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Faster Payments in the U.S.Same Day ACH / Faster Payments / Real-time Payments

September 2015

William K. Grace

Vice President, Senior Product Manager

Payments and Commerce Solutions, Fifth Third Bank

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Payments Industry Overview

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Payments Industry Overview – Driving Forces

Mobile1

Consumer Behavior2

Vertical Integration7

Payment Disruptors5

Technology / Innovation4

Faster Payments6

Generational Influence3

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Payments Industry Overview – Five Forces

• FI and Non-FI Players• Price CompressionCompetition

• Low Barrier to Entry• New Entrants WeeklyNew Entrants

• Virtual Currencies• Traditional PaymentsSubstitution

• Payments = Commodity• Changing Landscape = OpportunitySeller

• Many Choices Available• Sellers Buying BusinessBuyer

HIGH

HIGH

MODERATE

MODERATE

LOW

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Payments Industry Overall Attractiveness

Target = Starbucks, Amex, Shopkicks Mobile Apps1

Home Depot = Ebay’s New Point of Sale System2

Apple = VeriFone and Square7

UPS = USAA Partnership with Remote Capture5

Walgreen’s = Selling Square’s Mobile Reader4

Walmart = GreenDot6

Girl Scouts = Intuit’s GoPayment3

7 Retailers Changing the Payments Industry

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Faster Payments - Initiatives

SOURCE : American Banker, March 30, 2014 / The Road to Faster Payments

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Same Day ACH

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© 2015 NACHA — The Electronic Payments Association. All rights reserved.No part of this material may be used without the prior written permission of NACHA. This material is not

intended to provide any warranties or legal advice and is intended for educational purposes only.

8

Why Same Day ACH?

• Same Day ACH is an immediate step we can take to enhance the payment system, demonstrating that financial institutions can work together to advance payments.

Same Day ACH creates a foundation on which to build other services.

Strategically:

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Why Same Day ACH?

Responding to Market Needs:

• 71 million ACH payments are made every day

• Same Day ACH creates an “option”– The choice of a premium service to make a payment faster.

• Support desires of your bank customers or credit union members

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Complimentary – Same Day & Real-time Payments

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Same Day ACH• Improved online billpay• Hourly payroll and Emergency

Payroll• Expedited B2C (e.g. insurance

payouts)• Cash management• Faster B2B• Accelerated card merchant

settlement

Real-Time Payment• P2P• Urgent A2A• Immediate billpay with

acknowledgment• Temporary payroll• Emergency B2C (e.g. disaster)• Just-in-time B2B

Type of Payment Credit or Debit Credit Only

Notification to Receiver Same-day (receipt of transaction) Immediate

Other MessagingExtensive remittance data can be

included with paymentReceiver acknowledgment, request for payment, remittance data, others TBD

Payment Finality Reversals and Returns Allowed Payment Certainty for Receiver

Receiver Availability Same-day “Immediate”

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What is Same Day ACH?

The ACH Operators will offer two new same-day ACH processing windows1

— A morning window at 10:30 a.m. ET, with settlement occurring at 1:00 p.m.

— An afternoon window at 3:00 p.m. ET, with settlement occurring at 5:00 p.m.

ODFIs will be able to submit files of same-day ACH payments through two new clearing windows that can reach all RDFIs in the ACH Network.

All RDFIs will receive Same Day ACH payments

RDFIs will make funds available from ACH credits (such as payroll Direct Deposits) to depositors by 5:00 p.m. local time.

A “Same Day” fee paid from the ODFI to the RDFI would provide, on average, recovery of implementation and operating costs, plus a reasonable rate of return, for RDFIs to enable Same Day ACH.

Existing one-day and two-day ACH processing and settlement capabilities will not be impacted

1Times are estimates; exact schedules and timing will be determined by each ACH Oerator

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What Is Same Day ACH?

What Transactions Will Be Eligible for Same Day ACH?

Virtually all ACH transactions, including credits and debits, will be eligible for same-day processing

Non-monetary transactions – prenotifications, notifications of changes, zero-dollar remittance information transactions, etc. – will also be eligible for same-day processing

International transactions (IATs) and large-dollar transactions over $25,000 will not be eligible for same-day processing

– Dollar limit is per-transaction, not per-batch

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How Will Same Day ACH Be Implemented?

Functionality Phase 1Sept. 23, 2016

Phase 2Sept. 15, 2017

Phase 3March 16, 2018

Transaction Eligibility ($25,000 limit; IAT not eligible)

Credits only Credits and debits Credits and debits

New Same Day ACH Processing Windows

10:30 am ET and3:00 pm ET

10:30 am ET and3:00 pm ET

10:30 am ET and3:00 pm ET

New Settlement Time(s)

1:00 pm ET and 5:00 pm ET

1:00 pm ET and 5:00 pm ET

1:00 pm ET and5:00 pm ET

ACH Credit Funds Availability

End of RDFI’s processing day

End of RDFI’s processing day

5:00 pm RDFI local time

Same Day ACH will be implemented in phased approach to allow the industry to acclimate to a faster processing environment, as well as to ease the industry’s implementation effort

1Times are estimates; exact schedules and timing will be determined by each Operator

1

1

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Risk Management Considerations

Faster movement of money

— More frequent interbank settlement reduces counterparty risk

— Per-transaction dollar limit is a balancing act between mitigating risk and impacting use cases

Financial institution origination of Same Day ACH

— Which clients can send same-day ACH transactions?

— Credit limits

— How good is your authentication?

— Receiving returns faster

— Recovery for missed deadlines

— Faster reversals of erroneous transactions (i.e., duplicate file)

Financial institution receipt of Same Day ACH

— Risk review before posting ACH credits

— Late day receipt of ACH debits – NSF or bad account information

— Sending returns same-day

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Resources

NACHA Web site - https://www.nacha.org/content/same-day-ach

Implementation Checklists for

ODFIs

RDFIs

Originators and Third-Party Senders

Available for download:

https://www.nacha.org/rules/same-day-ach-moving-payments-faster