Commerce and Fintech 2020 Outlook Glenn Fodor, CFA Senior Vice President and Head of Data & Analytics January 23, 2020

FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020

FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 1 YoY holiday 05. Crypto – 06. AI – 01. spending growth: Beyond Bitcoin Everywhere Consumer and Libra update +5.9% you want to be 07. The state 02. Fintech unicorns: of installment loans 08. to Stay private expand in 800B U.S. or go public? grocery market Commerce and 09.B2B eCommerce 03. Fintech 2020 Banking moves 10. Retailers to the cloud Outlook explore rental and resale

04. Challenger Of small businesses 11. banks come 61% use mobile banking Consumers of consumers used calling for compared with hunger for 29% take out more often small business 53% in 2018.1 food delivery than the previous year1

FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 2 01. Consumer spending update: Holiday Highlights

Full Holiday Season YoY Spending Growth Dollars +5.9% +3.8% Total Spend Retail Spend Pre-Holiday Thanksgiving + Black Friday Thanksgiving Thru Cyber Monday Full Season +2.9% Brick & Mortar +1.4% Brick & Mortar 13.9%

+9.8% eCommerce +8.1% eCommerce 11.9% 11.3% 11.5%

Slowest Growth Fastest Growth (Retail) 7.1% 6.2% 5.7% 5.9% 5.0% 5.1%

3.4% 2.6% -1.5% -0.8% 8.4% 4.8% 3.0% Furniture and Sporting Electronics and General Specialty Furnishings Goods Appliances Merchandise Retail 2017 2018 2019

Note: Figures include Brick & Mortar and e-commerce channels. Source: Fiserv aggregated same-store consumer spending data. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 3 01. Consumer spending update

So the fourth quarter definitely, I would say, stabilized… Consumer payment volume “stopped getting worse. And we saw sentiment improve a

bit. The U.S. consumer remains in very strong shape, both

growth remains solid. from a credit perspective, sentiment, spending. Obviously, the labor market is very strong. Capital spending still a bit soft, but sentiment is at least certainly better than it was “ Issuer Metric 3Q19 4Q19 6 months ago. So, broadly speaking, we have a Capital One Credit +11% +11% constructive outlook as we're heading into 2020. Chase Credit +10% +10%

Chase Debit +7% +7% – JPMorgan, January 14, 2020

Citi Credit (Branded) +7% +7% Wells Fargo Debit +6% +6% Debit +6% +6% In our consumer business, we see that our “ Wells Fargo Credit +5% +4% “ customers are coming off a strong finish in 2019 Bank of America Credit +7% +5% in their spending activity. U.S. Bank Credit +8% +4% U.S. Bank Debit +7% -0% – Bank of America, January 15, 2020 Citi Credit (Retail Services) -2% -2%

Source: Respective bank quarterly earnings reports. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 4 02. Fintech unicorns: 2019 Stock price performance since IPO Stay private or go public?

~7x as many tech companies (and Fintechs) +14% S&P 500 raised mega-rounds in private financing than 1 conducted IPOs in 2019. -21% -27% Many that did go public have -38% underperformed, as public -45% market investors remain skeptical of their paths to profitability. Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: 1. The 2020 Tech IPO Pipeline, CB Insights. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 5 Valuation of (Select) 02. SoftBank investments Fintech unicorns: Compass Stay private or go public? $1B Rappi $1B Didi Chuxing Many outsized valuations Brandless ParkJockey Grofers $240M $15B of private companies $380M $900M

Lemonade were driven by $420M $9.3 B Softbank investments. The We Company $19.9B $3B Oaknorth Doordash Chehaoduo $390 M $900M $1.3B $1.3B Opendoor $500 M $5.8 B

Source: 1. Business Insider, “SoftBank is reportedly taking control of WeWork. Here's a running list of all the Japanese giant's major investments in tech.”, October 22, 2019 FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 6 02. Fintech unicorns: Stay private or go public? Some of the largest privately held Fintechs do not appear to be heading to IPO anytime soon, as they are sitting on a large amount of funding to fuel growth.

While 2019 saw some successful debuts, most are likely to continue taking private money in 2020.

FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 7 03. Banking moves to the cloud

“We’re all-in on the cloud.”

Scott Blackley Capital One Chief Financial Officer September 10, 2019

FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 8 03. Banking moves to the cloud

Capital One was one of the first large banks to move a substantial part of their technology to the public 0 cloud, using Amazon AWS. Number of data centers Capital One is planning to have by end of 2020 (down from 8 in 2014).1

Source: 1. Fortune, August 24, 2019. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 9 03. Banking moves to the cloud

Bank of America recently announced it Key benefits: was partnering with IBM to build a • Consolidate and simplify infrastructure cloud for banks running on IBM’s • Cost savings existing public cloud. • Improve client service

Servers Data Centers

Past Past 200,000+ 67 Today Today 70,000 23

Source: CIO Dive, “Bank of America prioritized internal cloud. Now it's evaluating third-party providers”, October 17, 2019. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 10 03. Banking moves to the cloud

Historically: • Large FIs kept everything in-house, preferring to maintain control over security and compliance, believing scale = cost-effectiveness • Smaller and mid-sized FIs outsourced to private systems operated by specialized providers

After some initial hesitancy, banking service providers and FIs of all sizes will increasingly embrace the public cloud.

FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 11 04. Challenger banks come calling for small business The last few years brought an influx of challenger and digital-only banks.

Business models are based on targeting retail consumers and driven by mobile banking adoption and consumer comfort with Fintech.

Source: General industry information. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 12 04. Challenger banks come calling for small business The digital-only bank market may have reached a tipping point

for small businesses. Small businesses: Are adopting Don’t feel appreciated

mobile banking by their banks Small business is still an orphan from “ “ 61% now use mobile banking 37% say their bank a business banking standpoint. compared with 53% in 2018.1 appreciates their business.

Overall satisfaction among Only 32% say their bank – Jacob Jegher, President at Javelin Strategy & mobile users is higher than understands their business.2 Research, November 1, 2018 among non-users.1

Source: 1. J.D. Power 2019 U.S. Small Business Banking Satisfaction Study. 2. J.D. Power 2018 U.S. Small Business Banking Satisfaction Study. American Banker, November 1, 2018. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 13 04. Challenger banks come calling for small business Recent digital-only banks have arrived that target small businesses, startups, and entrepreneurs.

Expect greater focus on, and competition for, small business digital banking in the next year and beyond.

Source: General industry information. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 14 05. Bitcoin price in 2019 Crypto – $13,000

Beyond Bitcoin and Libra $11,000 In 2019, headlines $9,000 were again dominated $7,000 by Bitcoin’s ups and $5,000

$3,000 downs, as well as Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 the launch of, and reaction to, Libra.

Source: CoinDesk, CNBC, CNET, Fortune. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 15 05. Crypto – Beyond Bitcoin and Libra

In 2020, it may be the seemingly lower profile projects that will drive the crypto sector forward.

At this stage, there is no strategy set in “ “ stone for the markets or the product, or how it will actually get rolled out.

– Patrick Ellis, board member of the Libra Association

Source: Reuters, December 19, 2019, General industry information. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 16 06. AI – Out of sight (but not out of mind)

AI is already powering many leading consumer experiences.

Source: General industry information. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 17 06. AI – Out of sight (but not out of mind)

Investing in AI will lead the way in the future. “ We have been dialing up our in-house capabilities and investments in AI with an initiative we call Deep Brew. Deep Brew will increasingly power our personalization engine, optimize store labor AI investing happening across entities both: allocations and drive inventory management in our Big… ..and small stores. We plan to leverage Deep Brew in ways that free up our partners so that they can spend more

of large invested 58% $26B+ time connecting with customers. Deep Brew is a

companies report adopting globally in AI startups in key differentiator for the future and as we continue AI in at least one function or 2019, up from $22B+ in “ business unit in 2019, up 2018, and $16B in 2017. 2 our quest to build world-class AI capabilities to from 47% in 2018. 1 better support partners.

– Kevin Johnson, President and CEO at , October 30, 2019

Source: 1. AI Index 2019 Annual Report, Stanford University. 2. CB Insights, retrieved from VentureBeat, January 22, 2020. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 18 07. The state of installment loans

Approximately 75% of consumers who made a big ticket, installment

purchase decided to do so Regardless of revenue model, well before the actual omnichannel merchant integration will be crucial. transaction took place.

Source: McKinsey, “US lending at point of sale: The next frontier of growth,” November 4, 2019; TransUnion, “FinTechs Continue to Drive Personal Loan Growth,” February 21, 2019. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 19 07. The state of installment loans

Blue chip incumbents are in the Acceleration of investment in market, looking to incorporate deployment to continue thru 2020 these technologies into their core Lasting impacts? offerings.

Source: Company reports. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 20 08. Amazon to expand in $800B U.S. grocery market Amazon confirmed plans to open a grocery store distinct from its Whole Foods brand. Initial plans indicate:

Will not use Will target Will facilitate online Amazon Go mainstream orders and cashierless tech consumers who shop test new tech at traditional grocers

Source: Company reports; CNET, “Amazon will launch new grocery store as alternative to Whole Foods,” November 11, 2019. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 21 09. B2B eCommerce US B2B eCommerce Sales

$2.0 B2B eCommerce $1.8B

Marketplaces are a $1.6

$1.1B $1 Trillion opportunity. $1.2

$0.8 Though not as prominent as consumer eCommerce, the $0.4 sector is growing fast. $0.0 2018 2023

Source: Forrester Research, “Landscape: The B2B eCommerce Playbook,” January 28, 2019. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 22 09. B2B eCommerce

Changes in B2B buying behavior and online efficiencies are fueling growth. Advancing digital-first approaches to discovery and purchasing

Source: Company reports; Forrester Research, “Landscape: The B2B eCommerce Playbook,” January 28, 2019. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 23 10. Clothing retailers Retailers explore rental and resale Changes in consumer preferences have driven retailers across a variety of Other retailers industries to explore rental services. Rental clothes subscription market expected to more than double in next 5 years Key benefits: $3.0 $2.5B

• New revenue streams $2.0 • Add customers $1B $1.0 • Valuable feedback $0.0 2018 2023

Source: Company reports; Reuters, “Garments for lease: 'rental' apparel brings new wrinkles for retail stores,” September 18, 2019. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 24 10. Retailers explore rental and resale Secondhand market expected to reach $51B by 2023.

Compared to the overall apparel market, Retailers are now adapting to

“resale’s growth has been phenomenal. As a generation no longer buying

the market uniquely meets consumers’ with the intent to keep preference for variety, value, and “ sustainability, we expect the high growth to continue.

– Neil Saunders, Managing Director and Retail Analyst at GlobalData Retail, March 19, 2019

Source: Company reports; ThredUP, “2019 Resale Report,” Mach 19, 2019. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 25 11. …and that attraction is driving the growth of food Consumers hunger delivery

for food delivery Revenue for online food delivery in the U.S.3

$40B When it comes to food, $29B +32% $30B $22B consumers love $20B “convenience”… $10B $0B 2019 2024

of consumers used drive-thrus Number of users of online food delivery3 39% more often than last year1

of consumers used take out more 150M 116M +22% 29% 1 85M often than the previous year 100M

of QSR sales come from 50M 70% drive-thru2 0M 2019 2024

Source: 1. 2019 National Restaurant Association and Technomic. 2. 2018 QSR Drive-Thru Performance Study. 3. Statista, January 2020. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 26 11. Consumers hunger for food delivery As the food delivery market grows, increasing competition is close behind.

“The easy wins in the market are disappearing a little more quickly than we thought. This is a

significant change in our industry that will require

us, and everyone else, to compete by creating the most value for diners and restaurants rather than “ relying on industry tailwinds…

– , October 28, 2019

Source: 1. Statista, January 2020. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 27 11. Restaurant noun Consumers hunger res-tau-rant for food delivery Definition: A business establishment where meals or As the impact of food delivery refreshments may be purchased1, or prepared. Synonyms: grows, how we define “restaurant” Cloud kitchen, shared kitchen, dark kitchen, ghost may ultimately change. kitchen, virtual restaurant or restaurant-as-a-service.

Cloud kitchens are dedicated to These could be a shared common Allows testing of new food preparing food for delivery, or take kitchen for multiple “restaurants” or an concepts without taking on out, and not for serving in-house. internal kitchen for a single food brand. leases or hiring staff.

Increases efficiency VC firms are investing in Established food outlets Long term viability of delivery operations. startups in the space. are investing as well. remains a question.

Source: 1. Merriam-Webster, General industry information. Source: 1. Merriam-Webster, General industry information. FORTUNE Magazine World's Most Admired Companies® 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 28 Glenn Fodor, CFA Senior Vice President and Head of Data & Analytics

[email protected] 212-515-0278 https://www.firstdata.com/en_us/insights/spendtrend.html

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