Presentation given by Bacs CEO, Michael Chambers, at the Payment Strategies 2015 conference held in June 2015.

1. 3 JUNE 2014
TWITTER: @BACS_CEO
REGULATION, RISING TRANSACTIONS VOLUMES, AND
THE CHALLENGES OF OUR MULTI-CHANNEL UNIVERSE
MICHAEL CHAMBERS, CHIEF EXECUTIVE OFFICER
© 2015 Bacs Payment Schemes Limited

2. 2 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe

3. 3 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe

4. 4 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe

5. 5 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe

6. PAYMENTS LANDSCAPE
6 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
Backdrop of rapid change:
• Legislative and regulatory changes
• Technological advances
• Drive for innovation – positive change
• Primary payment substitution for new payments of known / regular commitments

7. RISING TRANSACTIONS VOLUMES

8. 8 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe

9. VOLUMES
9 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
Steady rise in Direct Debit volumes
• Increased by 4% in 2014 over 2013
• Growth despite bundling of bills
• Growth areas: mobile phone; online purchasing account funding
• Single day processing record broken already in 2015 – forecasts show another record
likely to be set shortly
Bacs Direct Credit holding its own
• Rise of 2.5% in non-benefit payments compared with 2013
• 1 bn benefit payments

10. DVLA AND DIRECT DEBIT
10 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
• Launched Oct 1 2014
• By end of April 2015, 5.9m people signed up
• Just under 1m sign ups in April alone
• 18.4m Direct Debit payments processed Oct - April.
• Largest single day volume processed reached 3.9m payments in April
• Significant growth expected over the next 5 months

11. REGULATION

12. 12 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
REGULATION AND THE VALUE CHAIN

13. 13 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe

14. REGULATORY IMPACT ON BACS
14 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
PSR objectives:
• To ensure that payment systems are operated and developed in a way that considers and
promotes the interests of all the businesses and consumers that use them
• To promote effective competition in the markets for payment systems and services -
between operators, PSPs and infrastructure providers
• To promote the development of and innovation in payment systems, in particular the
infrastructure used to operate those systems

15. REGULATORY IMPACT ON BACS
15 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
Bank of England regulatory oversight:
• The Financial Services Act (2012) established an independent Financial Policy Committee
(FPC), a new prudential regulator as a subsidiary of the Bank, and created new
responsibilities for the supervision of financial market infrastructure providers.
• The Financial Policy Committee (FPC) is charged with taking action to remove or reduce
systemic risks with a view to protecting and enhancing the resilience of the UK financial
system.
• The Committee has a secondary objective to support the economic policy of the
Government.

16. REGULATORY IMPACT ON BACS
16 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
CPMI IOSCO:
• To cooperate in developing, implementing and promoting adherence to internationally
recognised and consistent standards of regulation, oversight and enforcement in order to
protect investors, maintain fair, efficient and transparent markets, and seek to address
systemic risks
• To enhance investor protection and promote investor confidence in the integrity of
securities markets, through strengthened information exchange and cooperation in
enforcement against misconduct and in supervision of markets and market
intermediaries
• To exchange information at both global and regional levels on their respective
experiences in order to assist the development of markets, strengthen market
infrastructure and implement appropriate regulation

17. REGULATORY IMPACT ON BACS
17 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
FCA aims for CASS
• Increase awareness of, and confidence in, the service
CMA retail banking market review
• Impediments to customers’ ability to effectively shop around, choose and switch
products or suppliers, resulting in weak incentives for banks to compete for customers on
the basis of price, quality and/or innovation.
• Concentration giving rise to market power of some banks leading to worse outcomes for
customers.
• Barriers to entry and expansion leading to worse outcomes for customers.

18. MULTI CHANNEL UNIVERSE

19. PAYMENTS – THEN AND NOW
19 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
Pre – 1950
• Cash
• Cheques
1950 – to date
• Direct Debit
• Debit cards
• Credit cards
• Online payments
• Prepaid cards
• Faster Payments
• Contactless
• Mobile wallets

20. BILLS
20 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
1970:
• First bill paid by Direct Debit – energy; fewer regular bills
2014:
• Average household had eight Direct Debits
• 79% of individuals have at least one Direct Debit
• 85% of people have a positive attitude towards Direct Debit
• Direct Debit is used to pay 71% of household bills
• 45% of people would prefer to pay all of their bills by Direct Debit

21. TECHNOLOGY IN SOCIETY
21 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
• 85% of 16-34s have a smartphone*
• Smartphone ownership in 55+ age group is 52% – up from 9% in 2012*
• 1.2 million Apple apps, 1.3 million Android apps
• 22 million GB households with internet access (84%)**
* Halifax Insurance Digital Home Index Survey 2015
** ONS 2014

22. INNOVATION IN ACTION - NEW WAYS TO USE DIRECT DEBIT
22 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
Embracing technology with Direct Debit app
Adding more flexibility to Direct Debit payments
Collecting micro-donations electronically for charity

23. 23 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe

24. FLEXIBLE DIRECT DEBIT
24 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
• Sign up in normal way
• Text message before collection, with option to skip – Pause Direct Debit
• Also option to change amount
• Trial under way by Bacs approved bureau and a major charity

25. FLEXIBLE DIRECT DEBIT - MARKET OPPORTUNITIES
25 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
Irregular or discretionary payments
• Mobile phone top ups
• Gym membership
• Pre-payment meters
• Home media packages

26. PENNIES – THE ELECTRONIC RATTLE TIN
26 Regulation, rising transactions volumes, and the
challenges of our multi-channel universe
• Pennies - digital charity box bringing dropping coins into charity tin into 21st century
• Using Direct Debit, customer can round up bill; extra pennies go to charity of service
users’ choice
• Small donations – ie less than £1 – collected directly from customer’s account by biller
and credited to Pennies
• Customer would have chance of opting in and out = control over charitable donation
• More than 3bn Direct Debits collected every year - potential valuable source of income
for charity sector

27. 3 JUNE 2014
TWITTER: @BACS_CEO
REGULATION, RISING TRANSACTIONS VOLUMES, AND
THE CHALLENGES OF OUR MULTI-CHANNEL UNIVERSE
MICHAEL CHAMBERS, CHIEF EXECUTIVE OFFICER