Faster Payments:Faster Payments: What You Need to Know Now

RUSSELL ELLSWORTHDIRECTORTRANSACTION BANKING PRODUCT MANAGEMENT / PAYMENTSAPRIL, 2017

A member of MUFG, a global financial group

“The significance of many i i f l binnovations often only becomes

apparent with time.” pp

Tomorrow Happened Yesterday; Vovalink and PWC2

Topic Outline

Changing Technology and Its Influence on Business 04

The Move Towards Real-Time Payments 06

Tipping Point for the United States 08

Comparing Real-Time Payments 09

Real-Time Payment Use Cases 11

Statistics From Across the Pond 12

Federal Reserve Faster Payments Task Force 13

Real-Time Payments Hurdles 17

3

Technology Continues to Influence How We Interact and Conduct Business

Web 1.01996 -2004 Mobile / Social

TMTM

2005 -2010

2004 Mobile / Social2005-2010

TM TM

Collaboration2011-2016

Collaboration Economy / Messaging

2017Internet of Things /

AI / BlockChain 2017 -?

TMTMTMTM

Source: KPMG Analysis4

Both Digital and Mobile Have Become Essential to Business People

90Percentage of workersbelieve their mobile device is critical to their jobs 190%

70%

Percentage of workers who think they will use their mobile devices more for work in the future 170%

75.4 Millions of millennials in the workforce; now the largest generation 2

1. https://cdn.wrike.com/ebook/wrike-mobile-productivity-report-2016.pdf2. http://www.pewresearch.org/fact-tank/2015/05/11/millennials-surpass-gen-xers-as-the-largest-generation-in-u-s-labor-force/

5

The World is Moving Toward Real-Time Payments

• 24/7/365

• Credit push only

Referred to by different names including real-time payments, faster payments, and instant payments

• Credit push only

• Flexible messaging options

• Immediate availability

• Payment certainty - cannot be reversed

• Will be confirmed as either completed or rejected

6

Real-Time Payments Adoption Around the World

Denmark - NETSSwitzerland - SIX

Finland

Poland - Elixir

Sweden - Swish

U.S – NACHA 2016and TCH 2017 Japan - Zengin

K HOFINET

China - IBPS

Bahrein -BCSIS

UK - FPSNetherlands –Equens / Worldline 2017

Mexico - SPEIKorea - HOFINET

Columbia –ACH Colombia Nigeria – CNB/NIP

India - IMPS

Singapore – FAST/G3

Thailand – Vocalink/ITMX

Chile -TEF

Brazil – SITRAF/TED

South Africa RTC

Singapore FAST/G3

In public consultation/planning

EvolvingBasicMature

South Africa – RTC

7 Source: Capgemini Financial Services Analysis 2015; http://immediatepayments.vocalink.com/; http://www.finextra.com/news/fullstory.aspx?newsitemid=26105&topic=retail; Immediate/ Faster Payments - Innovation is Knocking White Paper, Fundtech (now part of D+H), Swift

Evolving Mature

Tipping Point For The United States

• Technology innovation

• Global standard payments format (ISO 20022)

What is Driving the Shift Towards Real-Time Payments

• Global standard payments format (ISO 20022)

• Need to improve overall efficiency of payment systems

• New players and business models

• Merchants’ expectations

• Consumers’ expectations

• Regulatory pressuresRegulatory pressures

• Globalization

8

Comparing Real-Time Payments in the US with Existing Payment Rails

9 *Source: The Clearing House - TCH Real-Time Payments; December 2015

Real-Time Payments Will Drive New Capabilities

Rich reporting and data analytics

capabilities

Improvement in cash flow/working

capital

Greater straight through processing

t iticapabilitiescapital management

opportunities

New simple dd i b fi

Non-traditional Partnershipi t ti / d taddressing benefitsplayers entering

the marketintegration / product

development

10

Real-Time Payments Use Cases

Based on the Fed’s analysis, the RTP system is designed to address unmet customer needs across a number of targeted use cases*

11 *Source: The Clearing House - TCH Real-Time Payments; December 2015

Statistics from Across the Pond

2008 The year the UK processed its first faster payment transaction

18% Percentage of total payments clearing as faster

1.4 Billion Number of Faster Payment transactions processed in 2016; a 14% increase over 2015

18% g p y gpayments in 2016

2016; a 14% increase over 2015

£250,000 Current maximum value of a single faster payment

Real-Time Processing

The new standard for phone or internet initiated domestic UK payments

12 Source: http://www.fasterpayments.org.uk/about-us/statistics

The Federal Reserve’s Faster Payments Task Force

13

Mission and Objectives of the Faster Payments Task Force*

Identify and evaluate approach(es) for implementing a safe, ubiquitous, faster payments capability in the United States

Address… Represent…

views on future needs for a safe, ubiquitous faster

t l ti

Assess… alternative

approach(es) for faster payment

biliti

other issues deemed important to the successful development of

ff tipayments solution capabilities effective approaches

14 * Source: FasterPaymentsTaskForceProgressReport_talkingPoints; February, 2016

Federal Reserve Faster Payments Task Force*

Effectiveness Criteria Purpose

FasterPayments

EffectivenessC it i

A description of stakeholder needs that

can be used by market to guide faster payments

A framework to be used by the Faster Payments Task Force for identifying effective approaches toCriteriaguide faster payments

innovationeffective approaches to faster payments

15 * Source: FasterPaymentsTaskForceProgressReport_talkingPoints; February, 2016

Federal Reserve Faster Payments Effectiveness Criteria*

UbiquityU.1 AccessibilityU.2 UsabilityU 3 Predictability

EfficiencyE.1 Enables CompetitionE 2 C bilit t bl l dd d Safety and SecurityU.3 Predictability

U.4 Contextual Data CapabilityU.5 Cross-Border FunctionalityU.6 Multiple Use Cases

E.2 Capability to enable value- added services

E.3 Implementation TimelineE.4 Payment Format StandardsE.5 ComprehensivenessE 6 Scalability and Adaptability

Safety and SecurityS.1 Risk ManagementS.2 Payer AuthorizationS.3 Payment FinalityS.4 Settlement ApproachS 5 H dli Di t d P tSpeed (Fast)

F.1 Fast ApprovalF.2 Fast ClearingF.3 Fast Availability of Good Funds to P

E.6 Scalability and AdaptabilityE.7 Exceptions and Investigations

Process

S.5 Handling Disputed PaymentsS.6 Fraud Information Sharing S.7 Security ControlsS.8 ResiliencyS.9 End-user Data Protection

PayeeF.4 Fast Settlement among Depository Institutions and Regulated Non-bank Account ProvidersF.5 Prompt visibility of payment status

S.10 End-user/Provider AuthenticationS.11 Participation RequirementsGovernance

G.1 Effective governanceG.2 Inclusive governance

L.1 Legal Framework L.4 Data privacyL.2 Payment System Rules L.5 Intellectual privacyL.3 Consumer Protections

Legal

16 * Source: FasterPaymentsTaskForceProgressReport_talkingPoints; February, 2016

Real-Time Payments Hurdles

• Will likely require an over-arching governing body –similar to NACHA –to establish rules and standards and enforce accountability.

Several key RTP components will need to be addressed in order to have a fully interoperable and ubiquitous ecosystem.

and standards and enforce accountability.

• Access to or availability of different RTP solutions could impede adoption and slow the ultimate goal of interoperability.

• Some form of a standard directory service• Some form of a standard directory service

• ERP and accounting systems will need to be enhanced for businesses to leverage the full benefits associated with the RTP ecosystem (e.g. ability to accept and apply a RTP to an invoice/bill in near real-time).)

17

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