F INT E C H I NDUSTRY P A Y M E N T P R O C E S S I N G F L A S H R EPORT A PRIL 2019 P RIVILEGED AND C ONFIDENTIAL T HE H ICKORY G ROUP, LLC Downloaded from www.hvst.com by IP address 192.168.160.10 on 09/29/2021 T HE H ICKORY G ROUP, LLC T A B L E O F C ONTENTS TOPIC PAGE PAYMENT PROCESSING SECTOR: FLASH REPORT SUMMARY I. PAYMENT PROCESSING SECTOR: FLASH REPORT SUMMARY 1 II. PAYMENT PROCESSING SECTOR: LANDSCAPE 2 III. PAYMENT PROCESSING SECTOR EXPLAINED 3 IV. PAYMENT PROCESSING SECTOR: 2018 TRENDS 4 V. PAYMENT PROCESSING SECTOR: 2019 TRENDS 5 VI. PAYMENT PROCESSING SECTOR: OUTLOOK 6 PAYMENT PROCESSING SECTOR: VC ACTIVITY VII. PAYMENT PROCESSING SECTOR: VC ACTIVITY 7 PAYMENT PROCESSING SECTOR: M&A ACTIVITY VIII. PAYMENT PROCESSING SECTOR M&A ACTIVITY 8 PAYMENT PROCESSING SECTOR: SUMMARY OVERVIEW IX. GLOBAL PAYMENT PROCESSING INDUSTRY 9 X. CHANGING LANDSCAPE 10 XI. GLOBALIZATION → GROWTH OPPORTUNITIES 11 XII. INDUSTRY TAILWINDS DRIVING GROWTH 12 XIII. SELECT PAYMENT PROCESSING PARTICIPANTS 13 FINTECH INDUSTRY: 2019 WATCH LISTS XIV. FINTECH WATCH LIST: MOST VALUABLE OF 2019 14 XV. FINTECH: TOP 50 FOR 2019 15 PAYMENT PROCESSING SUMMARY: 2019 SUMMARY XVI. PAYMENT PROCESSING FLASH SUMMARY 18 PRIVILEGED AND CONFIDENTIAL Downloaded from www.hvst.com by IP address 192.168.160.10 on 09/29/2021 T HE H ICKORY G ROUP, LLC PAYMENT PROCESSING SECTOR: FLASH REPORT SUMMARY PRIVILEGED AND CONFIDENTIAL Downloaded from www.hvst.com by IP address 192.168.160.10 on 09/29/2021 T HE H ICKORY G ROUP, LLC PAYMENT PROCESSING SECTOR: FLASH REPORT SUMMARY • The Payment Processing (“PP”) sector of the Financial Tech (“FinTech”) industry is undergoing significant growth due to a variety of factors • Twin drivers of globalization and consumer expectations of ease and availability of payments have been significant tailwinds to the sector • Analysts see these trends continuing in the short-term making the payment processing industry very attractive to Strategics and Sponsors GLOBALIZATION DRIVING SIGNIFICANT NEED FOR PAYMENT PROCESSING PROVIDING STRONG NEAR- AND MEDIUM-TERM GROWTH TO THE INDUSTRY GLOBAL MARKET FOR ELECTRONIC PAYMENTS IS SIGNIFICANT TOTAL GLOBAL CARD PAYMENT VOLUME OF APPROX. $23TN IN 2017 VARIETY OF FORMS OF PAYMENT IS NOW VIEWED AS AN ENABLER OF COMMERCE ACROSS THE GLOBE PAGE 1 PRIVILEGED AND CONFIDENTIAL Downloaded from www.hvst.com by IP address 192.168.160.10 on 09/29/2021 T HE H ICKORY G ROUP, LLC PAYMENT PROCESSING SECTOR: LANDSCAPE • The Payment Processing Sector is divided into 5 general verticals: Acquirers/Processors, Card Networks, Issuers, Gateways and ISOs/MSPs E X H I B I T 1 P A Y M E N T S E C O S Y S T E M O VERVIEW : 2019 PAGE 2 PRIVILEGED AND CONFIDENTIAL Downloaded from www.hvst.com by IP address 192.168.160.10 on 09/29/2021 T HE H ICKORY G ROUP, LLC PAYMENT PROCESSING SECTOR: EXPLAINED Owns Mobile Devices 1 Customer 9 New Payment Companies Makes a $100 Authorizes credit card transaction Threaten (Square, PayPal etc.) 10 purchase Bills Threaten Cardholder $100 Provides POS Merchant Payment 2 8 Processor Independent Sales Requests Authorizes (Verifone, NCR Organizations (ISOs) Authorization for transaction, keeps etc.) Set up businesses to $100 $0.19 in acquiring accept credit cards fees and pays merchant $97.25 7 Acquiring Bank Paid remainder of merchant fee Supplies Customers (Chase, BAML, $0.23 in network with Credit Cards to First Data, Vantiv etc.) fees Make Purchases 3 6 100 USD Purchase Requests Keeps $0.13 in Authorization for network fees by Consumer $100 Card Network (Visa, Mastercard etc.) Goes to Issuing Payment Acquiring Card 4 5 Merchant Bank Processor Bank Network Requests Approves Authorization for transaction and $100 transfers money. $97.25 $2.20 $0.23 $0.19 $0.13 Keeps $2.20 in interchange fees Issuing Bank Chase, BAML etc. PAGE 3 PRIVILEGED AND CONFIDENTIAL Downloaded from www.hvst.com by IP address 192.168.160.10 on 09/29/2021 T HE H ICKORY G ROUP, LLC PAYMENT PROCESSING SECTOR: 2019 TRENDS • The payment processing sector is experiencing significant growth due to end-consumer demand and significant technology advancements E X H I B I T 2 T R E N D S E XPECTED TO I NFLUENCE THE I NDUSTRY IN 2019 S T R A T E G I C C OMMENTS C ONSIDERATION • Shoppers will be offered an • For a long time, there were just two primary payment experiences—you either went to increasing variety of experiences a store and handed your payment to a cashier; or you shopped online and entered your information on a checkout page • In recent years, payments began to diverge from those familiar paths – a trend that will pick up in 2019 • More businesses will look for • Simplification is a payment processing industry trend that continues to grow ways to simplify their payment ➢ All-in-one payment solutions are available that provide extensive and flexible coverage for just stack about anything a merchant wants to offer ➢ A growing number of merchants will take advantage of these solutions in 2019 to make payments easier • Difficulty in balancing customer • In 2019, the tension between providing a frictionless customer experience and the experience goals w/fraud goals need to reduce fraudulent purchases will force more merchants to reevaluate the way they manage fraud • B2B billing for small- and • B2B payments account for c. $38Tn. A major part of these payments is still made by medium-sized businesses will traditional paper checks transition to digital • While the disadvantages of a paper billing system have been acknowledged, the switch to digital hasn’t advanced until recently • The number of cross-border • The number of outlets in 2018 that reported on the popularity of digital cross-border eCommerce transactions will buying grew significantly increase ➢ eMarketer Retail reported on a recent survey showing that 70% of online buyers made a purchase from a foreign site in 2017, up 6 percentage points from the year before ➢ Accenture predicts that more than 200Mm Chinese will be cross-border shopping by 2020, generating a total transactional value of c. $245Bn PAGE 4 PRIVILEGED AND CONFIDENTIAL Downloaded from www.hvst.com by IP address 192.168.160.10 on 09/29/2021 T HE H ICKORY G ROUP, LLC PAYMENT PROCESSING SECTOR: 2018 TRENDS • The payment processing sector in 2018 experienced significant growth due to various factors E X H I B I T 3 T R E N D S T H A T I NFLUENCED THE I NDUSTRY IN 2018 S T R A T E G I C C ONSIDERATION C OMMENTS • Fintech unbundling leads to re-bundling • Re-bundling had a false start in 2018, as startups underestimated the time to market and regulations • In 2019, the battle for millennial deposits will become more aggressive as fintech account products hit the market • European Fintechs will expand their global • Digital-first banks flourished in Europe under tech favorable footprint regulations and funding environment • Banks forgo partnering in favor of fighting • Goldman Sachs was the most active in investing and building out fintech with fintech fintech with retail bank Marcus • Latin America and Southeast Asia will see • Both Latin America and South East Asia fintech deals and funding hit strong fintech growth annual highs in 2018 • Capital markets fintech infrastructure becomes • Plaid became the first infrastructure unicorn and started 2019 by a focus area for investment acquiring competitor Quovo • Amazon is primed to get more aggressive in • Amazon picked up fintech investments in India, a key growth market fintech — outside of the US for the e-commerce giant PAGE 5 PRIVILEGED AND CONFIDENTIAL Downloaded from www.hvst.com by IP address 192.168.160.10 on 09/29/2021 T HE H ICKORY G ROUP, LLC PAYMENT PROCESSING SECTOR: OUTLOOK • The payment processing sector is experiencing significant growth due to end-consumer demand and significant technology advancements E X H I B I T 4 P A Y M E N T P ROCESSING S ECTOR O U T L O O K S T R A T E G I C C ONSIDERATION C OMMENTS • The battle for deposits • Fintech Companies will aggressively compete for market share from Tier-1 banks • Fintech firms up focus on regulatory • Fintech brings advantages and opportunities to the financial industry as well as compliance challenges and risks. Regulation can go a long way to minimizing said risks • The next Ant Financial & WeChat Pay • U.S. is ripe for players like Amazon to compete w/WeChat Pay & Ant Financial • Southeast Asia sees hotbed of FinTech • FinTech investments in SE Asian countries in 2018 have exceeded the $6Bn invested activity in 2017. The FinTech market is projected to reach US$72Bn by 2020 • Capital markets FinTech infrastructure • Fintech activity in capital markets infrastructure has grown by c. 300% since 2010 on the up • Unbundling the paycheck • A host of emerging startups are attacking the various payroll services sector • New investment platforms & asset • Disruptive Fintech companies such as Robin Hood and Stash will grow classes • Fintech meets real estate • Real estate startups (LendingHome, Opendoor & Roofstock) are reshaping the homebuying experience from the ground up • Rise of impact FinTech • Fintech in underbanked communities/countries will draw interest from investors • Lack of FinTech M&A by banks no • Banks are deploying multiple investment strategies longer an issue • No-go for FinTech IPOs • There are now close to 30 private fintech startups with valuations at or above $1Bn but candidates will face obstacles due to poor IPO performance of recent peers PAGE 6 PRIVILEGED AND CONFIDENTIAL Downloaded from www.hvst.com by IP address 192.168.160.10 on 09/29/2021 T HE H ICKORY G ROUP, LLC PAYMENT