EXTENDING THE WORLD OF PAYMENTS TO BLOCKCHAIN

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TABLE OF CONTENTS

EXTENDING THE WORLD OF PAYMENTS TO BLOCKCHAIN ............................................................................. 3

THE WORLD OF PAYMENTS IS EVOLVING ................................................................................................................ 3

INTEGRATION IS THE KEY TO SUCCESS .................................................................................................................... 5

FUTURE OF PAYMENTS ..................................................................................................................................................... 5

BLOCKCHAIN’S IMPACT ..................................................................................................................................................... 5

ACTIVE BLOCKCHAIN LEADERSHIP ............................................................................................................................ 6

PAYMENTS EVOLUTIONARY PARTNERS ................................................................................................................... 7

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The objective of this document is to provide you

with critical information related to the evolution of

payments, as well as blockchain’s impact. Based on

ACI blockchain activities over the past two years,

blockchain technology has the potential to support

the ongoing payments evolution, but non-functional

maturity must continue to improve. To be successful,

blockchain technology must co-exist alongside current

payments processing infrastructure in order to extend

the world of payments to leverage its benefits and

support movement toward the realization of real-time,

any-to-any payments.

1EXTENDING THE WORLD OF PAYMENTS TO BLOCKCHAIN

Payment ecosystems are evolving at an accelerating

pace to embrace new transaction processing methods

and technologies. The payment verticals of retail

banking, merchant retail, transaction banking, billers

and digital banking that have traditionally operated in

isolation are evolving toward a consolidated, real-time,

any-to-any ecosystem. More has changed in the last

10 years than the previous 35 years in the payments

landscape; take a look at the evolution of payments

over the past 45 years.

2THE WORLD OF PAYMENTS IS EVOLVING

First-g

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tion

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1973250 De La Rue Barclaycash machines are in operation throughout Britain

eP

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ts shift fro

m p

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al to

virtu

al

Th

e tra

ditio

nal p

aym

en

ts lan

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1986The first standard for smart payment cards is deployed in France

Credit Cards

Debit Cards

ATMs

Charge Cards

Cash

Online Banking & Shopping

Payment by text message & contactless payment

EMV Standard

Electronic Bill Payments

Amazon & eBay launch

1975ACI is founded

1910$3,148 million of cash value is in circulation in the U.S.

1951 20,000 Diners Club cards are in circulation

1997Payment by text is offered through a limited number of vending machines inthe U.S.

1994The first encrypted online payment is made between friends for Sting’s Ten Summoner’s Tales album

4

Consumers live in an electronic world, where the

Internet-of-Things (IoT) is increasing its reach

into more and more elements of their daily lives

where information is available in real time. Likewise,

consumers expect a real-time experience when it

comes to payments; Mercator reported in January

2016: consumers expect real-time processing of

payments and the convenience across multiple

channels to be seamless.1

Consumers’ exposure to smart devices, eCommerce

and social media are driving their expectations for

ubiquitous payment capabilities, anywhere, anytime.

To meet these expectations, payment mechanisms

are rapidly evolving. According to CEB Tower Group,2,3

40% of institutions have plans to integrate new digital

banking technologies over the next four years.

There have been a significant number of evolutionary

changes in payments over the past 45 years. The

fundamental imperative of payments throughout their

history has remained constant; the ability to transfer

value from one party to another; the mechanisms that

are currently used are slow and inefficient. It is time

for the fundamental imperative of payments to evolve,

embracing new technologies that can deliver real-

time value transfer capabilities in a trusted and secure

manner.

To support the payments evolution and the new

payments ecosystem, institutions are actively learning

about blockchain technology and understanding how

they can leverage it. Institutions are conducting proof

of concepts in their innovation labs, participating

in blockchain consortium (e.g., R3CEV, Hyper-

Google Wallet

Re

gu

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nd

tech

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pe

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ew

Paym

en

ts Eco

syste

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We

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me

to th

e N

ew

Paym

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syste

m

2012ACI introduces UP Framework for next generation payments

2009The launch of Uber sparks debate as to what extent “uberization” will displace traditional business models

2015ACI receives Technology Aggregator Accreditation for UK’s New Access Model

2016ACI launches its SaaS-based UP eCommerce Payments solution

In-App Payments

Mobile Wallets

Tokenization

IS0 20022

mPOS

PayPal acquires Braintree

PSD2

Wechat introduces first virtual Hong Bao

Apple Pay / Samsung Pay/ Android Pay

Internet of Things

SEPA Inst

New Access Model UK Faster Payments

Distributed Ledger & Crypotcurrency

Faster Payments UK

Open APIs

Social Payments

?

Regional regulatory initiatives such as implementation of immediate payments systems cascading to a global scale

2008Faster Payments is the first new payments system to be introduced in the UK for over 20 years

Over 350 ways to pay

2015Wearable payments total close to-$35 billion worldwide, set to increase to $95 billion in 2018

By 202530% of revenues are at risk in payments due to existing and future market disruptions

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3 INTEGRATION IS THE KEY TO SUCCESS

4 FUTURE OF PAYMENTS

Existing payments infrastructures and new

technologies such as blockchain will co-exist as

the world of payments evolves. Institutions are in

a situation where they must support the existing

payment mechanisms while new technologies are

adopted and gain market share. The integration of

existing and new payment technologies is key to

success in the evolution of payment ecosystems.

BLOCKCHAIN’S IMPACT

Payment ecosystems are evolving toward a real-time,

any-to-any payments experience for consumers;

blockchain is a fundamentally disruptive technology

that will play a role in the evolution toward real time.

Blockchain has the ability to modernize a payment’s

fundamental imperative of transferring value between

multiple parties, securely and with minimal operational

or technical friction. Modernizing the fundamental

imperative delivers substantial benefits in the

future use of computing for banks, businesses and

governments. Recent rapid growth of peer-to-peer

market exchanges for lending (Zopa, Lending Club and

Funding Circle, etc.), accommodation (AirBnB) and

taxi services (Uber) has demonstrated the potential

of peer-to-peer architectures. Blockchain has the

potential to accelerate and simplify such models in

both new and existing markets.

The areas of application for blockchain stretch far

beyond pure payments. Across the banking industry,

uses include post-trade settlement, asset management,

securities and trade finance. Beyond banking,

blockchain interest includes insurance, government,

identity management and accounting services. Not

only is this likely to generate new opportunities

for payment providers, but also new entrants with

disruptive business models, as new market areas

become more practically addressable.

Network(Blockchain-External)

Identity Management (Blockchain

-Internal)

MerchantRetailer

Online Banking

OtherBankingServices

RetailBanking

TransactionBanking

ACI is well positioned, with a long and successful

payments history, to support the integration of

current and new payment technologies as payment

ecosystems evolve. ACI is the Universal Payments®

(UP®) company and powers electronic payments

for more than 5,100 organizations around the world.

ledger Project – Linux Foundation) and investing

in blockchain start-ups. The exact timing of when

the payments evolution will be extended to include

blockchain is yet to be determined; it will be driven by

the speed of blockchain’s technical maturity, as well

as the rate at which blockchain becomes a trusted

technology that meets the functional and non-

functional requirements in payments.

More than 1,000 of the largest financial institutions

and intermediaries as well as thousands of global

merchants rely on ACI to execute $14 trillion each day

in payments and securities.

ACI’s UP Framework™ is at the center of ACI’s UP

solutions and is ready to support payments integration

and modernization that is key to an institution’s

success. The UP Framework provides an extensible,

service-oriented architecture that delivers payments-

ready non-functional requirements (NFR) to integrate,

transform and orchestrate payments across current

payment systems, as well as new technologies such as

blockchain.

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ACTIVE BLOCKCHAIN LEADERSHIP

Blockchain technologies are immature and their

ability to support the challenging non-functional

requirements of payment services has yet to be

proven. ACI’s position has been reinforced by the

results of a blockchain proof of concept, where it was

determined blockchain performance characteristics

are not yet capable of supporting high-velocity

transaction volumes above 1,000 transactions per

second; performance levels that are required by

ACI’s customers and solutions. Current blockchain

proof-of-work algorithms require seven seconds on

average to gain consensus4; further technical maturity

is required in this area to support consensus in under

25 milliseconds. Recent advancements leveraging a

proof-of-stake approach hold promise to improve

consensus performance. Technical advancements are

being made toward maturity; technical maturity has

accelerated over the past year, fueled by increasing

blockchain investments worldwide that exceed $1.5B.5

ACI provides thought leadership in the industry,

sharing blockchain knowledge through payment

industry publications, technical presentations at

customer events and customer strategy workshops.

Below is a summary of recent technical publications

that further detail ACI’s blockchain leadership and

commitment to new technologies.

• Bank Innovation Blog (Blockchain Still Not Ready

to Handle Transactions at Scale)

• CoinDesk (ACI is Paving the Way for Central Bank

Blockchains)

• Forbes (Have We Already Found Our Blockchain

Startup Winners?).

ACI engages in blockchain hackathons and innovation

workshops to understand how the technology

can be applied to real-world problems, deepening

organizational knowledge of blockchain’s functional

and non-functional capabilities. Over time, as these

capabilities are advancing, as the maturity process

continues, it is important to stay apprised of the

progress as well as gain practical experience with

multiple blockchain technologies that are in the market.

In a recent innovation workshop, ACI implemented a

Department of Motor Vehicles workflow to manage the

titles of vehicles as well as other elements associated

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ACI has more than 40 years of proven strength in

building and supporting high-volume, high-value

solutions for payments processing in partnership

with you, our customers. ACI’s product strategy will

continue to ensure that you can connect to emerging

sources of value and transaction volume. Innovative

technologies will be incorporated as they become

5 PAYMENTS EVOLUTIONARY PARTNERS

with a vehicle using blockchain technology; multiple

blockchain technologies were evaluated including

Ethereum and Hyper-ledger. The innovation event

proved Hyper-ledger to be more scalable, more

efficient and easier to integrate than Ethereum.

Additional insights revealed Ethereum has a complex

set of integration APIs and requires execution of smart

contracts on every node of the blockchain network,

leading to network performance degradation.

As blockchain technology continues to mature, ACI

will continue to drive functional and non-functional

requirements that blockchain technology must meet to

be successful in the payments industry.

mature and where the business value is clear. ACI

will ensure you can engage emerging technologies

with confidence with which your core payments

processing can coexist and also be integrated. ACI’s

UP Framework is central to this strategy; it enables

safe and seamless integration of existing and new

technologies for ACI customers to thrive in the

payments evolution.

The first step in your payments ecosystem is to

identify business opportunities for new products,

new revenue streams, as well as areas that require

improvement where new technologies such as

blockchain can deliver value. Below are some of

the most popular use cases, identified through ACI

research, where blockchain technology can deliver

value. Now it’s time to decide which use case(s)

represents the most significant business value

opportunities in your situation.

ACI is ready to partner with you (our customers),

to explore business opportunities to modernize

the fundamental imperative (value transfer) of

payments as well as many other use cases. There

are many instances where blockchain technology

can be leveraged in the evolution of integrated

payment ecosystems. ACI has the payments history,

technology and expertise to support making your

new payments ecosystem a reality. Give us a call.

USER CASES DESCRIPTION

VALUE TRANSFER The use case for transferring funds between parties is the major focus. Blockchain 2.0 technologies could be applied to a variety of different payment sceneries. In single currency domestic payment the impact could be to reduce or remove the need for central counter-party and the delays in setting transaction net or gross in real-time. Transfers in multiple currencies between countries cross border payments

TRADE FINANCE The use case for trade finance covers a single common record of the liabilities and obligations of parties in trade finance. Possible users of blockchain 2.0 include: invoice fraud reduction, process efficiency, service improvement.

REFERENCE DATA Enable the rapid, auditable and secure updating of records by any authorized participant and sharing the change across the network of users. Potential areas where these technologies could be used to streamline the update process and simplify integration into existing payments processing include hot card files, sanctions lists, routing records etc.

1 “2016 Payments Outlook”, Mercator, January 2016.

2 “3 Vital Tech Investments for Business Banks”, CEB TowerGroup, August 2015.

3 “Winning the Payment Triathlon: Racing to Zero, Real-Time, and Revenue”, CEB TowerGroup, August 2015.

4 “ACI Blockchain Proof-of-Concept – PoC Report”, ACI Worldwide, October 2, 2015.

5 “Deals To Bitcoin & Blockchain Startups Fall Below 2014 Levels”, CB Insights, February 3, 2017.

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ACI Worldwide, the Universal Payments

(UP) company, powers electronic payments

for more than 5,100 organizations around

the world. More than 1,000 of the largest

financial institutions and intermediaries,

as well as thousands of global merchants,

rely on ACI to execute $14 trillion each day

in payments and securities. In addition,

myriad organizations utilize our electronic

bill presentment and payment services.

Through our comprehensive suite of

software solutions delivered on customers’

premises or through ACI’s private cloud,

we provide real-time, immediate payments

capabilities and enable the industry’s

most complete omni-channel payments

experience.

Americas +1 402 390 7600 Asia Pacific +65 6334 4843 Europe, Middle East, Africa +44 (0) 1923 816393

© Copyright ACI Worldwide, Inc. 2017 ACI, ACI Worldwide, ACI Payment Systems, the ACI logo, ACI Universal Payments, UP, the UP logo, ReD, PAY.ON and all ACI product names are trademarks or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other countries or both. Other parties’ trademarks referenced are the property of their respective owners.

ATL6245 04-17

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