Persuasive and Communication is the art of negotiation.
Vince D’Agostino & D’Arcy Delamer
1. Toronto, Canada
November 2010
P A Y M E N T S Y S T E M S R E V I E W S C E N A R I O P L A N N I N G W O R K S H O P
STRICTLYPRIVATEANDCONFIDENTIAL
Vin D’Agostino, Payments Strategy
2010 JPMorgan Chase & Co. All rights reserved.
Confidential and proprietary to JPMorgan Chase & Co.
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Payments Discussion_10Nov02_v6.pptx
Global B2B Payments Volume (USD trillion)
The global B2B marketplace is approaching $100 trillion in payments volume.
Source: First Annapolis Consulting, Visa Commercial Consumption Expenditure (CCE) Index. Index includes:
intermediate inputs, wholesale and retail purchases, private fixed investment, and government capital expenditures.
P A Y M E N T S S T R A T E G Y
21.2 23.4
29.1 31.9
15.9
16.8
20.6
23.416.2
18.7
19.3
20.3
3.9
4.3
6.0
7.4
2.9
3.7
4.3
5.0
1.7
2.1
2.2
2.3
2005 2006 2007 2008
Europe Asia Pacific U.S. C. Europe, MEA LAC Canada
4 YR CAGRs
CA: 11%
LAC: 20%
U.S.: 8%
Asia: 14%
CEU, MEA: 24%
EU: 15%
Total: 13%
$61.8
$69.0
$81.8
$90.3
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Payments Discussion_10Nov02_v6.pptx
The most prevalent B2B payment methods include checks, cards, wire transfers,
and ACH transactions.
Source: Aite Group.
P A Y M E N T S S T R A T E G Y 2
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Payments Discussion_10Nov02_v6.pptx
Key themes among B2B payments:
P A Y M E N T S S T R A T E G Y
Wires
Checks
Commercial Cards
EFT (ACH)
SWIFT: growing in popularity but gaps in requirements of corps and SMEs
limits adoption
Bank Wire: high cost / urgent electronic payment channel; growing market;
strong need for off-shore and cross border wire solutions; heightened regulatory
environment requires more cooperation from clients
Reducing check volume through electronification provides greater efficiency
across economies
Two ways to reduce checks: eliminate them (e.g. through migration to cards /
ACH) or convert them to digital formats (e.g. captured via ACH)
Rapid product innovation in B2B card space
P-Cards evolving into sophisticated A/P tools
Suppliers appreciate certainty of card payments
High acceptance costs stifle adoption
Attractive / low cost electronic payments channel
Well endorsed by larger corps; less prominent
among SME segment
Extended remittance data formats (CTC/CTX)
and EDI conversion capabilities are attractive
Would benefit most from strong set of
standards (e.g. around data formats)
Purchase-to-Pay (P2P)Solutions
Both ACH and cards
integrate well with P2P
Fragmented market with
various vendors
Can be Integrated with biz
systems
Goal is to strive to create
an end-to-end global
solution for businesses of
all shapes and sizes
Types of Payments Key Themes
Lack of
consistent
standards,
both
locally
and globally
Sets the stage for cards/ACH
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Payments Discussion_10Nov02_v6.pptx
A key issue among major payment systems is the abundance of paper checks,
which is a major driver of the electronification of payments.
U.S. B2B Payments Value Mix
81%
10%
7% 2%
67%
20%
9%
4%
2004 2010E
Check ACH Wire Card
Source: AFP Electronic Payments Survey, First Annapolis Consulting.
Why paper checks are a problem (opportunity)?
Check processing is costly
Environmental impact
Requires government resources
Fraud issues
Reduces efficiency of system
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Payments Discussion_10Nov02_v6.pptx
Bank Wire Solutions
Reasons Why Attractive Reasons Why Challenging
Trusted way to securely move money
Immediacy of payment
Increased competition has led to more attractive
pricing
Need for cross border payments and off-shore
clearing is growing
New technologies provide inroads to new
products, services, and markets
Banks are focused on automating client
services which drives efficiency in the broader
economy
Vendors are enhancing service quality through
greater transparency and improved service
levels
Heightened regulatory / compliance
environment requires more cooperation from
client
Market infrastructure pricing is likely to continue
to increase (e.g. 14% increase in U.S. Fed
charges)
Costs to maintain the payments infrastructure
will continue to increase
Emergence of new currencies such as Euro and
RMB will impact payment strategies
P A Y M E N T S S T R A T E G Y 5
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Payments Discussion_10Nov02_v6.pptx
Commercial Cards Solutions
P A Y M E N T S S T R A T E G Y
Reasons Why Attractive Reasons Why Challenging
Provides spend management capabilities to
limit fraud and control purchase behavior
Provides improved payment terms (time
between purchases and paying card company)
Significant investments in innovation continue to
be made by top issuers
Provides certainty of payment to suppliers
Reduces A/R staff and provides
operational/back office efficiencies
Evolving into an increasingly sophisticated A/P
tool and is generally offered in tandem and
integrated with electronic A/P solutions
Increasing supplier card acceptance remains
challenging due to high acceptance costs and
confusing merchant contracts
ACH is a simple, low cost, alternative
Products not well understood by less
sophisticated organizations
Merchant acquiring contracts are confusing
Integration issues with current business process
systems
Buyers are used to checks
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Payments Discussion_10Nov02_v6.pptx
Purchase-to-Pay (P2P) Solutions
P A Y M E N T S S T R A T E G Y
Reasons Why Attractive Reasons Why Challenging
Proven solutions in market today
Eliminates manual processes through
automating AP functions
Creates greater efficiency and cost savings
within A/R and A/P departments
Integrating a P2P solution with an existing
business system brings an organization closer
to achieving end-to-end processing capabilities
Companies and banks yearn to leverage
common functionalities
Banks and non-bank vendors are investing in
innovation
Fragmented market for solutions with multiple
vendors and lack of standards
Multiple supplier communities and eco-systems
created by P2P solutions complicate introducing
changes
Issues with providing consistent global
experiences
Lack of strong standards
Issues with systems integrations (time
consuming, painful)
Buyers are used to checks
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Payments Discussion_10Nov02_v6.pptx
Appendix
P A Y M E N T S S T R A T E G Y 8
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Payments Discussion_10Nov02_v6.pptx
A/R and A/P departments could be more efficient and P2P solutions drive
needed changes.
Source: First Annapolis Consulting, 2008 Visa Global Cash Management Survey of 800 corporate financial executives from 11 countries. Sixty-two percent of respondents held the position of CFO,
treasurer, or controller. Half of survey respondents were from the U.S. with the remaining respondents in descending order from the U.K, Canada, South Africa, Japan, Brazil, South Korea, Mexico,
Australia, France, and Germany. Respondents had at least 100 employees and annual revenues of USD 25 million or more. The majority of respondents were from companies with at least 1000
employees and annual revenues of USD 100 million or more.
"very
efficient"
less than
"very
efficient"
Cash Management Function
37%
35%
29%
Lack of streamlined operational processes
Labor-intensive admin work
Inadequate info & reporting capabilities
Top Challenges to Cash Management Process Efficiency
A/R and A/P staff actually performing the work have disincentives to pursuing efficiencies.
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Payments Discussion_10Nov02_v6.pptx
There are many challenges to modifying AP department processes, but payments are
one of the least painful element in the process to change.
Source: First Annapolis Consulting, 2007 PayStream Advisors, Inc., "AP Automation for the European Market," Q1 2007.
24%
25%
25%
25%
35%
14%
7%
18%
Invoice receipt
Matching
Imaging / data capture
Approval processing
Discrepancy resolution
Accessing invoice info
Payment
Supplier spend mgmt
AP Automation “Pain Index”
(% of in top-two boxes of a five-point pain scale)
Payment is viewed as substantially less “painful”
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Payments Discussion_10Nov02_v6.pptx
The market has been gradually adopting electronic invoicing solutions and P2P
solutions are likely to win the market over.
Source: First Annapolis Consulting, PayStream Advisors 4Q 2009 survey of 275 U.S. enterprises from a diverse set of sectors. (60% < $500 mil, 20% $500 mil to $2.5 bil, 20%
over $2.5 bil in annual sales.) Projections from “Beyond Plastics,” Citi, GSA SmartPay® 2010 Conference.
25%
16% 17%
24%
18%
> 50% 26-50% 11-25% 1-10% none
% of P.O.s Sent
Electronically to Suppliers
E-invoice
14%
E-mail
10%
Fax
7%
Paper
68%
% of All Invoices Traded by
0%
20%
40%
60%
80%
2006 2007 2008 2009 2010 2011 2012
Electronic Invoices
Paper Invoices
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Payments Discussion_10Nov02_v6.pptx
The market suggests that ACH payments are favored over cards…however, this
is likely the result of low card acceptance and product familiarity issues.
Integration of Pmt Systems with Acct Systems
(< $1 billion in revenue organizations)
23%
14%
16%
9%
54%
8%
6%
70%
A/P only A/P and A/R A/R only Neither is
integrated
ACH Card
Integration of Pmt Systems with Acct Systems
(> $1 billion in revenue organizations)
31%
32%
30%
14%
8%
29%
5%
51%
A/P only A/P and A/R A/R only Neither is
integrated
ACH Card
Source: First Annapolis Consulting, 2007 AFP Electronic Payments Survey of 493 members and customers in Sept 2007. Distribution of respondents by annual revenue: 7% under $50 million; 5%
$50-99.9 million; 9% $100-249.9 million; 15% $250-499.9 million; 13% $500-999.9 million; 31% $1-4.9 billion; 8% $5-9.9 billion; 5% $10-20 billion; 7% over $20 billion. The median was $1.13 billion.
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Payments Discussion_10Nov02_v6.pptx
Suppliers appreciate most the certainty of payment that is associated with
commercial cards over other payment solutions, mainly checks.
0% 10% 20% 30% 40% 50% 60% 70%
Quick payment
Guaranteed payment
Process ease
To be "preferred"
Lower AR process cost
Reduce AR staff
Reasons suppliers give for accepting cards
Overall
High capture
Source: First Annapolis Consulting, and NAPCP, End-user survey on supplier acceptance, Nov / Dec 2009. Note: Frequencies are for "regularly cited" responses only. A response of "Decreases
hard-dollar costs (e.g., banking fees, paper invoices, postage)" grouped within "Lower AR process costs." A response of "Competitive advantage over non-accepting suppliers" grouped within "To be
preferred.“ 23% of respondents were deemed to be “High Capture” with annual p-card spend equal to or greater than 4% of annual revenue (private sector) or budget (public sector).
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Payments Discussion_10Nov02_v6.pptx
As travel and procurement expenses join up, T&E and p-card integration is inevitable.
Old New positive negative
the autonomous
travel manager
→
integrated into
procurement
• Enhance coordination of card spend processes
• Clamp down on travel expenses
• Quest to commoditize cards and key off rebate
regional / local
spend mgmt
→
global category
management
• Consolidate travel data and provider / supplier
vendor relationships globally
stand-alone
travel reporting
→
integrated
travel / p-card
online solution
• Emulate a consumer web interface look / feel
• Review performance through dashboards
• Integrate receipt / invoice imaging with card
• Combine and reconcile data from disparate
systems (agency, expensing, card)
• Track travelers (where, least-cost itineraries)
multiple
one-offs
→
one global
solution
• Lead bank with partners in certain regions
• Multiple banks feeding into one online solution
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The most prominent complaints among suppliers that resist cards largely center
around high acceptance costs.
Source: First Annapolis Consulting and NAPCP, End-user survey on supplier acceptance, Nov / Dec 2009. Note: Frequencies are for "regularly cited" responses only. Responses of
"regularly cited" for "Cant find acquirer" and "PCI compliance" were less than 5% of overall respondents.
0% 10% 20% 30% 40% 50% 60% 70% 80%
Fees too high
Too hard to set up
Don't understand benefits
Few customers request
Too much to maintain
Don't understand acq contract
Don't have proper staff
Reasons suppliers resist or won't accept cards
Overall
High capture
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Payments Discussion_10Nov02_v6.pptx
Acceptance is the major issue standing in the way of increased commercial card
usage.
US Canada Europe Asia
Pacific
Latin
America
Middle
East
Africa
% of my suppliers that take cards
75% +
50 - 74%
25 - 49%
<25%
Don't know
N/A
Source: First Annapolis Consulting and NAPCP, End-user survey on supplier acceptance. Note: Inferred supplier acceptance rates calculated by multiplying the midpoint of each percentage
response option range by the percent of respondents who ticked a percentage response.
75% 51% 34% 28% 26% 26% 21%
Inferred supplier
acceptance rate
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Payments Discussion_10Nov02_v6.pptx
P-cards are evolving into an increasingly sophisticated tool.
industry overview
Bypass purchase orders Automate POs and A/P
Rebate Automate spend management
Issue card for every auth user Supplier / project / mtg cards
Mandate card for low tickets Optimize form of payment
Past
Purchasing Card
Evolution
Future
Source: First Annapolis Consulting market observations. RPMG 2010 Purchasing Card Benchmarking Survey.
30%
13%
33%
16%
Ghost cards AP embedded cards
Organizations utilizing:
2007 2009
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Payments Discussion_10Nov02_v6.pptx
There are many barriers to electronification of payments that currently exist.
Barriers to Increasing Usage of E-Payments
32%
25%
38%
32%
30%
18%
22%
23%
53%
52%
38%
42%
43%
55%
41%
37%
85%
77%
76%
74%
73%
73%
63%
60%
Convincing customers to pay electronically
Sending or receiving auto remittance info with e-pmts
Shortage of IT resources for implementation
No standard format for remittance information
Lack of integration btw e-payment and accounting sys
Convincing suppliers to accept e-payments
Funding for electronic payments projects not a priority
Paper check systems work well
Major Minor
Source: First Annapolis Consulting, 2007 AFP Electronic Payments Survey of 493 members and customers in Sept 2007. Distribution of respondents by annual revenue: 7% under $50
million; 5% $50-99.9 million; 9% $100-249.9 million; 15% $250-499.9 million; 13% $500-999.9 million; 31% $1-4.9 billion; 8% $5-9.9 billion; 5% $10-20 billion; 7% over $20 billion. The
median was $1.13 billion.
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Editor's Notes
The Visa CCE index functions as a benchmarking
tool that can track and forecast the penetration
of various commercial payment products
compared with the total market. Using the Visa
CCE metric, Member financial institutions can
segment their view of spending and target the
categories and segments with the greatest
contribution to the total commercial spending
as well as those that are expected to grow at
a faster rate during the next five years.
Member financial institutions also can use
this data to better serve the commercial
payments marketplace, helping their clients
benefit from the efficiency and cost savings
of electronic commercial payment solutions.
Access to the complete CCE data set and
segmentation analysis is reserved exclusively
for Visa Member financial institutions.
-Each payment type has its own regulations, standards, data formats, etc.