Scott Shannon Regional Sales Manager U.S. Bank January 9, 2007 The Changing Payments Landscape
Agenda <ul><li>Payments Environment </li></ul><ul><li>Check 21 and Check Conversion </li></ul><ul><li>New Payment Methods ...
Changing Environment
Payments in the 20 th  Century <ul><li>Coin and currency dominated U.S. payments (especially consumer payments) until the ...
Changing Behavior <ul><li>Federal Reserve’s  The Future of Retail Electronic Payments Systems: Industry Interview and Anal...
Payment Trends <ul><li>Payments growth continues as check volumes decline. </li></ul><ul><li>Check is the only instrument ...
Ramifications <ul><li>… to Government & Business Organizations </li></ul><ul><ul><li>Changes, issues and opportunities to ...
Check Conversion and  Check 21
Truncation versus Conversion <ul><li>Truncation:   Check 21 allows banks to convert paper checks into electronic images, t...
Check 21 <ul><li>A new federal law, effective October 28, 2004, with the following objectives: </li></ul><ul><ul><li>To fa...
Substitute Check <ul><li>Authorizes the creation of a new negotiable instrument called a substitute check, which ….. </li>...
Check 21 – Impact to Organizations <ul><li>Once Check 21 became effective, “business” customers may have seen the followin...
<ul><li>Once Check 21 became effective, “business” customers may have seen the following changes: </li></ul><ul><ul><li>Ch...
Check 21 and Image Exchange <ul><li>Check 21 and Image Exchange are not synonymous </li></ul><ul><ul><li>Check 21 refers t...
Check 21 and Image Exchange <ul><li>Banks have been exchanging images for years, but have not settled transactions from th...
Check 21 Summary <ul><li>In short, Check 21: </li></ul><ul><ul><li>facilitates (but does not authorize or require) electro...
Check Conversion <ul><li>NACHA has implemented check conversion specific payment types which lead to innovative new produc...
Check Conversion <ul><li>NACHA new payment options (continued) </li></ul><ul><ul><li>Internet Initiated  (WEB)  transactio...
Check Conversion vs. Image Exchange <ul><li>With Image Exchange, why would anyone want to do Check Conversion? </li></ul><...
Check Conversion vs. Image Exchange Yes Yes Stop Payments allowed? None Biller obtains written authorization (POP) or info...
Ramifications <ul><li>…to Organizations </li></ul><ul><ul><li>As paper-based payments are converted or truncated and proce...
New Payment Methods <ul><li>ACH Credit Push </li></ul><ul><ul><li>NACHA is preparing to pilot a new, potential payment opt...
On-going Investments <ul><li>Technology & Process </li></ul><ul><ul><li>Image Investments </li></ul></ul><ul><li>Payment C...
Image Investments <ul><li>Viewpointe Investment and Associated Image Projects </li></ul><ul><ul><li>Several large banks ha...
Payment Channel Investments <ul><li>Internet and telephone </li></ul><ul><ul><li>E-Payment Service </li></ul></ul><ul><li>...
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The Changing Payments Landscape

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The Changing Payments Landscape

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The Changing Payments Landscape

  1. 1. Scott Shannon Regional Sales Manager U.S. Bank January 9, 2007 The Changing Payments Landscape
  2. 2. Agenda <ul><li>Payments Environment </li></ul><ul><li>Check 21 and Check Conversion </li></ul><ul><li>New Payment Methods </li></ul><ul><li>Questions </li></ul>
  3. 3. Changing Environment
  4. 4. Payments in the 20 th Century <ul><li>Coin and currency dominated U.S. payments (especially consumer payments) until the mid-20th century </li></ul><ul><li>Battle for dominance between cash and checks from the 1930’s to the 1960’s </li></ul><ul><li>Credit cards in 1950’s </li></ul><ul><li>ATM and ACH in the 1970’s </li></ul><ul><li>Debit cards in the 1980’s </li></ul><ul><li>Check and Card battle for dominance in the last two decades </li></ul>
  5. 5. Changing Behavior <ul><li>Federal Reserve’s The Future of Retail Electronic Payments Systems: Industry Interview and Analysis was first credible and statistical study that demonstrated growth in electronic payments </li></ul><ul><ul><li>The proportion of retail non-cash payments made electronically grew from 15% in 1979 to 40% in 2000. </li></ul></ul><ul><li>Financial Industry studies confirm these findings: </li></ul><ul><ul><li>2003/2004 Study of Consumer Payment Preferences </li></ul></ul><ul><ul><li>Federal Reserve Board’s Survey of Consumer Finances </li></ul></ul><ul><ul><li>Federal Reserve Bulletin article in August 2002 </li></ul></ul><ul><ul><li>Federal Reserve Annual Report submitted to Congress in April 2003 </li></ul></ul><ul><ul><li>Beyond the Decline of the Check: New Directions in Retail Payments </li></ul></ul>
  6. 6. Payment Trends <ul><li>Payments growth continues as check volumes decline. </li></ul><ul><li>Check is the only instrument with declining volumes. </li></ul>* Source: Federal Reserve Payment Study, Jan. 2005
  7. 7. Ramifications <ul><li>… to Government & Business Organizations </li></ul><ul><ul><li>Changes, issues and opportunities to address relative to paper-based payments </li></ul></ul><ul><ul><li>Customer and competitive pressures to “electronify” </li></ul></ul><ul><li>… to Banks </li></ul><ul><ul><li>Investments required in declining, legacy paper-based products and services </li></ul></ul><ul><ul><li>Concurrent need to invest in R&D and technology surrounding new payment types </li></ul></ul><ul><ul><li>Customer and competitive pressures to support all payment types and payment technologies </li></ul></ul>
  8. 8. Check Conversion and Check 21
  9. 9. Truncation versus Conversion <ul><li>Truncation: Check 21 allows banks to convert paper checks into electronic images, truncate the original check and present a substitute check as its legal equivalent. </li></ul><ul><li>Conversion: Companies and banks convert checks to ACH debits. </li></ul>Truncation versus Conversion – What’s the difference?
  10. 10. Check 21 <ul><li>A new federal law, effective October 28, 2004, with the following objectives: </li></ul><ul><ul><li>To facilitate check truncation </li></ul></ul><ul><ul><li>To foster innovation in check collection systems without mandating receipt of checks in an electronic format </li></ul></ul><ul><ul><li>To improve the overall efficiency of the nation’s payment systems </li></ul></ul><ul><li>Effective October 28, 2004, a substitute check is considered a legal document in place of the original check </li></ul>
  11. 11. Substitute Check <ul><li>Authorizes the creation of a new negotiable instrument called a substitute check, which ….. </li></ul><ul><ul><li>Is the legal equivalent of the original paper check </li></ul></ul><ul><ul><li>Can be processed as if it were the original paper check </li></ul></ul><ul><ul><li>Does not require agreement between banks </li></ul></ul><ul><ul><li>Carries warranties and indemnification to subsequent parties in the collection and returns processes </li></ul></ul><ul><ul><li>Can replace any domestic check </li></ul></ul><ul><ul><li>Is governed by check law </li></ul></ul>
  12. 12. Check 21 – Impact to Organizations <ul><li>Once Check 21 became effective, “business” customers may have seen the following changes: </li></ul><ul><ul><li>Checking account statements : Both original and substitute checks may be returned with the statements </li></ul></ul><ul><ul><li>Image Services : Images of substitute checks being viewed via CD-ROM or online are smaller than the images of original checks </li></ul></ul><ul><ul><li>Deposited returned items : Customers may receive a substitute check as a returned deposited item instead of the original check </li></ul></ul>
  13. 13. <ul><li>Once Check 21 became effective, “business” customers may have seen the following changes: </li></ul><ul><ul><li>Check clearing impact : Large dollar checks may clear more quickly </li></ul></ul><ul><ul><li>Controlled Disbursement impact : Possible faster clearing time as remote Routing & Transit numbers may be the first ones to be affected by use of substitute checks </li></ul></ul>Check 21 – Impact to Organizations
  14. 14. Check 21 and Image Exchange <ul><li>Check 21 and Image Exchange are not synonymous </li></ul><ul><ul><li>Check 21 refers to the legislation and image exchanges refers to the technology </li></ul></ul><ul><li>Check 21 is image based, and will encourage image exchange, but … </li></ul><ul><li>Electronic exchanges are not covered by Check 21 and will require agreement between parties </li></ul>
  15. 15. Check 21 and Image Exchange <ul><li>Banks have been exchanging images for years, but have not settled transactions from the image files </li></ul><ul><li>The first “image-only” settlement occurred in August 2004 </li></ul>
  16. 16. Check 21 Summary <ul><li>In short, Check 21: </li></ul><ul><ul><li>facilitates (but does not authorize or require) electronic image exchange. </li></ul></ul><ul><ul><li>encourages the use of electronics by allowing the use of images to create substitute checks. </li></ul></ul><ul><ul><li>does not address truncation, safekeeping, or image exchange. These activities will still require separate agreements between parties. </li></ul></ul>
  17. 17. Check Conversion <ul><li>NACHA has implemented check conversion specific payment types which lead to innovative new products: </li></ul><ul><ul><li>Point of Purchase (POP) transactions – checks are scanned and converted at the point of purchase. Check is returned to the consumer and written authorization is required. </li></ul></ul><ul><ul><ul><li>167 million items in 2005 </li></ul></ul></ul><ul><ul><li>Accounts Receivable Conversion (ARC) – used to convert consumer checks received through the mail or dropbox location. Prior notice of conversion is required, but written authorization is not. Opt out option must be provided. </li></ul></ul><ul><ul><ul><li>1.6 billion items in 2005 </li></ul></ul></ul>
  18. 18. Check Conversion <ul><li>NACHA new payment options (continued) </li></ul><ul><ul><li>Internet Initiated (WEB) transactions – Receiving authorization via the web and using the bank account number and routing number from a check to initiate debits. </li></ul></ul><ul><ul><ul><li>1 billion items in 2005 </li></ul></ul></ul><ul><ul><li>Telephone Initiated (TEL) transactions - Receiving authorization via the telephone and using the bank account number and routing number from a check to initiate debits. </li></ul></ul><ul><ul><ul><li>239 million items in 2005 </li></ul></ul></ul>
  19. 19. Check Conversion vs. Image Exchange <ul><li>With Image Exchange, why would anyone want to do Check Conversion? </li></ul><ul><ul><li>Image Exchange is in its infancy – with widespread acceptance not expected for many years </li></ul></ul><ul><ul><li>Check conversion programs are available today and allow customers to immediately take advantage of the efficiency gains </li></ul></ul><ul><ul><li>Checks can be re-presented an additional time with ACH check conversion </li></ul></ul>
  20. 20. Check Conversion vs. Image Exchange Yes Yes Stop Payments allowed? None Biller obtains written authorization (POP) or informs consumer of intent to convert (ARC) Authorization required? All checks drawn on U.S. bank in U.S. dollars Consumer checks drawn on U.S. banks in U.S. dollars Eligible Items? Paper check is imaged and later converted into substitute check Paper check converted to ACH electronic payment What is it? Image Exchange Check Conversion
  21. 21. Ramifications <ul><li>…to Organizations </li></ul><ul><ul><li>As paper-based payments are converted or truncated and processed electronically, consumer behavior shift likely to accelerate toward electronic payment solutions </li></ul></ul><ul><ul><ul><li>Point-of-sale = card </li></ul></ul></ul><ul><ul><ul><li>Bill/Invoice payments = web or electronic bill pay service </li></ul></ul></ul><ul><ul><li>Increased number of payment channels and formats to support </li></ul></ul><ul><ul><li>Payment processing changes </li></ul></ul><ul><ul><li>Investment decisions (in-house vs. outsource decisions) </li></ul></ul><ul><ul><li>Reduction of bank relationships – geographic limiters removed </li></ul></ul><ul><ul><li>Fraud mitigation </li></ul></ul>
  22. 22. New Payment Methods <ul><li>ACH Credit Push </li></ul><ul><ul><li>NACHA is preparing to pilot a new, potential payment option that allows the consumer to initiate an ACH credit while relying on their financial institution to authenticate their identity </li></ul></ul><ul><li>ACH Back Office Conversion </li></ul><ul><ul><li>An option being introduced by NACHA in March, 2007 that is very similar to ARC and POP. Would allow acceptance of checks at the point of purchase, with conversion to electronic later in the back office. POP volume will likely decline as a result </li></ul></ul>
  23. 23. On-going Investments <ul><li>Technology & Process </li></ul><ul><ul><li>Image Investments </li></ul></ul><ul><li>Payment Channels </li></ul><ul><ul><li>Internet </li></ul></ul><ul><ul><li>Check Conversion </li></ul></ul><ul><ul><li>Lock Box </li></ul></ul>
  24. 24. Image Investments <ul><li>Viewpointe Investment and Associated Image Projects </li></ul><ul><ul><li>Several large banks have taken an ownership position in Viewpointe Archive, LLC., and concurrently signed a long-term agreement to implement the company’s check image archiving technology. </li></ul></ul><ul><ul><li>70% of total check volume in the country! </li></ul></ul><ul><ul><li>Owners: U.S. Bank, Bank of America, JP Morgan Chase, SunTrust, Wells Fargo, IBM </li></ul></ul><ul><ul><li>Customers: Fleet, Zions, First Tennessee, HSBC, BB&T, National City, Fiserv </li></ul></ul>
  25. 25. Payment Channel Investments <ul><li>Internet and telephone </li></ul><ul><ul><li>E-Payment Service </li></ul></ul><ul><li>Check Conversion </li></ul><ul><ul><li>Remote Electronic Deposit Service </li></ul></ul><ul><ul><li>Retail Lockbox Electronic Deposit </li></ul></ul><ul><ul><li>Electronic Cash Letter Deposit </li></ul></ul><ul><ul><li>POS Electronic Check Service </li></ul></ul><ul><li>Returned items can be re-presented electronically </li></ul>Walk-in Service Sites or Point of Purchase Retail Lockbox Sites Corporate Customer Remittance Shops Your Bank

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