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Entering a world of Faster Payments

Michael Eley, AAP VP – Digital Payments Product Manager February 7, 2017

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What are Faster Payments?

Phased Approach to Same Day ACH credits Same Day ACH debits Real Time Payments

Opportunities B2B P2P B2C

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A Global Trend in Faster Payments

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Organizations Driving Faster Payments

Visa’s Plan To Make $10 Trillion Real Time

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Global P2P market is over $1 trillion

Mobile P2P Payments are growing and replacing traditional ways such as cash, check and bank transfers

P2P Payments Market and Use Cases

Friends/Acquaintances/Community

• Roommates sharing room rent • Split bills for entertainment • Group savings • Pooling money for a cause • Pay for used goods purchases • Gifts on birthdays/holidays/festivals • Personal borrowing/repayments

Household/Family

• Pocket money transfers • House rent to landlord • Tuition fee • Childcare • House/garden maintenance • Gifts on birthdays/holidays/festivals • Pay for used goods purchases

Source: BI Intelligence Report

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B2B Payments Market and Use Cases

B2B Payments The consumerization of the workforce is creating an expectation gap in B2B banking experiences • B2B Payment innovation has lagged behind consumer experiences, driving pent up demand for solution in this space

• The overall shift from paper payments to digital is

accelerating, and startups are just starting to step in to capture B2B customers

• With RTP, banks can bring new and better B2B solution to market

The opportunity

$550B Business cost of B2B paper checks

$74B Est global savings of current shift towards electronic payments

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B2C Payments Market and Use Cases

B2C Payments B2C Value Add and Cost Takeout: Traditional B2C payment are slow and costly for businesses and consumers. Financial institutions that arm businesses with RTP can enable a superior customer experience and reduce operating costs.

Checks CO$T

The opportunity

$3.9B Annual B2C checks

$16B Est annual cost of processing

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Phase 1 – Credits only • Effective September 23, 2016 • Availability by end of RDFIs processing day Phase 2 – Credits and Debits • Effective September 15, 2017 • ACH credit availability by end of RDFI’s processing day Phase 3 – Real Time Payments • Effective March 16, 2018 • ACH credit availability by 5:00 PM RDFI local time

Same Day ACH

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Here Comes Same Day ACH: Use Cases

Market Application Payroll

• Employers have a legal obligation to pay employees on time. SDA can help employers and payroll processors to stay compliant with missed payrolls or payroll errors without having to revert to checks, wires, or cash.

• SDA can also be a viable tool for organizations with workers who are paid daily or at the completion of a task.

Business-to-consumer (B2C) urgent payments

• Disaster recovery, urgent insurance claims payouts, and other pressing payments that businesses owe to customers may use SDA if the recipient has a checking account.

Person-to-person (P2P) payments

• Many P2P services such as clearXchange offer near real-time delivery of funds from one consumer to another. Receiving funds within hours may satisfy many P2P users. If SDA offers a less expensive means of funds movement, new P2P providers may emerge.

Bill payment • Billers can more easily offer same day bill payment services on their online and mobile sites, helping customers avoid late payment fees; can charge a premium for this service.

• Bill-pay service providers and aggregators may find SDA a cost-effective alternative to the same-day bill payment services used in their current operations.

Online payments • Retailers selling online like to offer customers as many payment options as possible, including paying from a checking account. Sellers aren’t going to begin the shipping process until they can confirm that they have received payment. Same day allows on-line retailers to collect funds and get products in the mail more timely.

Check conversions • Some brick-and-mortar stores like grocery stores are still paid by check by many customers and often convert these checks at the point of sale to an ACH transaction for faster collection. SDA speeds collection by improving cash flow and more quickly alerts stores as to checks that need to be re-presented because of insufficient funds. Source: Mercator Advisory Group

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Uniting Banks to Provide a Better Payments Service

Joining together, financial institutions create the optimal customer experience to win and

retain customers. And ensure safety and soundness for customers!

19 CORE FINANCIAL INSTITUTIONS

76 MILLION MOBILE BANKING USERS

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Early Warning’s Real Time P2P Flow

1. Alias-based payment initiated Customer (people, businesses or governments) initiates payment in a secure online/mobile session using only the recipient’s email address or mobile number.

2. Real-time messaging clearXchange facilitates real-time messaging of transaction information between the banks.

3. Direct to Bank Account Recipient FI sends payment notification to its customer and typically puts funds into recipient’s account within minutes of notification from clearXchange*. *Assumes simple, one-time registration has been completed.

4. Immediate access to funds Customer gains immediate access to funds, directly through existing U.S. bank account.

clearXchangeTM

Directory $

RECIPIENT’S BANK CUSTOMER’S BANK

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Expanded Reach with Fiserv, MasterCard Send & Visa Direct

Better experience for customers of member FIs

More FIs in the network, more ubiquitous P2P

solution

Faster payments experience for more

consumers

Fiserv will resell Early Warning’s real-time P2P solution, enable FIs of all sizes to more easily access the power of the clearXchange network. Visa and MasterCard agreements will enable nearly all U.S. debit card users to send money to, and receive money from, customers of participant banks. real-time.

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The Clearing House

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Deploying a Real-time Payments System

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Real-Time Payments Message Types and Flow

Flexible Messaging Options RTP solution will provide flexible, robust messaging with options to include payment and remittance information.

Credit Transfer Request For Information

Payment Acknowledgment

Request For Payment

Remittance Advice

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Funds and Message Flow: From Sales Order to Payment

Use case scenario: A single business-to-business (B2B) transaction between a restaurant and its supplier illustrates the value of extensive immediate messaging.

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Real Time Payments Distinguishing Characteristics

QUESTIONS?

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