payments Insight. Opinion.

vol 13

CONTENT The current state of mobile wallets 1 The current state of mobile wallets Andreas Habersetzer discusses the current state of mobile wallets and compares the different players and products Andreas Habersetzer personal financial management on a mobile device. present in the market. Partner So far, four players that control the operating sys- tem (OS) and in some instances the hardware of a 3 Public market valuations and the mobile device have launched their wallet initiatives: market environment According to Apple CEO Tim Cook, 2015 should have ApplePay, AndroidPay, SamsungPay and Hua- Markets have shown a recovery since reaching a low point been the year of ApplePay. But how did the much weiPay. Further players including LG, Xiaomi, ZTE, in mid-February. Markus Massem takes a look at valuation hyped payment initiative of the tech giant really fare and Lenovo are reported to be working on the initia- drivers and benchmarks the different groups within the and how can the status quo of other “Pay”-Initiatives tion of their mobile wallet services. Of the already payments universe. be evaluated? Secondly, this article tries to define a launched initiatives, Apple has currently the broad- way forward for the main initiatives. est geographic coverage and has been able to con- 5 M&A Activity What are the key drivers of M&A and IPO activity? Which transactions made headlines in the 1st Quarter of 2016? Bank wallets OS wallets MNO wallets

What are recent takeover rationales? Robert Kayser, Launched by banks that want to Opportunity to use the device for Used by MNO’s to increase product Apostolos Psaras and Philipp Steinbrück answer these participate in the growth of wallets payments as a way to increase breath beyond voice and data to not get side-lined stickiness and drive hardware sales questions.

7 Venture Capital Once again Stefan Thomalla and Eduardo Cenci review the latest payment startup funding activity. The article Merchant wallets Scheme wallets Tech and digital wallets considers the payment segments in which investors were most interested in, headline startups and the larg- Wallets operated directly by the Mobile wallets launched by the Wallets operated by technology merchant to increase customer major card schemes players with a pure focus on est deals of the last quarter of 2016. stickiness and loyalty payments

9 Deal Activity M&A Transaction overview

12 VC Activity Figure 1: Overview of the payment wallet landscape Transaction overview The number of wallets launched by vince the largest majority of card issuers in its banks is limited. The most noteworthy example is launch countries to support its wallet initiative. probably ChasePay that aims to leverage the more However, despite considerable support for issuers than 90 million issuing customers of the bank. Fur- and merchants right from the start, ApplePay’s thermore, Chase is able utilize its Visa partnership to usage is currently very limited. Figure 2 shows the minimize transaction costs for the merchant. Few current state of ApplePay with regard to its existing other banks have scale comparable to Chase. It is for and expected geographic coverage and user base. that reason that banks focus on partnering with the All other initiatives run on (different versions of) likes of Apple and other wallet providers to give their Android, which controls approximately 80% of customers access to a mobile wallet solution. global smartphones. Theoretically, AndroidPay – Furthermore, a bank’s focus is typically primarily on Google’s second attempt to succeed in the mobile its mobile banking application, where mobile pay- wallet space - should have the largest consumer ments can be integrated to facilitate a comprehensive reach of all initiatives, but uptake by both payments Insight. Opinion. 2

consumers and merchants is currently limited. One jointly initiated by major US retailers, doesn’t seem propositions are currently offered by Chinese wallet big advantage of SamsungPay is its independence of to get out of the block and now MCX’s founding solutions that control entire payment and commerce NFC. Thanks to the “magnetic secure transmission” members Walmart and Target announced their own ecosystems and have become an integral part of technology Samsung acquired when it bought Loop, “Pay” solutions. This is one more example that illus- every aspect of the daily life of its users. WeChat, at SamsungPay works on every terminal. Samsung trates how difficult joint ventures are to operate on a the core a mobile messaging system, has estab- recently reported that over 5 million users regis- day-to-day basis, although a joint initiative of indus- lished WeChatPay, that is used to conduct any type tered and that it processed more than USD 500 try leaders makes a lot of sense theoretically. In of business transaction between users and autho- million in the first six months since its launch. Europe, no major wallet initiative has been launched rized merchants that have established applications until today. within WeChat’s mobile platform. Today, more than 200 million of its approximately 650 million users have signed up for WeChatPay.

UK Launch Jun 14 China Total iPhones 17m Canada Launch Feb 16 Enabled for payment ˜4m Total iPhones 230m Launch Nov 15 ˜ Merchant acceptance 250k+ Bank participation Total iPhones 8m 19 (# locations) (# card issuers)

Bank participation 15 Retailer acceptance 16 USA (# card issuers) (# chain) Launch Nov 14 Total iPhones ˜85m Enabled for payments 23m ˜ AustraliA Used for payments ˜3.5m Launch Nov 15 Merchant acceptance 1m+ (# locations) Total iPhones 7m

Bank participation 400+ (# card issuers) Expected 2016 launch countries are shown in dark grey

MNOs (mobile network operators) were probably Scheme wallets like Visa Checkout (formerly V.me), In particular the comparison with tech wallets illus- among the first that identified mobile payments as Masterpass and American Express Checkout aren’t trates what is currently missing at ApplePay and area for growth that could help to compensate for really wallets in a narrow sense, but rather the other newer initiatives: a compelling value proposi- declining revenues in their core business. All major attempt to stay relevant in an e-commerce environ- tion and true value-add compared to existing means operators started initiatives, either stand-alone or in ment through a facilitated secure checkout that lim- of payments. Today, users often conceive a card- joint-ventures with other operators, to benefit from its the credentials required for user authentication. based contactless payment as more convenient the expected growth in Visa and MasterCard are than a payment by phone. Furthermore, a direct mobile commerce. MNOs Of the already expanding the geo- connection with existing merchant loyalty programs seemed to have all the right graphic reach of their is often lacking. Therefore, we currently see three launched initiatives, assets in place to become checkout-products con- steps in the mobile wallet evolution: step 1 is a pure major mobile payment Apple has currently tinuously and are report- payment proposition, in most instances covering players – large customer the broadest geographic ing increasing user multiple channels, from POS over remote and in-app bases which include both coverage and has been able numbers and merchant payments. The step 2 includes the seamless integra- consumers and merchants, acceptance. tion of payments and loyalty / reward programs. to convince the largest majority and control over the secure Tech or digital wallets Looking at , it seems logical that the firm element of the SIM-card. of card issuers in its launch are the pioneers of would combine the Pay-initiatives with its wallet However, propositions with countries to support its wallet mobile payment wallets (formerly Passbook) that is already preinstalled on limited added value that initiative and therefore have every phone. Additional payment functions, like P2P- typically included a stored- reached the highest payments, are often popular initiatives for user value account together with a (digital) pre-paid card degree of maturity with regard to their value proposi- generation at this stage. Lastly, in step 3, additional and the introduction of HCE eliminated the inherent tion, geographic coverage and customer base. Today, services beyond payments and commerce are MNO-advantage. Today, only Vodafone and Orange PayPal has 179 million active users in 203 countries integrated into the wallet, ranging from financial seem to further pursue their initiatives. and is continuously investing in its value proposition. services to health related propositions that cover a Following the acquisitions of / and wide range of everyday life (the respective apps are Until today, very few merchants got engaged in the Xoom, the company is now offering “One Touch” already pre-installed on the iPhone – facilitated by an mobile wallet game, but with Starbucks, a merchant and P2P-payments, and is working on its omni-chan- invisible “payment process”). probably operates one of the most successful initia- nel strategy through partnerships with Discover, tives. Another very prominent initiative called MCX, First Data and others. The most sophisticated

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Public market valuations and the market environment

On other market news, exports data showed that beginning of the year, jumped almost 10% upon Markus Massem Chinese exports expanded in March for the first the release of its latest quarterly results, beating Manager time in 9 months, calming fears that the country’s analyst guidance on both revenue and earnings. economy is slowing down rapidly. However, US Also fiscal guidance for the year was raised and Following a rough start into the year, overall markets retail sales in March were weaker than expected, the acquisition of Heartland Payments is expected have been able to bounce back and recover some or raising concerns that consumers continue to be to close in the next quarter, boosting revenue. Fol- all of their 2016 losses. The S&P 500 gained 13% cautious. Low US inflation expectations on the lowing the 12% tumble post the 2015 earnings from the low point it reached other hand will help release, Ingenico has gained some ground and on February 11th and has been Following the Federal Reserve to presented a 2020 strategic plan, envisioning EUR able to erase all losses for the meaningful maintain a cautious 4 billion in revenue, a 22-23% EBITDA margin and year to date period. The Euro- stance on interest 45% free cash flow (FCF) conversion by 2020. pean STOXX 600 on the other declines till rates, while the ECB Overall, Ingenico is still down 14% since the hand has gained 10% since the mid-February, the great cut the Eurozone inter- beginning of the year. February low point, but is still majority of public companies est rate to zero and Advent International and Bain Capital announced about 9% below heights at the in our payments universe ramps up quantitative plans to sell 14% of WorldPay shares and placed beginning of the year. As earn- easing in an attempt 275 million shares on April 6th, raising about GBP ings seasons for the first quar- have shown positive returns to fend off deflation 740 million. Following the transaction, Advent ter has kicked off in the US, over the past three month and jump-start the and Bain hold 565 million shares in WorldPay, worries persist that the first period. economy. leaving them with a combined stake of 28%. quarter could be the worst Following meaningful The comparables within the processing bucket quarter since 2009 as corporate profits are expected declines till mid-February, the great majority of gained about 8% over the last three months to drop. Especially banking stocks are feared to take public companies in our payments universe (see (+9% year to date). The strongest performer in a meaningful hit following the release of quarterly end of article for composition) have shown posi- the group was Cielo, which has gained almost results, with potential impact and knock-on effects tive returns over the past three month period up 20% since the beginning of the year and has on the wider markets. to April 12th (with 14 out of 21 stocks posting gained more than 35% since reaching a low point The payments universe (alphabetical order): share price increases). This enabled companies to in early February. Also Euronet, which plunged Acceptance: First Data Corp, Global Payments, gain some ground and recover the losses that upon the release of Q4 earnings, missing analyst Ingenico, PayPoint, Vantiv, Verifone, WorldPay were felt across the overall markets. Since the estimates, has since been able to regain 30% of Processing: Cielo, Euronet Worldwide, FIS, Fiserv, beginning of the year, 13 out of the 21 stocks are its market value. Total System Services still in positive territory. The overall payment The comparables within the PSP and online pay- PSP/Online payments: PayPal, Paysafe, Wirecard index is up by 7% over the past three months and ments category lost about 3% over the last three Issuing/Prepaid solutions: FleetCor, Green Dot, WEX 2% since the beginning of the year. months (-2% year to date). Wirecard announced Schemes: American Express, MasterCard, Visa The acceptance bucket gained 3% over the three plans to expand to the US in the next year as the Sources: Innovalue research and company filings; months period (-4% year to date). Global Pay- company is trying to gain momentum following a Google Finance for share price data ments, following meaningful losses at the beating from short sellers.

120

115

110

105

100

95

90

85

80 04 Jan 18 Jan 01 Feb 15 Feb 29 Feb 14 Mar 28 Mar 11 Apr

Acceptance Processing PSP/Online payments Issuing/Prepaid Schemes S&P 500

Figure 1: Indexed stock price performance year to date until April 12th 2016

Page 1 payments Insight. Opinion. 4

The stock still hasn’t made up for the losses that followed the accusation of little known Zatarra 70%

Research, accusing the German company of mis- 60% 61% 69% leading accounting and fraud. Paysafe continues 50% to gain and was added to the FTSE 250 at the end 46% of March. PayPal shares lost value after Amazon 40% 39% 39% announced the launch of Amazon Payment Global 37% 30% Partner Program. The retailer will help e-com- 30% 29% 25% merce platform providers and other developers 20% 22% 24% integrate with Amazon Payments, so their own 10% 15% merchants can offer the option to “Pay with Ama- 8% 7% 2% zon” at checkout. 0% Revenue growth CY 14-15 Ebitda margin CY 14 Ebitda margin CY 15 The comparables of the issuing / prepaid solu- tions bucket gained about 25% over the last three Figure 2: Payments universe operational metrics as of April 12th 2016 months, driven by all companies in the category Acceptance Processing PSP/Online payments Issuing/Prepaid Schemes (+12% year to date). Green Dot is the best per- forming stock across our payments universe for 30.0x the year so far, gradually increasing more than

30% since the beginning of the year. On April 11th, 25.0x Green Dot announced a further USD 50 million 24.0 20.0x 20.7 stock repurchase, meaning it has now repur- 19.2 17.8 chased USD 100 million since September 2015. 15.0x 16.8 15.3 14.6 Also WEX’s shares have gained significantly since 13.0 10.0x reaching a low in early February, recovering 45% 10.8 10.6 10.8 11.4 of their losses. 5.0x 5.0 5.5 5.0 Given the losses of the comparables in the 4.4 4.3 4.8 4.6 4.8 schemes bucket at the beginning of the year, not 0.0x EV/Rev CY 14 EV/Rev CY 15 EV/EBITDA CY 14 EV/EBITDA CY 15 all losses could be erased despite a meaningful recovery. American Express, which had shown significant losses and announced plans to cut Figure 3: Payments universe trading multiples as of April 12th 2016 USD 1 billion in costs, bounced back about 20% from the low point reached in early February. Also Acceptance Processing PSP/Online payments Issuing/Prepaid Schemes VISA and MasterCard have made up for the share price declines and are almost even for the year.

Page 1 payments Insight. Opinion. 5

M&A Activity

Robert Kayser The median EBITDA-multiple from 2015 to the 32 70

62 Number of transactions Senior Associate first quarter of 2016 decreased, from 13.1x to 14.1 60 12 49 10.3x. The median revenue multiple from 2015 to 46 50 10 42 42 the first quarter of 2016 increased 7%, from 3.5x 40 Apostolos Psaras 8 31.9 30 Associate to 3.7x. FinTech Acquisition’s takeover of Card- 6 Connect, valued at USD 350 million, equates to a 4 20 3.6 4.7 Philipp Steinbrück multiple of 29.4x revenue or 8.9x EBITDA. The 2 10

Disclosed value [USD billion] Disclosed value 1.6 Associate acquisition of NWP Services by RealPage equates 0 0 to a multiple of 11.3x EBITDA or 1.2x revenue. 2015 2015 2015 2015 2016 Q1 Q2 Q3 Q4 Q1 FleetCor Technologies’ acquisition of Brazilian The first quarter of 2016 showed a new peek in STP for USD 1.1 billion equates to a multiple of Number of transactions Disclosed value [USD billion] terms of the number of M&A activities within the 5.6x revenue or 11.3x EBITDA. Wirecard’s acquisi- Figure 1: M&A market development payment industry. A total of 62 transactions tion of Moip Pagamentos for USD 23.5 million and have been reported with a total disclosed volume Provus for USD 32 million equate to a multiple of of USD 4.7 billion. Among those deals there are 9.4x EBITDA and 7.1x EBITDA, respectively. As two which stand out: Firstly, Total System Ser- seen in the previous quarters, deals become on vices’ (TSYS) acquisition of TransFirst for USD average larger and being based on slightly lower 16x 14.5 14.7 2.4 billion, aiming to strengthen competitive multiples as investors “adjust” expectations about 14x 13.1 positioning by increasing scale and improving how disruptive target companies will change the 12x 9.5 10.3 product proposition and secondly the acquisition payment landscape, but there is a broad range of 10x of Serviços e Tecnologia de Pagamentos (STP) by valuation multiples observed in the market. 8x FleetCor Technologies for USD 1.1 billion, aiming 6x 3.7 3.7 to drive international expansion. Geographically, 52% of the targets were based in 4x 2.8 3.5 North America (2015: 49%), followed by 26% in 2x M&A activity and deal characteristics Europe (2015: 33%) and 11% in Asia/Pacific 2012 2013 2014 2015 2016 Q1 A total of 62 M&A transactions were announced (2015: 8%). Despite the overall “slow down” of Revenue Multiple Ebitda multiple in first quarter of 2016. This represents a 27% Europe compared to North America, German increase over the 49 transaction in the last quar- companies were highly active in engaging in inor- Figure 2: Median enterprise value multiples ter of 2015. The financial terms of 19 transactions, ganic growth during Q1 2016 (six transactions). with a total volume of USD 4.7 billion, were dis- Kraken, the dominant bitcoin exchange in Europe closed, a decline compared to the previous quar- and the global leader in terms of Euro volume and ter. The increase in deal activity highlights the liquidity, solidified its position and expanded in 2016Q1 maturity of the payments landscape. North America in a two-piece acquisition of NYC- 2% 5% based Coinsetter and Canadian Cavirtex. German 5% 2015 The value of Q1 2016 was heavily driven by the based payments solution provider Wirecard con- 11% acquisition of TransFirst by TSYS for USD 2.4 bil- tinued its international expansion strategy through lion (50% of disclosed volume). The underlying acquisitions with two processing targets, Moip 52% enterprise value-multiple was 15.6x EBITDA. The Pagamentos in Brazil and Provus in Romania. transaction allows TSYS to establish a leadership position in merchant acquiring by becoming the Key drivers of and rationale for M&A activity 26% 6th largest US acquirer based on net-revenue and Generally Q1 has shown again more transactions in expand its acceptance network to 645,000 mer- established payment segments such as issuing and chants by adding 235,000 outlets in the profit- processing. Main drivers to engage in mergers and able and fast-growing SME segment serviced by acquisitions were to achieve synergies, improve North America Middle East, Africa (MEA) TransFirst. In addition the acquisition allows TSYS internal capabilities and expand the company’s Europe Australia to improve its technology and payments platform international reach. Asia South America and provide integrated payment services gaining An established segment of the industry, process- Figure 3: Targets by region (funding) access to TransFirst’s more than 1,300 technology ing, experienced a significant amount of deal activ- and referral partners. The private equity owners of ity in Q1 2016. Growth in new markets was one of TransFirst, among them Vista Equity Partners, the primary drivers for transactions in this segment exited their investment in TransFirst in a little as shown by the acquisition of Canadian processor more than two years, having acquired the com- of tuition fee payments Scholar FX by US-based pany in November 2014. Flywire and the two acquisitions made by

Page 1 payments Insight. Opinion. 6

Wirecard. The sale of Emerging Market Payments, Adoption of electronic a provider of electronic payment services to banks, payment services and the retailers, governments and finance institution by ownership of electronic Actis, a financial investment company, to Network payment platforms are International, a provider of payment solutions in becoming increasingly the Middle East, for an undisclosed amount allows important for retailers, the latter to improve its product offering and foot- especially those whose print in the region. Achieving synergies and driving core business lies in consolidation in the resident billing and energy ecommerce, as consum- management for rental housing industry was the ers are shifting to new and key driver behind the domestic acquisition of emerging payment chan- US-based NWP Services Corporation by Real Page nels. We expect that this for USD 68 million. can be a significant con- We are confident that the upward deal trend in the tributor to deal activity in processing segment is set to continue and acceler- the payments sector in ate in view of developments in Q1. Advent Interna- the future. In February tional, Bain Capital and the Danish pension fund 2016, Amazon, the lead- ATP, the private equity owners of Nets Holding ing global ecommerce (a Nordics payment processor) are examining dif- marketplace, acquired ferent exit opportunities including both an IPO or a Indian-based start-up sale within 2016 at a potential equity valuation that Emvantage Payments, a might exceed USD 3.5 billion according to Bloom- provider of an online payments gateway providing Intelligence facial recognition start-up Emotient in berg sources. In the UK, the Payment Systems acceptance of card, debit and mobile payments to January for an undisclosed amount in a move Regulator (PSR) proposed that the banking institu- online merchants. The deal is very interesting showcasing the growing interest in and applica- tions sell their stake in , the infrastructure despite the fact that the amount has not been dis- tions of biometric authentication by technology provider that they use for the processing of closed. This acquisition enables Amazon to and payment companies. Another company that payments. VocaLink processed over 11 billion trans- develop convenient and secure payment solutions acquired capabilities in the field of machine learning action valued at GBP 6 for India, one of the was Square with the purchase of Framed Data, trillion in 2015 including Despite the overall key focus markets for enhancing its data science and risk analytics team. more than 90% of salary, “slow down” of the company, where The alternative payment methods and digital more than 70% of house- Amazon is set to currencies space continued to demonstrate hold bill and almost all Europe compared invest USD 2 billion. momentum. As discussed in the previous issue, state benefit payments in to North America, German Another Indian com- investors and banks such as Goldman Sachs or the UK, as it provides the companies were highly active pany that grew its BBVA increasingly engage in the blockchain tech- backbone for the Bacs, payment capabilities nology. The consolidation in the bitcoin exchange Faster Payments and in engaging in inorganic through acquisition is industry fuelled by the two Kraken acquisitions of LINK payment systems. growth during Q1 2016 Ola. Ola acquired Coinsetter and Cavirtex shows that as the digital According to the PSR, the Qarth a mobile pay- currency / blockchain space matures we can ownership of VocaLink by 18 UK banks stifles inno- ments start-up that has integrations with 26 Indian expect more deal activity. Another example, vation and competition in the industry for infra- banks enabling users to make “one-touch” pay- nanoPay a Canadian start-up providing loyalty and structure provision. Given the potential ments and money transfers. Initially a rival to Uber payment solutions for retail and ecommerce attractiveness of VocaLink as an asset for numer- with USD 1.2 billion in venture capital backing from merchants acquired Mintchip, the ous payment companies, reports that MasterCard players like Sequoia Capital, Ola developed an platform developed by the Royal Canadian Mint, to has approached VocaLink’s owners for a potential in-app mobile wallet service to allow users to pay drive its partnership strategy with retailers, banks GBP 1 billion (~USD 1.4 billion) acquisition just a for rides, given the limited penetration of card and telecom companies. week after the PSR released its recommendation, payments in the country. The Ola Money wallet come as no surprise. service was made available as a separate app in For the first half of 2016 we are optimistic that the November 2015, allowing the company to expand payment industry will remain an important driver Another large deal in Q1, the acquisition of STP by in a new vertical. for M&A-activity. It will be highly interesting to see FleetCor Technologies for USD 1.1 billion, was how adoption of electronic and alternative driven by the need to increase scale and drive inter- The global trend away from cash payments and the payment methods, such as mobile payments and national expansion. The rationale behind the deal is emergence of innovative alternative payment digital currencies, influences the business models FleetCor’s goal to drive scale in Brazil to support its methods can lead to a wave of mergers and acqui- of traditional financial institutions and what will be overall growth in workforce payments and acquire sitions as companies try to enhance their product the impact of such developments on retailers and an innovative cardless fuel payments solution with portfolio and gain competencies in new technolo- established payment companies. one of FleetCor’s global partners, Shell. gies. Apple for example acquired Artificial

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Venture Capital

Stefan Thomalla 48 50 800 48 50 Associate Number of transactions Regarding the financing rounds, seed investments 700 710 39 are still predominant, accounting for more than 600 49 40 Edoardo Cenci 1/3 of the total financing rounds. This implies that 500 30 Associate investors are seeking new and alternative invest- 400 458 382 ment opportunities while still facing low returns 300 345 20 200 In the first quarter of 2016, 50 companies raised from capital markets. A persistent downward 10 USD 382 million, of which USD 332 million in trend regarding more mature funding is not 100 Disclosed value [USD billion] Disclosed value equity and USD 49 million in debt financing. Com- identifiable. 0 0 2015 2015 2015 2016 pared to Q4 2015, the number of companies that This quarter’s largest funding was the USD 75 Q2 Q3 Q4 Q1 received funding slightly increased (+4% deals) million deal sealed between Pindrop and Google Number of transactions Disclosed value [USD billion] and the total disclosed value increased by 7%, indi- Capital in January 2016. Pindrop is a provider of cating a turnaround compared to the last two quar- authentication and fraud detection solutions. Pin- Figure 1: Market development – ters of 2015. Overall, 2016 had a positive start. drop’s solutions are highly valuable for the indus- Including both equity and debt funding deals Year-on-year the number of deals has increased try because of their ability to prevent account from 43 to 50. However, the invested amount has takeover, reduce payment fraud conducted over decreased by 31% from USD 550 million to USD the phone, block cross channel attacks and pro- 382 million. tect brand reputation. The company disclosed its 2016Q1 Analysing the funding activity from a regional per- plans to use the new funding to expand interna- 4% spective, the North tionally and increase 2% 12% 2015 and Central American its investments in It is predicted that the region has been once research and new again been the region number of digital product development. with the highest num- wallets that can be Another interesting 52% ber of deals. In total 26 investment has been used in stores will double within deals (Q1 2015: 25) the Series B funding of 30% with a disclosed value the next 12 to 18 months and the Momo. The company of USD 220 million number of mobile Web or received USD 28 mil- (USD 216 million in lion from Standard in-app payment services will equity and USD 4 mil- Chartered Private North America Middle East, Africa (MEA) lion in debt financing) triple over the same period Equity (lead investor) Europe Australia have been reported. and Goldman Sachs Asia South America With 15 deals (Q1 2015: 8), accounting for USD 101 that already invested almost USD 6 million in the Figure 2: Investment by region million, Europe has been the second largest region company in January 2013. Momo is a Vietnamese for number of deals. In Europe financing activities company that provides mobile solutions for pay- have been well balanced in terms of invested vol- ments and banking in the country. The company ume between equity (55%) and debt (45%). Over- is trying to replicate in Vietnam the success of 100% 10% all, 18% of the funding activities were conducted in in China and MPesa in Kenya, leveraging a 17% 20% 24% 10% Asia (6 deals, USD 49 million), MEA (2 deals, USD fast growing smartphone market. Moreover, Stan- 2% 2% 2% 6% 6% 7 million) and Australia (1 deal, USD 5 million). dard Chartered teamed up with Momo to offer a 19% 10% 5% 15% 10% payment wallet (“Straight2Bank”) for the bank’s 3% 16% Investment Trends corporate clients in Vietnam. With the new fund- 26% 19% 21% In the first quarter of 2016 investors mainly ing round, Momo intends to accelerate its growth 12% 6% 6% financed “alternative payment system” companies by investing in the launch of new products and ser- 12% (17 deals). Alternative payment systems are vices, expand bank and merchant connectivity and 32% 33% 34% 21% defined as “acceptance brands” integrated with extend the network of point-of-sale terminals. the checkout of the merchant (e.g. PayPal) and In Europe, instead, the German mobile payments 2015 2015 2015 2016 mobile money payment apps. Compared to 2015, start-up Payleven stands out with a USD 10 mil- Q2 Q3 Q4 Q1 investors showed a higher interest in “security” lion series D funding. The new funding round Other C A Seed D B Venture companies, however maintained a strong interest brings the total raised capital by the company to in “alternative payment systems” and “payment USD 51 million. The company is a provider of Figure 3: Financing rounds acceptance devices and software”. mobile POS solutions expanding in all Europe and

Page 1 payments Insight. Opinion. 8

the funding will support Payleven to expand its money transfer service generated USD 39 million venture capital firm Horizons Ventures. Even offering even more and accelerate customer in revenue in 2015 - making it one of Europe’s big- though payment services are not its core busi- acquisition. Additionally, Payleven’s spokesper- gest FinTech firms - and currently enables around ness, Blockstream is developing a technology that son hints there may be another round being 400,000 transfers every month. The latest allows interoperability of blockchains and could announced soon. financing will help WorldRemit expand its net- therefore foster the adoption of blockchain tech- Of particular interest is also the first debt financ- work of partners across the world and increase nology in the payments industry. ing of WorldRemit after seven equity funding availability of instant money transfers to rounds. In February 2016 the company received customers. In terms of VC deals, 2016 had a good start. USD 45 million debt financing from Silicon Valley Among the top ten investments in Q1 2016 there Investors showed a particular interest in “secu- Bank (lead investor) and TriplePoint Venture is also Blockstream. Blockstream, in February, rity” companies as displayed by the 7 sealed deals Growth BDC. WorldRemit is a UK based online raised USD 55 million in Series A funding, reach- that rose more than USD 107 million. The growth and mobile money transfer company that, since ing a total funding of USD 76 million. With the of attention in “security” start-ups is, however, a inception in 2010, received a total of USD 192.7 fresh investment, Blockstream would like to con- consequence of the unstoppable growth of alter- million. The company was valued at USD 500 tinue expanding the bitcoin code base for com- native payment systems. It is predicted that the million in a USD 100 million funding round last mercial use Blockstream’s round was led by number of digital wallets that can be used in year, led by Silicon Val- venture capital firms stores will double within the next 12 to 18 months ley venture capital firm Compared to 2015, AXA Strategic Ven- and the number of mobile Web or in-app pay- Technology Crossover tures, the venture ment services will triple over the same period. investors showed a Ventures (TCV), which capital arm of French This is a very fragmented and highly competitive has also backed the higher interest in multinational insur- space. It will be important to keep an eye on the likes of Facebook, Spo- “security” companies, however ance firm AXA start-ups that receive the highest funding to tify, and Netflix. Group; Digital determine the potential market leaders. maintained a strong interest in According to a study by Garage, the Tokyo- Deloitte, WorldRemit “alternative payment systems” based online pay- has been the UK’s fast- and “payment acceptance ments firm co- est-growing technology founded by Joi Ito; devices and software” company in 2015. The and

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M&A DEAL Activity Q1 2016

Date Target Company Country TC Industry Buyer(s) (Country) Country Transaction Announced value (USDm) 1 04/01/16 Shifu India Develops a personal assistant app for smartphones India 8

2 04/01/16 SmartLink USA Provides secure payment gateway and network Echosat USA N/D services businesses

3 05/01/16 TibiDono Austria Provides marketing and gift card distribution InComm USA N/D

4 06/01/16 Giftcards.com USA Sells digital and physical prepaid gift card solutions Blackhawk Network USA N/D to consumers and customized prepaid incentive and reward solutions for business clients 5 07/01/16 Chase Commerce Solutions USA Merchant acquiring and payments processing unit First American Payment Systems USA N/D (ISO Portfolio) of JP Morgan Chase & Co

6 07/01/16 Emotient USA Tech start-up with the expertise to analyse facial Apple USA N/D expressions to read people’s emotions

7 08/01/16 Paypoint.net and Metacharge United Provides online payments solution Capita United 20 Kingdom Kingdom

8 12/01/16 Embratec Brazil Develops fuel card and maintenance solutions Edenred France N/D

9 12/01/16 Mintchip Canada Provides a digital currency product nanoPay Canada N/D

10 13/01/16 Coindesk United Operates a Bitcoin news site Digital Currency Group USA 0.9 Kingdom

11 14/01/16 Fiverun USA Develops mPOS software Vista Equity Partners USA N/D

12 15/01/16 AJB Software Design Canada Provides payment gateway and switching solutions Verifone USA N/D

13 18/01/16 MiniCheckout Canada Provides nobile payment solutions omNovos Canada N/D

14 19/01/16 Coinsetter USA Operates a bitcoin exchange Kraken Germany N/D

15 19/01/16 Cavirtex Canada Operates a bitcoin exchange Kraken Germany N/D

16 20/01/16 ScholarFX Canada Processor of tuition, room and board payments for Flywire USA N/D international students attending universities and other educational institutions in Canada 17 20/01/16 SmartPocket India Provides a mobile wallet solution for loyalty cards Goodbox India N/D

18 25/01/16 Transact24 Limited Hong Kong Provides electronic payment services Net 1 South Africa 7

19 25/01/16 VendScreen USA Develops vending industry cashless payment technology USA Technologies USA 5.6

20 26/01/16 Smart Card Software United Provides mobile payment platform solution Rambus USA 92.7 Kingdom

21 26/01/16 TransFirst USA Provides payment technology solutions Total System Services USA 2,350

22 26/01/16 SmartLine Digital Waitlist USA Provides a digital waitlist management application PaidEasy USA N/D Management System

23 27/01/16 Union Mobile Pay China Joint-venture between China Mobile, the world's largest Qingdao Haili Metal China 462 mobile operator, and China UnionPay, which operate a mobile transfer application 24 28/01/16 Toshiba Global Commerce Solutions Japan Manufactures integrated point of sales systems Toshiba Japan 160 and solutions for retail store

25 28/01/16 UBIQ Italy Designs and implements innovative solutions for SIA Italy N/D digital marketing and data mining

26 01/02/16 CoreCommerce USA Operates an ecommerce platform which provides payment, N/D N/D N/D shipping cart, etc. for professional online businesses

27 01/02/16 Invotas International USA Offers Security Orchestrator, an automated response FireEye USA N/D solution that connects user’s hardware, software, tools, and policies into a single cohesive solution

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Date Target Company Country TC Industry Buyer(s) (Country) Country Transaction Announced value (USDm) 28 03/02/16 NimbleCommerce USA Operates a commerce platform and distribution network for Blackhawk Network USA N/D digital promotions. It helps merchants sell their own pre-paid offers and gift cards through a network of publisher branded sites 29 08/02/16 Billhighway USA Software company specialized in integrated payment BluePay USA N/D processing for associations and large not-for-profit organizations 30 08/02/16 Quickservice Technologies Canada QSR technology and software provider that serves markets Panasonic Canada Canada N/D across Canada, the U.S. and key international markets

31 09/02/16 Vanso Nigeria Product design company offering payment solutions Interswitch Nigeria 50 to its clients

32 09/02/16 MercedesCard Germany Provides credit card with a range of mobility safety attributes; BW-Bank Germany N/D daughter company of automotive company Mercedes

33 10/02/16 MDRX Medical Billing USA Offers operational services in the healthcare sector Constellation Healthcare UK 28 Technologies

34 16/02/16 Emvantage Payments India Provides "Platform as a Service" for online merchants, Amazon USA N/D banks and merchant aggregators offering the best payment gateway. 35 16/02/16 FIN Holdings USA Conglomerat of several payment firms, incl. services ID Global Solutions Corporation USA 9 in card handling and payment security

36 17/02/16 MCC USA Provides a comprehensive Software as a Service Invoice Cloud USA N/D platform that helps clients manage school, recreation and community activities online 37 22/02/16 Moip Pagamentos Brazil Operates a payment platform for small and medium sized retailers, Wirecard Germany 24 offering solutions in particular, on marketplaces and companies with direct sales with its innovative end-to-end solutions 38 23/02/16 NWP Services Corporation USA Provider of cloud-based resident billing, electronic RealPage USA 68 payments, energy management, back office accounting and IT infrastructure solutions 39 23/02/16 Worldline France Provides solutions for merchant services & terminals, Komercní banka Czech N/D mobility & eTransactional service and financial Republic processing & software licensing 40 24/02/16 CollectorSolutions USA Offers debit and credit card processing services JetPay Corporation USA N/D

41 26/02/16 OneView UK Omni-channel and mobile point of sale software provider Armour Group UK 22

42 29/02/16 Costco (credit card portfolio) USA Membership-only warehouse club that provides a wide Citi USA N/D selection of merchandise

43 29/02/16 Provus Romania Active in the area of card transactions processing, card Wirecard Germany 32 personalization and retail sector services

44 02/03/16 Emerging Markets Payments Egypt Offers electronic payment services to banks, retailers, Network International United Arab N/D governments and consumer finance institutions across Emirates the Middle East and Africa 45 03/03/16 Safend Israel Global data security company with a broad range of SuperCom Israel 2 competitive and encryption and data protection solutions

46 04/03/16 Quicken USA Provides an online software for private persons handling HIG Capital USA N/D their billings, payments and money

47 07/03/16 CardConnect USA Offers payment acceptance products with complementary FinTech Acquisition USA 350 access to CardPointe, giving option to manage processed payments and view full transaction lifecycle reports in real-time. 48 07/03/16 Holvi Finland Offers a current account combined with BBVA Argentina N/D business MasterCard for small business owners

49 08/03/16 Risk Factor UK Provides a fraud analytics software for commercial Equiniti United N/D finance lending that complements Equiniti’s Kingdom other ‘control risk’ capabilities 50 08/03/16 KYCnet Netherlands Technology and services provider which helps Equiniti United N/D organisations verify and on-board their customers Kingdom

51 08/03/16 1to1 Card USA Delivery of prepaid card management services for multiple Gift Card Pioneer USA N/D payment products including incentive, loyalty and promotional cards, rebates, pay cards, and general purpose reloadable cards 52 08/03/16 Grasp UK Provides digital services for the banking industry Atom UK N/D

53 14/03/16 Global Reach Partners UK Foreign exchange specialist providing payments Inflexion UK N/D and hedging services to businesses and private individuals

54 14/03/16 Framed Data USA Provides redictive analytics services Square USA N/D

55 14/03/16 Projective Belgium Program and project management for the financial Wincor Nixdorf Germany N/D services sector

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Date Target Company Country TC Industry Buyer(s) (Country) Country Transaction Announced value (USDm) 56 15/03/16 CEC UK Provides foreign exchange operator FEXCO N/D

57 15/03/16 STP Brazil Brazil’s leading electronic toll payments company FleetCor Technologies USA 1,050

58 16/03/16 Armor Payments USA Provides escrow as a service for B2B e-commerce Payoneer USA N/D

59 21/03/16 Parametric USA Develops vendor software tablet devices used Bypass Mobile USA N/D by professional and college sports teams at stadiums

60 22/03/16 Qarth India X-Pay (Qarth product) facilitates mobile payment Ola Cabs India N/D to anyone with IMPS enabled bank account across India

61 24/03/16 Shopular USA Operates a mobile product discovery application Ebates USA N/D

62 29/03/16 Currency Select Australia Dynamic Currency Conversion and Multi-Currency Global Blue Switzerland N/D Processing transactions through ATMs, Point-Of-Sale (POS) payment terminals and e-Commerce channels

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Venture Capital Activity & Company Profiles Q1 2016

Target (Country) Round Volume Investor(s) Funding Description (USDm) (USDm) 1 Snapcart Seed 1.68 SPH Media Fund 1.68 Snapcard provides a cashback app that incentivizes consumers to take photos of their receipts in exchange for rewards. 2 Xfers Seed 2.50 500 Startups, BWB Ventures, Convergence Ventures, 2.50 Xfers offers merchants a platform to connect their online bank account Eduardo Saverin, GMO VenturePartners, Golden Gate with that of their clients and collect and track payments. Ventures, Lazena Investment, Partech Ventures 3 Patientco N/D N/D Pamplona Capital Management 3.75 Patientco is a provider of payment acceptance solutions to the healthcare industry, incl. eBills and analytic features. 4 Ping++ B 10.00 China Broadband Capital, Linear Venture, Squoia 10.00 China based Ping++ provides an online payment solution, that integretes Capital, Shengjing Technology major third-party channels such as WeChat payment, AliPay, etc. 5 Minkasu Seed 1.00 Dan Palanisamy, Kannappan Mohan, Kuppanna G. 1.75 Minkasu offers a mobile payment app, that works with QR coce scan Krishnan or payment code and that is secured through fingerprint identification. 6 TransferFast Seed 0.16 N/D 0.16 Estonian TransferFast is a provider of bank to bank instant money transfers in the Nordics. 7 Facepay Angel 0.05 N/D 0.15 Facepay has not yet launched its product and there is not much information, except that it will make the mobile payment procedure without passinga regular checkout process. 8 Nxt-ID Venture 2.00 N/D 4.32 Nxt-ID is a provider of various biometric solutions for primarily mobile, but also online autentification. 9 PayIt A 4.50 Advantage Capital Partners, Five Elms Capital, 4.50 PayIt provides online and mobile payment processing for government payments. Missouri Technology Corporation 10 SatoshiPay Seed 0.39 Coinsilium Group, FastForward Innovations 0.63 SatoshiPay offers a browser wallet for bitcoin nanopayments, allowing users of a customers webside to unhide the premium content by paying a very little amount of money. 11 Jewel Paymentech A 1.00 Tuas Capital Partners 1.00 Jewel Paymentech provides risk management for payment acquirers that conducts merchant due diligence and uses predictive analytics to manage transaction fraud risks. 12 Pindrop C 75.00 Google Capital 122.00 Pindrop is a provider of a solution for audio-based authentication and fraud detection. 13 yoPay Seed 0.55 N/D 0.55 YoPay offers a online as well as mobile payment solution, where customers authorise payment transactions with their mobile phone number. 14 MOVO (MovoCash) Seed 0.70 Cox Orange Investment Ltd, Daniel Kjellen, 0.70 Californian MOVO provides payment tokens to enable P2P transfers Eric Solis at POS & NFC payment terminals. 15 OOO Fit (PayQR) Seed 3.90 Sergey Kozlovsky 5.40 Russian OOO Fit, developer of PayQR, is a provider of a QR-code based mobile payments solution. 16 Blockstream A 55.00 "AXA Strategic Ventures, 76.00 Blockstream provides the bitcoin technology sidechains, a peer-to-peer network that is interoperable with each other and with Bitcoin. 17 Thumzap Seed 3.00 Digital Garage, 3.00 Thumzap offers a payments platform dedicate to teens, enables them to send a request from within any participating app to their parents to approve and execute the actual purchase from any device. 18 Revolut Seed 4.80 Horizons Ventures" 7.60 Revolut offers MasterCard scheme based mobile money transfers and payments, which allow customers to pay globally without any fees by transferring currency automatically into the local currency of the country the customer is in. 19 Fit Pay Seed 3.10 Sierra Wasatch Capital, Ron Zuckerman, 3.10 Californian Fit Pay offers a white label payment wallet, that allows Yuval Tal, Eilon Tirosh customers to conduct highly secure, frictionless payment transactions. 20 Simplex A 7.00 Index Ventures, Venrex Investment Management, 8.00 Simplex is a credit card acquirer, that enables crypto currency Point Nine Capital, Seedcamp, Balderton Capital businesses to accept credit cards. 21 Shopbox Venture 2.20 Giesecke & Devrient 2.20 Shopbox is an integrated mobile POS system, that enables small businesses in the food and service industry. 22 WorldRemit Debt 45.00 DRW, Bitmain, Cumberland Mining, FundersClub 202.66 WorldRemit is a online and mobile money transfer business with the option to use card payments and innovative local payment methods 23 SwervePay B 10.00 N/D 11.60 United States based SwervePay enables patients in healthcare and clients in the automotive industry to pay bills on the go via text message. 24 payleven D 10.00 Silicon Valley Bank 25.23 Berlin based payleven provides payment acceptance devices, that enables merchants to provide their clients with debit and credit card payments via their smartphones or tablets. 25 Spreedly A 3.00 Garland Capital Group 5.50 Spreedly a cloud-based credit card vault that allows users to work with multiple payment gateways simultaneously. 26 Droplet Seed 0.64 MePay, New Enterprise Associates, ru-Net, 2.73 Droplet is a provider of a mobile payment app, including loyalty rewards. HV Holtzbrinck Ventures 27 Modo Payments Angel 2.00 Emerge 4.00 United States based Modo Payments provides a digital payments API.

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Target (Country) Round Volume Investor(s) Funding Description (USDm) (USDm) 28 Signifyd B 20.00 Menlo Ventures 31.00 Signifyd provides a fraud protection tool for e-commerce merchants, that enables them to determine a client’s identity. 29 AppCard B 20.00 Alexander Rittweger 26.50 AppCard provides a loyalty app, where customers find coupons received via mobile or online and where merchants can do analytics and personalized offers. 30 Juspay Venture 5.82 Accel 5.82 India based Juspay is a provider of mobile and online payments with a browser-device for 1-click-experiences. 31 Ribbit.me Seed 1.50 Hayaat Group 1.50 Ribbit.me is an universal loyalty solution built on blockchain technology.

32 ChangeIt Seed 2.20 FedDev, Golden Triangle Angel Network, 2.20 ChangeIT offers a charitable payments feature, that can easily be added MaRS Angels to any debit or credit card. 33 BitPesa Venture N/D BitFury Capital 1.10 BitPesa provides a platform based on bitcoin payments to send money to East Africa. 34 Onslip N/D 1.30 N/D 2.20 Onlsip is a Swedish payment solution provider that operates in the Nordics.

35 Anedot Debt 0.51 N/D 1.76 Anedot provides a platform for non-profits for the purpose of accepting donations via web, Facebook, and mobile. 36 International Payment Seed 0.10 N/D 0.10 International Payment Processing Network (IPPN) is an United States Processing Network base payment processor. 37 SpeedETab Seed 0.65 Kris Singh 0.65 SpeedETab is a provider of a mobile ordering and payment app for restaurant clients. 38 Instarem A 5.00 Vertex Ventures 5.00 Australian Instarem is a provider of money transfer services to Indian clients, both individuals and businesses. 39 Mobetize N/D 0.50 N/D 3.20 Mobetize is a global mobile platform for MNO's, that enables non-NFC payments via mPOS, mPay and mWallet. 40 Momo B 28.00 Standard Chartered Private Equity 33.75 Vietnamese Momo is a provider of mobile payments and eWallet app, that enables clients to do payments and peer-to-peer transfers. 41 A 0.56 Gate Ventures Plc 7.18 Ensygnia provides a mobile payment app that allows users to make secure transactions on their mobile phones by scanning a validation code. 42 Elliptic A 5.00 Paladin Capital Group 7.00 Elliptic is a provider of blockchain intelligence software for the purpose of identifying illicit activity on the Bitcoin blockchain. 43 Stocard N/D 4.51 N/D 6.66 Mobile wallet and allows retailers to drive additional traffic to their stores through targeted mobile offers and coupons 44 Jumio Debt 3.70 Eduardo Saverin 36.71 Jumio is a provider of ID valudation software, that enables a friction-free mobile checkout process. 45 GoCardless C 13.00 Notion Capital 24.80 GoCardless is a UK-based online direct debit provider mainly for B2B interactions.

46 Emburse N/D 0.12 N/D N/D Emburse is an expense management platform that provides debit cards for business with unique expense and accounting challenges 47 Meter Feeder Seed 0.12 Y Combinator 0.12 Meter Feeder's provides low cost payment solution for the purpose of vehicle parking to small to mid-sized governments. 48 CurrencyFair Venture 8.98 Octopus Ventures 24.43 CurrencyFair offers online money transfer and remittance services with real time foreign exchange rates. 50 Wave C 5.07 BDC Capital Corporation 44.77 Wave offers a cloud-based integrated suite of small business tools including accounting, invoices, payments & payroll. Offers also an online payment solution 51 Bluefin Payment Systems Venture 6.00 Camden Partners 6.00 Bluefin Payment Systems is the leading cloud-based provider of secure integrated payment technologies for independent software vendors (ISVs), SaaS providers and major U.S. and Canadian merchants through the PayConex payment platform.

Page 1 payments Insight. Opinion. 14 disclaimer

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About Innovalue

INNOVALUE is a leading strategic management advisory firm dedicated to the financial services industry. INNOVALUE’s clients are global or national market leaders, regional specialists, innovators and entrepreneurs that have trusted INNOVALUE for over a decade as their preferred advisors. In the three practices – Payments, Banking and Insurance – INNOVALUE has a distinctive industry know-how based on years of experience, deep and tested insights and established methodologies. The industry practices are complemented by two cross-functional service lines: Corporate Finance and INNOVALUE Solutions.

In the payments practice our clients range from high-growth mobile payment startups to established financial institutions or telecom companies and from cut- ting-edge strategic players to high-profile private equity and venture capital investors. We develop and implement tailored solutions on topics of strategic impor- tance – including Growth, Efficiency and M&A – on engagements across Europe and beyond. Our clients uniquely benefit from the passion of our consultants in the payments industry, through extensive international project experience, methodologies and the use of very current and pertinent data and benchmarks.

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