Shift to Digital Strategy Shift to Digital Strategy Contents - PowerPoint PPT Presentation

Shift to Digital Strategy

Shift to Digital Strategy Contents • Introduction • The Digital Value Chain • Edenred Digital Strategy • Financial Impacts • New Growth Opportunities 2

Why shifting to digital makes sense for all stakeholders A win-win solution for all stakeholders  Clients: optimized and simplified processes, cost savings Edenred  Beneficiaries: convenient, fashionable solution A C  Affiliates: simplified administrative process, value-added services, cost savings B An efficient tool for public authorities  Better control over fund allocation and traceability  Clear correlation between card transactions penetration and reduction in the informal economy Source: AT Kearney analysis Analysis of stakeholder needs led to the decision to accelerate the shift to digital at end-2010 3

Why shifting to digital makes sense for Edenred Rationale for the shift to digital Financial impacts Issue volume growth  Market demand New sources of revenue, which offset the reduction in lost products First mover / Competitive  advantage Reduced operating costs, leading to an operating flow-through ratio* objective of above 50% post-transition  New growth opportunities Shorter float holding period, offset by higher volumes A strategic priority for the Group *Ratio between the like-for-like change in operating EBIT and like-for-like change in operating revenue 4

Digital Strategy Contents • Introduction • The Digital Value Chain • Our Digital Strategy • Financial Impacts • New Growth Opportunities 5

How to Shift to Digital 2016 2012 >70% A strategic move from paper to digital, 2009 50% implying changes in the value chain 30% and interactions with new stakeholders 1 Program Launch Phase Two Main Phases 2 Program Management Phase A country-by-country process 6

Digital vs. Paper Value Chain: 1 Program Launch Program Launch Phase Phase Phase 1: Program Launch Digital Paper Value Chain Value Chain Solution creation 1 1 Set up of processing capabilities 2 2 Affiliation network manager 3 3 Set up of POS devices 4 Set up of interfaces between POS 5 and processors Set up of capabilities and network for the launch of a program (paper or digital), implying non-recurring costs An additional capability in the digital value chain: the set up of POS devices 7

Set Up of POS Devices 1 Program Launch Phase POS devices: two options Owned POS Use of existing POS  Conditions for setting up our own POS:  Conditions for the use of existing POS:   Need for strategic control No need for strategic control   Specific technical features of the solution Existing infrastructure corresponds to  technical solution requirements Lack of equipment at the merchant POS  Sufficient merchant coverage  Edenred examples:  Edenred examples:  Turkey for meal vouchers: electronic payment  terminals or mobile phones Brazil for meal and food vouchers   Italy for meal vouchers France for Ticket Clean Way   Brazil and Mexico for Ticket Car Belgium for meal vouchers 8

Digital vs. Paper Value Chain: 2 Program Program Management Phase Management Phase Phase 2: Program Management Digital Paper Value Chain Value Chain Issuer 1 1 2 Program Distributor 2 Redecard and Cielo (Brazil), Acquirer (technical or banking) 3 ATOS (Belgium )… Payment scheme (Visa, MasterCard, CB in France, Switch (international or domestic) 4 3 Production Carnet in Mexico...) Processor / Authorization 5 PPS, FIS, TSYS… Banking or Private Settlement manager 6 4 Private settlement settlement The digital value chain is less integrated than the paper value chain Edenred is the program manager for the full value chain (paper or digital) 9

New Stakeholders 2 Program in the Digital Value Chain Management Phase Switch Processor / Acquirer (international or domestic Authorization (technical or banking) payment schemes) Technical entity which: Technical acquirer: Intermediary between issuer and acquirer, which:   Ensures the technical Allows collection of financial and non-financial data from a processing of a transaction  Defines the rules of a transaction at POS  Transfers the data directly to transaction  Provides IT data to issuers and authorization platforms acquirers  Executes transaction switch Banking acquirer:  Allows collection of financial data from a transaction at POS  Transfers the data to switching platforms Provider can be the same entity, but the type of service offered is different 10

Coexistence of Two Models 2 Program within the Digital Value Chain Management Phase Private Model Banking Model Program Manager control point Intermediary control point Use of the standard banking Private software set up in the POS, software (already part of the POS) alongside banking software Issuer Banking acquirers Acquirer Technical acquirers (through MID or MCC*) Domestic or international Switch payment schemes Authorization Private settlement negotiated Settlement rules defined by Settlement management between issuers and merchants the scheme (usually 24h.) Private model: full control but higher implementation costs Banking model: lower control but lower costs and quicker implementation * Data acquiring is controlled by the program manager through MID (Merchant Identification Code) but not through MCC (Merchant Code Category) MID is a code attributed to a single merchant by a payment scheme, whereas MCC is a code attributed to a category of merchants (ex: restaurants) 11

Focus on the Private Model 2 Program Management Phase Private Model Processing and Processor 5 authorization of the Processor transaction Technical acquirers Merchant Issuer acquirer Technical Acquirer 1 Private settlement negotiated Card betwwen issuers and acquirers issuance 4 Loading 2 Merchant 6 transactions acquisition Merchant reimbursement Client (settlement) Merchant / POS terminal End-user / Cardholder Software 3 Cardholder payment Same circuit as the banking model Different circuit compared with the banking model Merchant fee is collected directly from merchants 12

Focus on the Banking Model 2 Program and Payment Schemes ’ Role Management Phase Banking Model Processor 5B Authorization Switching Banking acquirers 5A Processor Payment scheme: Domestic or international Merchant Switching & Clearing Issuer payment schemes acquirer of transactions Banking Acquirer Settlement within 24 hours 1 Card issuance 4 6 Loading 2 Merchant Merchant transactions reimbursement acquisition (settlement) Client Merchant / POS terminal End-user / Cardholder 3 Cardholder payment Same circuit as the private model Software Different circuit compared with the private model Merchant fee is collected through the interchange fee, defined by payment schemes 13

Focus on the Mobile Value Chain 2 Program Management Phase Mobile Phone Devices  Mobile value chain is the same as card value chain  Specific features of the mobile value chain:  Different technology (mobile vs. card)  Mobile operators play the role of acquirers  Different options for mobile technology use:  “Mobile to POS” transaction (beneficiary has to be equipped with an NFC mobile and merchant with an NFC POS or mobile)  “NFC card to mobile” transaction (beneficiary has to be equipped with an NFC card and merchant with an NFC POS or mobile) Mobile is an alternative technology, but the digital value chain remains the same 14

Shift to Digital Strategy Contents • Introduction • The Digital Value Chain • Edenred Digital Strategy • Financial Impacts • New Growth Opportunities 15

Overall Digital Strategy Long-term positive effects for Edenred Acceleration of the shift to digital 2016 Volume Digital issue volume >70% 2012 growth 2011 E New 50% 2010 revenue 2009 sources 41% 34% Reduced 30% operating costs Acceleration of the shift to digital since the demerger: objective of 41% digital issue volume at year-end 2011, 50% at year-end 2012 and more than 70% post-2016 16

Choice of Digital Model Two options depending on local conditions and program characteristics Private Model Banking Model  Choice criteria:  Choice criteria:  High volume program  Low volume program  Filtered-loop network  Open-loop network (with filter option)  Edenred examples:  Edenred examples:  Meal and Food cards in Brazil  Expendia Smart in Italy  Meal cards in Belgium  Solred card in Spain  Meal cards in Turkey 17

Choice of Technology A wide range of technologies in the digital universe Technology selection criteria: Edenred operates with all types of technologies  Client demand  Local environment (percentage of Ex: currently 3 countries with mobile pilots merchants and beneficiaries equipped with the technology) Edenred is technology agnostic 18

Digital Transition Map Rest of the Europe Latin America World 59% digital IV (end-2009) 59% digital IV 6% digital IV (end-2011 E ) 71% 10% 62% Latin America and Rest of the World in final stage of digital roll-out Start of digital roll-out in almost all European countries Group’s target: 50% of digital issue volume by year -end 2012 19

Shift to Digital Strategy Contents • Introduction • The Digital Value Chain • Edenred Digital Strategy • Financial Impacts • New Growth Opportunities 20