T H E FUTURE O F MONEY R E P O R T

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1 T H E FUTURE O F MONEY R E P O R T K O S K I R E S E A R C H LILAH KOSKI KOSKI RESEARCH ALL RIGHTS RESERVED.

2 T H E F U T U R E O F M O N E Y I N S I G H T S T O I M P R O V E P E O P L E ' S F I N A N C I A L L I V E S New financial solutions are coming to market at a remarkable pace. How your customers make, spend, save, and invest their money is changing just as fast. Digital payments and roboadvisors are just the beginning. The disruption is happening now. In this fast-changing environment, today s largest financial institution leaders must adapt quickly. Financial institutions need to differentiate themselves from their big technology brand counterparts and from the smaller, arguably more nimble, and laser-focused fintech companies. Large financial institutions have the advantage of having a large customer base for growing new solutions. Lack of speed can hinder this advantage, while smaller fintech companies can build and launch products quickly but have to invest heavily to grow their customer base. This conundrum creates a need for greater innovation for large companies along with more opportunities for fintech companies to bring their technologies to large players. THE KOSKI RESEARCH FUTURE OF MONEY STUDY is an ongoing study designed to uncover how consumer mindsets are shifting in four key areas: how we make money, how we spend it, how we save it, and how we invest it. In this second release of the Koski Research Future of Money Report, we focus on the digital consumer mindset overall and on the digital payments space. By providing valuable insights into how Americans view these changes, the Future of Money Report can help you get smart about what, when, and how to develop the next generation of products and services that will improve people's financial lives. 1. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

3 N E W M O N E Y M I N D S E T : D I G I T A L I S T H E N E W L A N G U A G E O F M O N E Y When it comes to managing their financial lives, how much automation do Americans want? Do they prefer to do everything digitally through their mobile device or computer, use a mix of digital applications and do things themselves, or skip digital applications completely? Only 16% of Americans say they prefer to manage their financial lives without any digital applications. Forty-four percent (44%) prefer a mix of digital apps and non-digital tools, and 40% of Americans say they manage their money digitally as much as possible. Millennials are most likely to want to do everything digitally. Half want to manage their financial lives as much as possible with their mobile device or computer. Millennials have the most interest in managing as much of their financial lives digitally as possible 40% 50% 38% 23% Gen Z Millennials Gen X Boomers 2. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

4 N E W M O N E Y M I N D S E T : D I G I T A L I S T H E N E W L A N G U A G E O F M O N E Y Almost all generations desire greater integration for the key aspects of their financial lives. Overall, 84% of Americans prefer to manage their money from one online central platform for deposits, spending, and saving. Americans have a strong interest in managing money from one central online platform 84% 84% 86% 85% 76% Total U.S. Adults Gen Z Millennials Gen X Boomers Americans desire full financial integration. Nearly two-thirds of respondents say they would keep their money in one digital app for deposits and payments. Nearly three quarters (73%) of Millennials say they would use one app for deposits and payments. The call is loud and clear for a rapid evolution of online banking platforms. Typically, platforms provide only a narrow view of a single account or institution or expense tracking and categorization capabilities. These options are cumbersome (at best) and limited. On the other hand, smaller fintech companies tend to focus on just one aspect of our financial lives and more integration is needed. Millennials are interested in keeping money in one digital app for deposits and payments 63% 68% 73% 66% 37% Total U.S. Adults Gen Z Millennials Gen X Boomers 3. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

5 N E W M O N E Y M I N D S E T : D I G I T A L I S T H E N E W L A N G U A G E O F M O N E Y Americans in our Future of Money Study expect technology to have a big impact on how we work and how we spend. Between our Spring 2017 and Fall 2017 waves of the study, there is a substantial shift in the areas on which Americans anticipate technology having the biggest impact on their lives. In Fall 2017, we saw a shift in Americans' focus, away from technology's impact on how we work to a focus on how we spend. Despite this shift in Americans' perception of technology's impact on their financial lives, their attitudes toward saving and investing remain relatively unchanged. Where technology will have the biggest impact on financial lives five years from now Make 34% 44% Spend Invest Save 14% 12% 23% 18% 21% 34% 4. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

6 W H Y T H I S S H I F T O F F O C U S T O S P E N D I N G? This movement in the anticipated impact of technology could be due to a number of reasons. It could be driven by media and advertising. It s possible it s cyclical (tax season vs. holiday shopping season). And, it s possible that spend includes shopping and the impact of technology on online shopping. One thing is clear: mobile payments are becoming more available. Digital and mobile payment transactions are increasing, which means more people are adopting this new mode of payment and making it a part of their everyday lives. Current analyst predictions anticipate 800 billion digital payment transactions globally by 2020.* PayPal reported over $400B in payment volume in 2017 in the U.S. alone.** Zelle, the re-launch of clearxchange, reported $75B in transactions for 2017.*** It is likely that the magnitude of news, marketing, and advertising about digital payments also is helping shift the mass mindset. It s one thing to know that consumers are thinking about spending. The next step is to understand how they see that spending taking place. When we ask Americans to tell us what they think will be top of wallet for in-person payments 5 years from now, they say payment apps are moving to the number-one place in their wallet. This shift brings apps neck-and-neck with cash, taking the lead against credit and debit. Apps jump to the top of predicted in-person payment preferences 5 years from now Current Future (5 Years) Debit Cash Credit Apps Apps Cash Debit Credit 5% 4% 3% 5% 4% 4% 3% Pre-Paid card Check 37% 33% 18% 25% 25% 19% 15% Cryptocurrency Check Something not invented yet Pre-Paid card *The World Payments Report 2017 (WPR 2017). October 9, Released by Capgemini. **Cross-Border Trade: PayPal s $400B Business. April 6, Peggy Abkemeier. ***U.S. banks Venmo alternative, Zelle, moved $75B last year. January 29, Sarah Perez at Tech Crunch. 5. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

7 T H E R A C E F O R D I G I T A L T R A N S A C T I O N S I S H E A T I N G U P At the current rate of digital transaction growth, hitting a trillion global transactions in the next few years is likely. So who will win the race? PayPal is at the top of Americans wallets for online payments today and Americans expect it to be there five years from now. The Future of Money Study highlights PayPal s strong online lead. It also shows that there is ample room for new competition in the future. Our study reveals that Americans are open to something new, and cryptocurrency has their attention. PayPal reigns supreme for online payments now and in the future Current Future (5 Years) PayPal Debit Credit PayPal Credit Debit 9% 6% 4% 7% 7% 7% 6% 5% 3% 2% 23% 20% Pre-Paid card Amazon Pay Visa Checkout 15% 15% 35% Cryptocurrency Something not invented yet Pre-Paid card Visa Checkout Apple Pay Google Pay* Amazon Pay 32% I T W I L L B E A F I G H T PayPal is the dominant online player today and has first-player advantage. However, PayPal will need to fight to keep that position. Forty-eight (48%) of Americans surveyed report that they currently use payment apps on a mobile device to pay for things either in person or online. Not surprisingly, Millennials (55%) and Gen X (52%) are the largest adopters, and Boomers the lowest. Even among this Boomer group, 34% report using payment apps in some capacity. *Study was fielded before the Android/Google Wallet re-brand. 6. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

8 I T W I L L B E A F I G H T When asked how familiar they are with the payment apps listed, PayPal awareness far exceeds the other players in the space, and the difference in usage is even more dramatic.* The good news for PayPal is that Americans expect to be pulling out their credit and debit cards much less often. At this point in time, they anticipate little shift in their preference for PayPal in the next five years. However, five years is a relatively long time in technology years. The fact that Americans acknowledge that there are other technologies on the horizon should cause all players pause. Some Americans anticipate opening up their wallets to cryptocurrency or that elusive something that hasn t been invented yet. Pre-paid cards, Apple, and Visa are relatively low on the radar right now. Existing competitors including Apple and Google and a slew of newcomers are pouring big money into solutions and marketing. With new technologies in rapid development, it s impossible to predict other disruptions to come for both in-person and online transactions. PayPal leads use in payment app space Aware of... 99% 79% 78% 89% 86% Currently Use... 44% 18% 16% 10% 7% PayPal Store App Bank Digital Wallet Apple Pay Google Wallet/ Pay *Study was fielded before the Android/Google Wallet re-brand. Android Pay usage was 5%. 7. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

9 U S A G E O F P E E R - T O - P E E R P A Y M E N T S E R V I C E S I S S H I F T I N G Peer-to-peer payment services, or P2P, allow individuals to pay others directly online or from a mobile app. More than a third of Americans in our study (36%) say they use P2P today. Although P2P was originally intended for personal payments (think splitting that lunch tab rather than paying with cash), Americans are using P2P for goods and services. P2P is widely used for commerce Pay for product or service 71% Payback Send money as gift 52% 49% Split costs 31% 8. WWW. KOSKIRESEARCH. COM 8. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

10 Awareness Use P E E R - T O - P E E R P A Y M E N T S E R V I C E S P2P is particularly popular with Millennials. Among Millennials surveyed, nearly half (48%) report using P2P, higher than Gen Z (31%), Gen X (37%), and far ahead of Boomers (8%). 36% of U.S. Adults report using P2P: especially popular with Millennials 31% 48% 37% 8% Gen Z Millennials Gen X Boomers Once again, with its first-player advantage, PayPal is leading the pack in both awareness and usage. PayPal leads in usage 96% 84% and awareness of P2P 67% 52% 50% 41% 32% 29% 9% 7% 10% 8% 6% 6% PayPal Google Apple Pay Cash Venmo Square Cash Snapcash Zelle 9. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

11 D I G I T A L S A V I N G A N D I N V E S T I N G M I N D S E T : S A V I N G A N D I N V E S T I N G G O H A N D - I N - H A N D In the financial services industry, firms tend to draw a hard line between saving and investing. From a consumer perspective, it seems that savings and investing may be less differentiated. Americans anticipate technology will have about the same impact on both five years from now. With low interest rates and greater accessibility to investing than we ve seen historically, it s no wonder that Americans may not see the same distinction as do financial institutions. Our perspective is that Americans are not thinking necessarily about the regulations and compliance that often separate these for institutions. Americans are focused more on the end benefit or goal: wealth building and achieving financial goals. Americans have a strong interest in automated savings. When asked if they would like to have money automatically saved into an account of their choice, interest was extremely high across all generations. Most Americans want automated savings 85% 85% 90% 86% 74% Total U.S. Gen Z Millennials Gen X Boomers Adults 10. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

12 D I G I T A L S A V I N G A N D I N V E S T I N G M I N D S E T We believe that Americans' desire for automated savings goes well beyond the ability to simply move a fixed amount of money automatically from a checking account to a savings account. Consumers need AI-driven, learning-based tools that support personal financial planning. These tools would suggest both how much to save or invest and where to save and invest. When we ask Americans how much they need to save or invest, the results reveal a low entry point. With little deemed necessary to save or invest, the call for easy-to-use, consumer-facing tools is clear. The results from the Future of Money Study show an opportunity to enable investing at an earlier financial life stage with lower potential minimums. The entry point for savings and investing is low Dollar amount needed to consider SAVINGS Dollar amount needed to consider INVESTING Any amount 48% 45% is worthwhile Any amount is worthwhile Median $500 $1,000 Median 11. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

13 M I L L E N N I A L S A R E P U S H I N G D I S R U P T I O N Americans no longer rely solely on a savings account for savings. Americans put their savings in a variety of places, including in their PayPal or Venmo account. Where savings are being stored now 7% 8% 14% 18% 40% PayPal/ Cash Checking Investment Savings Venmo in Safe Account Account Account Place Millennials are even more likely to deposit (or leave) their savings in a PayPal or Venmo account 11% do this. It s a trend that should have any business that offers traditional savings accounts rethinking its strategy moving forward. Banks still remain the underlying account for these digital payments apps, but businesses will have to work to make sure their brand is not disintermediated. They need to adopt technologies quickly to meet these fast-changing consumer preferences. 36% Where Millennials 11% 13% 13% 19% are keeping their savings PayPal/ Cash Investment Checking Savings Venmo in Safe Account Account Account Place 12. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

14 KOSKI RESEARCH: WWW. KOSKIRESEARCH. FUTURE OF MONEY STUDY COMALL RIGHTS RESERVED. G E N Z W I L L B R I N G E V E N G R E A T E R C H A N G E Millennials are just the beginning of a massive wave of disruption. The oldest members of the Gen Z population are beginning to enter college and the workforce. As they do, be prepared to rethink your customers completely. This generation has grown up online and with iphones. Technology is a part of every aspect of their lives. Some consider this generation the true digital natives. They grew up with machine learning and AI in gaming and online tools. According to a February, 2018 article in Inc. magazine, recruitment apps, like Pymetrics, geared toward Gen Z, use AI and neuroscience games to match jobs to people. Other apps, like Current, make it easy for parents to teach their kids how to track income, spending, saving, and charitable contributions. Linked to a physical debit card, Current gives parents transaction visibility and makes it easy to track transfers and expenses. The app also helps kids see the connection between income and expenses, and the role of saving and budgeting.

15 W H A T ' S N E X T F O R G E N Z? In the Spring 2017 wave of The Future of Money Study, we asked Americans if they thought a computer or human would be more effective at various attributes related to investing. We found that Gen Z believes that computers can provide better investment performance over time compared to humans. Gen Z, along with Millennials, are also less likely than older generations to say computers will cost less than humans for providing financial advice. And, Gen Z perceives little difference in the ability of humans to consider their overall financial situation compared to computers. More than any other generation, Gen Z gets the power of AI and they won t hesitate to use it to their advantage when it comes to their money. For financial services companies, this creates an opportunity to provide responsible, computer-based investing to the next generation sooner in their financial lives. Next generation trusts computers for investing performance and doesn't necessarily see a big price differential Provide better performance over time Cost me less in fees Whole financial situation into account 14. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

16 D I G I T A L T E C H N O L O G I E S A R E C H A N G I N G T H E F U T U R E O F F I N A N C I A L S E R V I C E S Financial services organizations of every size are facing huge challenges and opportunities. Consumers are changing their mindsets about how they work, and how they make, spend, save, and invest their money. Businesses that deliver products and services that support these activities must find a way to compete in a digital world. The first step is to stay alert to change. Take every step possible to understand how customers expectations are evolving. Companies who adopt new innovations quickly will have the strongest foothold in this changing competitive landscape. To ensure your spot at the top: DON'T HESITATE. Larger players must move quickly to provide the tools for greater digital integration -- whether this is innovation and development from within or acquisition. Smaller players should strive to disrupt the market and build to the consumer need. All should move quickly to provide the digital products and services consumers need today. PROVIDE VALUE TO THE CUSTOMER. What consumers value is changing. To remain competitive, you must go beyond the account, wallet, and mobile device to become fully, digitally integrated to address the total financial needs of each customer. BUILD FOR TOMORROW. Gain the insights and identify the resources you need today to create the products and services for your customers tomorrow. 15. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

17 A B O U T K O S K I R E S E A R C H Koski Research creates research solutions that drive customer engagement. The Future of Money study is designed to give companies insights into how people think about money. Those insights can be used to help drive product innovation and create engaging communications that will wow customers. Koski Research is the author of the Koski Research Engagement IQ, a measurement system that assesses the public s sentiment of a company based on key social behaviors and attitudes. Insights from the research that Koski Research has conducted for clients have been published in the largest media outlets in the world including the New York Times, The Financial Times, The Wall Street Journal, CNN, Newsweek, Time, USA Today, Mashable, TechCrunch and GeekWire. A B O U T T H E S T U D Y The Koski Research Future of Money Study was conducted online in Fall, 2017 with independent third-party sample of 1,000 U.S general population adults and an augment sample of 200 Gen Z year olds. Results are reported here in total for the general population sample, unless described otherwise. 16. KOSKI RESEARCH: FUTURE OF MONEY STUDY ALL RIGHTS RESERVED.

18 The Future of Money Study Insights to improve people s financial lives, deepen customer engagement, and drive business results. engage@koskiresearch.com KOSKI RESEARCH ALL RIGHTS RESERVED.