January 7, 2013 Issue - Electronic Transactions Association

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January 7, 2013 Americas: Technology: IT Services - Payment Processors PayPal and Square stand out as the best solutions among new entrants Among several new entrants, approximately 40% of our respondents ranked the PayPal and Square POS solutions as “Very Good”, while only 11.5% believed their offerings were “Not Useful”. Over 50% of respondents viewed Groupon and Intuit (two models that we view as Integrators) as “Fair”. On the other hand, several other new POS vendors, including Erply, Revel, ShopKeep and Vend were unfamiliar to at least 50% of respondents (Exhibit 10). We believe this is important, as all of these POS vendors currently partner with merchant acquirers and ISOs as distribution channels into the SMB and thus represent potential disintermediation risk for incumbent POS solution providers. Exhibit 10: What is your perception of the following POS solutions Paypal and Square Pos solutions receive high marks from incumbents. Very Good Fair Not Useful Unfamiliar Erply 1.3% 15.6% 10.4% 72.7% Groupon (Breadcrumb) 3.9% 50.6% 33.8% 11.7% Innovative Merchant Solutions (Intuit) 28.6% 58.4% 6.5% 6.5% LevelUp 10.4% 46.8% 22.1% 20.8% PayPal 41.0% 46.2% 11.5% 1.3% Revel 8.0% 18.7% 6.7% 66.7% ShopKeep 15.6% 24.7% 9.1% 50.6% Square 39.7% 48.7% 11.5% 0.0% Vend 1.4% 17.6% 6.8% 74.3% Source: Goldman Sachs Research and ETA Goldman Sachs Global Investment Research 10
January 7, 2013 Americas: Technology: IT Services - Payment Processors Distribution: POS vendors may lose some acquirer/ISO distribution Relationship between acquirers and terminal POS providers appears tepid More than half of our respondents (56%) primarily distribute or resell VeriFone POS terminals, with Equinox (formerly Hypercom) and Ingenico coming in at distant second and third (Exhibit 11). However, most survey participants plan to either develop their own mobile POS solution or to partner with other third party providers (including new entrants). Only 31% responded they would offer mobile based solutions from their current provider, while another 6% suggested they were not interesting in providing these alternative POS solutions (Exhibit 12). As we noted in our Payments Deep Dive V.1 report, we see the competitive risks for terminal manufacturers as primarily concentrated in the US SMB segment, where merchant acquirers and ISOs typically distribute terminals to merchants. It is through this distribution model that there is an opening for new entrants to disrupt the market for POS solution providers as acquirers, in our view. That said, our analysis suggests a downside scenario where PAY lost all of its distribution partners into the US SMB segment (and 50% of its direct distribution into the large merchant segment), would result in only a 10% hit to annualized EPS. Exhibit 11: Which company do you currently use as your main point-of-sale terminal provider PAY stands out as the preferred US POS terminal provider for our group of acquirer/ISOs Exhibit 12: Are you planning to offer your merchants a smartphone or tablet based solution in the next 12 months Almost 90% of respondents plan to provide merchants a smartphone / tablet based solution in the next year. Other 15% Equinox (formerly Hypercom) 13% Ingenico 10% PAX 1% Proprietary solution 5% Yes, we are developing our own solution 29% No, will likely keep offering the same POS terminals 6% Other 7% Yes, but from a different provider 27% Yes, likely from my current provider of POS terminals 31% VeriFone 56% Source: Goldman Sachs Research and ETA Source: Goldman Sachs Research and ETA Goldman Sachs Global Investment Research 11
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January 7, 2013 Issue - Electronic Transactions Association

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