The Future of P tPayments

A P d F

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American ExpressAs Prepared For:

2

Who is American Express?p

S h d l 2 B k• Schedule 2 Bank• 100% focused on paymentsWho are we?

• Small business, mid size companies and large Where do we p genterprises

• Across all industries, nationally within Canada, US and globally

provide B2B value?

• Maximize working capital Unsecured CreditEli i t Ch

Why do i • Eliminate Cheques

• Improve procure to pay process & reduce transaction costs

• Leverage financial incentives, rewards

companies choose our solutions?solutions?

A Global Procure-to-Pay (P2P) Strategy

Most companies have initiated a P2P strategy, but conquering the implementation challenges are key to maximizing ROI.

RequisitionPurchase Goods/

Services

Receive Goods/

ServicesInvoice Payment

ProcureProcure--toto--Pay Pay ProcessProcess

I l t tiI l t ti Process Design

Market Constraints

Deploying Technology

Internal Alignment Outsourcing

Implementation Implementation RequirementsRequirements

One size does not fit all

Industry and technology investments also drive varied P2P processes based on client, supplier, commodity, etc. resulting in a multitude of process configurations.pp , y, g p g

Technology Control Process

men

t

Pay on Approved InvoiceNo PO Paper or eInvoice AP Pay

Pay at POSProcure Pay

eP

rocu

rem

Pay on Approved PO

Pay on Approved Invoice

Approved PO Pay

eIn

voic

e,

Pay on Receipt

P 2 W M t hApproved Paper PO AP

Approved PO Goods Receipt

Paper or eInvoice

AP Pay

Pay

ER

P,

Pay

Pay on 2 Way Match

Pay on 3 Way MatchApproved PO Goods Receipt Paper of eInvoice AP

Two Key Areas of Focus

Our clients consider two key areas in their business payments strategy: 1) optimizing their payment methods and 2) driving financial value

Optimizing Payment M th d

Driving Fi i l V lMethods

• Wire• EFT

Financial Value• Extending DPO• Maximizing rebates

•Cheque• F/X

g

Key Trend: The move to electronic

Key Tools: Trade financing, dynamic disco nting electronic pa ments

Why? Cost savings and process efficiencies

discounting, electronic payments

Why? Maximizing financial return

The Global Payments Landscape

A global payment strategy considers and leverages various payment methods and tools based on regional and national business needs..

Payment Methods Vary Vastly By Region and Market

The Ability to Capture Financial Value Varies Across Regions and Markets

North AmericaMove to

Latin AmericaCheques are

EuropeTransfers are

AsiaVehicles varyMove to

electronic payments is accelerating

Cheques are dominant

Transfers are dominant

Vehicles vary vastly by country

The Painful Evolution

In the N.A., the stranglehold of paper checks is finally loosening, but the process has been difficult.

% of B2B payments made by paper check “Paper checks are giving way to credit and debit cards,

I t t t81%

74%80%

Internet paymentscontinue to grow and mobile

payments are on the rise. Now, business-to-business

transactions74% transactionstake center stage, as the drive to optimize working capital and

the growing globalization of business57%

60%

businessadd new urgency to already fast-paced money movement, as well as new challenges in the form of

cross-border transactions ”

40%

cross border transactions.

- 2010 AFP Electronic Payments Survey

2004 2007 2010Source: AFP 2010

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Barriers to EFTBarriers to EFT

Although EFT is a superior payment method, it has still not penetrated the market significantly

• Less than 30% of companies report having more than 50% of transaction on EFT

Main Barriers to EFT Adoptionp

• Perceived loss of float

• Accounting systems that are not integrated with electronic payment systems

• Limited ability to exchange remittance info

• Challenges associated to collecting supplier banking infoChallenges associated to collecting supplier banking info

• Resources required to enable suppliers

Two Key Areas of Focus

Our clients consider two key areas in their business payments strategy: 1) optimizing their payment methods and 2) driving financial value

Optimizing Payment M th d

Driving Fi i l V lMethods

• Wire• EFT

Financial Value• Extending DPO• Maximizing rebates

•Cheque• F/X

g

Key Trend: The move to electronic

Key Tools: Trade financing, dynamic disco nting electronic pa ments

Why? Cost savings and process efficiencies

discounting, electronic payments

Why? Maximizing financial return

Isolating Opportunities to Extract Value

Invoice Approval

Supplier Payment

Requisition Purchase Order

Invoice Receipt

Potential Economic

Opportunity

Approval PaymentOrder Receipt

Opportunity

Traditional approaches to extracting value leverage your organization’s resources to target the payables “sweet spot”

Early pay discountsTerms extension

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Approach is Determined by Your Organization’s Characteristics

Requisition Invoice Approval

Supplier Payment

Purchase Order

Invoice Receipt

Current State

Approval PaymentOrder Receipt

Potential Economic

OpportunityCurrent State0 30

Opportunity

Typical Evaluation Criteria• Cost of Capital

Early Pay: Value from discount 0 10 30 Cost of Capital

• Availability and efficient allocation of capital

0

Pay Invoice

10 30

• Resources to drive negotiations and manage supplier relationships

Terms Extension: Value from 30 Day Float0 30 60

Pay InvoicePay Invoice

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Value and Reach of Current Payment Types

Although EFT has the potential to drive financial value, barriers associated to procurement and working capital can limit the potential. Cards provide a free alternative and generate financial incentives but trend toward low dollar spendalternative and generate financial incentives, but trend toward low dollar spend.

Financial Value to

ClientSingle Use Opportunity

+ $Card

EFT

$

0

Cheque

- $

Wire

Transaction Size

Evolution of the Card Industry

Providers have taken different approaches but the primary focus to-date has been card-based solutions to address payment needs.

D i P tCard-Based Solutions Transition Phase

Dynamic Payment Options

20071990 1995 2000 2002 2010+

Hubs• Virtual cards• Virtual cards• Non-card• EFT / Cheque• Dynamic

discounting• Receivables

Corporate Card

Purchasing Card

Virtual Cards

E-PaymentsReconciliation Tools

Receivables financing

ControlEfficiencyComplianceVisibility

ERPeProcurement

Visibility

Consolidated Payments

• Automated, web-based platforms that improve working capital, reduces payment volatility and increase efficiencies o at ty a d c ease e c e c es

• Provides Buyers with the ability to centralize and process multiple payment types via one solution across multiple banking institutions

BIP

Buyer SupplierPayment Instructions

Consolidated Payments

EFTy Instructions

File Received Cheque

Int’l WireInt l Wire

Single Reconciliation FileSingle Confirmation File

Supplier Enablement

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Supplier Enablement

Buyer Initiated Payments - Leverage existing workflow! 15

Current Procurement & Payables Process does not change

GeneratePayment

InvoiceApproval

InvoiceReceipt &

OrderGoods and PaymentApprovalp

EntryServices

er

EFT / WIRE • Use your current workflow

F ll i ti li i

Buyer Initiated PaymentSupp

lie Cheque• Follow existing policies

• Works with any ERP or accounting system y y

How these tools create alternative capital sources

•Send Payment Instruction Files (PIF) anytime during a 30 day cycle

•On average 15 Days achieved from your payment cycleOn average 15 Days achieved from your payment cycle

•Enjoy 14 additional days payment term

15 Day Ave. Cycle Time + 14 Days to Pay = Average of 29 Days

Day 1 Day 30 Day 4414 Days to Pay

15 Days Ave14 Days to Pay

29 Day Average

PIF PIF PIF PIF PIF PIF

29 Day Average

Example of DPO Extension and Supplier Benefit

BIP can be mutually beneficial for Buyers and Suppliers

Average BIP timeline example for 60 Day payment terms

Day 1 Day 40Day 60

Day 6920 days Acceleration 9 days DPO

29 days

2. Send PIF To Amex3. Amex PaysSupplier

4. Buyer Pays Amex1. Invoice Date

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BIP – Supplier Value Proposition

Cost Savings & Process Improvements

Potential for Incremental Business

Customer Satisfaction & Retention Process Improvements

• Reduced Cash volatility

N P i C t

• Opportunity to increase

Buyer spend (both

• Build and maintain positive

partnership with customer• No Processing Cost

• Automation AR

• Cheque elimination

Buyer spend (both

organically and through

supplier rationalization)

partnership with customer

• Gain preferred supplier

distinction

• Reduce DSO

July August

Traditionalpayment

Payment byAmex

31 25 31

July August

Acceleration5

Supplier “sweet spot”

Early Pay Discounts(EFT/Wire )

Strategic Vendor Relationships $$$

BIP & B2B Accounts $$B2B Best Fit BIP & B2B Accounts $$B2B Best Fit

EFT, Cheque & pCardNon-Strategic Vendor Relationships

$

Strategic relationships typically deliver a stronger financial value

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BIP - Thinking Beyond Traditional Payments

Solutions such as BIP create value through several key levers

Optimizing Payment Methods

Driving Financial Value

Closed Loop NetworkMethods Financial Value

• Electronic Payment • Free

Network

• Shared value

• Supplier Enablement• Supplier Management• Remittance Management• Quick Implementation

• Extend Payments• Earn Discount Revenue• Alternative Capital Source• Improve Balance Sheet

• Accelerated On-Boarding• Controlled Messaging• Accountability

• Quick Implementation• Confirmation & automation• Fraud risk reduction• Web based reporting

Improve Balance Sheet• Hard dollar cost savings

* Cross-border processing and bank

cost reduction

Enablement: More Stakeholders Means Greater Complexity

Some providers require the involvement of multiple parties which adds complexity to all aspects of the program, and may:

Prolong or limit supplier enablement potentially leading to a smaller program size and therefore smaller financial incentives

Impact customer support by requiring alignment of multiple parties to develop solutionsand therefore smaller financial incentives parties to develop solutions

Card N t kIssuerBuyer SupplierAcquirerNetworkIssuerBuyer SupplierAcquirer

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Enablement: A Closed Loop Network Accelerates Supplier Onboarding

We maintain one-on-one relationships with suppliers, negotiate directly with them on your behalf and deliver efficient, streamlined service to support ongoing needs

Acquiring Issuing SupplierBuyer Closed Loop q gBank

gBank SupplierBuyer Closed Loop

Negotiations Remittance Information

OnboardinggInformation

g

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Q&AQ&A

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