5 January 2018

Americas/United States
Equity Research
Financial Technology & Payments

Payment Drivers 2018

Research Analysts
SECTOR REVIEW
Paul Condra
212 325 8903
paul.condra@credit-suisse.com Multiple Tailwinds Drive Growth and
Mrinalini Bhutoria
212 325 2691 Opportunity; Assessing Crypto Payments
mrinalini.bhutoria@credit-suisse.com
We assess several payments growth drivers and conclude payments remains
a buoyant and attractive sector for investment, benefitting from stable
economic growth, long-term transformational trends in commerce and a wealth
of M&A opportunities.
Long-term transformational drivers: Despite secular pressures facing
traditional brick-and-mortar retail payments, we see growth opportunities in
tech-led payment services benefitting from transformational changes taking
place in the payments landscape. Specifically, we highlight the growth of
mobile and web payments, the expansion of integrated payment platforms, the
steady automation of B2B/B2C payments, and the gradual monetization of
P2P/social payments as key sources of long-term growth.
M&A opportunities abound, but valuations high: While we believe a long
tail of small niche payment service providers can offer exposure to various
pockets of growth around the globe, we note expanding M&A valuations and
rising interest rates have the potential to dilute accretive impact and increase
financing risk. Hence, we favor reasonably valued deals with clear synergy
potential.
Inflation and demographics a mild sustained positive: We believe the
industry is favorably exposed to the more subtle tailwinds of rising interest
rates and demographics. To the extent rising interest rates drive inflation, this
has the potential to expand transaction size, providing modest leverage from
relatively fixed cost structures with low capital intensity. Demographic shifts
also provide favorable long-term benefits for firms more exposed to mobile
and online payment methods, including P2P and social platforms.
Assessing crypto payments: We expect further evolution of crypto-
payments in 2018 and note this industry is very well-funded, able to attract top
developer talent, and laser-focused on payments. While formidable barriers
exist to mass adoption on a retail level, we believe crypto-payments provide
unique solutions to legacy payment issues including security, fraud, speed of
settlement and fees. While several scaling issues exist, we believe crypto
payments could find use cases for enterprises, governments, remittances or in
sidelined and emerging segments such as the cannabis industry and initial
coin offerings (ICOs). We also see opportunity in providing crypto payment
services, such as Square’s (SQ) move to sell bitcoin.
Top picks: Our top picks for 2018 are PayPal (PYPL) for its exposure to web-
payments, and Global Payments (GPN) for its continued M&A execution. We
believe First Data (FDC) presents the most interesting value play in the
payments space.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
 5 January 2018

Table of contents
Payment Companies Exposure to Key Trends ........................................................3
Web Payments Growth ............................................................................................3
Web Payments Standardization...............................................................................6
Integrated Payments and Aggregators ..................................................................10
Social P2P..............................................................................................................13
B2B/B2C ................................................................................................................14
M&A .......................................................................................................................17
Keeping Watch of Crypto Payments ......................................................................20

Payment Drivers 2018 2

 5 January 2018

Payment Companies Exposure to Key Trends

We provide an overview of how payment companies under coverage are exposed to key
growth trends outlined in this report. We note “crypto potential” applies to both blockchain
technology and potential crypto-currency exposure.

Figure 1: Payment Companies Exposure to Key Growth Trends

Web Integrated IoT M&A B2B P2P Crypto
Company Tick. Rtng Payments Payments Potential Potential B2C Social Potential
Mastercard MA OP Strong Average Strong Strong Strong Strong Average
Visa V OP Strong Average Strong Strong Strong Average Average
Paypal PYPL OP Strong Strong Strong Strong Strong Strong Strong
Square SQ N Weak Strong Average Average Strong Strong Strong
First Data FDC OP Average Strong Average Average Average Weak Average
Global Pymnts GPN OP Average Strong Average Strong Average Weak Average
TSYS TSS N Weak Strong Average Average Average Weak Average
Fleetcor FLT N Weak Average Average Strong Strong Weak Weak
Wex WEX OP Strong Average Average Average Strong Weak Weak
Blackhawk HAWK N Strong Weak Weak Average Weak Weak Weak
Verifone PAY N Average Average Average Weak Weak Weak Weak
Source: Credit Suisse. Note MA and V are covered by Moshe Orenbuch.

Web Payments Growth

We believe sustained growth of ecommerce and web-based payments represents one of
the most favorable growth drivers in the payments industry and are positively biased
toward firms with more exposure to this trend (i.e., PYPL). As ecommerce represents a
relatively low share of total retail spend (around 12%), we believe web payments can
sustain growth in the 15%-20% range for several years.

Figure 2: US Online Sales Share of Total Retail

Online Share of Retai (rt axis)l Retail Sales Growth y/y Online Sales Growth y/y
18% 14%

16%
12%
14%
10%
12%

10% 8%

8% 6%

6%
4%
4%
2%
2%

0% 0%
Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

Jul-15

Jan-16

Jul-16

Jan-17

Jul-17
Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

Oct-16

Apr-17

Oct-17

Source: US Census Bureau, Credit Suisse

Payment Drivers 2018 3

 5 January 2018

Emarketer forecasts mid-teens ecommerce sales through 2021, when online sales will still
only represent about 15% of global sales.

Figure 3: Global Ecommerce Growth Forecast Figure 4: US Ecommerce Growth Forecast

Online share of Retail Retail sales growth
Online share of Retail Retail sales growth
Online sales growth
Online sales growth
30%
20%
25% 18%
16%
20% 14%
12%
15%
10%
10% 8%
6%
5% 4%

0% 2%
0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Source: Emarketer, Credit Suisse Source: Emarketer, Credit Suisse

We believe the rise of digital commerce and the subsequent growth of IoT will have
transformational effects on the payments industry. The increasing interconnectedness of
devices and standardization of web payments along with the expanding capabilities of
platform-payment services will enable consumers and businesses to transfer value more
easily, more efficiently and with greater frequency than is possible in a non-digital setting.
Improving settlement times from faster payment initiatives and the use of alternative
currencies, such as crypto-currencies may also contribute to this trend.

Figure 5: Total Connected Devices (millions)

25,000

+82%
20,000

Business Vertical
Specific
15,000
+34% Business Cross
+31% Industry
10,000
Consumer

5,000

0
2016 2017 2018 2020

Source: Gartner (Jan 2017 Forecast), Credit Suisse

Payment Drivers 2018 4

 5 January 2018

We see these trends as transformational to the industry as providers increasingly expand

product lines to meet the evolving infrastructure needs of digital commerce. We expect this
to drive more demand for multi-purpose enterprise level payment/commerce solutions
often delivered on a SaaS basis. We provide three examples of how payments are driving
transformational enterprise opportunities.
1. Fraud, security and authentication solutions: As online transaction fraud and
payment security remain increasing pain points for the industry, we expect
growing demand for fraud solutions that can seamlessly integrate into existing
payment processes. With false declines of online payments in the US expected to
amount to roughly $331b in 2018 (Aite), payment providers are allocating
significant resources to improving fraud and authentication capabilities, including
through better shared data analysis, bio-metrics and innovative technologies such
as 3-D secure. Additionally safely storing customer data and preventing “honey-
pot” data theft is driving demand for payment tokenization and encryption
services.
2. On demand funding/credit: The growth of the on-demand/marketplace economy
presents unique challenges as online intermediaries seek to match payers and
payees. For example, on-demand courier services (i.e., UberEats) need
frictionless methods of accepting payment from customers and subsequently
paying vendors at the physical point of sale. Companies such as Marqeta provide
unique solutions that enable instantly funded payment cards with pre-set controls
for funds disbursement, payments or expenses. As online merchants increasingly
offer credit or modified payment terms at the digital point-of-sale, companies such
as Klarna and PayPal are helping facilitate on-demand lending, without the need
to set up formal credit programs with traditional lenders.
3. Payment gateway services: Payment gateways/platforms continue to evolve,
with firms like Stripe and Braintree (PYPL) providing critical infrastructure services
enabling online business to offer seamless payments for on-demand services,
and subscription payment services along with data analysis across all payment
types. Gateway platforms not only enable enterprises to be more flexible in how
they receive payments, but in how they pay vendors and employees, such as
allowing instant deposit of funds across multiple accounts.

Payment Drivers 2018 5

 5 January 2018

Figure 6: Payment Gateway Platforms Wrap Payment and Data Features Around the Organization

Gateway Services
Business services
Customer data
Payment data Alternative
Payment
PayPal,AliPay
Customer Bank/Other
Payment
Services
Services
Customers Payment Merchant Acceptance
Subscription
Pay ahead
Business Authorization
Fraud
Pay later Tokenization Merchant
Refunds Security Acquirer
Network
Employee Services
Disbursements MA/V/AXP
Payouts
Benefits

Sellers,
Contractors,
Employees

Source: Credit Suisse

Web Payments Standardization

Payments continue to represent a high friction pain point for online retailers. One way to
reduce friction is to standardize how consumers pay, which is the focus of the World Wide
Web Consortium’s (WC3) “Payment Request API”, an integrated in-browser payment
agent intended to reduce payment friction. We expect Payment Request API to become
more commonly implemented by online merchants in 2018.
As the online eco-system evolved, payments infrastructure was built on an “as needed”
basis, resulting in a fragmented and inconsistent payment experience. This complexity is
exacerbated by the mix of online commerce across various platforms (i.e., desktop vs
mobile, in-app vs browser).

Payment Drivers 2018 6

 5 January 2018

Figure 7: Online Platform Mix Complicates Payments: Time Spent Online by

Platform (2017)

Tablet App Tablet Web

5% 1%

Desktop
24%

Mobile Web
35%

Mobile App
35%

Source: ComScore, Credit Suisse

While in-app payment gateways help reduce friction (i.e., seamless in-app payment
experiences such as Amazon or Uber), almost half of web-commerce still occurs in a
mobile browser setting, which has significantly lower conversion rates relative to in-app.

Figure 8: Mobile Ecommerce Transaction Mix (2016) Figure 9: Ecommerce Conversion Rates (2016)

6.5%

4%
Mobile
Browser
In-App 46%
54%
2%

Mobile Browser Desktop In-App

Source: Criteo, Credit Suisse Source: Criteo, SmartInsights.com, Credit Suisse

In-browser payments can be very tedious as they often require customers to populate
lengthy checkout forms. While auto-fill helps, it is not always reliable and often needs to be
verified or corrected.

Payment Drivers 2018 7

 5 January 2018

Figure 10: Traditional In-Browser Payments Flow Can Have High Friction

Merchant Checkout Form

Customer shops Outside payment

on merchant High Friction Process provider (i.e.,
site. Visa, PayPal).

Source: Credit Suisse

In 2015, the World Wide Web Consortium (the main international standards organization
for the internet) established the Web Payments Working Group to address standardization
in web-payments. In September 2017, the group announced that it had completed initial
work on ‘Payment Request API’, which would be implemented across all major internet
browsers (i.e., Chrome, Explorer, Safari, etc.).
Payment Request makes the browser an “agent” in the payment process. It works by
having the merchant integrate payment acceptance criteria to the browser (i.e., “we accept
Visa, PayPal, MasterCard” etc.). Then, at checkout, the browser presents a standardized
checkout window to the customer that displays the items for purchase along with the
customers shipping address and preferred payment credentials.
For the merchant, the back-end process is unchanged and there is no change to its
existing processor relationship. For the customer, the browser now acts as a standardized
payment gateway through which payment credentials can be passed to the merchant.
However, this does require customers to pre-store payment data in their browser.

Payment Drivers 2018 8

 5 January 2018

Figure 11: Payment Request API Creates Consistent In-Browser Shopping Experience

Payment Request API:

Consistent Experience
Across Browsers

Customer shops Merchant

on merchant integrates to
site. browser via API.

Shoppers must have

payment credentials
stored in browser
Payment settlement
still direct between
payment provider and
Outside payment merchant.
provider (i.e.,
Visa, PayPal).
Source: Credit Suisse

With Payment Request, the customer experience is consistent and seamless across
merchants and browsers with no need to enter shipping or payment card information. As
shown below, the Payment Request window on the left is a much cleaner instant checkout
process relative to the checkout form on the right.

Payment Drivers 2018 9

 5 January 2018

Figure 12: Payment Request Checkout Window Figure 13: Merchant Generated Checkout Form

Source: Credit Suisse Source: Credit Suisse

Integrated Payments and Aggregators

Figure 14: Payment Model by Merchant Tier (US)
Tier Merchants Payment Volume POS Software Payment Model
1 125 Extremely High Custom Scale Providers
2 85K High ISV Scale Providers & Integrated Payment
3 750K Medium ISV Providers

4 8M Light ISV/Aggregator Integrated Payments & Aggregators

5 22M Extremely Low Aggregator/None Aggregators/PayFacs

Source: Smart Card Alliance and Credit Suisse

Integrated Payments
As traditional brick and mortar payments become relatively commoditized with many
providers offering similar services, we expect integrated payment platforms to continue
gaining share, primarily in the micro and SMB market. While this industry is maturing with
much of the low hanging fruit taken, we see continued opportunity for steady growth in the
US and opportunities for new growth in more nascent regions, such as Europe.

Payment Drivers 2018 10

 5 January 2018

Integrated payments provide added functionality for merchants as payments are

seamlessly pre-integrated into the point-of-sale software as opposed to having a separate
payment terminal outside the point-of-sale system. This makes it much easier for
merchants to reconcile customer activity with payment activity, adding functionality for
businesses with specific payment needs, such as memberships, rewards, installment
billing, etc.
Integrated payments also generate better data, reduce the complexity of PCI compliance
and increase payment security by keeping sensitive payment card data out of the
merchant environment.

Figure 15: Integrated Point-of-Sale Provider Value Chain

Merchant IPOS
POS Software Provider
(Integrates
Payment
Merchant Vendor payment Processor
(Refers Merchant to function within (i.e., Vantiv)
IPOS provider) POS software)
Merchant

Source: Credit Suisse.

Key to the growth of integrated payments has been its unique distribution model whereby
traditional payment providers partner with Independent Software Vendors (ISVs) and
Value Added Resellers (VARs). The ISVs and VARs then refer their customers to the
preferred payment partner, which in turn share its transaction residual with the software
seller.
For payment service providers, this has been a lucrative opportunity as the market for
POS software is very fragmented with some 2,500 different ISVs providers and an
additional 6,500 VARs distributing them. For example, it is estimated there are 13 different
POS solutions for car washes alone.
In recent years, more payment players have entered the market, putting pressure on
residual share as payment providers compete for ISV/VAR partnerships. However, while
the low-hanging fruit may be gone, we still view this as a steady growth opportunity with
estimates that only 30% of the TAM is penetrated. However while it may have been a mid-
to upper teens growth market a few years ago, growth may be low teens high-single digits
for the next few years.
Additionally, as international markets remain relatively untapped, we expect that as smart-
terminal adoption expands in Europe and other regions, this could help catalyze demand
for integrated payment services over time.
Aggregators and PayFacs
Another version of the ISV model includes payment aggregator and payment facilitator
(“PayFacs”) services, such as Square (SQ) that sell out-of-the-box hardware and software
POS systems. These platforms are generally low-touch standardized solutions that
provide digital cash register functions along with basic business management tools
including analytics, customer management and loyalty, invoices, payroll and lending
services.
For smaller merchants, aggregators can dramatically simplify and reduce the burden of
payments acceptance while providing several additional business management tools.

Payment Drivers 2018 11

 5 January 2018

While we are generally bullish on the aggregator model, its ability to work for larger
merchants that require higher levels of customization and service is still unproven.

Figure 16: Traditional Payment Acceptance Can Involve Many Parties

Merchant

Bank Merchant Online

POS
ISO (Merchant Acquirer/ (Payment
Equipment
Account) Processor Gateway)

Payline Global Terminal

JPM, Wells Braintree,
Data, Pmts, (Verifone),
Fargo, BofA, Stripe,
Dharma, First Data, Cash
etc. Cybersource
Cayan, etc. Vantiv, etc. register

Third Party Fees

Transaction rates
(Interchange plus or tiered)
Per-item charge
Monthly fee
Application fee
Monthly minimum fee
Cancellation fee

Source: Company data, Credit Suisse estimates

Payment Drivers 2018 12

 5 January 2018

Figure 17: Aggregator Payment Acceptance is Greatly Simplified

Merchant

Square Online

Square API OR
POS
Merchant Aggregated BigCommerce,
Equipment
Acquirer/ Bank Weebly,
supplied by
Processor Account WooCommerce,
Square
Ecwid

Square Fees
2.75%/transaction

3.5%+$0.15 for keyed-in

transactions

Source: Company data, Credit Suisse estimates

Social P2P
While Social/P2P (person-to-person) payments remain economic loss leaders from a
payment perspective, we believe providers can benefit from the increased platform
stickiness these services provide. We also see a longer-term opportunity to monetize P2P
via merchant payments and/or data and advertising services.
2017 saw increase promotional activity for P2P services not just from PayPal’s Venmo, but
from Square (SQ), Apple (AAPL) and bank-led Zelle. We don’t view P2P as a winner-take-
all industry and expect strong volume growth could occur across several providers.
However, we believe P2P platforms focused on providing value for customers (Venmo) will
have an edge over those focused on retaining control of customers (Zelle).
P2P volumes remain relatively low with Zelle and P2P facilitating only about $125b in
volume in 2017. We expect different platforms may emerge better suited to different use
cases. For example, Zelle’s average transaction size of ~$300 is well above Venmo, which
we estimate is in the $20-$30 range.
We expect to be driven by several factors including:
 Increased consumer use and acceptance of P2P.
 Favorable demographics.
 Merchant acceptance of P2P platforms for payments.

Payment Drivers 2018 13

 5 January 2018

 Continued integration into other social messaging apps, such as Facebook

Messenger and iMessage (i.e., the rise of “contextual commerce”).
 Promotional activities among providers.

Figure 18: PayPal Venmo P2P Volume ($B) Figure 19: Zelle P2P Volume ($B)
$40 $100
+98% +60%
$35
$80
$30

$25 $60
$20 +136%
$40
$15

$10 +211% $20

$5

$0 $0
2014 2015 2016 2017E 2016 2017E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

B2B/B2C
We believe helping businesses digitize and streamline corporate payments presents a
stable long-term growth opportunity. While check-based commercial payments remain
persistent and we see several barriers preventing rapid adoption of electronic B2B
payments, we believe bank-led faster payments initiatives and the steady rise of the IoT
economy should provide continued payment opportunities in this market.
As shown below, roughly half of corporate payments made and received remain check-
based.

Payment Drivers 2018 14

 5 January 2018

Figure 20: Share of Corporate Payments Made/Received by Check (2016)

Check payments made Check payments received

90%

80%

70%

60%

50%

40%

30%
2004 2007 2010 2013 2016

Source: AFP, Credit Suisse

Additionally, businesses face significant payment complexity as they make and receive
payments across a variety of payment types.

Figure 21: Payments Made to Major Suppliers by Type

2% 1% 1%
3%

5% Checks
ACH Credit
13% 41% Wire
Purchase Cards
ACH Debit
Other Cards
Singe-use accounts
34% Other Cards

Source: AFP, Credit Suisse

However, barriers to digital payments adoption have proven formidable and persistent.
These include:
 A fragmented provider market with too many choices
 Difficulty convincing customers to pay electronically
 Difficulty convincing suppliers to receive payments electronically

Payment Drivers 2018 15

 5 January 2018

 Lack of IT resources to implement new system and limited integration with internal
accounting systems
 A lack of need for electronic payments as supplier terms don’t necessitate speed.
Only 45% of firms said converting check payments to electronic formats over the next
three years was “very likely”.

Figure 22: Likelihood of Converting Check Payments to Major Suppliers To

Electronic Over the Next Three Years

21%

Very likely
45%
Somewhat likely
8%
Not at all likely
Already electronic

26%

Source: AFP, Credit Suisse

Still, we believe increasing demand for automation, speed, efficiency and integration with
cross-industry platforms will provide stable tailwinds for the gradual adoption of digital
corporate payments. We believe this is particularly true in “new-economy” industries that
are enabled by digital payments, such as online marketplaces and travel, or other
industries where payables/receivables automation can improve services, such as
healthcare.
Visa has identified $19 trillion of payment volume subject to digitization in coming years.

Payment Drivers 2018 16

 5 January 2018

Figure 23: B2B Digital Payments Opportunity

Source: Visa, Credit Suisse

We believe B2C payments – where businesses pay consumers or employees directly in

the form of wages, corporate returns, or some other kind of corporate disbursement – may
represent faster growth opportunities. This is because while B2B payments tend to have
pre-agreed payment terms among suppliers, B2C payments can create opportunities for
businesses to provide a positive experience for customers or employees.
Faster payment capabilities could also be a significant catalyst for B2C payments, as this
allows consumers to obtain funds instantly. Products such as Visa Direct combined with
modern payment gateways offered by Square, Stripe and PayPal’s Braintree enable
companies to easily disburse funds to customers and employees in a manner chosen by
the payee. For example:
 Uber drivers can have wages deposited directly to specified accounts and pay a
small fee ($0.50) to make funds available instantly.
 Square merchants can have daily funds instantly deposited to accounts for 1% of
the volume.
While bank faster payment initiatives also provide quicker access to funds (Same Day
ACH and The Clearing House Real-Time-Payments), we believe third-party non-bank
payment service providers are leading the B2C/B2B payments evolution and have a
significant head start over banks.

M&A
We believe a wealth of M&A opportunities exist in payments and expect further
consolidation of the industry as legacy processing services become more commoditized.
We expect M&A will largely focus on the themes outlined in this report, i.e., expanding
exposure to ecommerce, integrated merchant solutions and B2B services. Additionally, we
expect payment companies will seek international growth opportunities that can provide
cross-border or emerging market exposure.

Payment Drivers 2018 17

 5 January 2018

Figure 24: Fin-Tech M&A Volume ($B) Figure 25: Fin Tech Sector M&A Mix (2017 YTD)
$160
2% 1%
8%
$140 13%

$120 Banking
15% Payments
$100
Securities
$80 Healthcare
$60 Insurance

19% 42% FMS

$40
FinancialBPO
$20

$0
2010 2011 2012 2013 2014 2015 2016 2017
An.

Source: Financial Technology Partners, Credit Suisse Source: Financial Technology Partners, Credit Suisse

However, we are somewhat leery of increasing valuations, which have the potential to
dilute the accretive impact of deals and/or increase financing risk. We provide a list of
M&A deals across our coverage over the past three years. Note valuations in 2017 have
generally been higher.

Payment Drivers 2018 18

 5 January 2018

Figure 26: M&A Transactions

Multiple (LTM
Company Deal Price Date Expanded Offering
EV/EBITDA)
Global Payments GPN APT ~10x $413M Oct. 2012 Integrated payments
First Data FDC Perka $30M Oct. 2013 Merchant loyalty and payments app
First Data FDC Clover $56M Oct. 2013 Tablet based POS
Global Payments GPN PayPros mid teens $420M Mar. 2014 Integrated payments
Wex WEX Evolution1 low-20s $533M Jul. 2014 Virtual corporate payments
Fleetcor FLT Pacific Pride $50m Aug. 2014 Commercial fuel card
Alliance Data Systms ADS Conversant 10.0x $2.3B Dec. 2014 Customer data analytics/digital targeted marketing
Global Payments GPN Realex $120M Mar. 2015 Online payment gateway
PayPal PYPL Paydiant $280M Apr. 2015 Merchant loyalty and payments app
Blackhawk HAWK Achievers $110M Jun. 2015 Incentive rewards distribution
Fidelity Nat'l FIS Sungard 11.5x $9.1B Aug. 2015 Financial software (capital markets vertical)
Global Payments GPN BPI JV Aug. 2015 Philippine processing
PayPal PYPL Modes N.A. Aug. 2015 E-commerce enablement platform
First Data FDC Spree N.A. Sep. 2015 E-commerce enablement platform
Verifone PAY Curb N.A. Oct. 2015 Taxi E-hail, Payments, Media
Wex WEX EFS 11.0x (NTM) $1.4B Oct. 2015 Virtual corporate payments
Wex WEX Benaissance $80M Oct. 2015 Cloud financial mgmt. software for health care
ACI Worldwide ACIW PAY.ON $200M Nov. 2015 Online payment gateway
Global Payments GPN Heartland Pmts 19.2x $4.3B Dec. 2015 Merchant acquiring
Blackhawk HAWK GiftCards.com N.A. Jan. 2016 Digital Commerce
Blackhawk HAWK OmniCard N.A. Jan. 2016 Digital Commerce
Fiserv FISV ACIW CFS $200M Jan. 2016 Digital Banking
Total System Services TSS Transfirst 13.8x $2.4B Jan. 2016 Merchant acquiring
Verifone PAY AJB Software Jan. Jan. 2016 Omni-commerce
Blackhawk HAWK NimbleCommerce N.A. Feb. 2016 Digital Commerce
Fleetcor FLT STP (Brazil) 11.5x $1.05B Mar. 2016 Workforce Payments, Toll Network
Global Payments GPN eWAY $50M Apr. 2016 Online payment gateway
Diebold DBD Wincor Nixdorf 12.7x $1.7B Aug. 2016 Self service hardware, software for Retail & Banking
PayPal PYPL TIO Networks ~18x $233M Feb. 2017 Bill payment processing software
Square SQ OrderAhead N.A. Mar. 2017 Food pick-up business
First Data FDC CardConnect (CCN) 17.0x $750M May 2017 ERP assets
Fleetcor FLT Cambridge Global Pmts 12.9x $675M May 2017 Cross border payments
Fiserv FISV Dovetail N.A. Aug. 2017 Bank payments; Liquidity Mgmt
Global Payments GPN Active Network 18x-19x $1.2B Aug. 2017 Enterprise software for health/fitness events
Fiserv FISV Monitise $97.3M Sep. 2017 Digital Banking
First Data FDC BluePay 22.6x $760M Oct. 2017 Pmt processing; software enabled pmts, CNP, ISV
Total System Services TSS Cayan 20.0x $1B Dec. 2017 Merchant acquiring; ISO

Source: Company data, Credit Suisse estimates

We note that while leverage has increased across the industry, it remains at manageable
levels though rising interest rates could slow M&A activity modestly.

Payment Drivers 2018 19

 5 January 2018

Figure 27: Payment Stock Leverage (debt/TTM EBITDA)

9x 4Q14 3Q17
8x
7x
6x
5x
4x
3x
2x
1x
0x
TSS

SQ

Average
FLT

PAY

FDC
WEX
HAWK

GPN
Source: Company data, Credit Suisse estimates

Keeping Watch of Crypto Payments

While it may take considerable time before crypto payments can scale to meet the
demands of mass retail, we nonetheless see value in distributed ledger-based (i.e.
blockchain) payment systems and note the fledgling industry is very well funded, able to
attract top talent, and focused on developing real-world payment solutions.
To date, blockchain investments by established players in the payments industry (i.e.,
networks and banks) have been focused on enterprise level solutions, with little lip service
given to the emerging crypto coins. One exception has been Square (SQ), which
announced its intention to enable Square Cash app users to buy bitcoin (for a brief Bitcoin
primer see our note: Going Crypto; Exploring the Bitcoin Play).
Yet while legacy card-based payment services have many advantages (scaled processing
capabilities, widespread acceptance, reliability, understood by consumers and merchants,
established dispute resolution systems, clear regulatory frameworks) crypto-currencies
have the potential to provide unique solutions for some of the most pressing issues
afflicting legacy payments infrastructure, namely security, fraud, settlement time and fees.
Payment security: Retailers, issuers and payment service providers allocate significant
resources to ensure that sensitive cardholder data is secure when it is at rest or in transit
among the various participants of the card payment system. This long chain of service
providers presents multiple potential points of failure among the payment process, with
several high profile breaches occurring in recent years (Target, Chase, Equifax).

Figure 28: Traditional Card Base Retail Payments Flow

Card-Based Retail Payments = Multiple Points of Failure

Issuer
Consumer Bank Network Acquirer Gateway Merchant
Processor

Participants shaded in blue possess sensitive information

Source: Visa, Credit Suisse

Payment Drivers 2018 20

 5 January 2018

Crypto payments greatly reduce the need to spend on security as sensitive customer
information is not sent to merchants. With crypto payments, data risk is isolated to the
wallet provider and/or the consumer. While this does not completely eliminate security risk,
it greatly reduces the scope of the threat. While there have been high profile breaches of
crypto exchanges, such as Mt. Gox, we view these more as growing pains as opposed to
structural weaknesses.

Figure 29: Crypto Retail Payment Flow

Crypto Payment = Fewer Points of Failure

Crypto
Consumer Acquirer Gateway Merchant
Wallet

Participants Shaded in Blue Posses Sensitive Data

Source: Visa, Credit Suisse

Fraud: Crypto-payments virtually eliminate counterfeit fraud as it is essentially impossible

to replicate a crypto-wallet to make fraudulent payments the way a fraudster can replicate
a payment card account with stolen account numbers. While hackers could potentially
penetrate crypto-wallets to initiate fraudulent payments, this threat also exists today with
banks.
Settlement time: Crypto payments can be confirmed within minutes and in some cases
instantly, with no further clearing or settlement necessary. While Bitcoin has become the
poster-child for lengthy confirmation times with transactions sometimes taking hours to
confirm, we believe these scaling issues can be fixed and note transactions with coins
such as Litecoin, Dash and Ethereum do not have these issues. Similarly, energy
consumption is a problem specific to bitcoin, with other confirmation methods possible that
enable crypto payments to be processed using much less energy. While faster payments
initiatives among banks and legacy payment providers are speeding up settlement times,
this often carries additional fees and is not always available.

Figure 30: Crypto Coin Average Block Time (minutes)

12
10.0
10
8.6
8

4
2.3 2.6
2
0.2
0
Bitcoin Ethereum B-Cash Litecoin Dash
Source: Bitinfocharts.com, Credit Suisse. Note, the bitcoin payments backlog is massive. While block times average ~10 minutes, payments
may not be confirmed for hours as they await a miner to pick them up and put them in a block. We estimate it would take about a day to clear
all the pending bitcoin payments provided no new payments were added to the network.

Fees: We believe crypto-payment fees are largely misunderstood. Whereas fees for card-
payments are based on a percentage of transaction value, crypto fees are tied to both
transaction size measured in data (i.e., bytes) and the time it takes to confirm measured in

Payment Drivers 2018 21

 5 January 2018

“blocks”. Hence, crypto transactions fees are completely unrelated to the amount of value
transacted.
This has the effect of skewing fees and making some small transactions more expensive
than large transactions. For example, a bitcoin transaction of $1 million could cost as little
as $10 to send whereas a $10 transaction could also cost $10 (or more). While bitcoin’s
scaling issues and high fees effectively rule out its use in small high frequency payments
(i.e., mass retail), other coins (Dash, Ethereum, Litecoin, Bitcoin Cash) do not have the
same issues and can process transactions for pennies.

Figure 31: Crypto Coin Average Transaction Fees

$16 $15.11
$14
$12
$10
$8
$6
$4
$2
$0.36 $0.03 $0.24 $0.04
$0
Bitcoin Ethereum B-Cash Litecoin Dash
Source: Bitinfocharts.com, Credit Suisse. Represents average transaction fee for the month of December.

Consumer adoption: While merchants are likely very open to the idea of reducing
acceptance fees to a few pennies, consumer adoption of crypto payments will be a trickier
riddle to solve.
Consumers likely won’t use a system that does not have product guarantees, dispute
resolution systems, or some sort of rewards system. While all of these features can be
added to crypto-payments, this adds costs and complexity such that a truly scaled and
functionally comparable crypto payment system may not look much different from today’s
card systems.
Still, the stratospheric rise of crypto prices has helped drive early stage adoption unlike
any other alternative payment system. This has yielded tremendous publicity and brand
recognition, resulting in millions of consumers now owning crypto assets stored in crypto
wallets that essentially have the same payment function as a Starbucks app. News of
companies like Amazon purchasing bitcoin URLs and Square enabling bitcoin purchases
help reinforce this trend as consumers see this as validation that crypto currencies are
here to stay.

Payment Drivers 2018 22

 5 January 2018

Figure 32: Coinbase Users (Millions)

14

12

10

0
Oct-13

Oct-14

Oct-15

Oct-16

Oct-17
Jan-13

Jan-14

Jan-15

Jan-16

Jan-17
Apr-13
Jul-13

Apr-14
Jul-14

Apr-15
Jul-15

Apr-16
Jul-16

Apr-17
Jul-17
Source: Alistair Milne, Credit Suisse

Along the way, people are using crypto currencies to take part in Initial Coin Offerings
(ICOs) or to play the Ethereum-based game Crypto-Kitties. While these are isolated use
cases, they nonetheless represent products that could only exist with blockchain
technology and payments not possible with traditional card based systems. Other
opportunities may exist in niche cases such as remittances, disbursements, corporate
payments or the cannabis industry, which is fully cash-based. We believe that if crypto
payments do materialize, it will likely be in these kinds of ‘new payment’ opportunities
where they will first take root.

Payment Drivers 2018 23

 5 January 2018

Companies Mentioned (Price as of 04-Jan-2018)

Amazon com Inc. (AMZN.OQ, $1209.59)
Apple (AAPL.O, $173.03)
Blackhawk Network Holdings, Inc. (HAWK.OQ, $36.0)
Equifax Inc. (EFX.N, $121.64)
Facebook Inc. (FB.OQ, $184.33)
First Data Corporation (FDC.N, $16.65, OUTPERFORM, TP $21.0)
Fleetcor Technologies, Inc. (FLT.N, $195.46)
Global Payments Inc. (GPN.N, $103.65, OUTPERFORM, TP $108.0)
JPMorgan Chase & Co. (JPM.N, $109.04)
MasterCard Inc. (MA.N, $155.81)
PayPal Holdings, Inc. (PYPL.OQ, $76.73, OUTPERFORM, TP $85.0)
Square, Inc. (SQ.N, $38.1)
Starbucks (SBUX.OQ, $58.93)
Target Corporation (TGT.N, $65.85)
Total System Services, Inc. (TSS.N, $79.42)
VeriFone Systems, Inc. (PAY.N, $17.62)
Visa Inc. (V.N, $116.08)
WEX, Inc. (WEX.N, $144.6)

Disclosure Appendix
Analyst Certification
I, Paul Condra, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and
securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in
this report.
3-Year Price and Rating History for First Data Corporation (FDC.N)

FDC.N Closing Price Target Price Target Price Closing Price FDC.N
Date (US$) (US$) Rating
10-Dec-15 16.58 20.00 N* 20
11-Feb-16 8.67 12.00 O 18
22-Apr-16 13.00 15.00 16
07-Nov-16 14.46 17.00 14
13-Feb-17 16.14 18.00
12
08-May-17 16.61 19.00
10
12-Jul-17 18.54 20.00
07-Aug-17 18.18 21.00 01- Jan- 2016 01- Jul- 2016 01- Jan- 2017 01- Jul- 2017 01- Jan- 2018
12-Sep-17 18.38 R
14-Sep-17 17.81 21.00 O N EU T RA L
O U T PERFO RM
* Asterisk signifies initiation or assumption of coverage. REST RI C T ED

3-Year Price and Rating History for Global Payments Inc. (GPN.N)

GPN.N Closing Price Target Price Target Price Closing Price GPN.N
Date (US$) (US$) Rating 115
08-Jan-15 42.39 47.50 O
08-Apr-15 49.30 52.00
90
20-Apr-15 50.14 55.50
10-Dec-15 71.45 84.00 *
25-Jan-16 57.66 68.00 65
07-Apr-16 71.74 77.00
15-Apr-16 75.69 80.00
40
28-Jul-16 78.19 84.00 01- Jan- 2015 01- Jan- 2016 01- Jan- 2017 01- Jan- 2018
05-Jan-17 73.42 80.00
09-Jan-17 79.79 86.00 O U T PERFO RM

04-May-17 86.14 91.00

12-Jul-17 90.19 97.00
03-Aug-17 95.15 100.00
08-Nov-17 101.65 108.00
* Asterisk signifies initiation or assumption of coverage.

Payment Drivers 2018 24

 5 January 2018

3-Year Price and Rating History for PayPal Holdings, Inc. (PYPL.OQ)

PYPL.OQ Closing Price Target Price Target Price Closing Price PYPL.OQ
Date (US$) (US$) Rating 90
10-Dec-15 35.49 43.00 O*
28-Jan-16 34.24 39.00
70
22-Apr-16 40.31 42.00
21-Jul-16 40.13 43.00
20-Oct-16 40.09 47.00 50
26-Apr-17 44.41 49.00
08-Jun-17 54.39 56.00
30
26-Jul-17 58.79 63.00 01- Jan- 2016 01- Jul- 2016 01- Jan- 2017 01- Jul- 2017 01- Jan- 2018
10-Oct-17 66.04 70.00
19-Oct-17 67.25 74.00 O U T PERFO RM

16-Nov-17 77.70 85.00

* Asterisk signifies initiation or assumption of coverage.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and Asia stocks (excluding Japan
and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark (India - S&P BSE Sensex
Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative
attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR)
calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR
less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that
puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds
between 15% and 7.5%, which was in operation from 7 July 2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the
company at this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment
view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or
valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 45% (64% banking clients)
Neutral/Hold* 39% (60% banking clients)
Underperform/Sell* 13% (54% banking clients)
Restricted 2%
*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Important Global Disclosures
Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products
may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made
available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the
Payment Drivers 2018 25
 5 January 2018

frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with
the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely
manner, please contact your sales representative or go to https://plus.credit-suisse.com .
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit-
suisse.com/sites/disclaimers-ib/en/managing-conflicts.html .
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot
be used, by any taxpayer for the purposes of avoiding any penalties.
Credit Suisse has decided not to enter into business relationships with companies that Credit Suisse has determined to be involved in the
development, manufacture, or acquisition of anti-personnel mines and cluster munitions. For Credit Suisse's position on the issue, please see
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/responsibility/banking/policy-summaries-en.pdf .

Target Price and Rating

Valuation Methodology and Risks: (12 months) for First Data Corporation (FDC.N)
Method: Our $21 target price for FDC is derived from a 50-50 blend of P/E (13.5x our 2019 estimate, yielding $22) and EV/EBITDA (10.5x our 2019
estimate, yielding $20). Our Outperform rating is based on our view that management can drive revenue growth by executing on
improvements in the GBS North America segment and through tuck-in acquisitions, and EBITDA and EPS growth by cutting costs and
deleveraging.
Risk: Risks to our $21 target price for FDC are the inability to continue to reduce costs, slower than expected revenue growth, increasing
competition and deterioration in end-markets. Risks to our Outperform rating for FDC are continued negative sentiment on the stock,
preventing any share price appreciation.
Target Price and Rating
Valuation Methodology and Risks: (12 months) for Global Payments Inc. (GPN.N)
Method: Our $108 target price is derived from a blended P/E and EV/EBITDA valuation and implies a 2019 P/E multiple of 21.5x and EV/EBITDA
multiple of 15x. We believe GPN trades at a slight premium to the group given exposure to higher growth business lines and expectations
of earnings accretion from the HPY acquisition. Our Outperform rating stems from our expectations for continued strong growth and
performance, a strong management team, and exposure to strong secular growth trends in electronic payments.
Risk: Risks to our $108 target price include pricing pressure due to commoditization of traditional merchant processing, FX headwinds,
maturation of integrated channels, growing competitive threat not only from traditional providers, but also from new start-ups, and data
theft or breach of sensitive client-bank information, and unsuccessful integration of the HPY deal. Risks to our Outperform rating consist of
slowing core growth, competition, and not being able to achieve synergies following HPY deal.
Target Price and Rating
Valuation Methodology and Risks: (12 months) for PayPal Holdings, Inc. (PYPL.OQ)
Method: Our $85 target price is derived from a blended P/E and EV/EBITDA valuation and implies a 2019 P/E multiple of 31x and EV/EBITDA
multiple of 21x. Our Outperform rating stems from our view that PYPL has industry leading exposure to online and mobile payments and a
differentiated and fast-growing product portfolio, which justify this premium valuation, though we note PayPal has a much lower margin
profile relative to peers Mastercard and Visa.
Risk: Risks to our $85 target price include continued take rate compression as the company adds new large customers and increases the mix
of lower revenue products; competition for online payment processing volume from other large players including Visa and Mastercard; risk
that consumers stop using PayPal in favor of other payment methods; and potential data theft of sensitive consumer bank information.
Risks to our Outperform rating including faster than expected take rate compression and/or margin compression, causing us to reduce our
growth outlook.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations
typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): FDC.N, PYPL.OQ
Credit Suisse provided investment banking services to the subject company (FDC.N) within the past 12 months.
Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-
banking, securities-related: PYPL.OQ
Credit Suisse has managed or co-managed a public offering of securities for the subject company (FDC.N) within the past 12 months.
Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): FDC.N
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (FDC.N, PYPL.OQ, GPN.N)
within the next 3 months.
Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s):
PYPL.OQ
Payment Drivers 2018 26
 5 January 2018

Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s):
FDC.N, GPN.N, PYPL.OQ
A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of
Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (FDC.N, PYPL.OQ, GPN.N) within the past
12 months.
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (FDC.N).
Credit Suisse beneficially holds >0.5% short position of the total issued share capital of the subject company (FDC.N).
For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated
within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=339473&v=-
6icc2v15phsu2ejgbb7wpuyb2 .
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse
does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;
SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not
contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-
suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
This research report is authored by:
Credit Suisse Securities (USA) LLC .......................................................................................................................Paul Condra ; Mrinalini Bhutoria
Important disclosures regarding companies that are the subject of this report are available by calling +1 (877) 291-2683. The same important
disclosures, with the exception of valuation methodology and risk discussions, are also available on Credit Suisse’s disclosure website at
https://rave.credit-suisse.com/disclosures . For valuation methodology and risks associated with any recommendation, price target, or rating
referenced in this report, please refer to the disclosures section of the most recent report regarding the subject company.

Payment Drivers 2018 27

 5 January 2018

This report is produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who-we-are This report may
contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use
would be contrary to law or regulation or which would subject Credit Suisse or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is
under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks
and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates.The information, tools and material presented in this report are provided to you for information purposes only and are
not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for
any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that
you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy
is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser.
Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their
accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations
applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions
from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications
are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market
maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and
estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can
fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such
as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are
capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange
rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and
consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in
their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such
circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some
investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report
may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such
address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such
website or following such link through this report or CS's website shall be at your own risk.
This report is issued and distributed in European Union (except Switzerland): by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Germany: Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht
("BaFin"). United States and Canada: Credit Suisse Securities (USA) LLC; Switzerland: Credit Suisse AG; Brazil: Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; Mexico: Banco Credit Suisse (México), S.A. (transactions
related to the securities mentioned in this report will only be effected in compliance with applicable regulation); Japan: by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (
Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; Hong Kong: Credit Suisse (Hong
Kong) Limited; Australia: Credit Suisse Equities (Australia) Limited; Thailand: Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990
Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok10500, Thailand, Tel. +66 2614 6000; Malaysia: Credit Suisse Securities (Malaysia) Sdn Bhd; Singapore: Credit Suisse AG, Singapore Branch; India: Credit
Suisse Securities (India) Private Limited (CIN no.U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no.
INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777; South Korea: Credit Suisse Securities (Europe) Limited,
Seoul Branch; Taiwan: Credit Suisse AG Taipei Securities Branch; Indonesia: PT Credit Suisse Sekuritas Indonesia; Philippines:Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of
the above.
Additional Regional Disclaimers
Hong Kong: Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an Australian
financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian
wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person.
Australia (to the extent services are offered in Australia): Credit Suisse Securities (Europe) Limited (“CSSEL”) and Credit Suisse International (“CSI”) are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct
Authority (“FCA”) and the Prudential Regulation Authority under UK laws, which differ from Australian Laws. CSSEL and CSI do not hold an Australian Financial Services Licence (“AFSL”) and are exempt from the requirement to hold an AFSL
under the Corporations Act (Cth) 2001 (“Corporations Act”) under Class Order 03/1099 published by the Australian Securities and Investments Commission (“ASIC”), in respect of the financial services provided to Australian wholesale clients
(within the meaning of section 761G of the Corporations Act). This material is not for distribution to retail clients and is directed exclusively at Credit Suisse's professional clients and eligible counterparties as defined by the FCA, and wholesale
clients as defined under section 761G of the Corporations Act. Credit Suisse (Hong Kong) Limited (“CSHK”) is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from
Australian laws. CSHKL does not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian
wholesale clients (within the meaning of section 761G of the Corporations Act). Credit Suisse Securities (USA) LLC (CSSU) and Credit Suisse Asset Management LLC (CSAM LLC) are licensed and regulated by the Securities Exchange
Commission of the United States under the laws of the United States, which differ from Australian laws. CSSU and CSAM LLC do not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class
Order 03/1100 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act).
Malaysia: Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020.
Singapore: This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by
Credit Suisse AG, Singapore Branch to overseas investors (as defined under the Financial Advisers Regulations). Credit Suisse AG, Singapore Branch may distribute reports produced by its foreign entities or affiliates pursuant to an
arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact Credit Suisse AG, Singapore Branch at +65-6212-2000 for matters arising from, or in connection with, this report. By virtue of your
status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore Branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110
of Singapore (the “FAA”), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore Branch may provide to you.
UAE: This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional
Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates.
EU: This report has been produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division
In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade
be made in accordance with applicable exemptions from registration or licensing requirements. Non-US customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. US
customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the US.
Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should
seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK
or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation
Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report.
CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not
viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or
fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials,management, employees or agents thereof) and CS for CS to
provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the
municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial
Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its
affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not
constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or
consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. No information or
communication provided herein or otherwise is intended to be, or should be construed as, a recommendation within the meaning of the US Department of Labor’s final regulation defining "investment advice" for purposes of the Employee
Retirement Income Security Act of 1974, as amended and Section 4975 of the Internal Revenue Code of 1986, as amended, and the information provided herein is intended to be general information, and should not be construed as, providing
investment advice (impartial or otherwise).
Copyright © 2018 CREDIT SUISSE AG and/or its affiliates. All rights reserved.
Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can
be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to
pay the purchase price only.

Payment Drivers 2018 28