From physical cards to digital credentials: Tokenization and digital - PowerPoint PPT Presentation

From physical cards to digital credentials: Tokenization and digital identity in Latin America Americas Market Intelligence February 2020

Payments industry 25 years experience advisory group in the region for companies operating in AMI is the leading Latin America analytical voice in Latin America’s payments industry Executed 300+ projects Full coverage in the payments industry of Latin America and the since 2003 Caribbean 2

Today’s presenters Lindsay Lehr Eduardo Rivara Justin Benson Payments Practice Director CEO @ Facenote CEO @ Spreedly @ AMI justin@spreedly.com edu@facenote.com llehr@americasmi.com And moderated by Abel Delgado AMI Digital Marketing Director 3

Legal Notice The opinions and analysis presented today by Americas Market Intelligence (AMI) represent only the views of the AMI speaker and not of the panelists who are participating in today’s webinar or their respective companies. Whenever possible, AMI has verified the accuracy of the information provided by third parties, but does not under any circumstances accept responsibility for such inaccuracies should they remain unverified. It is expected that webinar attendees will use the information provided in this webinar in conjunction with other information and with sound management practices. AMI therefore will not assume responsibility For commercial loss due to business decisions made based on the use or non-use of the information provided In today’s webinar. 4

6 MEGA TRENDS IN LAC PAYMENTS Moving from Terminal-less Acquiring & acceptance cards to credentials acceptance revolution Race for the Bank accounts as a Fees trending Superapp payment method toward 0 5

TREND 1 MOVING FROM PHYISCAL CARDS TO DIGITAL CREDENTIALS Tokenization and digital identity 6

E-commerce penetration in 2020 Addressable market of 216 online shoppers, 89% of which own a debit card In 2020…(millions of people) 192 credit and/or 268 non-cardholders debit card holders 24 un-carded online shoppers 192 245 non-cardholders who do not shop online cardholding online shoppers 216 online shoppers 7 Sources: World Bank, AMI analysis

E-commerce penetration in 2022 Most rapid growth among uncarded e-commerce shoppers In 2022…(millions of people) 221 credit and/or 241 non-cardholders debit card holders 31 million uncarded online shoppers 221 (+32%) cardholding online 210 non-cardholders who do shoppers not shop online (-14%) (+14%) 252 online shoppers 8 (+16%) Sources: World Bank, AMI analysis

E-commerce fast outpacing traditional retail, mobile winning Online shopping bleeding into physical commerce, providing an alternative to both cash and physical card transactions E-commerce in LAC, USB bn 2019-2022 CAGR Of 216 mn online shoppers $140 19% E-commerce Mobile $120 75% Use a 49% shopping app penetration $100 $80 64% Use a $60 transportation app 5% Retail $40 Buy food $20 51% online $0 2019 2020 2021 2022 Mobile Desktop 80% of m-commerce spend is with a credit or debit card Sources: Interviews, AMI analysis, Mastercard Digital Security Whitepaper 9 2019

Invisible payments moving into diverse verticals Secure card-on-file will be a key strategic capability for merchants who wish to compete in the digital environment Millions of users Innovative brick-and-mortar Other digital natives Mobility 13 mn 92 million Food delivery 36 million 15 million Longtail merchant acceptance Supermarket 5.5 mn 50 million+ consumers with card-on-file (25% of online shoppers) 10

Physical cards: Make way for digital Physical card transactions will decline in share over time, potentially losing half its share within 10 years Card transaction breakdown forecast 2% 7% 13% 30% 8% 10% 19% 11% 90% 84% 68% 59% 2019 2022 2030 - conservative 2030 - aggressive Physical POS E-commerce QR code Sources: AMI analysis 11

Payment credentials are being put in the cloud Once digitized, payment credentials are sticky In-app card on file QR code Wearables NFC mobile wallets 12

Contactless cards excel where banks adopt it A rapid transition toward contactless is needed to help preserve physical payment infrastructure Prevailing new payment acceptance technology Penetration of card-present transactions in 2020 Contactless cards: 40%+ QR code: ~2% Contactless cards QR codes Too soon to tell Sources: Local central banks, AMI 13 internal data, interviews, AMI analysis

What capabilities are required to adapt to these changes? Over time, merchants must incorporate certain technologies to remain competitive Relationship(s) with a payment processor Integrations Ability to store and Digital identity verification secure payment credentials Tokenization Biometrics 14

Why digital identity for Latin America? The gateway to a digital lifestyle Mobile identity predicted % of population that does to be a $7 bn opportunity not have ID globally by 2024 Paraguay 20% • Greater access to user data Bolivia 19% • Enhances loyalty Guatemala 17% Nicaragua 14% • More secure Haiti 13% • Sets the stage for a digital lifestyle 34 million Latin Americans do not have ID Venezuela 13% 1 bn worldwide lack ID Sources: IDB, Good Intelligence, FinTech Times 15

Governments embrace digital ID in Latin America Credit and debit cards are not the only physical credential going to the cloud DNI Digital 115 million launched in Argentina (78% of population) in 2019 Brazilians completed biometric voter registration by January 2020 Sources: Biometricupdate.com, Tribunal Regional Eleitoral-SP 16

Biometrics for payments in Latin America Trending rapidly for digital onboarding and transaction authentication 1 3 2 In a 2018 study by AMI and Visa on Innovation 39% of issuers 14% of acquirers Already using digital 18% of brick-and-mortar merchants 2 bn identity technologies ATM transactions used biometrics Most common use cases • ATMs for 35 mn customers Digital onboarding • using thumbprint • Loyalty programs Sources: Good Intelligence, 17 Biometricupdate.com, Visa, company websites

Latin American consumers are ready for biometrics Passwords are perceived as insecure and inconvenient. Say goodbye to two-factor authentication and security questions % of online shoppers, 2019 N=900 Weighted Mx Co Pe Br Ch Ar Cr Pr Dr average Payment security preferences “It is a hassle to use passwords 49 43 46 47 42 46 54 51 40 47 when making purchases online” “I wish I could use biometrics instead of a password to validate 77 79 80 71 75 68 78 67 78 74 my identity” Preferred feature for online payments Biometrics 72 82 81 74 81 72 83 63 81 75 Voice/speaker purchase 20 12 19 16 10 6 16 6 13 16 Chatbot online 17 23 18 13 19 12 23 11 21 16 Source: Mastercard Digital Security Whitepaper, December 2019: 18 Examining the Latin American and Caribbean E-commerce Market

Digital identity lifecycle Adoption challenges abound; like anything, a smart user experience is the most important component Validation Issuance Use Enrollment • User experience • Trust • Technology • Merchant rollout • Overcoming the • Cross-check with other • Successful use cases “creepiness factor” sources of ID 19

Risks to payment brands. How to cope? Forecasting potential future scenarios. What can we expect? What role do banks and card networks play in this transition? Brand Value-added KYC recognition services infrastructure 20

Opportunities as credentials become digitized Digitized credentials enable disruption of new payment flows, new ways to pay, and a pathway for financial inclusion New payment flows Digital ID for Payments via enabled by financial inclusion virtual assistants digitized payment credentials Ticketing & Corporate employee spending event concessions & fleet management Parking & tolls Cashier-less stores 21 Better loyalty

6 MEGA TRENDS IN LAC PAYMENTS Moving from Terminal-less Acquiring & acceptance cards to credentials acceptance revolution Race for the Bank accounts as a Fees trending Superapp payment method toward 0 22

Coming soon… Latin America Payments Mastery AMI’s Payments Practice’s monthly webinar series Our next webinar Our objectives: 1. Do a deep dive into each of these six trends event: 2. Provide best-in-class content on a regular basis 3. Provide a platform for honest, open discussion Terminal-less Acceptance in Latin America 4. Answer your questions Register here March 26 th 5. Continually learn ourselves Would you like to contribute? Appear as a panelist . Contact Lindsay at llehr@americasmi.com 23

Contact our presenters Lindsay Lehr Eduardo Rivara Justin Benson Payments Practice Director CEO @ Facenote CEO @ Spreedly @ AMI justin@spreedly.com edu@facenote.com llehr@americasmi.com 24