22©2019 The Clearing House Payments Company L.L.C.

Business Payments Market Research

12017 Paystream Advisors Electronic Payments Report; 22018 AFP ePayments Report

One of the key reasons checks remain sticky and electronic payment adoption limited is because B2B participants struggle to find and manage counterparty information, such as account and routing information, when using electronic payment options

81%74%

67%

50% 51%

42%

0%

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80%

100%

2004 2007 2010 2013 2016 2018

Percentage of Organization’s B2B Payments by Check2

Check UsageAlthough check usage has decreased, it still remains ~50% of all B2B

payment volume and 67% for middle market organizations1

Check StickinessChecks remain sticky over electronic options for multiple

reasons despite their pervasive inefficiency

Counterparty Information Management B2B participants struggle to manage counterparty information, such as payment details, when using electronic options – this leads to costly inefficiency within AP/AR departments when making/receiving payments

Detailed Remittance DataChecks seamlessly allow for detailed remittance data to be sent along with the actual payment whereas email is used by 61% of organizations to provide additional remittance data when sending ACH payments2

Costly Transition to Electronic Methods Transitioning to electronic payment methods requires significant investment and a shortage of IT resources has been identified by 38% of organizations as a major barrier2

The 3 A’s of Check Persistence

Access = Products that every customer can use!

Addressability

Addenda

Guadalupe County

• 28th largest county of 254 counties

• 2019 estimated population was 166,847

• Consist of 24 Elected Officials, 14 Appointed Officials and 667 employees

• Main source of funding are property taxes and sales tax

• Estimated investment portfolio of $77 million

Administrative Duties

• Receipting/Deposits – Receipts all money received and deposited by various departments

• Disbursements– Payments are disbursed only after commissioners court approval

• Bank transfers– Internal transfer of funds are processed via on-line banking and must have two approvals

• Stop payments– Stop payments are only issued after 30 days via on-line banking

• Investments

- Investment objectives are safety of principal, liquidity, yield and diversification

1111©2019 The Clearing House Payments Company L.L.C.

RTP® system has the capabilities you would expect in a 21st century platform

CreditPush Only

Payment Status

Payment Certainty

Immediate Availability

of Funds

Complete AR/AP

Messaging

Fulfillment Messaging

Data Extensibility

GlobalReady

1212©2019 The Clearing House Payments Company L.L.C.

The RTP® network is growing, with more banks added each week

54% share of U.S. DDA balances in accounts able to receive RTP payments

*Based on U.S. DDA balances as of 3Q19

DATA

Volumes have grown from a few hundred thousand to several million a month and continue to grow daily

Dow Chemical, Chesapeake Bank, First National Bank of Coffee County, Corporate One CU, Northeast Bank, Royal Bank, First Fidelity Bank, Dogwood State Bank, Signature Bank, First Bank, Century Bank & Trust, North State Bank, ChoiceOne Bank, Chain Bridge Bank

1313©2019 The Clearing House Payments Company L.L.C.

Continuous Payment

Processing

AP/ARIntegration

Identifying A Use Case

Choosing the Right Technology

Partner

Securing Internal Stakeholder

Support

RTP®Considerations for Businesses

2020©2019 The Clearing House Payments Company L.L.C.

B2B Key Market Challenges

Incomplete Reconciliation Data

Manual AR / AP Processing

Inefficiencies

Lack of Standardization of

Information Exchange

B2B Market Fragmentation

Costly B2B Solution Options

Late Payments due to Limited

Working Capital

Lack of Visibility into Financial

Supply Chain

Limited Receivable Management Reach

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3333©2019 The Clearing House Payments Company L.L.C.

Comparing RTP to existing payment systems

Feature Real-Time Payments ACH Wire Debit/Credit Cards

Request for Payment Supported Not supported Not supported Not supported

Cross-Border Interoperability

Functionality planned Yes, but limited in reach Yes, but can be slow Yes

Contextual Data 140 characters in payment message

+ extensive remittance advice

9999 addenda records of 94

characters each

9000 characters Very limited

Authorization Real-time Varies but never real-time Real-time Real-time

Format ISO 20022 NACHA Proprietary (Future: ISO 20022) ISO 8583

Clearing Real-time and continuous Multiple times dailyReal-time

(during operating hours)

Real-time or near real-time (pin

debit); once daily (signature)

Settlement Real-time and continuous Three times dailyReal-time

(during operating hours)Once daily

SettlementFinality

Real-timeDepends on reason for return, can

be up to 60 days Real-time

Depends on reason for return, can

be up to 60 days

Posting Real-time Same day as a settlementReal time; may be delayed in some

casesReal-time or near real-time

Reconciliation Real-time After settlement cycleComplex, sometimes manual

process

Automated, but with time delay for

settlement

3434©2019 The Clearing House Payments Company L.L.C.

Introducing ISO 20022

What is ISO 20022 for Payments?

▪ Robust standard with room for additional payment-related information that supports the end-to-end flow of information about a payment from the originator to the beneficiary

▪ Payment initiation (corporate to bank) – PAIN messages

▪ Interbank settlement (bank to bank) – PACS messages

▪ Cash management (bank to corporate) – CAMT

What is ISO 20022?

▪ International Organization for Standardization – a network of national standards bodies that develop international standards

▪ U.S. is a member and contributor of ISO through the Accredited Standards Committee (ASC) X9

▪ A harmonized set of extensible Markup Language (XML) financial messaging standards across major financial services domains

▪ Payments, Securities, Trade, Card and FX

▪ Based on a shared data dictionary & business process model (i.e. “common language”)

▪ Open standards made available to all members of the financial services community

▪ ISO 20022 messaging standards are created using a specific methodology

RTP Fraud Prevention: Current RTP safeguards

Current RTP SafeguardsRTP Fraud Priorities

ATO Bad Payee

1 Account Security▪ IDV/passwords per FFIEC guidelines

▪ Sending FI must use multi-factor authentication√

2 Customer Monitoring

▪ Bank regulation requires KYC, risk-based monitoring

▪ RTP rules require monitoring of RFP senders√

3 Payer Control ▪ RFP and RFR messages at discretion of Payer (no debits) √

4 Receiver Confirmation

▪ Sending FI must provide name of Receiver prior to send (via directory) √

5 RFP Controls▪ Sending FI warrants that each RFP is for a legitimate purpose

▪ Sending FI must have vet RFP user (akin to ACH Originator)√

6 Bank Fraud Monitoring

▪ Sending FI must perform appropriate fraud monitoring √ √

7 RTP Fraud Alerts*▪ Participants must report RTP fraud

▪ Participants must act on RTP system fraud alerts√ √

8 RTP Enforcement ▪ TCH has authority to monitor/enforce fraud and risk requirements √ √

* To be implemented

Source: The Clearing House