Mobile World Congress: PayPal One of Many M-commerce Players

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

INITIAL REPORT

March 8, 2012 Companies: AAPL, AMZN, AXP, EBAY, EPA:ING, ETR:SAP, GOOG, HBC, LON:BARC/BCS, LON:BGO,

LON:MONI, LON:TDE/TEF, LON:VOD/VOD, MA, PAY, STD, V, WFC, WU

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David Franklin, df@blueshiftideas.com, 415.364.3780

Summary of Findings

eBay Inc.‘s (EBAY) PayPal is a mobile commerce, or m-commerce,

leader with many competitive strengths. However, mobile payment

adoption is in its infancy, and the market is too fragmented to

determine if a PayPal mobile payment app will be widely accepted.

Near-field communication, or NFC, mobile payment platforms are

expected to become a major part of the landscape within the next

three years. Ease of use, strong data-capture capabilities, and

instant communication options will propel the technology‘s use. In

addition, 120 million NFC-enabled smartphones are expected to be

launched worldwide by the end of 2012.

The lack of legacy financial systems in underdeveloped countries

will hasten the adoption of mobile payment systems outside of the

United States. PayPal is expected to meet with resistance in these

regions unless it partners with local service providers.

Competition in the mobile payment industry is plentiful. Small

companies and start-ups dominated the Feb. 27–March 1 Mobile

World Congress. No clear frontrunner yet exists, and all legacy

financial companies including banks, payment processors, mobile

carriers, and credit card providers are trying to sort out where they

fit in the emerging mobile payment world.

Companies expected to benefit from mobile payment adoption

include but are not limited to PayPal, Google Inc.‘s (GOOG) Google

Wallet, Apple Inc. (AAPL) and possibly Facebook Inc.

White-label mobile payment solutions were discussed by three

primary sources and in secondary sources. Retailers and banks are

interested in branding their own mobile payment solutions.

PayPal to Become

M-commerce

Standard

NFC to Be

Extensively Used in

3 Years

Mobile Payment/

Money Exhibitors

Mobile Payment/

Money Presenters

Attendees Interested in

Mobile Payments

Research Question:

Is a PayPal account a standard option in mobile payment applications, and what are

the chances for widespread adoption of PayPal’s mobile payment solutions?

Silo Summaries

1) MOBILE PAYMENT/MONEY EXHIBITORS Seven of 12 sources said PayPal is in a strong position

to compete in the m-commerce market, which is still in

its infancy. However, PayPal is unlikely to become a

standard option in competitors‘ payment programs.

Non-U.S. markets with limited banking or financial

infrastructure likely will develop first and will be difficult

for companies like PayPal and Google to penetrate. No

one platform is expected to become a standard in any

market, but the NFC platform will be adopted during the

next three years as credit card companies push

merchants to use the technology for better security. An

emerging trend is for white-label mobile payment

solutions. Retailers do not want to lose control of their

customers or customer data and are interested in their

own branded solution.

2) MOBILE PAYMENT/MONEY PRESENTERS These two sources said PayPal is part of the mobile

payment landscape but only as one of many

technologies. Both sources expect large retailers to

develop their own mobile payment systems so they can

own the customer data. One source also expects PayPal

to become a button on payment apps produced by

banks and big retailers. The other source is platform-

agnostic and expects multiple technologies to coexist in

the mobile payment industry. NFC is a convenient

solution for consumers, who will drive its adoption by

using NFC-enabled phones once available at the end of

this year. Adoption of mobile payment apps also is on

the verge of ramping up.

3) ATTENDEES WITH INTEREST IN MOBILE PAYMENT These two sources said PayPal is a strong contender in

the mobile payment industry. However, one source said

his company chose to work with Paythru because it is a

small, responsive company. The other source said

PayPal is no longer innovative and is advancing its

technology through acquisitions. Both sources said

mobile payments‘ main value for retailers will be in

added services, such as data capture, real-time

promotions and special pricing for consumers. NFC

adoption will widen in the next two to three years as

more NFC-enabled smartphones are sold.

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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Background

The use of mobile financial transaction apps on smartphones and tablets for banking, shopping and point-of-sale (POS)

checkout continues to grow. Meanwhile, the competition for consumers, merchants, banking partners and credit card

companies is starting to heat up between PayPal (currently leading in e-commerce and piloting its mobile wallet solutions at

two national retailers), Google Wallet (which was introduced in late 2010), and Isis (the mobile payment joint venture

launched in 2011 by AT&T Inc./T, Verizon Communications Inc./VZ, and T-Mobile, owned by Deutsche Telekom AG/ETR:DTE).

CURRENT RESEARCH While attending the Mobile World Congress (MWC) in Barcelona, Blueshift assessed PayPal‘s mobile wallet opportunities and

the adoption rate of its m-commerce solutions. Additionally, we set out to determine if PayPal would be automatically included

as a payment option in competitors‘ m-commerce products and if PayPal‘s leadership position in online financial transactions

would provide a competitive edge among consumers and merchants. We employed our pattern mining approach to establish

sources in four independent silos:

1) Mobile payment/money exhibitors at MWC (12)

2) Mobile payment/money presenters at MWC (2)

3) MWC attendees interested in mobile payment/money/banking (2)

4) Secondary sources (5)

We interviewed 16 primary sources and included five of the most relevant secondary sources focused on the mobile payment

industry and the mobile payment exhibitors and announcement made at the Mobile World Congress.

Silos

1) MOBILE PAYMENT/MONEY EXHIBITORS AT MWC Seven of 12 sources said PayPal is in a strong position to compete in the m-commerce market, which is still in its infancy.

However, PayPal is unlikely to become a standard option in competitors‘ payment programs. Non-U.S. markets with limited

banking or financial infrastructure likely will develop first and will be difficult for companies like PayPal and Google to

penetrate. No one platform is expected to become a standard in any market, but the NFC platform will be adopted during the

next three years as credit card companies push merchants to use the technology for better security. An emerging trend is for

white-label mobile payment solutions. Retailers do not want to lose control of their customers or customer data and are

interested in their own branded solution.

Russell Sheffield, Director of Innovation and Development for Paythru

PayPal‘s leading e-commerce solutions will make it a strong mobile payment competitor. However, its payment holds

policy will slow merchant adoption and open the doors to competitors like Paythru that pay merchants immediately.

Paythru signed up 13 Turkish banks that previously had been approached by

PayPal. Paythru will not include PayPal in any part of its platform. The massive

infrastructure investment for NFC is an impediment to its adoption. Mr.

Sheffield said Paythru offers everything NFC does but without the infrastructure

investment. Retailers prefer brand-agnostic, white-label platforms that allow

them to keep their consumers. PayPal also faces regulatory risks in emerging

markets. South Africa now prohibits the use of debit cards online because of

increased fraud, which removed 95% of the population from e-commerce.

―The leader now is PayPal. Their moat is hard to leap. Google Wallet

has a serious challenge on their hands. But they‘re going at mobile

payments differently, building apps and using NFC.‖

―PayPal is a competitor, so we won‘t put their APIs on our platform.

Sometimes clients ask us about putting PayPal on our platform. Yes,

PayPal is a competitor, so we

won‘t put their APIs on our

platform. Sometimes clients

ask us about putting PayPal on

our platform. Yes, we‘d do it

with the right deal. But we offer

everything they do but cheaper.

Director of Innovation & Development

Paythru

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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we‘d do it with the right deal. But we offer everything they do but cheaper.‖

―Mobile payments are not a solution looking for a problem. It‘s the reverse. NFC is a solution looking for a

problem. There is a use for it, but you need massive infrastructure investment and you have to reengineer the

tills. South African mobile pop-up banks, which go to a township for a day and a guy with a mobile phone is the

bank manager, for example, will never have NFC terminals. We offer everything NFC does without the

investment. We offer everything with 2D bar codes that NFC can do. … ViVOtech [Inc.]‘s Google Wallet

technology, which got hacked last week, is still a year away from being usable. … We offer a complete end-to-

end business proposition.‖

―Paythru is not an acquirer [of payments]; the merchant gets the money in real time. Funds are posted to his

bank immediately. We don‘t have to launch a brand but leave that to the retailer, who‘s trusted by the

consumer.‖

―We‘re in South America, Turkey, Australia. Malaysia, Thailand. In Turkey we signed up the 13 banks that got

together to keep PayPal out. PayPal was trying to launch in Turkey for years and was frozen out by the banks.

Because of our agnostic approach, the Turkish banks bought it. We were accepted into Turkey immediately. It

took two months to build the integration platform. We allied with the banks instead of competing with them, and

we don‘t hold the cash. Global Payments [Inc./GPN] resells our technology to its clients.‖

―The South African government outlawed debit cards online due to fraud and removed 95% of the population

from e-commerce. Five percent of the people have credit cards. MTN Bank and Standard Bank came to Paythru

about how to solve this problem by treating the transaction as a customer-present transaction. Other banks

have joined the scheme. Now mobile authorized transactions in South Africa are recognized as OK. We‘ve

launched six clients in the last six months.‖

Strategic marketing manager for a bank security company offering a white-label mobile payment platform

This company has more than 1,000 banks as clients and views the m-commerce market as fragmented and in its

infancy. Different mobile solutions and market leaders will dominate in different regions and countries. The Facebook-

carrier alliance will be a major threat to PayPal, but Facebook must bridge the virtual and physical worlds. PayPal has an

already large user base. In Germany, carriers have closed ranks to keep PayPal out. The country is about two to three

years behind in mobile payments, but carriers will struggle to get a piece of its market once it takes off. First Data Corp.

and other interbank payment processors are not losing out in light of m-commerce‘s ramp up. Security should be a big

concern. The source‘s company acts as a Trusted Service Manager (TSM) for banks and carriers.

―We have a lot of carriers in Germany joining forces to keep out PayPal. Google Wallet [will] have to move fast to

get evidence of major milestones in the market. … PayPal has a strong position in the U.S. It‘s good that they

have an e-commerce brand, a known consumer brand.

―It‘s not one or the other that‘ll win. There will be a few different

solutions. There will be a wide range of brands and service providers.

The banks can see mobile as a new customer relationship channel, not

just for payments but for banking and other marketing and cross-

selling. At the moment it‘s very fragmented from country to country.

Different country and regional markets will go for different solutions.‖

―It‘ll be a big hurdle for Facebook to make the bridge between the

virtual and physical worlds, but they‘re already experienced with

enterprise solutions. You have to be there to be someone for the

consumer. But the real money doesn‘t come from Facebook for big

banks and retailers. It‘s more marketing and brand awareness. I don‘t

see Facebook becoming a payment scheme. They‘ll work together with

carriers as a platform.‖

―If you want to put the payment in [carriers‘ bills], the carriers are

afraid that suddenly the bill will be huge. They‘re worried about consumer claims and credit problems. There will

have to be a separate bill for nonphone charges. There‘s the chance for PayPal and Paythru to get into this

business. … They‘ll struggle to get their piece. The carriers are starting MPass [a joint venture between Vodafone

Group PLC/LON:VOD/VOD and Telefonica S.A./LON:TDE/TEF].‖

―In Germany, the mobile market is still a little baby. Ingenico [S.A./EPA:ING] and VeriFone [Inc./PAY] need to

invest in their infrastructure. In two to three years the market will really fly in Germany.‖

We have a lot of carriers in

Germany joining forces to keep

out PayPal. … PayPal has a

strong position in the U.S. It‘s

good that they have an e-

commerce brand, a known

consumer brand.

Strategic Marketing Manager

Bank Security Company

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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―First Data‘s main job is the interbank transaction. But with Google Wallet doing interbank with First Data, I don‘t

think they‘ll lose. They‘ll find their way. When it comes to TSMs it‘s who you trust, and it‘s important that you

have independent companies. … It‘s all about liability and trusted security.‖

―We‘re a TSM. Some customers want the whole value chain supported by us. It‘s a white label. The customer‘s

brand goes on it. It‘s in a pilot.‖

Managing director for a POS software and device company

PayPal is positioned to benefit from tremendous growth in mobile payments and NFC, but this growth will not occur until

the technology reaches the consumer stage, likely three years from now. The real value of mobile and NFC is the

interactivity that increases retailers‘ promotion redemption rates from the single digits to up to 70%, enabling more

precisely targeted advertising.

―PayPal is in very strong position having a large number of registered users. The credit card will end up in the

cloud and not in the phone. The identifier is in the phone, but the ID is in the cloud. Long term that‘s not the way

it‘ll go [ID in the phone]. … Google [has] underestimated the task at hand. PayPal is the leader at the moment.

Their strong for now. Google Wallet will overtake PayPal over time.

Google Wallet is limited to the U.S. at the moment. Anything Google

does, they do it big. But no retailer will go for higher-commission mobile

wallets.‖

―NFC will happen, but we don‘t care if it does. We‘re about ID in the

phone. The infrastructure is now getting NFC as a standard. All the new

terminals have NFC. … WAP [wireless application protocol] was vendor

push; NFC is vendor push. But when the retail acceptance comes, it‘ll

be consumer pull. Pushing NFC without retailer acceptance is a waste

of time, like giving someone a credit card without a terminal that takes

it. NFC will reach the consumer pull stage [in] three years. There will be

services around next year and the year after. It took four years before

every phone had a camera. It‘ll take two more years before the average

nontech guy on the street will be aware of NFC.‖

―The value of mobile is in being interactive. As a merchant, I can better

target my customers. It‘s all about marketing and offers. Mobile is not

about the payment; it‘s about how I get to that point: location-based

marketing, highly targeted. Rather than sending out huge amounts of

spam, send out very targeted offers with up to 70% redemption rates.

The customer may or may not pay through the phone, but the value for

the merchant is everything that happens up to the payment.‖

―If NFC doesn‘t make big progress in the next 18 months, there are

alternatives that will move in and pass it by. A short-range cell technology might pass it by.‖

―I could go to Isis if I‘m a large retailer. Can you send this coupon to everybody within a certain radius? We‘d be

integrated into the retailer‘s till software. … We‘ll take the coupons and see what the customer bought and the

retailer will know all the data and report back to Isis or the carrier and the card issuer. Isis won‘t do it for free.‖

Business development professional for a white-label mobile wallet platform

This source, whose mobile payments solution is used by 120 operators in 60 countries, has seen too many governments

and companies getting mobile wrong. PayPal and Google Wallet are not major share holders in the mobile payment

environment. Adoption will be slow in the developed markets because of legacy payment and telecom systems. Fewer

barriers exist in emerging markets. He forecasts an NFC fiasco for the London Olympics starting in three months. He also

expects the rise of an alternative payment industry spawned by the costs of installing an NFC infrastructure. NFC is ideal

for transport ticketing and will take off there. Visa Inc. (V), MasterCard Inc. (MA) and banks will be under considerable

pressure from alternative payment sources, especially in large, emerging markets with numerous ―unbanked‖ people.

―PayPal and Google Wallet are both way down the scale in market share. In Italy and Spain, 80% of transactions

are in cash. It‘s cultural. Arab countries are cash markets.‖

―The payment infrastructure is key for big retailers in understanding consumer behavior. I‘ve spent a whole day

in France watching a pilot. You have to find the guy with the device, and he has to input the amount and he

PayPal is in very strong position

having a large number of

registered users. … Google

[has] underestimated the task

at hand. PayPal is the leader at

the moment. Their strong for

now. Google Wallet will

overtake PayPal over time.

Google Wallet is limited to the

U.S. at the moment. Anything

Google does, they do it big. But

no retailer will go for higher-

commission mobile wallets.

Managing Director

POS Software & Device Company

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

5

doesn‘t know how to do it. It‘s easy to say, ‗Tap and go,‘ but to get that

into the consumer‘s mind is not so simple.‖

―At a certain point consumers will be overloaded, overwhelmed [with

location-based promotions]. There will be a backlash; it‘s very invasive.

One example is Groupon [Inc.‘s/GRPN difficulty in] getting volume in

Europe. Real growth beyond initial acquisition is hard.‖

―Visa and MC have the clout to tell the merchants they will have to take

on NFC or take on the payment‘s liability. But Visa and MC also are

under lots of pressure.‖

―Kuapay [LLC] is one of the alternative payments companies spawned

by the cost of adopting NFC and is much cheaper than PayPal, MC and

Visa. Kuapay relies on the bank‘s ID and security infrastructure, which

makes it cheaper. Visa acquired Fundamo for their expertise in running a mobile payment platform.‖

―The uptake of mobile payments in less developed markets is a no-brainer because there are no legacy systems.

Safaricom [Ltd.‘s] M-Pesa cell phone payment system flopped in South Africa because of the existing banking

infrastructure. Brazil, India and China will have their own virtual currencies. … Western-driven processors … will

have their place. They can be broader and swifter in adopting multiple payment channels versus a bank, which

is vested in a particular distribution model. If I‘m a bank and work with one provider, I can get only 30% to 40%

of the market, but with interoperability I can work with the whole market. Multibank and multioperator will win.

The platform can be jointly owned by the carriers and the banks. But if I‘m a bank, I don‘t want the security

running over a mobile phone network.‖

―There‘s lots of hype about NFC. … The London Olympics will be a huge experience but not a successful

showcase. … NFC is very convenient, but the barriers to accelerated adoption are costly. … Adoption will be

slow.‖

Eduardo Beracha, product manager for Movilway

PayPal has what it takes to succeed in m-commerce, but is unlikely to replicate its e-commerce success in less-developed

markets. The same holds true for Google. Both companies will need to partner with local mobile payment service

providers, which will benefit from the lack of legacy electronic payment systems. Any POS can be a bank branch with

mobile. The unbanked represent a significant opportunity. Using m-commerce ID and authentication will allow the

unbanked to become e-commerce consumers and ―semi-banked.‖ The traffic between e- and m-commerce in emerging

markets will be two-way and lucrative, but local providers will charge 1% commission compared with PayPal‘s 2.9%.

―I know PayPal better than Google Wallet. I haven‘t tried Google Wallet yet because you need a specific NFC-

enabled phone. They‘ll both take off. But the focus can‘t be on solving a problem just because it‘s cool to pay

with a phone. Credit cards are a great way to pay. Mobile payments will be used when they add value, when you

can link it with loyalty programs. I want some value added that I didn‘t have with the credit card. The retailer‘s

value add is where you start. We had the same problem. We had to add value for them because if they don‘t sell

it, we can‘t sell it. PayPal‘s advantage is that it isn‘t in the data-capture

business.

―PayPal‘s advantage is that it entails no investment in hardware. The

retailer has to amortize legacy hardware investments, so PayPal can

grow faster. And who hits first hits harder. The infrastructure cost will

be high, and someone has to pay for it. PayPal has what it takes to be

successful in m-commerce.‖

―PayPal‘s 21-day hold is a very risky move. They will be exposed to

losing some clients. eBay has such strength in the market, so they have

the luxury of doing the 21-day hold. If they do that just to get a yield, it

will be a reputation crash. They will crash their brand.‖

―Latin America is 70% unbanked, so we believe mobile wallet solutions

have to provide a solution to a problem. This is why we have our own

mobile wallet in development and have launched it in Venezuela. We

don‘t work with NFC. There‘s no infrastructure yet. We don‘t want to

wait for it. The lack of financial services allows the launch of a mobile

wallet right now.‖

PayPal and Google Wallet are

both way down the scale in

market share. In Italy and

Spain, 80% of transactions are

in cash. It‘s cultural. Arab

countries are cash markets.

Business Development Professional

Mobile Wallet Platform

PayPal‘s advantage is that it

entails no investment in

hardware. The retailer has to

amortize legacy hardware

investments, so PayPal can

grow faster. And who hits first

hits harder. The infrastructure

cost will be high, and someone

has to pay for it. PayPal has

what it takes to be successful

in m-commerce.

Product Manager, Movilway

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

6

―Remesas dirigidas [direct remittances] are the big market, but you need licenses. It‘s a cheaper way to send

money. We‘ve developed a portal that you can top up with a credit card for the banked population. MoviPIN

helps unbanked consumers to buy online. They get a PIN and use it in the website. We‘re a new payment

method for the unbanked to buy on line. Maybe we can help PayPal by integrating their button into MoviPIN.‖

―We‘re running a pilot with no charge to the user. For the merchant we charge about 1% commission—less than

plastic. We don‘t want to kill PayPal; they target another user. You have to be banked. We would love to work

with PayPal.‖

―PayPal is not very strong yet in Latin America. We‘re more than willing to work with PayPal but not their APIs yet.

They‘re not a competitor. PayPal needs a local solution to work with our market.‖

President/founder of an NFC-based phone reader designer and manufacturer

PayPal has no reason to ask its customers to wait for NFC. With existing POS terminals and minor software changes,

customers could enter their phone number and a PIN or swipe their PayPal card and engage in mobile payments today.

However, retailers will have no choice but to adopt NFC; otherwise, in October 2015, card issuers will dump the liability

for fraudulent purchases onto them. PayPal‘s core business is payments while Google‘s is data capture and advertising.

Cost will not be an obstacle to an NFC ramp up within three years since a cost decrease is likely. The cost of an NFC

contactless reader has dropped from $200 or more to $60 to $70.

―If there‘s one single brand that‘ll be added, it‘ll be PayPal because

payment is their core business. Google Wallet is a vehicle for ads,

marketing and data. PayPal will became a mainstream payment

vehicle. Five years from now you‘ll see me as a consumer with PayPal

in my wallet as a payment app and Google offers in my wallet but not

as Google Wallet. Today they won‘t work together. … They‘ll be a similar

concept for m-commerce; they will coexist. … PayPal also wants to

incentivize you as a consumer to shop before you decide to buy.‖

―PayPal‘s database tracks you only in PayPal transactions. What‘s

better, a database that tracks 10% or 90% of your transactions? One

day PayPal will recognize that it‘s better to use Google‘s engine than

their own. Google Wallet is not a payment system. It‘s a browser on a

phone for you to do a search to get offers. If they limit Google Wallet to

offers available on Google Wallet only, they‘ll limit their engine. Their

core business is to make their offers available to as many browsers

and wallets as possible.‖

―If I were PayPal, why would I ask my customers to wait for NFC? I‘m going to make sure you get mobile

payments now. You can do things now. Don‘t wait for NFC. But when NFC becomes real … PayPal will have to

understand NFC because it hired Don Kingsborough.‖

―PayPal will roll out in the physical store, where I will enter my phone number and my PIN. They will allow me to

swipe my PayPal card. These two things can easily be done at the POS by changing just the software. … In the

next few years all the merchants will get an NFC reader. … They‘re going to say, ‗I‘m not going to accept a

magstripe [magnetic stripe] card.‘ The point is that as these POS terminals get replaced, they‘re also getting

NFC.

―When you‘re doing the payment in the physical presence environment, NFC will be the mainstream payment

method in the U.S. in three years. … Dubai and Hong Kong have used Octopus cards for the last 10 years. In

every trial we‘ve run, 98% of the consumers have used touch-and-go. … Anything … you make easier for me to

do, I‘ll gravitate toward that.‖

―Merchants and manufacturers will incentivize the consumer to use PayPal. I already have this sweater in my

basket and it‘s too late to back out. I‘m going to use PayPal. This is a game changer, an interactive shopping

environment for consumers. This channel that we‘ve created is the most efficient personalized marketing

channel ever developed. It‘s based on who you are, where you are and your interests. It‘s the most powerful

search engine ever developed. That‘s what will allow the merchant, the manufacturer, and the card issuer or any

of the service providers to be able to send me the real-time offer, which I‘m going to respond to.

―Today with PayPal I have no other choice but to enter a 10-digit number even though the PayPal card data is

sitting in the cloud. PayPal or anybody else would be insane not to offer NFC. I strongly believe that all the

If I were PayPal, why would I

ask my customers to wait for

NFC? I‘m going to make sure

you get mobile payments now.

You can do things now. Don‘t

wait for NFC. But when NFC

becomes real … PayPal will

have to understand NFC

because it hired Don

Kingsborough.

President/Founder, PlusEngine

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

7

payment players in the physical store will have no choice but to use NFC. Visa and MasterCard have already

gone it that direction and AMEX [American Express Co./AXP] too.‖

―I knew NFC would go mainstream when I saw it used in Shinjuku station in Tokyo. I saw a wide spectrum of

consumers using tap-and-go. But I couldn‘t convince Visa, just MasterCard and AMEX. When MasterCard

announced its McDonald‘s partnership, I got a call from Visa. In four months I got Visa on board.‖

―Wells Fargo [& Co./WFC] is now going to issue a chip card. All banks are moving to chip cards. The deadline is

2015. Every merchant will have to have the chip card. Visa said new terminals will have to have NFC capability

by October 2015 or the liability [of fraud] will be taken on by the merchant.‖

―Seventy percent to 80% of POS terminals will be replaced with chip- and NFC-enabled terminals. NFC reduces

consumer effort. With physical presence, NFC will dominate. … It‘ll take longer elsewhere. Ninety-eight percent

of consumers in Hong Kong have been using touch-and-go technology for the last 10 years. They were first. The

BART [Bay Area Rapid Transit] trial with Sprint, ViVOtech is another indicator of ramp up. Transport present the

highest use of NFC.‖

―NFC‘s infrastructure costs a lot [at first], but then it gets integrated. In three years NFC add-on to phones will

drop from $2.50 to 30¢. Add-on readers now cost $100.‖

―The First Datas whose core business model is processing for the point-of-sale networks are in trouble in the

long run; in the short run it‘s a volume game and they will be OK. However, as the consumer migrates away from

purchases through the POS networks, the processors are going to have to change their business model. They

can grow if they play effectively and … give NFC to small merchants. They can make much bigger money

servicing the small merchants. First Data supported 5.8 million merchants, now 2.8 million.‖

―[SAP AG‘s/ETR:SAP] Sybase 365 is in a very good position. These are the people I work with. My job is to enable

them. Instant provisioning of the card, instant recognition. That‘s our technology.‖

Chief marketing executive for a mobile application development company

PayPal and Google Wallet both are in strong positions. PayPal‘s position stems from its strong brand and user base, not

from any valued-added mobile services that its developer base would provide to retailers. Mobile payment companies in

general will not be able to supply numerous value-added services in order to lure retailers to their mobile wallets. NFC

adoption will be driven by whether Apple decides to make the iPhone 5 NCF-enabled. Apple users tend to be tech-savvy.

Android (Google) users tend to use less of the phones‘ features.

―The incumbents like PayPal and Google have a huge advantage. The

smaller companies coming into the space bring a new eye, but it‘s

tough not to see the leaders everywhere. … For the smaller companies

to make a dent, they have to differentiate. … But the differentiator is

hard to see when you‘re rushing a product to market with a limited

budget.‖

―PayPal will be successful in transitioning from e-commerce to m-

commerce. … They have brand recognition. They … make it easy to

integrate into mobile apps, into these devices. … Everybody is looking

at this as a different revenue model than what they‘re doing on the

Web. I‘m not sure it‘s there. We see it with our customers that you‘re

leveraging those same systems. Your app is familiar to your users, so

they just use it on a smartphone.‖

―This last month hasn‘t been great for Google on privacy issues. … It

doesn‘t help that they‘ve changed their privacy policy.‖

―NFC will matter tomorrow but not today. Is PayPal completely

indifferent to NFC? They‘re probably saying that. But if you‘re betting

on a device manufacturer, it‘s probably Apple. It‘ll probably happen in

late spring and probably have NFC built into it.‘

―If you look at numbers, Android has the biggest market share. The

phones that‘ll come out NFC-enabled are probably going to be Android

devices.‖

―The real users of functions are with Apple. It has lower overall

adoption, but its users are savvier and are using the features built into

it. NFC will get traction when it‘s built into the iPhone. People that pay

PayPal will be successful in

transitioning from e-commerce

to m-commerce. … They have

brand recognition. They …

make it easy to integrate into

mobile apps, into these

devices. … Everybody is looking

at this as a different revenue

model than what they‘re doing

on the Web. I‘m not sure it‘s

there. We see it with our

customers that you‘re

leveraging those same

systems. Your app is familiar to

your users, so they just use it

on a smartphone.

Chief Marketing Executive

Mobile App Development Company

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

8

$600 for a phone will drive adoption of features. … If Apple ignores a feature, it won‘t take off.‖

―Our platform has a plug-in layer extricated from the core product, so it doesn‘t matter which payment app is

used. … That‘s one of our big strengths. We go into a retailer who has the system built 15 years ago, and we can

connect to it.‖

―I used mobile PayPal yesterday. I haven‘t used Google Wallet. I‘m a fairly pervasive Internet buyer, and I use

PayPal more than anything else. I have multiple PayPal accounts on multiple continents. It‘s hard to bet against

eBay, but it‘s also hard to bet against Google.‖

Joaquin Ayuso de Paul, CEO and founder of Kuapay

PayPal has no clear strategy or idea of where it wants to go. Other mobile wallets are not focusing on the user experience

or on a merchant‘s needs. In general, companies are working consumers too hard and have merely grafted a 30-year-old

card processing technology onto a mobile phone. Also, Facebook and Google are going outside of their core business and

likely will not succeed. The biggest losers in mobile payment‘s ramp up will be the smaller processors. First Data might be

an exception. Card issuers, but not the banks, are vulnerable to disintermediation. NFC‘s drawback is its unsuitability for

large payments.

―The experience with PayPal is very different. They‘re making the

consumer work by putting in a PIN number and phone number. They‘re

taking a risky step. The PayPal card still uses a debit card processing

platform, which is a 30-year-old system. We offer real-time payment to

the merchant.‖

―PayPal has a lot of power, great teams, great technology. But their

leadership position is not durable enough, and there‘s not enough time

for them to learn.‖

―PayPal will get hit really hard. They don‘t have a clear strategy. … They

started with e-commerce, then the card came, and now it‘s mobile. …

You must have a clear point of where you want to go. If not, you‘re in

lots of places where you can‘t give 100% attention, and will get eaten

up by competitors who are only in that business and know it better.‖

―Google Wallet is comfortable only for small payments. NFC is comfortable for small payments up to $50. People

don‘t put lots of money onto new technology right away.‖

―PayPal and Google Wallet both have a [bad] user experience, and neither will succeed. Now they‘re still using a

30-year-old credit card experience and plugging into a mobile phone. Neither is thinking of the consumer

experience.‖

―Google Wallet [is] thinking of the data they can mine. They only need 5 million users, so why invest to get more

users? Google Wallet won‘t have a lot of traction, especially with the ecosystem they‘ve created.‖

―PayPal can respond fast and integrate with the carriers or Facebook. The problem is, what are they going to

give to the users? Facebook doesn‘t control any financial info. It knows its users, which PayPal doesn‘t. If you go

outside of your core business, you crash. What will Facebook bring to users for payments? You can use iTunes

for online goods but not for physical goods.‖

―The big ramp up will come in three to four years. All of the big-box

stores get it. They‘re creating in-house groups to deal with this market.‖

―The only winners will be the banks; they have and will transfer the

money. They already have the international transfer networks.

Technology doesn‘t remove liability. What if you could charge back a

fraudulent transaction even if it were paid directly from your bank

account? If you want to charge back the merchant, the bank can do it.

The technology is there.‖

―Technology enables the merchant to pay not a 2% fee but a flat fee,

unlike PayPal. The retailers understand what we do.‖

―For a bank you have to attach your cards to the NFC Trusted Service

Manager platform, and not all banks can do that. Some of their

technology is too old.‖

PayPal has a lot of power, great

teams, great technology. But

their leadership position is not

durable enough, and there‘s

not enough time for them to

learn.

CEO & Founder, Kuapay

PayPal and Google Wallet both

have a [bad] user experience,

and neither will succeed. Now

they‘re still using a 30-year-old

credit card experience and

plugging into a mobile phone.

Neither is thinking of the

consumer experience.

CEO & Founder, Kuapay

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

9

Yoel Bar-Gil and Gil Etzion, CTO and corporate senior VP of Mer Telecom, a mobile solution company focused on the

unbanked

Banks‘ KYC (know your customer) regulations are stricter than the minimal regulations applied to mobile wallets. Aside

from being a money launderer‘s dream, mobile wallets in emerging markets will limit the expansion of PayPal and Google.

Investors who extrapolate growth figures for PayPal, Google or Isis based on the number of mobile phone users ignore

these facts at their risk. Mobile payments will be ubiquitous in five years, but the market will be regionalized. NFC will be

driven by card issuers pushing merchants to replace their POS terminals.

―Everybody will win. When we started the app, it was geared to an

unbanked population—the CIS countries, Africa and Latin America.

You‘re talking about more than 60% of the population with mobile

phones and Internet access. The potential is huge. These are monies

that are running in the world, and nobody monitors them. Most of them

are cash-based. We‘re happy PayPal is ignoring these unbanked

people. Our system is built to serve the unbanked. For PayPal, you

need a credit card or a bank.‖

―Every one of the players will have his niche to play, some on credit

cards, some on cash, and then the unbanked. And the world will be

divided between providers of different solutions. We pool all the

payments into one big account.‖

―Google Wallet and PayPal are not in this game. The winners will

obviously be the banks, as partners in the system. The monies that are

floating around as cash will be hosted in one account, so the banks will

gain a lot of money to play with.‖

―In five years, everyone will have some type of mobile payment on their phone.‖

―The adoption of NFC will depend on the availability of NFC-enabled phones. In a conference about NFC in

London I heard that, in 2015, 35% of the handsets will be NFC-enabled. Penetration will be less than 10% by

next year; 20% penetration by next year is an exaggeration. If you remember 3G, the technology was ready but

there were no handsets. It took 3G about five years before it reached critical mass of handsets in the market.‖

Manager of a South Korea based loyalty program for retailers

This company controls South Korea‘s mobile payment market by running loyalty programs for retailers and giving

discounts to consumers. Merchants pay $300 to $500 a year per terminal to work with this firm.

―We have a strong advantage over PayPal and Google Wallet, with centralized management of loyalty and

discounts.‖

―It‘s based on a Korean payment standard. These affiliates make this point system, and we make the platform,

this application. Then you can store your credit cards and it‘s all integrated, one-stop tap and go. The merchant

pays 360,000 to 600,000 won a year per device for the service subscription for a two-year contract and a little

less than 1% of each payment.‖

―What we provide the customer is end-to-end service: coupons, discounts. Google tried to expand their affiliate

network in Korea and didn‘t succeed. … We have the loyalty program, not the retailer. When I go to Starbucks, I

as a customer pay only 70% of the full price in our loyalty program. Starbucks hands us the consumer, but we

pay Starbucks as well. Google Wallet doesn‘t have that affiliate network. You go to the bakery and pay 100 won

without the loyalty program but 90 won with the program. That‘s our strength.‖

Product vice president and a product manager for a location-sharing tech provider

These two sources cited several pilots by PayPal and Google Wallet, but said consumers have not yet widely accepted

mobile payments for everyday purchases. The market is still fluid and lacks a clear winner. However, sources named The

Western Union Co. (WU) as a clear loser. Many brands have tried to convince the sources‘ company to monetize its

location-sharing service, but it is in no hurry. The service is applicable to both mobile shopping and mobile health. One

source was part of Amazon.com Inc.‘s (AMZN) founding team.

―We‘re at the early adopter phase of mobile payments. But it‘s so simple to use, we‘ll get beyond the early

adopter phase really quickly. … If you don‘t think it‘s already here, you‘ve missed it. eBay did over $1 billion in

mobile revenue last year and is on track for $2 billion this year. M-commerce going mainstream depends on how

you define mainstream.‖

Google Wallet and PayPal are

not in this game. The winners

will obviously be the banks, as

partners in the system. The

monies that are floating around

as cash will be hosted in one

account, so the banks will gain

a lot of money to play with.

CTO & Corporate Senior VP

Mer Telecom

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

10

―We can integrate mobile shopping, deals, a huge spectrum of things. Yes, temporary location sharing could be

applied to price comparison. … But we‘re focused for now on making location sharing simple, safe and efficient.

The monetization aspects—whether we‘ll incorporate advertising, shopping, premiums, custom versions for

consumer brands—all exist, and we‘ll pursue them in time. Right now we‘re focused on the consumer

experience.‖

―PayPal actually had an NFC initiative at one point in the Bay Area. It

wasn‘t built into the device, but built a sticker onto the phone and an

NFC would deduct from your PayPal account. The advantage Google

has is that it‘s built it into the hardware. But I don‘t think there‘s much

difference between the two, certainly not in terms of privacy. … PayPal

would probably be in favor of any technology that a customer would

want to conduct a transaction with them.‖

―A lot of the things we‘re showcasing here are based on an NFC unique

identifier transfer. I‘m surprised that PayPal wouldn‘t have an app that

used NFC to transfer. Eventually they‘ll get this. But I wouldn‘t pick

winners and losers in that world. That is a very complex value chain

with a lot of different players. You could see Google leveraging Google Plus. But PayPal has a lot of established

connections with financial institutions. There used to be a big debate about carriers. There was a big dustup

about the carriers going head to head against the banks and the card issuers. But that doesn‘t make sense. The

card gets the transaction when I pay my phone bill with my credit card. … With NFC, there‘s lots of ink spilled

about who‘s competing with whom and who‘s got a competitive advantage. The verdict is still out.‖

―A store could accept Google Wallet and PayPal just like accepting Visa and MasterCard. Consumers don‘t care

what happens in the background.‖

―Now that‘s a company that‘s being disrupted—Western Union. Safaricom‘s M-Pesa is hurting them. All the

customer cares about is how the unique identifier, which says you have access to that account, is transferred.‖

―If I buy a phone and the app is already baked in, great. But if no merchant takes it, what good is it? If I can only

use my Google Wallet and PayPal in some places, I‘ll carry my credit cards. Critical mass with every day or every

week retailers is absolutely needed.‖

Elie Barakat, business development professional with MobiPay, a white-label wallet

This source works with carriers and banks in emerging markets. Legacy services will have to adjust in light of cheaper

mobile payment services. The winner will be the one with the biggest user base and momentum—in this case, Facebook—

and not necessarily the best platform or service. Mobile payments‘ ramp up will

take about three years.

―Betamax and VHS tell you the best don‘t necessarily win. Momentum

favors Facebook. Everybody is part of whatever Facebook does. Young

people are on it constantly. … PayPal is more linked to merchants. It‘s

not a primary service in people‘s lives. … People are followers, and you

need to set a trend.‖

―MobiPay is a white-label platform. … We‘re a subscription service, or

you buy the service and we give just support. … You can have it without

touching the bank. We‘re deploying in Africa and the Middle East.‖

―The transition from credit cards to mobile will be shorter because the

transition from cash to credit cards from cash has already happened.‖

―There will be a good acceptance for touch-and-go. Instead of looking

for your credit card … you‘ll touch your mobile.‖

―The cost of deployment won‘t be important because it‘ll come down a

lot. The cost to integrate it with the mobile phone is very low. Eventually

within two to three years it‘ll all be in place. POS was painful due to the

cost, and it was deployed. … And the acceptance will grow bigger.‖

―PayPal will find an alternative to NFC.‖

A store could accept Google

Wallet and PayPal just like

accepting Visa and MasterCard.

Consumers don‘t care what

happens in the background.

Product VP & Product Manager

Location-sharing Tech Provider

Betamax and VHS tell you the

best don‘t necessarily win.

Momentum favors Facebook.

Everybody is part of whatever

Facebook does. Young people

are on it constantly. … PayPal is

more linked to merchants. It‘s

not a primary service in

people‘s lives. … People are

followers, and you need to set a

trend.

Business Development Professional

MobiPay,

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

11

2) MOBILE PAYMENT/MONEY PRESENTERS AT MWC These two sources said PayPal is part of the mobile payment landscape but only as one of many technologies. Both sources

expect large retailers to develop their own mobile payment systems so they can own the customer data. One source also

expects PayPal to become a button on payment apps produced by banks and big retailers. The other source is platform-

agnostic and expects multiple technologies to coexist in the mobile payment industry. NFC is a convenient solution for

consumers, who will drive its adoption by using NFC-enabled phones once available at the end of this year. Adoption of mobile

payment apps also is on the verge of ramping up.

Chief operating officer for a mobile valued-added service/CRM platform designer and provider

A mobile wallet such as PayPal will become part of a retailer‘s own platform, which it will create to harness the customer

data. This source does not favor NFC over QR (quick-response) coding or PayPal over Google Wallet. He expects a near-

term usage increase in mobile payments.

―We‘re ‗agnostic‘ on PayPal and Google Wallet. We want to ensure a holistic capability with the consumer. The

brand will be predominant—the wallet‘s platform with a [brand‘s] wrapper. … The big retailers will develop their

own high-quality interactive platforms. If the brand is strong enough,

I‘m quite happy to interact with it as long as the experience is smooth

for me. We‘ve seen a surge in the growth of couponing capabilities

under one umbrella. That‘ll be integrated into loyalty schemes. The

retailer will take over the relationship and the redemption in store after

the acquisition transaction, not PayPal or Google Wallet.‖

―Retailers‘ marketing groups are rapidly waking up to mobile‘s

potential. We‘re on the cusp of mobile going mainstream, a tipping

point. Person-to-person payments fit very well with the felt moral

obligation to pay friends quickly—settling up a restaurant bill, for

example.‖ ―Multiple technologies will coexist. … Consumers and retailers aren‘t

fussy about technology. The device manufacturers are already

combining multiple technologies, and prices of devices are

plummeting.‖

―The more progressive retailers know they have to open up their POS

terminals to other capabilities. … Otherwise, they‘d be dead if they used 10-year-old software. There are plug-

and-play phone and imaging scanners, so the upgrade to NFC could be plug-and-play.‖

―NFC … can help channel the consumer to the brick-and-mortar merchant‘s website. Retailers come at it from

different angles. Some come at it from ‗I‘ve got a loyalty program and want to mobilize it.‘ There‘s no standard

proposition.‖ ―For loyalty schemes to succeed, they require an alignment between marketing, IT, operations and finance.‖

Neil Garner, CEO of innovation and development for Proxama

Neither PayPal nor Google Wallet will own the mobile payment market, which itself will be stymied by carriers‘ and

handset manufacturers‘ omission of the user experience. Companies that best understand mobile commerce include

Boku Inc. (now in alliance with MasterCard), Paythru and Barclays PLC‘s (LON:BARC/BCS) Barclaycard. Poorly situated

mobile payment providers include Banco Santander S.A. (STD), HSBC Holdings PLC (HBC), regional banks, and savings

and loans. Processors like First Data and Total System Services Inc. (TSS) stand to lose the most in this market. PayPal is

avoiding NFC because of the infrastructure investment and because NFC would turn PayPal into just another button

among many. PayPal is from the digital world, and successful m-commerce requires an easy-to-use bridge between the

digital and physical worlds. Convenience for the consumer will drive NFC adoption and will be set in motion by the global

launch of 120 million NFC-enabled phones by the end of 2012.

―PayPal is not going to own this new ecosystem. Google Wallet will do some elements of the ecosystem.

Ultimately, the consumer is who everybody is forgetting about. Everybody is worried about the brand on top of

the wallet instead of giving the benefit to the consumer and letting the consumer drive the choice. That is

equally true of PayPal, Google Wallet and Isis. The key thing that NFC enables is not having to choose an app on

the phone.‖

Multiple technologies will

coexist. … Consumers and

retailers aren‘t fussy about

technology. The device

manufacturers are already

combining multiple

technologies, and prices of

devices are plummeting.

Chief Operating Officer

CRM Platform Designer & Provider

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

12

―I think PayPal is saying they don‘t believe in NFC because they have to

do a lot of physical world investment and it would be an enormous shift

since they‘re in the digital world. I still think the existing mobile

technology is very cumbersome for consumers to use. In the physical

world, speed is of the essence. With NFC-enabled checkout anywhere,

PayPal would be just another button on the checkout page. The other

key to NFC is that you‘ll have your cards in your phone, so why use

PayPal?‖

―What frustrates me most about technology is how hard it is to use. QR

is too complex and hard to use. NFC is clear and simple; touch it and it

works.‖

―In 2015–2016 NFC will be standard on smartphones. Big industry

takes a long time.‖

―Paythru gets it; they understand consumer choice. The companies

spending the time connecting the dots are who will win. Monitise

[PLC/LON:MONI] gets it. Boku is good. Bango [PLC/LON:BGO] in the UK does content billing; they did a deal with

Facebook. They … focus on the consumer need and pull together the platform capability and simplify it.‖

―The people who don‘t get it are the network operators and the handset manufacturers. That‘s the big part of

the problem.‖

―The card issuers have the liability system in place, and it‘s exactly replicable for mobile wallets. There are new

rules about what you can do, but ultimately you need the [liability] backstop. Barclaycard really knows what

they‘re doing. HSBC is incompetent at this and slow. Santander Bank is slow.‖

―The building societies don‘t get it. Regional banks will be slow. The processors like First Data are very slow.

They see it as just one more thing they can outsource. The banks won‘t get the benefit with the very limited

offering from processors, and their offering is closed and proprietary. … The card businesses understand cards

but not mobile. … The opportunity lies with who knows how to bridge the gap.‖

―The most essential thing is whom consumers trust and whom do you call when things go wrong. You can‘t

underestimate the card issuers and the banks. PayPal, Google Wallet and Amazon are trying to drive this from

the cloud, and the physical world is different. In Europe it‘s different from the States because the chip cards are

more secure than the magstripe cards.‖

3) MWC ATTENDEES INTERESTED IN MOBILE PAYMENTS/MONEY/BANKING These two sources said PayPal is a strong contender in the mobile payment industry. However, one source said his company

chose to work with Paythru because it is a small, responsive company. The other source said PayPal is no longer innovative

and is advancing its technology through acquisitions. Both sources said mobile payments‘ main value for retailers will be in

added services, such as data capture, real-time promotions and special pricing for consumers. NFC adoption will widen in the

next two to three years as more NFC-enabled smartphones are sold.

Nigel Poad, director of PlusEngine a real-time marketing, loyalty and transaction

platform

This source said PayPal would be the best mobile wallet for his service if Paythru

did not exist, but he opted for Paythru because of its size and adaptability.

PayPal‘s leading e-commerce position will not necessarily translate into the m-

commerce environment. Also, PayPal‘s 21-day hold on eBay sellers‘ funds is

―absolute nonsense.‖ Mobile wallets will ramp up quickly in the next two to three

years, and will show its actual value in creating real-time promotions for

consumers and data capture for retailers. However, consumers are beginning to

question data collection. Also, many people do not want to frequently log into a

phone with a PIN, which could slow NFC adoption.

―We don‘t believe there‘s anybody in this space that understands the

real opportunities. PayPal must be technology-agnostic. PayPal would

In the physical world, speed is

of the essence. With NFC-

enabled checkout anywhere,

PayPal would be just another

button on the checkout page.

The other key to NFC is that

you‘ll have your cards in your

phone, so why use PayPal?

CEO of Innovation & Development

Proxama

This [mobile payment industry]

still will move quickly in two to

three years. There will be a

tipping point once the

smartphone penetration

reaches high enough. Some

barriers to penetration are

legacy payment technology,

which you don‘t have in

emerging markets.

Director of a Real-time Marketing,

Loyalty & Transaction Platform

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

13

be the most workable mobile wallet for us if Paythru didn‘t exist. But we want to work with Paythru because

they‘re small and are adaptable.‖

―Google Wallet being wrong about NFC means that if they‘re wrong about NFC, they‘re wrong about everything.

NFC is the only way they can run all the value-added services for retailers and collecting that data.‖

―For retailers to survive, they must understand their customers as well as Amazon does. Amazon knows

everything about you because you have to log in and they track everything you do. How can you take the virtual

world and into the physical world? That‘s how we got together with Paythru: to integrate a shopping center

loyalty program into a mobile payment platform. We‘re permission-based, and the member is getting a fulfilling

experience. … From the retailer‘s point of view, you get a much better conversion rate.‖

―We won‘t use other mobile wallets except Paythru. Retailers constantly talk about mobile commerce, but

nobody is really doing it. Lack of understanding impedes adoption. NFC has too much infrastructure investment.

We work on chip and PIN. Paythru is great because it ‗future-proofs‘ m-commerce. It doesn‘t rely on adoption

now. … Paythru is the facilitator that enables the whole platform to work.

―This [mobile payment industry] still will move quickly in two to three years. There will be a tipping point once the

smartphone penetration reaches high enough. Some barriers to penetration are legacy payment technology,

which you don‘t have in emerging markets.‖

―How is it protected from a PIN point of view? I don‘t have a PIN on my phone. If the PIN is the only protection,

what if you don‘t want to log in with a PIN? Who‘ll pay for the infrastructure?

Associate principal of a private equity investment company

PayPal is far from being a tired company but is no longer innovative. Applying e-commerce to a mobile device is not

innovation. How it manages its acquisitions will determine its fate in mobile payments. Small companies have the talent

and innovative culture to better shape the mobile payment industry. Rather than the payment method, data capture and

real-time promotion and payment are the real sources of value for retailers and consumers. Google has realized this.

Legacy providers are having difficulty navigating the market because of all the quickly growing start-ups. NFC adoption

will take three to five years, though its trial at the London Olympics may speed up the process.

―PayPal is on their way. They‘ve made a series of acquisitions the last 18 months. Red Laser was key. So they‘re

a powerful enough company to acquire who they need to get the assets. … They‘re not a tired company,

obviously, but they‘ve gotten to a stage where they‘re not as innovative as they used to be. The cutting-edge

stuff has to come in through acquisitions. … The new stuff and the passion is with the small companies. They

just need to be careful with their acquisitions. … It won‘t necessarily be one winner or another. It‘ll be driven by

convenience. People won‘t be tied into to one particular payment platform.‖

―PayPal is going to get better at capturing data. They‘re going to get

there, and it‘s going to work. It‘s not a difficult process. All they need is

to bring in the right people and the right software. It‘s not a cultural

issue. Cultural issues are hard to break. But it‘s true that they could

acquire small companies and mess them up. Why don‘t you ask me in

nine months when we‘ll know better how Red Laser is doing? The

acquisition of Red Laser has given PayPal its ‗NFC-esque‘ way to

secure and make mobile payments. That‘s making the bridge between

online and m-commerce at the POS.‖

―NFC is inevitable. It‘s going to be around, but it will serve a different

purpose. It‘s great for small, noncomplex transactions. … It‘s very

limiting in terms of payments. You have to be there, and there has to

be a device. … With PayPal it‘s just e-commerce on the mobile phone.

… The technology isn‘t new, and the uptake has been really slow. I

don‘t know when the step change will be. I see it in another three to

five years.‖

―It‘s really interesting to see who‘s going to dominate the new social

media in mobile. There‘s a new social media site that‘s been the fastest growing and enables users to post

photographs from other websites. Facebook took two years to get to 1 million users, LinkedIn took a year,

Groupon took six months. This photo site took three months to get to 10 million users. It‘s just the way the

momentum is carrying it along.‖

PayPal is on their way. They‘ve

made a series of acquisitions

the last 18 months. … They‘re

not a tired company, obviously,

but they‘ve gotten to a stage

where they‘re not as innovative

as they used to be. The cutting-

edge stuff has to come in

through acquisitions.

Associate Principal

Private Equity Investment Company

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

14

Secondary Sources

A review of secondaries sources covering the mobile payment industry and the Mobile World Congress revealed that retailers

like Target Corp. (TGT) and Wal-Mart Stores Inc. (WMT) are planning to create their own m-commerce solution. Apple has been

awarded a patent for the iWallet. Meanwhile, PayPal believes the mobile payment market will be beyond the POS transaction

by the time NFC-enabled devices are available. Finally, white-label mobile payment provider Paydiant Inc. scored a big win by

partnering with FIS.

March 2 Mobiledia article

About two dozen retailers, including Target and Wal-Mart, announced that they are working on their own mobile payment

solutions. The first-generation payment systems are not being widely adopted, according to consultants on the project,

and competition in the mobile payment space has lead to a chaotic market. The retailers‘ use of NFC technology could be

a challenge to the likes of PayPal, which now offers a non-NFC mobile payment solution.

―Wal-Mart and Target are two known retailers out of about two dozen developing a mobile payments system

based on near-field communications, or NFC, technology.‖

―Consultants on the project say while platforms already exist, these ‗first generation‘ technologies have a long

way to go towards widespread adoption.‖

―The right platform to deliver the service faces obstacles in developing a payment system that can move from

theory into practical application. With many taking up the charge, there is no uniform method, which leads to a

chaotic market.‖

―Retailer focus on developing NFC is a challenge to smartphone pay systems without NFC, including platforms

from PayPal, already a familiar name for Internet transactions, and the start-up Square, which is an affordable

option for small businesses, but hasn‘t cracked mainstream retailers.‖

―If retailers come together to weigh in on a uniform system, keeping in mind best practices of their businesses,

they could generate the momentum to pull ahead.‖

March 6 Patently Apple post

Apple has won a patent for its iWallet, which ―may one day rule the world.‖

―Today, Apple has been granted a major iWallet patent and it‘s one that has never been reported on before.

Apple‘s patent reviews credit card transaction rules and shows us that the credit card companies will be sending

statements directly to your iTunes account.‖

―The iWallet project just became a little more real today, and for many, it can‘t come soon enough. Who knows,

perhaps one day Apple‘s iWallet will rule the world: the financial world that is.‖

Feb. 29 Into Mobile news story

This posting provides a tour and photos of the PayPal booth at the Mobile World Congress. Displays and demonstrations

included the PayPal mobile apps and the eBay Fashion app.

―We know that eBay is betting big on mobile so it‘s not surprising to see it put on a good show at its booth during

Mobile World Congress 2012.‖

―The company was pushing its mobile apps for shopping and for live events. With the eBay Fashion app, you can

quickly take a picture of a shirt you see and it will give you options of where to buy it online or even in retail

shops around you. With a few taps of a button, you can pay for it (using PayPal or other things) and the store will

put it on hold for you.‖

Feb. 28 article from The Guardian

PayPal doubts that NFC technology will power mobile payments. It predicts the mobile payment environment will have

moved away from the POS terminal by the time consumers and retailers acquire NFC-enabled phones and readers.

―Google and others are promoting Near Field Communication technology, which involves replacing credit cards

with phones which can be tapped on a reader at the till—but PayPal is skeptical.‖

―The mobile wallet payment systems being developed by Google, Vodafone, Orange, Visa and Mastercard could

be out of date before they come to market, according to internet bank PayPal.

Mobile World Congress: eBay Inc.’s PayPal

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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―PayPal‘s head of mobile, David Marcus, is [skeptical]: ‗For NFC to succeed you need consumers to have the

handsets, and merchants to install the terminals. It will take time for NFC to get mass adoption. By the time NFC

catches up, we‘ll be in a world that will move away from the point-of-sales terminal.‘‖

―NFC payments have been slow to come to mass adoption because mobile operators would like to take a

commission on payments and banks have been reluctant to allow this. In the US, Google Wallet has been

frustrated by a rival service being developed by AT&T, T-Mobile and Verizon Wireless.‖

Jan. 27 Mobile Payments Today article

Paydiant, a white-label mobile payment start-up, scored a major win by partnering with FIS to provide mobile payment

solutions to banks and retailers. FIS contends that banks and retailers will want to maintain control of their brand,

customer relationships and data, rather than to contract with outside mobile payment providers.

http://www.mobilepaymentstoday.com/article/189697/FIS-Paydiant-team-on-white-label-mobile-wallet

―Financial technology provider FIS launched its new mobile wallet this week. The cloud-based solution not only

gives consumers the ability to use their smartphones to make POS purchases and shop online, but the white

label solution can also be built directly into retailers‘ and financial institutions‘ existing mobile applications,

according to the announcement.‖

―FIS is partnering with mobile payment company Paydiant on the solution.‖

―‗We strongly believe that many financial institutions and retailers are not comfortable ceding their brand equity,

customer relationships and transaction data to new entrants in the payments ecosystem,‘ [Paydiant co-founder

Chris] Gardner said in the announcement. ‗We are thrilled to team with industry leader FIS, who shares our

customer-centric viewpoint.‘‖

Next Steps

Blueshift will continue to monitor PayPal‘s mobile payment deployments. In particular, we will assess any competitive

strengths or weaknesses that emerge as PayPal rolls out payment platforms in 2,000 Home Depot stores this March. We also

will research the inclusion of NFC chips in smartphones and the related effects on the mobile payment marketplace. Finally,

we will monitor major retailers‘ efforts to creating their own mobile payment applications or their decisions to use a white-

label offering from one of the many start-ups in the mobile payment industry.

Additional research by Lester Golden

The Author(s) of this research report certify that all of the views expressed in the report accurately reflect their personal views about any and all of the subject securities

and that no part of the Author(s) compensation was, is or will be, directly or indirectly, related to the specific recommendations or views in this report. The Author does not

own securities in any of the aforementioned companies.

OTA Financial Group LP has a membership interest in Blueshift Research LLC. OTA LLC, an SEC registered broker dealer subsidiary of OTA Financial Group LP, has both

market making and proprietary trading operations on several exchanges and alternative trading systems. The affiliated companies of the OTA Financial Group LP, including

OTA LLC, its principals, employees or clients may have an interest in the securities discussed herein, in securities of other issuers in other industries, may provide bids and

offers of the subject companies and may act as principal in connection with such transactions. Craig Gordon, the founder of Blueshift, has an investment in OTA Financial

Group LP.

© 2012 Blueshift Research LLC. All rights reserved. This transmission was produced for the exclusive use of Blueshift Research LLC, and may not be reproduced or relied

upon, in whole or in part, without Blueshift‘s written consent. The information herein is not intended to be a complete analysis of every material fact in respect to any

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