Citi Mobile Update March 24, 2010

CITI MOBILE UPDATE MARCH 24, 2010

Dion F. Lisle Executive Vice President Citi Growth Ventures Full Disclosure

• I work in Citi Growth Ventures

• I am not a real banker – I just work at a bank

• I worked for Obopay – a mobile payments startup

• I belong to 12 different mobile groups on LinkedIn

• I have worked in technology as a non-technologist for 20 years and the past 10 in startups.

• I love gadgets (my iPad is already on order)

2 Time Flies

I will There is Google Elapsed Time = 1 Year an app that for that Mobile Background Phone Interaction

SMS 160 Character limit APPLICATION Download to Phone Not guaranteed delivery Simple Requires Discoverability No download to phone High level of functionality Brand able App Stores changed WAP everything Wireless Internet Covers 60% of phones Not easy to use Doesn’t require Phone Carrier Cooperation

5 Phone OS Wars

This is NOT the PC Wars – Eventually you will wish it was

6 What Makes a Smartphone Smart ? Smartphone Vendors Good Business for Apple

Apple’s iPhone is 6% of the market but 32% of profit Unabashed Commercial for the Greatest Mobile Device Ever

No I am not a Paid Spokesperson – just a fan Thoughts Before Apple Launched the iPhone

“We’ve learned and struggled for a few “$500? Fully subsidized, years here figuring out how to make a with a plan? It is the decent phone. PC guys are not going most expensive phone to just figure this out. They’re not in the world and it going to just walk in.” doesn’t appeal to business customers because it doesn’t have a keyboard…….So, I kinda look at that and I say, well, I like our “”The iPhone is nothing more than a strategy, I like it a lot.” luxury bauble that will appeal to a few

gadget freaks.”

“Apple is slated to come out with a new phone….And it will largely fail.” 1 2 3 Fly to NYC Kill Time on Flight Video Check Weather Check email for Game and for NYC UAL Alerts Music

Find Train from Take Pictures JFK to Mid- and email to 7 4 Town Family

5 Text Look Up Kids Restaurant on and go LocalEats Recharge Check Into to Bed Hotel 6 iPhone and 8 Listen to Music 12 iTunes as an App Delivery Mechanism

Total Active Apps (currently available for download): 159,611

Number of Active Publishers in the US App Store: 32,183

App Submissions This Month (Games): 2,009 ( 84 / day ) This Month (Non-Games): 14,387 ( 599 / day ) This Month (Total): 16,396 ( 683 / day )

Current Average Overall Price: $2.85

Most Popular Categories 1 - Books (28705 active) 2 - Games (24551 active) 3 - Entertainment (20656 active) 4 - Education (11056 active) 5 - Utilities (9788 active) 13 iPhone Drives Mobile Web Usage

Activity iPhone Smartphone Market

Any news or info via browser 84.8% 58.2% 13.1%

Accessed web search 58.6% 37.0% 6.1%

Watched mobile TV and/or video 30.9% 14.2% 4.6%

Watched on-demand video or TV programming 20.9% 7.0% 1.4%

Accessed Social Networking Site or Blog 49.7% 19.4% 4.2%

Listened to music on mobile phone 74.1% 27.9% 6.7%

Source: M:Metrics

14 AT&T Investment Pays Off

• 30% of US consumers who purchased Apple iPhone 3G in the summer of 2008 switched from other mobile carriers to join AT&T, – 47% switched from Verizon Wireless – 24% switched from T-Mobile – 19% switched from Sprint.

• 3G iPhone Impact on the SmartPhone Market – Pre-3G iPhone – Apple’s share was 11% – Post-3G iPhone – Apple’s share was 17%

15 Not just in the USA

Japan has enjoyed the most advanced mobile phones for years – with the exception of Apple – every phone in their top 10 list is made in Japan What Apple Taught Us

A Great User Experience is Key

Build a Complete Ecosystem

Partner with the Carriers The Network

2G 2nd Generation GSM or TDMA/CDMA 3G Digitally Encrypted 3rd Generation Digital NOT Analog GSM / EDGE / UMTS and CDMA2000 1G Signal could decay slowly Capable of Data and 4G Voice Simultaneously 100% IP Packet Enabled Being rolled out now Smoother roaming and transitions between networks Still mostly being developed by standards bodies The Downside to Success

• AT&T has taken a great deal of grief for their network speed

• Verizon took advantage of the opening with an ad that plays up the weakness of AT&T 3G

• Note: The iPhone accounts for most of the traffic usage on AT&T Global SMS v 3G - Disparity

120 Singapore Philippines

100

United States Hong Kong 80

U.K. India 60 – SMS Sentper–SMS Canada Spain 40 Mexico SMS UsageSMS Subscriberper Month 20 Czech

Brazil 0 0% 5% 10% 15% 20% 25% 3G Penetration – As a % of All Subscribers

20 Mobile Sensitivities

SensitivitiesPERFORMANCE for Each AttributeSECURITY FUNCTIONALITY • Caching • Encryption • Business Rules • Concurrency • Intrusion Detection • Expectations • System Throughput • Code Security • User Experience • Thin Client: Avg,. Web • Role Based Security page size • Authentication • Thick Client: Data refresh • URL Spoofing rate • Audit Trail

VARIABILITY MODIFIABILITY PORTABILITY • Product Scalability • 3rd Party Integration • Hardware Compatibility • Hardware Scalability • Change Configuration • OS Compatibility • Application Compatibility

21 Carriers Want……

New Revenue Sources

Avoid being a big dumb pipe

Less churn – more customer loyalty

Less Regulation

Reduction in CapEx – big investment in networks

New customers – often at the expense of current customers Mobile Money Mobile Money Taxonomy

Mobile Commerce Mobile Banking

Mobile Mobile Bank Account BillPay By M-Coupons Advertising Payments Services Phone

Proximity Remote Payments Payments

NFC or Contactless

Transit P2M P2P P2M

Money Transfers A Three Level Basis to Offer Mobile Financial Services

Platform Progression Technology Enablers

Handset Network Capability III. Development Advanced: location-based Handset Modification services (LBS), Most networks not 5-10% of Phones contactless capability, yet enabled for Equipped to handle full-featured browser, Advanced Services Advanced Services mobile social networking 50-60% coverage II. of wireless data 40-60% of Phones Thick/ Progressive: connections already equipped to Thin Peer-to-peer payments, sufficient to support handle Progressive investments/trading, richer Progressive Services rewards management services

Most networks I. ~95% of Phones support Basic Basic Consumer Mobile Financial Services: Equipped to handle SMS Services; SMS is a Basic Services Account balances, bill presentment/payment, standard feature marketing response, basic rewards

Service Progression Mobile today is a cluttered arena with multiple stakeholders

Regulators Technology Drivers Finance Mobile Ecosystem Ecosystem

Geographies Pvt GTS Cards Retail Bank Mobile Money Ecosystem

Payment Networks

Chipset Handset Card Maker Maker Associations Processor

Card Issuer SIM Mobile Merchant Card Card Carrier Acquirer

Software Consumer POS Developer Mobile Vendor Applications Around the World Across the Globe – Mobile Financial Services are Growing

The number of consumers using Mobile Financial Services across the world is forecast to grow to nearly 1 Billion by 2014 Market Leader

Market Leader 15 Million Market Leader U.S. consumers use mobile banking services each month 100% Growth In number of customers using mobile to access Barclays’ banking services in the U.K. in the first 6 months of 2009 3.5 Million Bank of America customers are active users of BofA’s 35 Million mobile banking services Mobile handsets with Osaifu-Keitai NFC payments and eWallet capabilities in Japan $61 Million Market Leader Was deposited by USAA Federal Savings Bank customers via mobile $200 Million check capture in only 6 weeks $140 Million Handled per month by GCash and Smart Value of transactions handled Money in the Philippines by the end of 2008 3 Years by M-Pesa in Q3 2008 Before mobile banking is Market Leader predicted to surpass Internet banking for Banco do Brasil Market Leader Kenya

• Kenya has a population of 40 million people

• Kenya has 300,000 landlines

• Kenya has nearly 4 million internet subscribers

• Kenya has nearly 20 million mobile phone subscribers

• Kenya has a Per Capita income of $1,400

• Kenya has nearly 9 million mobile money users – It is estimated that 40% of Kenyan Adults use the MPESA service.

• MPESA has changed the financial lives of millions of Kenyans. The Secret to MPESA’s success in Kenya

• Nearly 14,000 Agents – By the time you read this it has probably grown by 5%

• A Human ATM Network across Kenya – Rural and Urban

Reality – Mom goes Brochure – Send Mom to an agent to pick up Money Anywhere the Money Be an MPESA Agent

Research by: Mark Pickens, Sarah Rotman, Ignacio Mas, Olga Morawczynski Mobile Payments in ME and Africa to Rise to $5 + Billion in 2013 The Philippines

• The Philippines has 2 successful mobile money systems – Gcash – offered by Globe Communications – Smart Money – offered by SMART Communications

• Like MPESA in Kenya – the Philippines relies on a network of incented and trained agents

• Unlike Kenya – the central bank was very involved in the design and rollout of Mobile Payments in the Philippines. – In accordance with BSP Circular 471, which was issued in January 2005, non-bank agents must first attain a Remittance Agent license to perform cash in/out.

• The Philippines has been a Texting country since the advent of their mobile phones – this Texting literacy made the transition much easier.

India – The RBI Weighs In

• Mobile Payment in India - Operative Guidelines for Banks

• 2.1 Only such banks which are licensed and supervised in India and have a physical presence in India will be permitted to offer mobile payment services to residents of India.

• 2.2 The services should be restricted to only to bank accounts/ credit card accounts in India which are KYC/AML compliant.

• 2.3 Only Indian Rupee based services should be provided.

The RBI only took 12 pages to outline what can and can’t be done with mobile payments in India. Osaifu-Keitai (Mobile Wallet)

• Japan is the most advanced Mobile Money Market in the World !

• NTT DoCoMo drove the entire ecosystem to deliver a complete Mobile Wallet – Get on a train, buy a soda, pay at a store………

• It is the unique dynamics of the Japanese Market that allowed such a complete solution to be delivered

• Even with NTT driving – it took 10 years

• 30 million users out of a subscriber base of 60 million

• Osaifu Keitai is accepted at 700,000 retail locations Felica Market in Japan

30% 27% 2007 2008 25% 22% 22% Prepaid (plastic) 20% 17% Ministry of Internal Affaires, 2009 15% Prepaid and eMoney usage (to total 10% 9% population)! 7%

0% Prepaid eMoneyeMoney Holder IC card eMoneyMobile (mobile) (mobile) (plastic) 60 Suica, Pasmo… Edy Others Total 56 50 50 45 14 39 13 40 36 4 34 12 Felica Market Size 4 12 both Prepaid 30 12 3 12 (plastic) and 2 1 2 eMoney (mobile)! 20 38 33 30 25 10 21 22

0 2005 2006 2007 2008 2009 2010 B USD Yano Institute, 2008 C Media, 2006 eMoney Usage in Japan

Successful – Yes Complex - Definitely

Monthly Issued (in mobile, Service type Vendor #shop (M) transaction Charging touch point (pre- (MM) MM) (MM) paid) Negative points note Credit card, Bank, POS, Charger, 5000 websites accept Edy for Bitwallet Point exchange payment. Rakuten obtained over Edy Pre-paid (Rakuten 48.4 8.0 132.0 22.5 50% of Bitwallet shares in Nov. Group) 2009. Creditcard, Bank, POS, Ticket Suica (Kanto area), Icoca (Kansai area), Mobile Suica requires 10USD for vending machine, Point exchange, and other e-money issued by train annual service fee. Suica Pre-paid JREast 27.5 1.5 63.2 USB Reader/Writer with JRE credit companies are becoming interoperable 42.9 card, Auto top up with JRE credit interoperatable. card Charger, Ticket vending machine ICOCA Pre-paid JRWest 4.7 unavailable 49.2 0.9

Charger, Auto top up with credit card No mobile service is provided so far. Convertible with Suica. PASMO Pre-paid Pasmo 13.5 unavailable 50.0

POS, Seven BK ATM, Charger, IY Charging/accept point is limited in Seven Transaction number is the largest nanaco Pre-paid Seven I 7.9 0.9 23.5 26.0 Card (credit card) group shops and cards. among eMoney.

Aeon BK ATM, POS, Charger, Auto Available at McDonald's WAON Pre-paid Aeon 10.0 n.a. 29.0 25.3 top up from Aeon bank account

- Currently other carriers don't implement *Shows # of available terminal Docomo, iD Credit 10.0 6.4 390* n.a. iD in their handsets. One handset can instead of # of shop. SMVC.. have 2 card numbers of iD. Railway companies in PiTaPa Credit 1.1 unavailable 18.0 0.9 - No mobile service is provided so far. Western Japan - AU pre-loads this into some handsets. QUICPay Credit JCB, Toyota 4.6 n.a. n.a. n.a. One handset can have only 1 card VISATOUCH Credit MUFJ Nicos 0.8 n.a. 12.8 n.a. - One handset can have 5 card numbers. /SmartPlus Total 128.5 16.8 377.7 118.5 Felica Types in Japan

Pre-paid (cost reduction) Pre-paid - Edy (SONY, Rakuten). Transaction fee at Transportation companies payment. Not profitable. Rakuten got 50% of Bitwallet (Edy issuer) shares in Nov. 2009. JR group JR compatible Rakuten also bought eBank in Feb. 2009. - Suica (JR East), PASMO and ICOCA (Bus, Subway). Reduce maintenance cost of auto ticket gate and ticket itself. Now JRE is leveraging it to payments (plastic & mobile). Pitapa is Post-paid - Nanako and Waon (merchants). Fast cashing and reward points to loyal customers Other Merchants

Post-paid (not widely accepted) • NTT Docomo launched iD on Docomo handsets. Fee at transaction. They became an issuer of credit card and network provider for Post-Paid other credit card companies. • JCB provides its electronic credit, called Quick Pay. Available on all 3 carriers. • VISA and MUFJ also provide its scheme called Smart Plus and its convertible with VISA Touch. Pay pass is still trial in Japan Overseas Lessons So Far……

• Carriers offer successful services – so far no banks have been successful

• Regulators have been both active (Philippines) and nearly invisible (Kenya)

• Texting based services rule the day…..so far – This is self-selecting as Smartphones have not yet proliferated in underbanked countries. – Except Japan

• Low ATM penetration combined with high mobile penetration – Except Japan

• Domestic remittances is the best use case so far. – Except Japan At Citi Primary Bank Relationship

Primary Bank Relationship

The five Money Transfer Debit Card Debit Card Regular Regular Savings pillars of Auto deposit Payroll

Retail Bill Pay Payments and Deposits are supported by the 3 key technology channels ATM

Mobile

Internet ATM, Mobile and Internet channels allow Citibank to maintain stickiness with customers through their primary bank relationship Citi Mobile – Current Banking Suite

Building on our 2007 head start, this year is seeing an unprecedented push forward

Downloadable Downloadable Mobile Browser Text Banking Citi Mobile (Original) Citi Mobile iPhone app (aka “Thin Client” or (aka “SMS” for Short-Message Service, or (aka “Thick Client”) Bank launched February 2009; “Citi Mobile for smart phones”) “MyCiti On Demand”) Bank launched April 2007 Cards-only access coming 4Q09 Bank launched June 2009; Cards launched March, 2009; Cards-only access coming 4Q09, • First major U.S. bank to offer a Bank support coming 1H10 • Adapted the original Citi Mobile behind joint “front door” with Bank downloadable banking app for use as a native app on iPhone; • Cards customers can request • For Cards-only customers, support for Cards-only users is • Built on Citibank Online and AO balances, recent activity, locations Cards opened access Oct 2008 being added 4Q09 behind a joint technology, but optimized for mobile • Bank accounts coming 1H10, on same through Firethorn app “front door” with Bank browsers short code of MYCITI (692484) • Bank and Cards apps available • Available on iTunes and on the • No downloads, installation, updates • Phase 2 (2H10): to AT&T and Sprint customers App Store or enrollment—sign on with CBOL or “Actionable Alerts” (e.g.. “Minimum as well as to Verizon, T-Mobile AO User ID and Password • View bank/cards account info, payment of $10.00 is due 2/7/09 on loan and Alltel BlackBerry users make transfers, pay bills, find • View more account info (bank / 574. Reply PAY to make payment.”) • View account info, make branch/ATM automatically, one- cards / brokerage), transfer funds, transfers, pay bills, find branch/ touch to reach Customer Service add payees, pay bills, self-service ATM, connect to Customer options, find branch/ATM and Service connect to Customer Service

44 Citi Mobile – What’s Next

3 Strategic Initiatives: 1 2 3 Location Based Services (LBS) Near-Field Communication (NFC) Peer to Peer Payments (P2P) Tap &Pay : World’s largest NFC trail in Obopay: A Silicon Valley P2P service that Bangalore, India. Goal is to validate customer allows clients and customers to send and acceptance of technology, pioneer deﬁnition of receive money using their mobile phones. Citi and business model for contactless payment made a strategic equity investment in the ecosystems, and capitalize on resulting brand- company in 2007 (3.1% equity stake) and shift partnered with Obopay to bring Citi-Obopay ventures to market in the US.

Citi wants to be a leader in being Ubiquitous for our customer’s and client’s financial needs Tradeoffs

• Customers require Easy to • Money transfer products are Use Services under attack from external fraudsters • Customers demand convenience from their banks • Mobile is an unknown dimension to a bank’s security • The average bank customer is teams NOT an 18 year old heavy mobile user, but a 38 year old • Banks can not afford negative light mobile user headlines in regards to mobile payments.

Easy & Secure

46 Mobile Risk Management

• New Risk – most banks don’t have true mobile expertise, but it is growing

• Old rules don’t always work – Citibank required a 6 digit alphanumeric PIN as compared to Obopay’s 4 digit PIN. • Go Ahead – Try Alphanumeric on your non-QWERTY phone InfoSec View Business View

47 Weekly Mobile Money Project Meetings

• Weekly project call had over 50 participants from INSIDE of Citibank

• To ensure compliance, the team included – ARR – Audit Risk Review – Compliance • Two groups – legal and internal policy – Information Security • Two groups – Business and IT – Financial Accounting – Legal – 2-3 lawyers every week – Financial Risk – Operations – Marketing of many kinds – And more………………………………… LBS Fraud Prevention

• Imagine that you have a payment service, such as a benefit card that can only operate when you are near it.

LBS Based Fraud Prevention 2 Miles Rules 500 Feet Away Radius The system sees a Transaction out of your Geographic Range You get a Text requesting Authorization Amazing….but True

• A carrier in Mozambique issued tokens for airtime that became accepted as Currency because their national currency was devaluing so quickly. – There are other examples of airtime as currency

• Nokia says “Nokia should get a percentage of every transaction carried on one of it’s devices.”

• The MPESA service failed in Afghanistan due to illiteracy – No one could read the text messages

• A mobile payment service in Latin America claimed 1 million users – 1 million registrations led to less than 30,000 users