1

Payments Work Session

What’s happening in the payments marketplace?

George M Doolittle, Head of Global Payment Services, Global

Transaction Banking, Wells Fargo

Liba Saiovici, Managing Director, Latin America Product Management, Global Treasury Solutions, Bank of America Merrill Lynch

@swiftcommunity #LARC2013

George M Doolittle Executive Vice President Global Transaction Banking Wells Fargo International Group Cartagena, Colombia, Julio 2013

Some Thoughts On Emerging Payments Issues

Agenda

• Trends and Issues

• The Emerging Science of Payment Risk Management

• The Work of the Payment Market Practice Group

3

4

But, Payments Sit at the Heart of the System …

What is on the Industry’s Mind?

Transparency

Global Regulatory Activism

Platform Efficiencies

Sanctions Management as a

Critical and Competitive Advantage

The Battle for Liquidity

Flight to FX Payments

5

CyberCrime

Application Promotion

Management

The Value of Data

Discretionary v. Non- Discretionary Development

6

Some of the Detail…

Industry Initiatives:

•eInvoicing

•Payment Reference Data

•Data Repositories

•LEI-Legal Entity Identifier

•Off-shore Clearing Sites

•CNY-CNH

•Character Sets

•ISO 20022 Migration

•Settlement? PvP, CLS, RTGS, Netting, CCP

AML/T &TE:

•FATF.. Beneficial Ownership

•Sanctions Management

•FinCEN…Reporting

•Trade Products

•Extensions …Human Slavery, Tax Evasion, Corruption, Gambling

Competition:

•Market Infrastructures

•Money Remitters

•Non-Banks: e.g. Telecoms, Web Players, Retailers

•Central Banks

Regulation:

•Dodd Frank Act

•Reg E/1073

•Reg Q

•FATCA

•Basel III

•BIS-CPSS

•FDIC-Living Wills

•FSA-CP 09/16

•PSD II

•Internationalisation of RMB

•Account Portability

•Faster Payments

Payment

7

What should we be focusing on?

• Payment Transparency

• Intelligent Payment Routing

• Payment Risk Management

• Public Works & Community Projects

• Regulatory Harmonisation

The Emerging Science of Payment Risk Management

Errors Mount at High-Speed Exchanges in New Year By NATHANIEL POPPER

January 14, 2013, 8:00am Security Firm Discovers Global Spy Campaign

Bank Hacking Was the Work of Iranians, Officials Say By NICOLE PERLROTH and QUENTIN HARDY

Payment Risk Management (an Emerging Science)

9

Disruptive Technology Identity Theft Fraud-Electronification Card Scams DDoS

Evolving Environment

Globalisation •24x7 Real Time Operations •Offshore Centres •Terrorism •Liberation e.g. Arab Spring

Globalisation

Regulatory Activism

Disruptive Technology

Natural Disasters

Natural Disasters: Payment Centre Locations Telecommmunications and Infrastructure Team Member Safety

Regulatory Activism •Consumer Protection •RingFencing: Safety and Soundness •Anti-Money Laundering and Anti-Terrorism •Corruption and Tax Evasion •Liquidity

Customer Segments

Consumer

Corporate

Institutional

So, Hot Topics In Payment Risk Management …

• Anti-Money Laundering, Anti-Terrorism, Tax Evasion, Corruption and Sanctions Management

• Transparency …

– Pricing, and Processing

– Banking Privacy and Beneficial Ownership

– Counter-Party Risk (LEI)

• Safety & Soundness:

– Liquidity and Capital

– Solving for Too Big to Fail (Living Wills, Basle III, Liquidity)

– Euro-Contingency Planning

• Interconnectedness: Financial Market Infrastructure Risk

– Systemic Risk Analysis

• Our Wired World:

– Identity Theft and Card Fraud – Software Promotion Mis-Haps

– DDoS

• Disaster Recovery

– Natural Disasters

– IT Implementations

Introduction: PMPG and its Work

Introducing the PMPG

• International industry group of payment subject matter experts focusing on setting market practices, beneficial to the payments community

• Not a regulatory body, no enforcement

• Focus

– Setting of consensus driven global market practice

– Educating the market place by provision of white papers

– Protecting the market place by responding to industry consultations from a global market practice point of view

• SWIFT Advisory Group

• www.pmpg.info

12

Mission

• Provide a truly global forum to drive better market practices which, together with correct use of standards, will help in achieving full STP and improved customer service:

• The PMPG mission is to:

– take stock of payments market practices across regions

– discuss, explain and document market practice issues, including economic viability

– recommend market practices, covering end-to-end transactions

– recommend payments market practices in response to changing compliance requirements

– ensure publication of recommended practices

13

Scope

• End-to-end payment transactions, including:

– payment initiations from any business to a financial institution

– payment instructions between financial institutions

– any kind of exception handling related to the above (rejections, returns, status reports, request for cancellations, reversals)

– transportation and processing by financial institutions of business to business information

– financial reporting, confirmations and statements, related to the above

– the convergence of the trade and payments space

– the impact of compliance requirements as they relate to global payments market practices

– market practices for securities transaction related payments

14

Publications

• Market Practice Guidelines

– Use of the MT 202 COV

– Compliance with FATF SR VII

– International payment charging claiming process

– US expanded wire formats

– Use of ISO 20022 for high value payments

• White Papers

– Use of IBAN in international payments

– Maritime attachments

– Handling of multiple character sets

– Auto Foreign Exchange Conversion

– Foreign Account Tax Compliance Act (FATCA)

– Dodd Frank Section 1073

15

www.pmpg.info

What’s happening in the payments marketplace? Liba Saiovici, Managing Director, Latin America Product Management July 11, 2013

18

The global payments landscape

Multiple countries… Multiple innovations…

Multiple currencies…

Change in global payments is inevitable… and will require a different strategy.

19

Forces at Work in the Global Payments Industry

Innovation Regulation Standardization Globalization

There are a number of forces at work which are shaping the direction of the global payments industry

20

Globalization

With the increasing volumes of electronic payments, there is a focus on improving infrastructure to transform how payments circle the globe

While the forces at work are similar across the globe, focus areas vary by region:

North America - focus on mobile and near-field communication (NFC) payments, and a number of regulations

EMEA – SEPA implementation and the impact of an integrated market

Asia Pacific - increase in electronic payments and payment options

Latin America - growth of person-to-person (P2P) payments and electronic payments as a result of an increase in non-cash usage.

Global volumes of non-cash payments increased by 7.1% , reaching $283 billion during 20101.

Mature economies contributed nearly 80% of the volume, however, the 4.9% growth rate of mature economies was far outpaced by the 16.9% growth rate in developing economies.

Use of non-cash payment instruments continues to grow exponentially.

Heightened importance of emerging markets in driving global economic growth has highlighted the growth of intra-regional trade and has increased the need for enhanced cross-border settlement and cross-currency payment solutions.

Payments is one of the fastest growing industries worldwide and future growth potential remains enormous

1 Source: World Payments Report 2012

21

Standardization

But… a lot of companies in Latin America are still unfamiliar with ISO 20022

ISO 20022: the lingua franca in payments and securities

ISO 20022 has been widely viewed as the ‘holy grail’ of message standardization for the future.

The standard offers great potential for reengineering the payments industry and for process improvement.

Use of the standard has been greater in more developed markets with emerging markets, such as LatAm, being slower to adopt, however, usage continues to grow.

Global embracement of the standard will be critical if industry participants are to reap the full benefits of global standardization.

Widespread adoption will most likely drive further changes in consolidation, competition and technology.

Standardization initiatives aimed at improving efficiency, streamlining processes and reducing costs continue to gain widespread industry attention and participation.

Organizations such as SWIFT have become a critical voice on the standards front and have emerged as catalysts towards global standardization of processes.

In a recent Anthemis Group report, SWIFT was highlighted as still being “the preferred infrastructure when we talk about international payments” through its core “strategic positioning”.

Standards are particularly key in the emerging mobile space with the need for mobile payments standards definition and management.

Historically the lack of a common global standard and variations between systems have reduced the ability to seamlessly pass data between counterparties

22

What is ISO 20022?

For payments

Implemented by banks, corporations, payment systems and financial applications providers to conduct payment operations

The future (and present) standard in use with a number of the world’s clearing and payment systems

Frequently appearing in corporate cash management RFPs where multi-bank, multi-country reach is required

For financial services

A harmonized set of standards across financial services domains:

– Cash, Securities, Trade, Card, FX, Remittances and other

Freely available to all members of the financial services community

Based on a partnership of multiple standards organizations including SWIFT, IFX, OAGi, x9, TWIST, and others

A single set of globally relevant financial services messaging standards

The focus of SWIFT’s future standards development (SWIFT MX)

Many view ISO 20022 as the ‘holy grail’ of message standardization for the future

23

Who (and what) is driving adoption?

Drivers

- Harmonization (driven by regulation or innovation)

- Renewal of legacy systems

- Further automation required

- Creation of new services

- Interoperability with other systems/players

New initiatives

- Market infrastructures

- Global harmonization & regulation (e.g., SEPA in Europe)

- Automation in specific markets (e.g., the ‘funds’ market)

New players

- Corporates, fund managers

New technology

- XML, SOA, web services

Bank of America Merrill Lynch is a leader, very actively supporting ISO 20022 adoption globally

24

ISO 20022 Payment Market Infrastructure Adoption

CA

IN

JP

CN

CO

PE

BR TH

EU-EPA EU-

Target 2

DK

SADC

AU

CH

IPFA

GB

25

Regulation

It is important to note that while the myriad regulatory changes taking place across the globe represent unique challenges, they also bring with them

opportunities for firms who are able to seize them

The evolving regulatory landscape: the list that keeps on growing

Dodd-Frank

SEPA

FATCA

Basel III

Regulatory changes around the globe are impacting the operational, technological and competitive models of payments.

Pace of regulatory change brings with its own challenges for firms to keep current on existing, and emerging regulations at a global, regional and local level.

A wide range of global and regional regulatory and industry initiatives are reshaping aspects of the payments market

26

Innovation

Familiarity with the latest advances in technology innovation will prove invaluable for firms looking to stay ahead of the global payments curve

Mobile technology: Revolutionizing financial services throughout the world

Mobile is widely viewed as a game changer, globally, in the evolving payments landscape.

Increasing penetration of smart phones and mobile tablets.

The user experience with a mobile device has evolved to be much richer and is contributing to channel convergence.

The emergence of mobile as a ubiquitous delivery channel is also seen as fueling the drive to real-time payments.

Mobile has become increasingly important in the emerging markets where the use of mobile devices continues to climb and be seen as an important delivery channel for services.

Financial institutions have the chance to leverage their reputation as trusted payment providers and effective risk managers to strengthen their role in the mobile payments ecosystem.

Enhanced automation through technologies, such as mobile , and the evolution of artificial intelligence and straight-through processing abilities, are quickly reinventing industry payment methods and vehicles.

With advances in technology and adoption of industry standards, there is a tremendous opportunity for firms to deliver more “value added services” to differentiate themselves in an increasingly level playing field.

Advances in, and adoption of, technology continues to fuel and foster the introduction of new innovations

27

Forces at Work in the Global Payments Industry

Adapting to an increasingly connected global industry

It is clear that the future payments landscape will be very different in the coming years compared with what it is today.

In order to fully embrace and capitalize on this change, collaboration at all levels of the industry is required.

The pace of regulatory change will continue to increase as regulatory and industry participants adapt to a more globally connected industry.

Newer technologies , such as the ubiquity of mobile, are going to be game changers.

SWIFT will continue to play a pivotal role as the drive towards global standardization continues.

28

Disclaimer

"Bank of America Merrill Lynch" is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ("Investment Banking Affiliates"), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered as broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed

This presentation is for informational purposes only. It does not constitute an offer or commitment to buy or sell or a solicitation of an offer to buy or sell a security or any financial instrument, or a commitment to enter into a transaction, of the type generally described herein. The information contained herein, and any other communications or information provided by Bank of America Merrill Lynch, is not intended to be, and shall not be regarded or construed as, a recommendation for transactions or tax or investment advice, and Bank of America Merrill Lynch shall not be relied upon for the same without a specific, written agreement between us.

We do not provide legal, compliance, tax or accounting advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by us to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed herein is being delivered to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent tax advisor. Notwithstanding anything that may appear herein or in other materials to the contrary, the Company shall be permitted to disclose the tax treatment and tax structure of a transaction (including any materials, opinions or analyses relating to such tax treatment or tax structure, but without disclosure of identifying information or, except to the extent relating to such tax structure or tax treatment, any nonpublic commercial or financial information) on and after the earliest to occur of the date of (i) public announcement of discussions relating to such transaction, (ii) public announcement of such transaction or (iii) execution of a definitive agreement (with or without conditions) to enter into such transaction; provided, however, that if such transaction is not consummated for any reason, the provisions of this sentence shall cease to apply.

Copyright 2013 Bank of America

Q&A

?

SWIFT Latin American Regional Conference - 2013 11-12 July 2013 29

Please provide us with your feedback!

• Kindly complete the survey form and submit upon exiting

30 SWIFT Latin American Regional Conference - 2013 11-12 July 2013

SWIFT Latin American Regional Conference - 2013 11-12 July 2013 31

What’s next on the agenda