Financing Discussion Materials

April 2011

Gaurav Gupta
UBS Investment Bank

Ritik Malhotra
Intel

Michael Su
GrowthPoint Technology Partners

Executive Summary

Opportunity:
Worldwide, there are two mobile phone users for every credit card holder. As an increasing number of needs are satisfied by the cellphone, an increasing number g y p , g of people will look to the convenience of using mobile payments.

Challenge:
Frictionless mobile payments are extremely difficult to implement correctly customers want y convenience, carriers want a cut of the transaction fees, and merchants want high conversion rates.

Solution:
Zong provides direct carrier billing to over 4 billion potential customers and has established solid relationships with carriers and merchants

User

Carrier

Merchant

One Click Payment

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Market Size
Th There are 4 billi potential mobile payment users globally, b t only 2 billi h billion t ti l bil t l b ll but l billion have credit cards dit d
Global Smartphone Shipments (Millions) 2,000 1,600 1,200 800 400 00 0 2009 2010 2011E 2012E 2013E 2014E TotalHandsets SmartphonePenetration 50% 40% 30% 20% 10% 0% 0% Global Tablet Shipments (Millions) 125 100 75 50 25 0 2010 2011E 2012E Europe PenetrationRate 2013E Asia 2014E NorthAmerica RoW 25.0% 20.0% 20 0% 15.0% 10.0% 5.0% 0.0% 0 0%

Global Mobile Payments Volume ($ millions) 60,000 50,000 40,000 30,000 20,000 10 000 10,000 0 2009 2010 2011E 2012E 2013E 2014E

2020E Mobile Payments TPV ($ billions)

2020E Mobile Payments Revenue Opportunity ($ billions)

Company Overview
Zong enables frictionless mobile payments through di t carrier billi Z bl f i ti l bil t th h direct i billing

About

Product

Investors

38 countries with 100% coverage Over 200 mobile carriers Conversion rate of 70% Mobile carriers charge 10-40% transaction fee Credit cards (through Zong+) h Z ) have l less th than 5% network fees

Ease of Use: Everyone knows their credit card number Access: Satisfies those with and without credit cards d ith t dit d Fully Integrated: Users dont have to leave site Connected: Payment method of choice for most major online merchants

Total funding: 22.5m

Spun off from Echovox in early 2010 and moved to Menlo Park, CA

Management Team
CEO DavidMarcus Hasfoundandran3 companiessincethe companies since the ageof23 FoundedEchovox in 2000,fromwhich Zong wasspunout g p GlobalSalesandBizDev Stephane Kasriel RanPaypal s Ran Paypals ConsumerProducts Division FoundedFirelick and soldtoDigitalRiverin g 2004 Engineering TimArmandpour VPofEngineeringat SendMe for4years Sr.Directorof EngineeringatYodlee for7years Analytics ElenaKrasnoperova BuiltMarketPlaces StrategyteamateBay ManagedPayPal BusinessAnalytics team t

Amanagementteamwithextensiveexperienceinthemobilesectorandfinancial g p technology,aswellasaprovenrecordofsuccessfulpastexits.
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Value Provided
Customers care about convenience, merchants care about profit maximization C t b t i h t b t fit i i ti

Step1
l k h db Clicktheredbutton

Step2
f h ConfirmPurchase
EnterthePINsenttoyourphone

Step3
d! GetRewards!

Merchant Benefits
70% conversion rates as compared to 5-7% for credit cards and higher than PayPal 85% payout for mobile payments 100% reach in 38 countries Payment is abstracted as well as transaction analytics easy to integrate
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Competitors

User Engagement

- User friendly - One click payment system - 180+ carriers - Directly connects to carriers - High revenue Facebooks primary payment option TV, l - TV game consoles, cell phones, etc. - Ability to add credit cards f dit d for convenience

- SMS verification system

- Requires SSN, phone number, password (slow) - Sprint, AT&T, and Verizon - Lacks top merchants -Revenue limited by the lack of top merchants

Carrier Support

- 220+ carriers on board - Uses intermediaries to connect to carriers - 2 billion potential customers - Intermediaries stunt growth

Revenue Potential Platforms

- Cell phones

- Cell phones

Product Differentiation

- Large carrier base

-Connected to the top 3 out of 4 carriers i t f i in the United States

Business Model
Revenues Zong charges a 5-10% transaction fee depending on volume As carrier transaction fees drop and merchants remove mobile fees, Zong gains significant pricing leverage Fees on physical goods will be smaller due to lower margins Does not want to expand into setup or monthly service fees in order to increase merchant trial in phase where gaining market share is key Potential to expand into local ads and business revenue Users will be notified about deals on their phone, purchase them on the phone, and then walk into a shop or restaurant to redeem instantly Costs Zong used to pay 40% transaction fees to carriers, but carriers are now reducing fees to 10% for virtual goods less for physical goods goods, Previously, could only sell virtual goods with no marginal cost Everyday, low margin items such as groceries and gas are still far away, but high-margin items like group-buying vouchers from Groupon and LivingSocial are economically viable M h t make up l t margins th Merchants k lost i through Z h Zongs 70% conversion rate i t Conversion rate is higher than PayPal Facebook removed surcharge for purchase of Facebook Credits through mobile phones; other merchants following suit Zong+ allows customers to link credit cards to mobile phone numbers Significantly reduces transaction fees to less than 5% Increasing adoption by offering double customer purchases

Carriers

Customers: Potentially 3 billion

Merchants

Use of Proceeds
Funding Total Raised: $22.5mm Series A (2007) - $7.5mm Advent Venture Partners, Newbury Ventures Series B (2010) - $15.0mm Matrix Partners Series C (2011/2012) Most likely $25.0mm, with lead firm investing roughly $15.0-17.0mm Geographic Expansion Zong already has market reach in 41 countries Immediate expansion plans for China, Japan, Thailand, Vietnam, Egypt and Korea, requiring significant capital Job Openings Current job openings include: Account Manager (EU) Merchant Integration Manager Software Engineer Global Marketing Manager Relationship Manager Hiring and retaining senior employees necessitates a fast burn rate for any capital raised Marketing A large portion of the proceeds will go to marketing expenses Marketing strategies right now include word of mouth and prominent placement on merchants checkout sites User acquisition cost is hard to determine and has no real comparables Zong+ promotion gives double the purchase for linking a credit card to mobile phone number p Average transaction size is ~$5-10 in 2011, meaning a $10 customer acquisition cost on the high end, estimate ~$5 weighted ARPU is expected to be ~$4 (assuming 9% transaction fee), meaning Zong will at least breakeven on a majority of its customer acquisitions within a year i iti ithi ARPU will grow rapidly as (1) customers spend more, and (2) customers use mobile payments more frequently

Financial Projections
I Investing i Z ti in Zongs R Round C h a 7 return assuming an exit at 15 EV/EBITDA d has 7x t i it t 15x
Users (millions) 90 80 70 60 50 40 30 20 10 0 2009 ARPU ($) 8 7 6 5 4 3 2 1 0 2009 2010 2011E 2012E 2013E 2014E 0 2009 2010 2011E 2012E 2013E 2014E 2.00 20 0.2 1.4 6.1 2.85 4.05 5.10 60 40 18.4 46.1 6.40 7.00 2010 2011E 2012E 2013E 2014E 10 20 30 45 60 80 Revenues ($ millions) 600 500 400 300 200 100 0 2009 2010 2011E 2012E 2013E 2014E 20 57 122 230 384 560

EBITDA ($ millions) 100 80 89.6

Exit Strategy
Zong should raise a Round C t f d operations until an IPO i 3 5 years Z h ld i R d to fund ti til in 3-5

IPO
Zong launched a program that allows Android developers to seamlessly integrate payment platform into applications; 50% of custo e s choose o g customers c oose Zong Diversifies Googles revenue stream and maintains uniformity over Android Severely limits Zongs ability to partner with competitors such as Apple A l Extends Visas capability through potentially wrapping its core card payment applications into an established ecosystem Allows cross selling of cross-selling other Visa products Will not place high value on international operations of Zong as f credit card usage is lower Attracts the most investors and the highest valuation Maximizes liquidity Allows investors to ownership and p participate in upside p p Allows pursuit of interests other than an acquirers (e.g. partnerships with competitors) Great marketing tool Zong has already received pitches from several investment banks
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Q&A

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Appendix
Executive Summary Market Size Company Overview Management Team Value Provided Competitors Business Model Use of Proceeds Financial Projections Exit Strategy Mobile Payments vs. Other Mobile Subverticals Mobile Payments Adoption Drivers & Barriers Key Players in Mobile Payments Mobile Payments Value Chain Mobile Payment Transactions by Use Case Mobile Payment Transactions by Region 1 Mobile Payment Transactions by Region 2 Alternative Mobile Payments Technologies Recent Financial Technology IPOs Recent M&A Transactions
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Mobile Payments vs. Other Mobile Subverticals

Mobile Social Networks

Mobile Gaming

High threat of competition from established players such as Facebook and Google Local ads require large sales team which is extremely hard to scale A lot of customers still dont don t want to share location data with individuals and/or companies Best suited for mobile phones, p less so tablets

Games have a short shelf life since they need to be on the top applications list Constant need to develop and market new games in order to keep customers engaged Most prominent business model is freemium (charging for virtual goods), which mobile payments will benefit from Not easily adaptable across y p platforms

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Mobile Payments Adoption Drivers & Barriers

AdoptionDrivers Consumer
LoyaltyBenefits(savings) HighlyTargeted,PersonallyCustomized Rewards Rebates Coupons Promotions Advertising Reducesneedtocarrynumerouscards, tags Convenience,Speed EliminatePaperReceipts IntegratedSpendingManagement& BudgetingTools;T&Ereports IntegrationwithSocialNetworking Integration with Social Networking MoreControl:Options,Flexibility ImprovedFraudProtection IncorporatesotherIDs driverslicense passportinsuranceetc.

AdoptionBarriers Merchant

LoyaltyBenefits(merchantfunded,merchant loyalty) HighlyTargeted Highly Targeted Rewards Rebates Coupons Promotions Advertising Savings(lowerpaymentprocessingcosts) MoreControl MoreConsumerChoice ReducesPowerofDominantPaymentNetworks Reduces Power of Dominant Payment Networks ImprovedFraudProtection ReducesNeedforPaperReceipts IntegrationwithSocialNetworking IntegrationwithSupplyChain

Chicken&Egg Paymentsenabledsmartphones MobilepaymentsenabledPOS bl bl d terminals Inertia(consumer&merchant) Standards Uncertainty&PotentialUnintended Uncertainty & Potential Unintended ConsequencesofRecentRegulation (Durbin) RegulationAroundMoneyMovement SecurityConcerns/PrivacyConcerns UniversalAcceptance PowerfulForcesPromote/Defend StatusQuo BusinessModelShakeout

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Key Players in Mobile Payments

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Mobile Payment Value Chain

Acquirer

Merchants

Payment Service Providers/ Networks

Issuers

EndUser

HandsetManufacturers

MobileOperators

MobilePaymentApplicationProviders

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Mobile Payment Transactions by Use Case

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Mobile Payment Transactions by Regions 1

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Mobile Payment Transactions by Regions 2

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Alternative Mobile Payment Technologies

2014E Mobile Payment Volume ($mm) 2014E Mobile Payment Transactions ($mm)

SMS Acceptance Universal all phones support SMS allphonessupportSMS

Browser/WAP 95%ofthephoneshavebrowser; however,the 95% of the phones have browser; however the experienceofcomplexbankingtransactionscanbe accomplishedonsmartphonesonly. Requires expensivedataplan Nosetuprequired.Easytoaccessmobile bankingsite fromthebrowser

SmartphoneApplications Availabilityonallsmartphonesand Availability on all smartphones and growingpopularity

Cost Setup

Inexpensive Nosetup required.Easytosignupfor SMStext

Requiresexpensivedataplan Requires downloadingofapplications

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Recent Financial Technology IPOs

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Recent M&A Transactions

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