Next Generation of Payments
Government Finance Officers Association of South Carolina
Presented by: Doris Dixon and Everette Glass
October 19, 2015
For decades consumers had the same
shopping process
“I need to buy a birthday present”
“What are some gift ideas?”
The
Commerce
Lifecycle
“How am I going to Pay?”
2
“Where should I buy the present?”
Today the process is much more complex
“I need to buy a birthday present”
“What are some gift ideas?”
I ask my friends on
Facebook
I look for deals
and coupons
The
Commerce
Lifecycle
“How am I going to Pay?”
Do I get a reward or points?
I found something I
like… but want to
make sure it’s safe
I read product reviews on
Amazon
I check out the
blog post my
Facebook friend
sent me
“Where should I buy the present?”
Which account has extra $$$?
Who has the best price?
Cash ? Credit ?
3
What is easiest
and fast?
What store with the product is
closest to me?
What do people think
about the store with the
best price?
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by Bank of America Corporation.
Consumers leverage online channels more
than ever before
Offline
vs
Online
sales
GlobalOffline
Offline Sales
Growthgrowth
for Top Retailers
U.S online retail forecast 2012 to 2017
3.00%
2.00%
*Includes Wal-Mart, JC Penney, Best Buy, Gap
1.00%
0.00%
2008
2009
2010
2011
-1.00%
-2.00%
-3.00%
-4.00%
2012
2013
Offline sales have
plummeted while
online sales account
for nearly all growth
in retail volumes1 –
driven by ubiquity of
mobile technology.
-5.00%
-6.00%
Source:
4 Business Insider, August 2014
1. Source: Business Insider, August 2014
Source: Forrester Research, 9/14
Consumer mobile and online shopping
trends mean . . .
In-store sales have plummeted
U.S. retail store closings
The USPS is closing facilities and introducing
new delivery standards
U.S. Retail Store Closings
250
* To close between
2011-2021
* To close by
end of 2015
226
225
* Closed in 2013
200
200
* Closed in 2012-13
189
* To close by 2015
180
* To close between
2014-19
175
150
100
* To close by 2014
50
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Source: Business Insider, August 2014
0
Barnes & Noble
Staples
5
GameStop
Gap
Abercrombie &
Fitch
Aeropostale
JCP
What happens to
bank branches?
Interaction with financial institutions is
changing too
▪ Customer transaction trends moving rapidly
towards online, mobile and ATM options
▪ Customers seeking convenient, self-service
options for transaction banking
▪ Resulting in significantly lower volume of overthe-counter transactions
▪ Desire for transactions that are faster, expedient
and cost-effective
▪ Geographic redundancy and distance to
replacement services
▪ Desire for more personalized service, financial
expertise and advice
PERSONAL
SERVICE
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MORE AND
ENHANCED ATMS
ONLINE
BANKING
MOBILE CHECK
DEPOSIT
SELFSERVICING
B2C Payments
Digital Disbursements
The move away from checks
Initiate
Reconcile
Research
Forecast
paper process
vs.
$4
Average cost per
check payment 1
Average of
electronic process
75% less
For electronic
payments
of respondents cited reducing overall processing costs was
the top factor for driving a focus on electronic payments2
84%
73%
Were writing
fewer checks
in 20132
Check challenges driving decline:
▪
▪
▪
▪
Increasing cost of paper processes—including rising postage costs
Slow to reach customers—perceived as poor customer service
Loses from fraud and theft—plus the additional costs for stoppayment and reissues
Reliance on physical addresses create returned mail issues—people
retain cell phone number and email address when they move and
often neglect to update physical address
Electronic
payments are
Green
Trees remove carbon dioxide
from the earth’s atmosphere;
cutting them down to
produce checks may speed
up climate change (a tree can
only produce, on average, 17
reams of paper and takes
about 100 years to grow3).
Going electronic for payments
also means reduced
transportation impacts and
fewer file cabinets and printer
cartridges in landfills.
1. Anecdotal estimates shared with us by our clients have ranged as high as $25 per payment. In recognition of the variability of costs across our clients and of the presumed
partial cost offset offered by check float, Bank of America typically references a conservative estimate of $4 per check when discussing the potential benefit of electronic
payments. 2. Electronic Supplier Payments; PayStream Advisors Q3 2013 3. 2013 Federal Reserve Payments Study
Fraud is still a factor with checks
Companies are moving away from
manual, paper-based payments to help
deter fraudulent activity.1
62%
of companies surveyed experience
attempted or actual payments fraud1
77%
reported checks were the primary target
for fraud attacks at their companies1
The Ripple Effect of Fraud
The check was only for $21.22 but that’s not what the thief cared about.
The value was the paper itself—that supplied:
▪ The company's logo
▪ Their DDA number
▪ Their bank’s routing number
▪ The check number series
▪ And an authorized signature
As the EMV is adopted in
the United States, and
credit cards become a less
attractive payment method
to attack, fraudsters will
follow the path of least
resistance: checks.2
1. 2015 AFP Payments Fraud and Control Survey, 3/15
9 • Verify Checks in Real-Time: Meet Customer Expectations While Reducing Fraud, 1/2015
2. KOFAX White Paper
The migration to mobile banking
Smartphones are changing the way consumers
access financial services
Fifty-two percent of smartphone owners with a bank account have use mobile
banking in the past 12 months1
Mobile banking
Of those using mobile banking apps, more than
four in five (82%) access it once a week or more.
Nearly a third (31%) access mobile banking at
least once a day or more.
Trends in Consumer Mobility Report, Bank of America, 2014
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1. Board of Governors of The Federal Reserve , Consumers and Mobile Financial Services 2015., March 2015
It’s time to rethink your payment process
Distribute funds
without paper
To anyone with a
U.S. bank account
Recipients receive
payments more quickly
Higher customer
satisfaction
Potentially reduce payment
expenses by 75%1
Using mobile phone
number or email
address
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No need to obtain sensitive
bank account information
1. Anecdotal estimates shared with us by our clients have ranged as high as $25 per payment. In recognition of the variability of costs across our clients and of the presumed partial cost offset
offered by check float, Bank of America typically references a conservative estimate of $4 per check when discussing the potential benefit of electronic payments.
Digital Disbursements uses and
applications
Independent contractor
payments
Miscellaneous
reimbursements
Invitational
travel
Use whenever it would
be desirable to expedite
a payment directly into a
customer’s bank account…
…without needing to
capture or retain their
bank account data
Tax refunds or
credits
Juror payments
Overpayment or
deposit refunds
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Bank of America and clearXchange
Bank of America has been using clearXchange for
person-to-person transfers since 2011.
The same network is now used for B2C payments.
▪ The first U.S. P2P payment network
created by financial institutions for
financial institutions
▪ The first U.S. P2P payment network
created by financial institutions for
financial institutions—equally owned by
Bank of America, Capital One, Chase , US
Bank and Wells Fargo
▪ CXC members reach over 50% of all U.S.
online and mobile banking customers
▪ Now includes 5 of the largest banks in the
United States, along with multiple regional
financial institutions, who together serve
over 100 million customers
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Digital Disbursements process flow
Our innovative solution uses a credit push model that
provides faster payments with near real-time messaging
METHOD
CONFIRMATION
PAYMENT
INITIATION
2
1
Business
Confirm recipient
agrees to receive a
digital disbursement.
PAYMENT
NOTIFICATION
FUNDING
RECEIVED
4
3
Business
Recipient
Send us your recipient’s
name, email address or
mobile number and the
payment amount.
The recipient receives
an email or text with
instructions for
receiving the money.
ONE-TIME
REGISTRATION
Registered Recipient
Payment is deposited on
an automated basis into
the recipient’s account the
same or next day.*
Unregistered Recipient
The unregistered recipient connects an email address or
mobile number to clearXchange one time–account
information is not shared among bank participants
* Please note: time references when payments are generally available. Payments to a registered Bank of America customer and instructed prior to the established deadline
are generally available
same day. Payments to a registered customer at another financial institution and instructed prior to the established deadline are generally available
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next business day. Actual times may vary.
Registered recipient notification
Registered recipients receive notification from their
bank (text or email) and the funds are deposited
same or next business day.
By text if
using mobile
number
By email
message if
using email
15
Unregistered recipient notification
Email Recipient
1
Unregistered recipients receive notification of funds with
a call-to-action to enroll to accept the funds.
2
16
After choosing their bank to
enroll in the service, they are
able to accept funds.
Focus group reactions
Question: What would you think of an organization that used this method of payment?
17
The road to Same Day ACH
What has happened and where are we headed
Why same day ACH and who will benefit
WHY NACHA is moving this forward:
Both payment Originators and Receivers could benefit from same-day processing and faster funds
availability
▪ Same Day ACH addresses needs of end-users
▪ Same Day ACH is an immediate action to modernize the payment system, which supports the
Federal Reserve goal of faster payments
▪ Implementation of Same Day ACH would lead to changes within financial institutions that could
also be utilized for real-time payments in the future
Who NACHA believes will benefit:
Among survey respondents1, the top 5 most commonly cited beneficial use cases for Same Day ACH
were:
▪ Payroll (cited by 87% of survey respondents that said they would use/offer Same Day ACH)
▪ Business-to-business (72%)
▪ Account-to-account transfers (59%)
▪ Person-to-person payments (57%)
NOTEWORTHY: “Faster payments” is one of
▪ Bill payments (53%).
eight attributes of the future ACH Network,
according to NACHA’s ACH Blueprint of 2012.
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1. NACHA engaged an external consulting firm to independently evaluate the use cases. Data, research, and ODFI interviews were used to develop the potential volume for
each use case
What just happened
NACHA Membership Approves Same Day ACH
“
Industry Comes Together to Move Payments Faster on
the ACH Network
HERNDON, Va., May 19, 2015 - NACHA —The Electronic
Payments Association ® announced today that its voting
membership approved Same Day ACH, an amendment
to the NACHA Operating Rules to move payments faster.
The rule enables a ubiquitous same-day capability for
virtually any ACH transaction, creating options for the
businesses, governments and consumers who want to
move their money faster.
“
NOTEWORTHY: The ACH Network processes about
71 million ACH payments every business day
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What transactions will be eligible and when
IS eligible…
IS NOT eligible…
Most ACH transactions (both credits & debits)
would be eligible for same-day processing:
▪ Same-day ACH credits
▪ Same-day ACH debits
▪ Most non-monetary transactions
The only ACH transactions not eligible for
same-day processing would be:
▪ International transactions (IATs)
▪ Individual large-dollar transactions > $25,000
Functionality
Transaction Eligibility
Phase 2
Sept. 15, 2017
Phase 3
March 16, 2018
Credits only
Credits and debits
Credits and debits
New Same Day ACH
Processing Deadlines
10:30 a.m. and 3 p.m.
Eastern
10:30 a.m. and 3 p.m.
Eastern
10:30 a.m. and 3 p.m.
Eastern
New Settlement Times
1 p.m. and 5 p.m. Eastern
1 p.m. and 5 p.m. Eastern
1 p.m. and 5 p.m. Eastern
ACH Credit Funds
Availability
End of RDFI’s processing
day
End of RDFI’s processing
day
5 p.m. RDFI local time
($25,000 limit, IAT not eligible)
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Phase 1
Sept. 23, 2016
Key strategic points to take away
Consumers are changing their shopping behavior
Online shopping is driving changes in the payment landscape
Mobile adoption is moving financial transactions to the smartphone
Elimination of check payments should remain a focus to drive
efficiencies
P2P payment growth presents an opportunity to reduce costs and
enhance customer satisfaction though Digital Disbursements
Same day ACH is moving slow but appears to be on its way
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Government Prepaid Card
Reducing the costs of payments
with Prepaid Card solutions
Prepaid card industry volume trends
2014 – 2017 Total Amount Loaded
onto Cards ($Billions)
8.5%
$400
$300
$264
$286
$311
$338
2015 YOY Growth of Load Volume
$200
$100
Total Open Loop
$2014 (f)2015 (f)2016 (f)2017 (f)
Source: Mercator Advisory Group, 11th Annual U.S. Prepaid Cards Market Forecasts, 2014-2017, November 2014
Comprehensive prepaid payments
The advantages of a Prepaid Card for consumer payments
▪ Trophy value – Provides significant options for branding and personalization
▪ Flexibility – Allows variable load values, expiration dates
▪ Everyone qualifies – Recipient does not need to have a U.S. bank account
▪ Personalized cards – Order cards as you need them; we personalize and mail them to the
cardholder or send them non-personalized to you for instant distribution
▪ Abandoned property management – BofAML takes on all responsibility for managing statespecific requirements and regulatory compliance for escheatment and abandoned property
▪ Rapid processing – Receive the cards within 5-7
business days of receipt of card order
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BofAML Government Prepaid Cards
Retirement/
pension
▪ Meet regulatory compliance – Management of the
escheatment process and help ensure compliance
with the various state laws
▪ Streamline administration – by eliminating
difficult, time-consuming reconciliation process
Unemployment/
disability
Payments/
reimbursements
Lottery
▪ Reduce expenses – reduce costs associated with
check production, reconciliation, bank fees and
customer replacement requests
▪ Reduce risk exposure – eliminates check fraud
exposure and improves audit reporting
▪ Security/safer than cash – improves safety, fraud
protections and provides 24/7 customer care. If
lost or stolen, the unspent amount can be replaced
▪ More choices & convenience – Unlike gift
certificates and checks, customers have access to
use funds wherever Visa or MasterCard debit cards
are accepted
▪ Online activation and balance availability –
Cardholders can activate their cards immediately
and have 24/7 access to their available balance
Incentives/
rewards
Government
Payroll
Other benefits
Tax refunds
Worker’s
compensation
Child support
Use case: Government benefits
Recurring payments through prepaid cards
Personalized
▪ Personalized
embossed cards
issued to benefit
recipients
▪ Receive card within 57 business days
▪ Three year expiration
or auto-renewable
Features
▪ Primary funding via
ACH direct deposit
▪ Reloadable
▪ Purchases
everywhere Visa debit
cards accepted, plus
cash access via ATMs
and financial
institutions
▪ Online funds transfers
▪ Emergency cash
transfers via Western
Union
▪ 24/7/365 Cardholder
customer service by
toll-free phone line
and online customer
service
Supported
▪ Fully customized
implementation with
dedicated
implementation
engineer resources
▪ Marketing and
transition support
▪
Fully automated
enrollment and
reporting support via
data file transmissions
▪ Web portal
administration option
▪ Dedicated Client
Support for agency
administrators
BofAML Prepaid program features
24/7 support for
your cardholders
Customer service is available
through an online website, tollfree telephone access to an IVR
of live agent call center
Dedicated Client Support
support including account
management, implementation
and client support hot line
Easy to administer
Secure web-based tools to
manage your program and
access reporting
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Flexible Product Structures
Multiple product design and
structure options, including ATM
access.
Easy to implement
You are assigned an
implementation project manager
to provide complete support as
you design and launch your
program
Questions &
Open Discussion
Notice to Recipient
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