Loyalty economy is a vast global ecosystem growing 3x faster than global GDP

Points of Value: tracking the global Loyalty currency bullion

USD billions by book value

The Loyalty ecosystem straddles the world’s largest consumer verticals, and is projected to grow 3x faster than global GDP. At current price-to-book, 2020 capitalization of the sector would exceed US$ 1trillion.

Note: Figures excludevalue associated with non-currency based loyalty or customer incentive programs.
Source: Affinia Volo Loyalty World Market Forecast 2015, Bloomberg, equity research reports, ACE

Loyalty currencies today represent the largest non-sovereign bullion in the world

Loyalty points create value by changing consumer behavior

Institutional sales of loyalty points exceed US$ 60 billion each year

Loyalty currency:
without a Central Bank

* Values as of 4/30/2016
** Varies by carrier type and industry cycle
Source:U.S. Bank research, Colloqui Loyalty Survey, IATA Economic Outlook, Nilson

Three main roles in Loyalty-related money flow today

  Loyalty Operators (e.g. program entities or parents) Financial Sponsors
(Private Equity, Hedge Funds, Institutional Investors)
Issuers Buyers
Examples AA Advantage, Airmiles Citi Cards, AMEX General Atlantic, AEP
Profiles Currency-based captive or coalition loyalty program, typically in partnership with participants from other industry verticals Buy rights to use points in own business as marketing incentive Seek exposure to the industry due to favorable economics and risk performance relative to underlying industries
Focus and conduct
  • Carry redemption obligation to the ultimate bearer of point currency
  • Set earn/burn/break terms and conditions
  • Manage sales and partner relations and program operations
  • Manage point value including devaluation
  • Assign points to customers in loyalty program account based on economic merits/activity with buyer product/services
  • Prepay rights to points in large block and infrequent purchases subject to holding periods and point-value risk
  • Acquire equity stakes in existing operators
  • Recognize value of industry assets but unable to participate efficiently (handful pure-play entities, opaque financials)

ACE is designed as an effective solution to short-term challenges and accelerator of long-term growth in Loyalty

  Current challenges How ACE helps resolve
Airlines

New global accounting standards:

  • Mandate higher book value of loyalty points for accounting/ financial reporting purposes
  • Defer revenue recognition from point sales in stages over the effective life of the points
  • Lowers balance sheet liability and accelerates revenue recognition (smaller, more frequent issuances)
  • Improves point yield and point turns by supporting new point types, enabling innovative contract structures and access for new market participants
Banks/Credit cards

Global regulation changes:

  • Reduce interchange fees, straining budgets for point purchases
  • Increase capital requirements applied to illiquid assets on the books
  • Reduces loss-absorbing capital provisions due to liquid market transactions
  • Reduces customer acquisition cost with new point categories at lower price (e.g. Campaign Points™)
  • Enables market-based risk management of point exposure
Investors/Financial sponsors

No market for Loyalty assets:

  • Loyalty assets mainly accessible via direct equity investments
  • Favorable characteristics of underlying assets out of reach for trading/hedging strategies
  • Provides fully functional specialist market venues
  • Introduces instrument types and market rules to increase frequency of transactions attractive for quantitative strategies

How it works - PBS trading on ACE

Airlines Banks/Credit cards Investors/Financial Sponsors
  • Structure and sell instruments based on portfolios of points and offer on ACE Primary Market
  • Bundle points by: type of point, duration and instrument-specific trading parameters, instrument-level T&Cs
  • Define lots and tradability by instrument
  • Upon approval, obtain instrument indicator for use across ACE trading venues
  • Repurchase PBS on ACE Secondary Market as desired
  • Buy PBS on ACE Primary Market
  • Trade on Secondary Market during dormancy period
  • Restore ownership at end of dormancy to access points for operation
  • Participate in securitization of eligible PBS issuances
  • Buy instruments on ACE Primary Market
  • Hold for duration or sell on ACE Secondary Market during dormancy period
  • Sell at end of dormancy period (within instrument parameters
  • Invest on ACE Secondary Market and provide new liquidity and improve market pricing of underlying instruments

ACE technology footprint features Nasdaq’s leading X-Stream™ platform and custom suite of value-added applications

The ACE Team

ACE’s Leadership team and advisors have over 70 years of experience in strategy, corporate finance, M&A, and Loyalty. ACE is led by Atanas Christov, as the Founder and CEO. He is a seasoned executive and advisor to some of the biggest names in loyalty, finance and travel. He pioneered Loyalty Finance and proven results delivering value in multi-disciplinary environment and financial markets. He held positions as CEO of venture-backed VAYANT Travel Technologies and Senior Consultant at McKinsey.

Rest of the ACE leadership team brings expertise in co-brand credit card portfolio transactions, credit card securitization, loyalty program transactions, developing and improving ongoing loyalty programs for leading airlines, hotels and co-brand credit card issuers. The team also brings in extensive experience in leading a broad range of technology solutions for travel suppliers.

Current ACE team has strong insight and the right relationships to develop, launch and guide the company forward.

Partners

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