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Medium Profitability

Payments Company

#Financial Services
ProHub Comment

This is a structured profitability case requiring market selection analysis followed by detailed financial modeling. The candidate must identify NYC subways as the priority market using both quantitative (expected value = fare collection × win probability) and qualitative reasoning, then build a breakeven analysis demonstrating profitability within the 5-year target.

Estimated Time 15 minutes
Difficulty Medium
Source Chicago Booth
50 / 100

Your role on the PayCo engagement is to develop the business case for commercializing PayCo’s contactless technology.

  1. Which market and transit vertical should PayCo target as a first priority?
  2. What is the profitability of the “TAP” technology? Specifically, will PayCo breakeven on commercializing “TAP” in less than 5 years?
  3. Would you recommend that the client pursue the commercialization of this technology?

Clarifying Information

Our client, PayCo, is a global credit card company, with revenues over $5B in 2010. A recent trend in the credit card industry is the use of contactless (tap and go) payments technology to make purchases at places like fast food restaurants and convenience stores. PayCo is looking to leverage contactless payments to drive top-line growth and has identified the transit vertical (i.e. subways, trains, buses, taxis) as an opportunity for growth since this is generally a cash dominated vertical. In support of this strategy, PayCo has developed proprietary technology (called “TAP”) to process contactless transactions specifically for transit applications, and is looking to commercialize this technology. A key challenge is whether transit authorities will implement this new technology or stay with current systems for fare collection. Deloitte Consulting has been engaged to size the overall transit market globally, prioritize potential opportunities, develop a financial business case, and develop a go-to-market strategy.