EPayments

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Presentation Agenda

• Revenue Opportunity
• How Does Each Service Make Money
• Functionality
• Penetration
• Industry Topics

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Basic Electronic Payment Processing Categories

• Credit Card Processing
• Electronic Bill Presentment and Payment (EBPP)
• Money Transfer

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Electronic Payments Revenue Opportunity
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EBPP Adoption

• The key metrics for tracking EBPP industry
  growth, in our opinion are Subscriber adoption,
  transaction volume, and fees.
• We expect the number of U.S. households utilizing
  EBPP to reach 29 million by 2010. Nearly 18
  million U.S. households paying or viewing bills
  on-line in 2005.
• The most important factor for increased EBPP
  adoption in our opinion is the promotion of free
  online banking and bill pay by financial
  institutions to their customers.
• Wells Fargo and Bank of America state their suite
  of online banking services, including EBPP, are a
  critical customer service function, raising
  customer retention and profitability.
• Additionally, we think the proliferation of
  broadband has directly aided EBPP penetration, as
  high-speed Internet services transform web
  navigation and bill payment process into a
  quicker more convenient experience for the
  consumer compare to traditional dial-up.
• At year-end 2005, out of approximately 28 million
  potential end users, Bank of America counted 14.7
  million online banking users and, of those, 7.3
  million EBPP users. This represents online
  banking and EBPP penetration of 52.5 and 26.1
  of total potential end users, respectively. Bank
  of America ultimately hopes to achieve 50
  penetration for online banking and EBPP.

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Money Transfer

• We define the money services business as
  person-to-person remittance (mostly cash)
  primarily used by the un-banked and immigrants to
  send money overseas. We do not include
  international check payments in our definition of
  money transfer.
• The World Bank estimates the dollar value of
  money remitted in 2005 to equal 230 billion,
  which should expand at an annual rate of 9 to
  354 billion in 2010. With the average
  transaction fee of 8.5 of the dollar value being
  sent, we think the 17.8 billion revenue
  opportunity for 2005 (8.5 x 230 billion) could
  grow to 30 billion by 2010 (8.5 x 354 billion).

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2003 U.S. Consumer Payments Distribution
Payment Transaction Volume by Payment Instrument
Payment Dollar Value by Payment Instrument
Source 2004 Federal Reserve Payments Report and
RJA Estimates
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U.S. Payment Trends
Average Cash Transaction Size and Total Volume
Total Check Volume at Point-of-Sales (PoS)
Source 2004 Federal Reserve Payments Report and
RJA Estimates
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U.S. Payment Trends (cont)
Average Credit Card Transaction Size and Total
Volume
Average Debit Card Transaction Size and Total
Volume
Source 2004 Federal Reserve Payments Report and
RJA Estimates
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Fixed Cost Infrastructure-Potential for Operating
Leverage

• Most of the companies we cover offer a hosted or
  outsourced service which, in some cases, is
  branded by the client and sold to their
  customers.
• These outsource service companies usually charge
  on a tiered transaction volume basis, operate a
  fixed cost and recurring revenue business model
  (please see diagram and description below).
• Transaction processing companies generally
  perform automated services over a fixed-cost
  infrastructure meaning once the costs to
  purchase and build the processing platform,
  database, information sources, and engineers are
  absorbed, there is very little additional expense
  per transaction.

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Interchange

• Interchange rates have increased on average by
  40 to 1.75 from 1.25 over the past ten years.
  
• MIPS has declined 90 over the same 10-year
  period.
• The average revenue per minute on an interstate
  domestic telephone call during peak hours has
  declined by approximately 58.
• Fraud as a percentage of dollar value charged has
  declined 38 over the same time period.
• Transaction volume and dollar value of credit
  card payments have doubled over the same period.
• Consumers paying with cash are subsidizing these
  interchange rates.

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Retailers Fight BackPrivate Electronic Payments
Networks
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Tempo Payments

• Another closed-end payment network is Tempo
  Payments (formerly Debitman). Tempo, a private
  company, allows retailers to issue their own
  branded debit cards. In some cases a retailer
  could pay as little as 10 (90 less) of a
  general purpose co-branded credit card
  transaction fee on Tempo cards compared to
  standard Visa and MasterCard interchange rates,
  in part because the Tempo Payments utilizes the
  Automated Clearing House (ACH) Network for
  clearing.

Source Tempo Payments
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Pay By Touch
Source Pay By Touch
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Green Dot Corporation

• Go to a retail location (includes Walgreens,
  CVS).
• Purchase a MoneyPak.
• Apply the MoneyPak to GreenDot card either online
  or via telephone.
• Funds are available immediately.

Source Green Dot Corporation
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National Payment Card
Source National Payment Card
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KKR Buyout of First Data

• On April 2, 2006, First Data announced that
  Kohlberg Kravis Roberts (KKR), one of the worlds
  largest private equity firms, has offered 34 per
  share (or 29 billion in total) to acquire the
  company. The purchase price implies valuations
  above the industry average, despite First Datas
  slower growth. In order to make our comparison of
  First Data and Global Payments more meaningful,
  we have estimated Global Payments financial
  metrics on a calendar year, adjusted from the
  companys May fiscal year.

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Potential Benefits of LBO

• First Data announced a plan on its 4Q06 earnings
  conference call to consolidate its domestic data
  centers and application platforms. While the
  company did not give exact details, it stated the
  project could cost more than 100 million over
  the course of two and a half years. We believe
  the proposed transaction could allow the company
  to accelerate these investments without the
  scrutiny of public markets.

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Risk Sensitivity
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Transaction Processing Valuation Graph