Presented on 3.14.2013 at:

#GTRH2013 Presenters

Steve Mott, Andrew Lorentz, Principal Partner

2 #GTRH2013 1st Quarter STEVE MOTT

3 #GTRH2013 Kickoff Commentary

The Mobile Restaurant Sector Transformation—it IS appears to be the The Mobile Marketing happening; to ignore it epicenter for young opportunity—why is to become road-kill adult adoption and EVERYONE is chasing (but there IS time to ground-zero for the it—and YOU can, too! master it before the transformation consumer shows up…)

4 #GTRH2013 Where to Begin?

‘Downfield’ opportunities So first are much more ‘formations’ interesting: employed • empowering the mobile wallets; customer to define The ‘Legacy transacting but this experience Payments League’ approach looks favored a low- • reducing likely to be transaction risk innovation ‘three-and-out’ • re-inventing buyer- ‘ground-game’ seller relationships The first ‘play’ called NFC (near- with mobile is mobile field marketing payments—a communications) typical ‘run-up- the-middle’

5 #GTRH2013 A Growing Array of Technology Choices

6 #GTRH2013 First-Generation Mobile Wallets—Divergent Paths, But Can Anyone Score?

Wallet Provider Target Channel Deployment Strategy POS Orientation

Began focused on POS, now back Hedging bets on SE/NFC; OTP Was seeding market with NFC to online; more than two dozen online (liabilities?); cards and terminals; 2.0 virtual MC national merchants testing phones for POS leveraging prepaid option will use existing TXVia acquisition; data = big rails with CNP rate prize Extending to POS; online going Cards and phones for POS, Cards and numbers now, 18092 very well; nearly two dozen with two-way offers coming; soon in handset, other modes national merchants acceptance via Discover coming Focused on POS, considering NFC 14443 for POS; 18092 on Straight NFC for terminals, with online; nearing a dozen national the way offer push merchants

Focus was on digital/online, but OTP online, NFC 14443 for Using EMV to lead market to now pushing POS; a dozen online POS, but considering 2D proprietary PayWave? Offering merchants and handful of POS barcode, others full encryption if Issuers, merchants testing Merchant want it Leveraged contactless lead at OTP online (maybe PayPass is global standard, POS, now moving online; several liabilities?); NFC at POS for pitching open platform that key merchants now but exploring options can work anywhere with white-label wallet Current focus on POS with more Believed to be offering a QR codes with OTP resolve in than two dozen merchant owners combined credit/debit facility cloud; big emphasis on on private rails data/privacy protection 7 #GTRH2013 Other Entrants to Wallet Market

. Apple’s Passbook for storing all kinds of passes

. ’s two-step mobile checkout for digital content

. Sprint’s Touch wallet

. Amex’s Serve platform (repurposed as a wallet)

. Burger King wallet (with Firethorn)

. Lemon’s wallet management system

8 #GTRH2013 NFC: Not the ‘National Football Conference’ in terms of Adoption

Tags: Interesting for specific marketing campaigns, but durability and general-use questions persist

MicroSD: Offers are easier to do from the cloud, don’t require an SE, and what happened to all the pilots?

“Regular” NFC: Jury still out

• Isis offers approach will be closely watched • Google?!? • 18092 might bail NFC out of implementation woes • Brands hedging on their monolithic support

The good news? It’s still early…

9 #GTRH2013 Original Business Case for 2-way NFC

Customer Relevant recognition coupons: 1-to-1 (supplying data All this data can targeting, real- Location-based and receiving Shopping items be used (with time, refreshing, services (e.g., offers and can be sufficient etc. can reduce queries on Products can be Loyalty updating automatically consumer opt- billions of waste nearest brand pitched inside programs can be rewards scanned/read in) to better from $400 store or the store, while integrated and programs) upon while shopping, address offers, billion annual restaurant, shopping— instantly entering stores; facilitating self- promotions, spend on paper where including updated for data can be checkout financial and broadcast promotional competitive real-time harvested for (where payment services media (where offers can be offers redemptions banking options can be needed, only 8% of returned with products and pitched) targeting of ads, consumers info) joint etc. collect and just bank/merchant 1% redeem) promotions

10 #GTRH2013 Starbucks Solution: It’s QR codes; Apple (?)

Sources Mobile World Live; RetailCustomerExperience.com 11 #GTRH2013 The Cloud: Ready for Prime-Time?

Netflix Hit by Outage, Blames Amazon

By Greg Bensinger, All Things Digital December 25, 2012 Netflix Inc. said Tuesday it restored streaming video services a day after an outage triggered by technical problems at Web service provider Amazon.com Inc. stretched across the Americas. The service was running for all customers by Tuesday morning, Netflix said, after its and Amazon's engineers worked through the night to repair it. Netflix, of Los Gatos, Calif., said the outage started about 3:30 p.m. Eastern Time on Monday. It prevented video streaming on a number of devices, such as Roku Inc. players. "We are investigating the cause and will do what we can to prevent reoccurrence," a Netflix spokesman said. Other websites, such as software company Heroku Inc. and social media app Scope, also reported via Twitter service problems of their own that were traced to Amazon operations. Scope Chief Executive Amit Kumar said his engineers devised a way to bypass AWS and restore service. Heroku couldn't immediately be reached for comment.

12 #GTRH2013 Apps Empower Consumer Experience

Bigger, sophisticated merchants already defending and driving business with mobile apps

Early user adoption motivates embedding of payments and routing in apps and cultivation of merchant-specific offers and loyalty

Users are oriented to apps, not wallets; too many incompatible wallets and erratic merchant adoption will confound them

Apps will grow in depth and breadth—and independence

A handful of generic wallets might persist; handsets likely to become containers for payment/marketing utilities

The big battle (and big payoff) is how to monetize the personalized, targeted data, and who gets to do it (and profit from it)

It’s still VERY early in the game…

13 #GTRH2013 What Real-time Mobile Brings to the Party

Customers -busting and POS integration develop intimate choice of ordering Incentives and supports digital scenarios speeds rewards can be immediate relationships with access (and narrowcast and gratification restaurants and defers personalized (without waiting) bars abandonment)

Capacity and Digital Payment is in utilization can be interactions can control of managed with provide customer—not incentives and entertainment the server alternatives while waiting

14 #GTRH2013 Collaboration on Data and Risk Management Key to Getting to Mobile Largesse

•Information on buyer at given merchant •Account history with merchant payment type •Buyer history with other bank payment types •Risk management history •Transaction session •Full information on information buyer •Full account history across multiple merchants Mobile device/network data •Risk management Mobile usage and session history information Mobile marketing experiences

15 #GTRH2013 Near-term ROI: Make payments transparent and optimize marketing costs

Estimated Annual Costs to Merchants for Payments and Marketing ($B) $700

$600 Payments Acquiring Revenue $500 Issuing Revenue Potential Reduction/ $400 Reallocation Commerce of costs: Platforms $100-$200 B Data/Loyalty $300 Marketing $200 Marketing/Promos

$100

$0 Total Purchase Revenue

Source: Amex 16 #GTRH2013 Consumer Opt-in for Sharing SKU Data a Must

LOCATION/AFFILIATION MARKETING REFERRAL MARKETING Handset provision of consumer data Product references and referrals via for promotions based on social media (with bounties and referral geodata/LBS; wallet composition— commissions); brand and experience payment and loyalty; affinity testimonials re-selling Real-time product promotions Location-aware interactions 3rd party, 1-to-1 placement Dynamic pricing

COUPON AND DISCOUNT OFFERS PARTNERSHIP MARKETING Product and service coupons and Response to mobile marketing and discount offers (e.g., pre-, during, advertising among product partners; post-shop) competitive product selected channel placements and promotions; promotions

17 #GTRH2013 2nd Quarter ANDREW LORENTZ

18 #GTRH2013 Game Plan

See mobile Practical tips when payments in the Explore main legal considering a retail payment risks mobile commerce context offering

19 #GTRH2013 The Four Corner Payment System

Payer (Consumer) Payee (Merchant)

Financial Institution Financial Institution

Legend: Blues lines represent the flow of information and Red lines represent the flow of funds. 20 #GTRH2013 The Four Corner Payment System - Annotated

Payer (Consumer) Payee (Merchant) (NEARLY) UNREGULATED

HEAVILY LIGHTLY REGULATED REGULATED REGULATED Financial InstitutionAND FOR Financial Institution BANKS- ONLY* Legend: Blues lines represent the flow of information and Red lines represent the flow of funds. *With apologies to PayPal and American Express 21 #GTRH2013 “Heavily Regulated”

FDIC Deposit Insurance Bank Secrecy Act Anti-Money Laundering Compliance Data breach/security State Privacy and Security Statutes OFAC Truth in Savings Act Truth in Lending Act / Reg Z TruthNo in Billingspecific “mobile payments”Electronic regulatory Fund Transfer paradigm Act / Regulation emerging E

• OverlappingOFAC Reg jurisdictionD (FTC,State banking Money agencies,Transmitter Lawsnetworks, FCC, state PUCs) • Generally: “Wait and see” under existing scheme of Unfair, Deceptive or Abusive Acts and Practices Laws oversight and functional laws and regs

Card brand rules Gift card Durbin Amendment Identity-Theft Red Flags Regulation DD Regulation II Reg CC Check 21 Gramm-Leach-Bliley Act E-SIGN Act TISA/Reg DD Fair Credit Reporting Act Escheat Regulation B Regulation Business of banking / Deposit-Taking #GTRH2013 22 “(Nearly) Unregulated”

• Unfair and Deceptive Acts and Practices FTC Mobile Payments • Telephone Consumer Protection Act Workshop Report •Privacy • Data Security

Payment Card Industry • PCI Data Security Standards Acceptance Security Guidelines

Gift Card Rules/Prepaid Access Rule/Unclaimed Property General network rules and payments law compliance

23 #GTRH2013 Takeaways

Avoid the “regulated” zones

Don’t feed more mouths in an already-complex system

24 #GTRH2013 Practical Tips

• RFP, trial and pilot before major commitment Be • You are a desirable merchant

skeptical “In addition [to other desirable characteristics], the incidence of chargebacks is very low among restaurants, as the service typically is provided before the card is used. “ Heartland Payment Systems

Watch • Compliance risk • Most offerings will NEVER scale supplier • Intellectual property infringement – mobile wallets are EVERYWHERE – risk who owns what?

25 #GTRH2013 Practical Tips

Verify underlying payment methods

• Consumer protection hard-wired • Stored value great to lower cost of payments, but best if YOU are holding the value (“closed-loop”) • No accident that Starbucks mobile app is the most used mobile payment method

26 #GTRH2013 Practical Tips

Settlement flows and Trust your instincts on timing matter – if you customer experience actually want to get paid • You know your customers “Show me the best – what will be of use money.”* to them? • Don’t sign on to baffling arrangements • Beware the “convenience claims” – who really leaves their wallet at home?

*Technically, Jerry Maguire said this. But Suze Orman might have said it. 27 #GTRH2013 Practical Tips

• Who controls acquisition and use of information Privacy about YOUR customers?

Data • Potential improvement, but watch allocation of security responsibility

• Does it lower my cost of payments OR 3-part • Is any increase in cost justified by increased spend or customer loyalty (ROI); AND • Does the provider accept appropriate compliance test responsibilities?

28 #GTRH2013 Video.mp4

HALF TIME SHOW!

29 #GTRH2013 3rd Quarter STEVE MOTT

30 #GTRH2013 Marketplace Lineup

Foursquare • Making visits a social experience Square • Trolling by location Shopkick • Incentives for stopping by Snapfinger • Ordering out via mobile handset Level Up • QR code passes card credential for payment TabbedOut • Lets the diner control the payment TableTop Media • Controling the interactions Shopkeep • Mobile checkout via iPad Groupon • Still broadcast-mode target for near-term

•A baby step until banks and merchants get serious about Merchant-Funded Rewards sharing their common customer 31 #GTRH2013 Foursquare: Mobile is Ideal for Location-based Marketing

32 #GTRH2013 Key: Dining & Drinking are Inherently Social

33 #GTRH2013 Square: Highly Disruptive and Non-Differentiating

34 #GTRH2013 Online: A Directory; Mobile: A Mess

35 #GTRH2013 Shopkick: Getting Shoppers Into Stores

36 #GTRH2013 Snapfinger: Order Out & Ahead by Mobile

37 #GTRH2013 LevelUp: A Quick Response Code Play

38 #GTRH2013 A New Network for Merchant Acceptance

39 #GTRH2013 Merchants Pay 35% for Incremental Business

40 #GTRH2013 :Pushing Payments to Tabletop

41 #GTRH2013 Consumer Controls Checkout Process

42 #GTRH2013 Restaurants/Bars: Great Adoption Nexus

43 #GTRH2013 TableTop Experience—Ziosk

44 #GTRH2013 ShopKeep Simplifies Checkout

45 #GTRH2013 Shopkeep: iPad ‘POS’ Terminal Operation

46 #GTRH2013 Groupon is Still Broadcast-Mode

47 #GTRH2013 Merchant-Funded Rewards: Simply Card-based Segment Profiling…

48 #GTRH2013 …but Claim to Have Better ROIs than Coupons

49 #GTRH2013 What Do We Do Now?

Focus relentlessly on maximizing customer relationship (i.e., increase their value as a priority, not yours)

Get creative about how to help your customers monetize their value

Dump old ways of doing business (e.g., non-discriminating coupons)

Shape the customer experience around what’s great about your business proposition

Don’t forget about ways to engage your staff in the experience

50 #GTRH2013 4th Quarter QUESTIONS?

51 #GTRH2013 Presenter Information

Steve Mott Principal, BetterBuyDesign dba CSI Management Services, Inc. 1386 Long Ridge Road Stamford, CT 06903 and 1214 Querida Drive Colorado Springs, CO 80909 (o) 203.968.1967 (c) 203.536.0588 [email protected] www.betterbuydesign.com

Andrew J. Lorentz Partner, Davis Wright Tremaine LLP Washington, DC (o) 202.973.4232 [email protected] www.paymentlawadvisor.com

52 #GTRH2013 Disclaimer

53 #GTRH2013 MORE INFORMATION…

54 #GTRH2013 Research Trends: Mobile a Must

The current estimate is that there are 105 million smartphone users in the US, and 89% of them have Since 1999, technology has used their phone to access the redesigned how we live, and web. Recent research from thanks to the iPhone, mobile analytics platform Restaurant usage has skyrocketed. Reports Social Media Index found that, in a show that over 50% of all visits to U.S. study of 38.2 million restaurant websites are now from restaurant diners, 72% were mobile devices. mobile users.

An in-depth study on internet marketing in the restaurant industry by analytics firm Restaurant Sciences provided surprising numbers: •Less than 1 in 8 full service restaurant chains have a mobile website •Fewer than 1 in 20 independents in the full service segment have a mobile website. •Less than 4 in 10 independent restaurants display a menu on their website

55 Source: Mobile Payments Today #GTRH2013 Mobile-Friendliness is Essential

According to Google, research shows that not having a mobile-friendly site could hurt business, by reducing consumer spend. So, what happens when a user encounters a non-optimized site?

48% are frustrated and annoyed when they get to a site that’s 48% feel that if a site doesn’t work well on their smartphone, not mobile-friendly the company doesn’t care about their business

A mobile-optimized site gets a different reaction from users.

74% are more likely to return to a mobile-friendly site in the 67% are more likely to buy a business’s product or service if the future site is mobile-friendly

Those figures, when considered alongside the Restaurant Science data, clearly shows that the restaurants who are lagging behind need to begin embracing and integrating technology or they will soon find themselves at a competitive disadvantage. So, yes, having a mobile-friendly website matters.

Source: Mobile Payments Today 56 #GTRH2013