The Last Payment Card Frontier? Small Business and Electronic Payments

1. The Last Payment Card Frontier? Small Business and Electronic Payments Highlights of the MPD Small Business Payment Survey Karen L. Webster/President, Market Platform Dynamics Jeff Gardner/President, PaySimple May 20, 2008 NACHA

2. Payments Matter to Small Business Owners More than half of all survey respondents – 52% – would give up coffee for a week if they could collect payments from their customers faster and less expensively.

3. Small Business Drives Economic Growth • Countries have become increasingly aware that the “entrepreneurial engine” contributes to sustainable growth and social cohesion. • Governments seek to transform their economies into entrepreneurial ones, driven by dynamic firms such as high-growth small and medium-sized enterprises. • These new firms can be crucial in creating new jobs. They also help introduce new products, processes and business model innovations and develop new markets. • Some of them have changed the rules of the game in their industries. May 2008 Report on Small Business: US Department of Commerce and the OECD

4. Top Line Findings • Collecting payments is a key strategic priority. • Small businesses lag the general US economy in the adoption of electronic payments. • Acceptance is driven by customer’s needs for more payment options • Small businesses want better solutions and functionality–and will switch service providers to get it. • Small business believes that electronic payments is in their future.

5. Survey Methodology • Online Survey • 30 questions covering six topics • Demographic profile • Banking relationships • Payment acceptance • Payment card acceptance • Payment mix • Receivables management • Broad industry and geographic coverage » 545 small businesses with annual revenues of up to $5 million were surveyed between April 14 and April 30, 2008

6. 1. Collecting Payments is a Top Priority Fact: More than one third of small businesses rank collecting payments as their top priority. Behind the Research: Delay is in the eye of the beholder: most survey respondents report a payment cycle of <45 days.

7. 2. Small Business Lags in Adopting Electronic Payments Fact: US non-cash payments increased 4.6%/year since 2003 Number of Non-Cash Transactions Small Business (in Billions) Behind the Research: Paper checks remain the dominant and preferred form of payment for small business.

8. 3. Customer Preference Drives Adoption Fact: More than one third of small businesses rank collecting payments as their top priority. Drivers of Acceptance: Electronic Payments Behind the Research: Delay is in the eye of the beholder: most survey respondents report a payment cycle of <45 days.

9. 4. Small Businesses Want More Fact: Small businesses that accept electronic payments see the value and will switch banks for a better set of services. Willingness to Give Up Coffee for a Better Payment Solution Behind the Research: Those that don’t accept electronic payments report a higher typical transaction size and no real issues with delinquent accounts.

10. 5. Electronic Payments are an Eventuality Fact: Less than half view electronic payments as their most preferred method today. Behind the Research: Small businesses that accept electronic payments prefer that method of payment. Small Business Use of Electronic Payments 2005 – 2010 (Projected)

11. Final Thoughts » Customers rule the roost: They pull through the demand for electronic payments.» Fees don’t matter (much): Who doesn’t want “faster, better, cheaper” but small businesses will take “better” for now.» Loyalty only goes so far: Small businesses would switch banks to find a solution that makes life easier in the payments arena.» Believers believe and want more: Those who accept cards want to accept more, even if they pay a fee.» Non-believers don’t see the value: They don’t see the business case—is it what they don’t know, they don’t know?