Last week’s alternative payments webinar with MetraTech’s chief marketing officer, Esmeralda Swartz, and Andy Schmidt, research director at CEB TowerGroup, examined alternative payment models for virtual currency and new business scenarios within which these currencies can be used. In the initial survey of webinar participants, 68 percent responded that their customers expressed interest in virtual currency and alternative payment options. This percentage is an indication that customers are driving the market to offer more flexible payment options. Just as plastic credit cards replaced paper currency, virtual currencies are now replacing plastic with bits and bytes. The market demand is clearly established, and in order to remain relevant, companies need to innovate and adapt to these trends in direct monetization.

1. + Social
Alternative Local
Payments: Big
Mobile
Turning Virtual Into Data
Reality

2. + Your Presenters 2
 Tracy Duprey - Host
 Andy Schmidt – CEB TowerGroup
 Esmeralda Swartz – MetraTech, Corp.

3. + Overview 3
 Next Generation Payments: What, Why
 User Experience
 Building it
 Optimize, Analyze, Act
 Make Money
 Create an Economy

4. + US Noncash Payment Volumes Continue 4
to Grow Despite Market Turmoil
Noncash Transaction Volume by Type
Percentage of Total Transaction Volume by Type of Transaction, 2011 .
Trends in Noncash Transaction Volume by Type
Noncash Transaction Volumes (in millions) by Type 2005 – 2016(E).
Source: TowerGroup Payments Database

5. + 5
Virtual Currencies Replace Paper
and Coins with Bits and Bytes
 Transactions are often peer to peer
without the use of a central
authority
 Relies upon “the network” to self-
police
 Concept drives regulators crazy
- Can’t rely on the network to
stop/filter transactions
- Proponents claim attention is just
a ploy by banks to impede
adoption
Source: Bitcoin, Facebook, MintChip, CEB TowerGroup

6. + 6
“Freemium” Model has Taken Hold in
Many Games and Other Applications
Freemium:
 Product or service is
provided free of charge
 Premium is charged for
advanced features,
functionality, or virtual
goods.

7. + 7
Diablo III Brings Real-Money
Auctions (RMA) to Gaming
 Moves items from
eBay to monitored
channel
 Buyers can pay in
“gold” or 9 different
currencies
DEAD AGAI N? Ma y be y o u n eed a  Fee structure is $1 per
bet t er sw o r d – c l i c k he r e t o
c o me t o t he a u c t i o n ho u se No w
item and 15% percent
of the purchase price
Source: Blizzard Entertainment, CEB TowerGroup

8. + Swarms of New Payment Partnerships 8
in the Real and Virtual Worlds

9. + 9
What Questions Should the Market
be Asking?
Questions for Banks Questions for Regulators
 How do I get there from here?  What about AML?
 What is the risk?  What can we do – if
anything – about
 How do I get involved? vendors who switch
 How do I automate this? currencies to avoid
taxes?

10. + 10
Three Simple Drivers
Traditional players
must innovate to Make currency
Clear market need
remain relevant ubiquitous

11. + 11
Commerce Today
Yesterday Today Tomorrow
Online
Online
6%
4%
Web- Online
influenced
Offline Offline +
Offline 37% Offline
96%
2008 = $325B 2013 = $ 10T
Source: Forrester, Euromonitor and Economist
Intelligence Unit Source: Forrester Source: Economist Intelligence Unit

12. + Establishing Alternative Payments 12
Brand
 Trust and simplicity to drive customer behavior
 Strong organization/brand behind product
 Clear value proposition for: Consumer, Merchant, Biller, and
Financial Institutions
 Convenience and ease of use

13. + Adapt or Don’t Bother 13
Indirect Direct
Monetization Monetization
Freemium/Causium
Offers
Pay to use
m/ecommerce
Ads Premium content
Subscriptions
Virtual currency
Referrals
Reselling
Digital goods

14. + Back to Basics 14
Understand the Buyer/User
 Where, when, why they buy
 How they behave
 What they prefer
 When are they at risk
 How to retain them

15. + No Perfect Answer, Only Better 15
One(s)
 Cannot spend months before launch worrying about pricing
 FACT: Pricing, bundling, and offers will be revised over time
 Lots of data, how do you maximize expected lifetime value of
the customer
 Data has to be interpreted, source of data is critical
 If you double prices, double short-term revenue, but triple churn
not a good idea

16. + Acquire & Analyze: Data to Better 16
Serve Customers
Heuristics
+ Aggregated
Metadata
= Meaningful
Benchmark
Stats/KPIs

17. + Billing Data Makes an Impact 17

18. + A3 The New Model 18
• Enroll
Analyze • Price
• Meter • Test
• Pay • Analyze • Offer
• Refine
• Plan
Acquire Act

19. + Creating Value to Accelerate Adoption 19
Alternative
Payments
Consumer
P2P, Mobile, Consumers
POS, Alt.
Account (s)
Currencies,
Prepaid
Merchants
 Access to customer data is key
Non-Traditional
 Delivering relevant, personalized Merchants
promotions
Merchant
 Rewards integration (earn & burn) Intermediaries
 Convenience parity with other payment solutions
 Examples:

20. + Case Study: Reconciliation 20
Cash Management
Accounting
System
Gateway Files Higher conversion &
ACH reports,
Bank/ sales
Merchant
“Compare, Identify, Statements Happier customers
Bank Admin File (BAI) Adjust, Prepare”
Daily Reconciliation: Ease of online selling
• Cash Management
• Gateway
More targeted marketing
• Bank Account
ACH Files • Merchant Funding
Shorter time-to-market
Is this automated process
More resources to focus
between systems?
Ease of adjustment for line on core capabilities
Merchant Interchange Billback
item & aggregate?
Billing and Profitability analysis
Payment
System Accurate statements
 Reconciliation: calculate aggregate net amount per merchant and
generate ACH & merchant statements
 Problems: manual process, poor integration, inaccurate calculations,
delays in issuing statements, poor visibility to profitability
 Solution: simplified and automated reconciliation process

21. + Pricing 21
 Difference in pricing is no longer whether online or offline or
virtual or real
 Timeliness of offers
 Functional goods drive more users to pay
 Price points need to be experimented with
 Understand user demographics and customize when
appropriate

22. + Summary 22
 The experience economy is powering virtual and physical worlds
 Growing Virtual Economy
 More users
 More channels
 Convert users to spenders
 Get spenders to spend more money
 Serve and retain high spenders
 Offline and Online Commerce Blurring
 Social Commerce
 Acquire, Analyze, and Act
 Release product
 Change it, change it yet again
 Simplicity
 Locality

23. + Questions? 23
aschmidt@towergroup.com
eswartz@metratech.com