bank, photocopying of checks, purchasing deposit slips Improves cash flow – extended business hours to deposit checks and same day ledger transactions After the phenomenal adoption of RDC by FIs, the next opportunity segment is merchant capture. In 2004, RDC usage by merchant was expected to reach around 16 million by 2012. Currently, only 7.3 million merchants are expected to be use the product by 2014.

4. Merchant Capture: The next opportunity segment in RDC 24 20 16 12 8 4 0 US Business (Millions) Low adoption among large businesses. Lack of effective solution for small & mid size businesses. Opportunity gap Effective solutions for small & mid-size merchants 2012 2004 Timeline Expected rate of adoption Actual rate of adoption

5. Key Findings - RDC users to reach about 7.3 million by 2014 Among the top 180 commercial banks as per asset size in 2009, 78% offer merchant RDC. All banks with $1 trillion in assets provide merchant capture whereas only 44% of banks with asset between $5 billion and $10 billion offer RDC. Merchant RDC adoption was low as users feared fraud and operational risks associated with its use. In 2007, only 25,000 of 24 million merchant in U.S. were using RDC. Our research estimates the number of RDC users to reach about 7.3 million by 2014. Creating awareness is one of the key playing fields in RDC. Banks are bundling RDC with other products and educating merchants through campaigns and awareness programs. Multiple names for RDC, like ‘electronic check deposit’ and ‘merchant capture’, are confusing merchants. The solutions offered by most of the banks facilitates single account check deposit, whereas businesses demand a product with multiple account deposit facility. Banks and ISOs can offer products as per the varying needs, such as different scanners with varying features, speed and check scanning capacity, for businesses with different check volumes.

6. Opportunities • Huge untapped segment of merchants • Tailored products for different business segments • Demand Side Drivers • Huge commercial base with over 24 million businesses • Large number of check transactions encourage use of RDC • RDC saves time and cost, improves cash flow and enhances customer service • Key Competitive Points • Enhanced, customized products • Customer awareness & training • Reduced operational risk & regulatory compiled solutions • Supply Side Drivers • Almost all major commercial & community banks offer merchant RDC • ISOs aggressively marketing merchant RDC • Restraints • Depleting check transactions • Merchant’s unawareness about RDC • Lack of optimal solution Market Dynamics of Merchant RDC

7. Channels of Merchant RDC Bank Centric Channel - anexisting channel Provide the facility of single account deposits. Merchant Merchant RDC Merchant Bank A/C - 1 Bank Agnostic Channel – an upcoming channel Independent Sales Organizations (ISO) provide the facility of multiple account deposits using merchant RDC. Merchant Merchant RDC

8. Pros & Cons of RDC channels Bank Agnostic Channel - Advantages Bank Centric Channel- Advantages Multiple account deposit facility for opportunity segment – as small and micro businesses Higher margins as no third party involved Confirmed retention of deposits Small and micro businesses are secondary target for banks but primary for ISOs Service culture of bank helps retaining customers ISOs command expertise in training and installation of product ISOs have sales culture – proactive sales and focused product approach Bank Centric Channel -Disadvantages Bank Agnostic Channel -Disadvantages Doesn't provide multi-account facility Banks are weak marketers RDC not beneficial as credit card terminal – cost of scanning check is pennies when compared to cards having basis point ongoing revenue Integration of ISOs increase the cost of services for banks Not very good at handling and installing equipment for customers

9. Hybrid Model - realized but yet to be utilized Bank1 Bank 2 Bank act as third party processor/ presentment bank for multi-account deposits Merchant Makes Multi-account deposits Bank (RDC Provider) Bank 3 nBanks • Benefits of Hybrid Model • Multiple account deposit facility • Visibility of customer ‘s cash flows will lead to new cross sell opportunities • Elimination of ISOs leading to cost effective solutions

10. Value Proposition of RDC for Merchants

11. M&M Contact Details For queries on A New Look at Merchant remote Deposit Capture For Analyst Briefing - Please contact the analyst on varun@marketsandmarkets.com From M&M’s Banking and Financial Services Team following are the upcoming reports: Small Business Banking Trends Mobile Payments Wealth Management Back Office Outsourcing To let us know any other topics you may be interested in please visit our website http://www.marketsandmarkets.com/ For sales queries email us onsales@marketsandmarkets.com US telephone no. 1-888-989-8004 Telephone: +91-020-40149517