10 Predictions for E- Payments JOHN STEWART DIGITAL TRANSACTIONS

1. Apple Pay Will Revive Wallets  11 issuers already on board  McDonald’s, Disney, Walgreen, others accepting  800 million iTunes accounts with payment credentials  No discernible fee to merchants  Based on 2-year-old Passbook

2. Square Will Not Remain Independent  $6 billion valuation  Sell while the iron is hot  Company needs bigger merchants and a consumer strategy

3. eBay Will Not Spin off PayPal  Recent news reports revive prospect of spinoff  Won’t happen—at least not any time soon  Data synergies too strong, benefits eBay marketplace  Braintree/Venmo technology (eg, one-click) important to eBay

4. Transactions Will Always Carry a Price…  …And merchants won’t like it  Possibility of new token fees; issuers already getting hit  Interchange structure may change but won’t go away

5. …But Interchange Will Come Under Greater Pressure  Token fees won’t bring in what the networks had hoped  But they will fuel merchant attacks on interchange as a result of…  …lower fraud and…  …resentment over yet another fee (assuming they hit merchants)

6. New Fees Will Add up  FANF network fees at Visa—recently tweaked for aggregators  Apple’s 0.15% tokenization fee—on top of token-service fees from Visa and MasterCard  Right now, tokenization fees hit issuers. Could hit acquirers/merchants down the road

7. Breaches Will Continue Indefinitely  Cybercriminals have figured out the system’s weaknesses—new malware variants emerge constantly  Incentives are strong with stolen credentials fetching good prices  Even with EMV, fraud will shift to e-commerce

8. EMV Will Take A Long Time…  Level Four merchants won’t adopt any time soon  Costs of equipment, staff training  Liability shift not necessarily a spur to adopt  Some merchants argue cost of fraud cheaper than adopting  The wild card is Apple Pay—driving NFC deployment will also drive EMV deployment

9. …But Real-Time Payments Won’t  NACHA trying again for same-day ACH, but this time with multiple settlement windows  Fed lining up in favor  New processors like Dwolla agitating for real time settlement  Next step will be real-time

10. Host Card Emulation Will Bifurcate NFC  A tale of two NFCs—secure element and HCE  Apple Pay’s emergence on a secure element means divide between iOS and Android, with Android being largely HCE  HCE less secure but more appealing to issuers