6/5/2014. Treasury Management Collection & Disbursement Strategies. Overview. Changing Landscape. The Tide is Rapidly Shifting

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1 Overview Changing Landscape of Banking & Payments Treasury Management Collection & Disbursement Strategies Steve Broerman Vice President Government Banking Solutions versus Strategies Collection & Disbursement Solutions Overview Card Based Solutions Economic & Payment Trends 2 nd Generation Alternative Cash Management Services Future Outlook June 09, Changing Landscape Banking: Top 5 banks comprise over 70% of the industry s total cash management revenue. Regulatory reforms increasing bank liquidity requirements driving up cost of collateral and creating collateral shortfalls = inability to retain government deposits for some. The Tide is Rapidly Shifting Payment Method Usage: Now vs. in 3 Years 9.1% 100% 18.3% Economy: Falling interest rates minimize the value of balances cash management customers use to purchase services and significantly increased FDIC fees are increasing cost of services. Local Government fund cuts, budget shortfalls and rising costs of providing essential services plague government. 80% 60% 61.3% 30.9% P-card Paper Check ACH/EFT Cash Management: Exponential increases still seen in all electronic services, with biggest percentage increases in ACH/EDI, PCard and Merchant Services. Data management is the key! Migrating to electronic payments brings benefits in operational efficiencies, costs savings (direct and indirect), revenue opportunities and may fill a consumer demand due to increased unemployment. 0% 20% 0% Now 2.5% In 3 Years 6.0% Source: IAPP, Accounts Payable Automation Survey, Sept

2 Solutions versus Strategies Payment Collection & Disbursement Solutions so lu tion /səˈluʃən/ Show Spelled[suh-loo-shuhn] - noun 1. the act of solving a problem, question, etc 2. the state of being solved: a problem capable of solution. 3. a particular instance or method of solving; an explanation or answer strat e gy /ˈstrætɪdʒi/ Show Spelled[strat-i-jee] - noun, plural strat e gies. 1. the science or art of combining and employing the means in planning and directing operations. 2. a plan, method, or series of maneuvers or stratagems for obtaining a specific goal or result. For Collections: Branch and Cash Vault Services Check Conversion Services ACH & Wire Transfers Lockbox Services Electronic and Online Payment Services Credit Card Acceptance For Information Reporting: Online Information web portal Cash (Coin & Currency) Checks Routine Purchases Travel & Entertainment Telephone & Online Payment Vendors & Suppliers Credit & Debit Cards Wire Transfer & ACH Employee Payroll For Disbursements: ACH & Wire Transfers Credit Card Options Controlled Disbursement End-to-end solutions E-Disbursement For Risk Management: Blocks and Filters Positive Pay UPIC For Depository Needs: Checking Accounts Nationwide single deposit account Sweep Accounts 5 6 Payment Solutions Cards Processing Solutions Credit & Debit Electronic Check Service PIN Debit EBT Prepaid Card Solutions Electronic Gift Card Payroll Payment Card Benefit Payments Cards Rewards Visa Card Support Solutions 2/7 Customer Service PCI Compliance Program Client Relations Solution Design & Integration PCI & Security Consulting Chargeback Management Interchange Advisory Services Interchange Optimization Delivery Solutions POS Terminals & Peripherals Software & Internet VAR Interfaces & Gateway Solutions Bill Presentment & Payment Reporting Solutions Merchant Statements Online Transaction Review Online Case Management Custom Reporting Dynamic Merchant Reporting Specialized Solutions No Signature Required (QPS/VEPS) Contactless Dynamic Currency Conversion Multi-Currency Cross-Border Signature Capture E2EE & Tokenization Payment Solutions help you Track key financial information and process transactions online: Access information reporting Transfer funds and place stop payments Initiate ACH and Wire Transfers View images Review Positive Pay items Turn a variety of collection payment types into working capital: Checks Cash (coin and currency) Credit & Debit Cards Telephone & Online Payments Wire Transfer & ACH transactions 7 8 2

3 Payment Solutions help you Public Sector Focus Support every phase of disbursements processing with card, electronic and paper services for: MRO (Maintenance, Repair & Operations) Office supplies Travel & Entertainment Employee Payroll Protect against check and electronic fraud using: Check and ACH blocks and filters Positive Pay Reverse Positive Pay UPIC Manage depository needs through multiple channels with: Retail branch networks, ATMs, and cash vaults Electronic collection alternatives Balance Consolidation and Sweep options Payment and bill pay solutions are now being tailored to the needs of agencies, universities, utilities and most other public sector entities for payments made in person, online, over the phone or through the mail. Payment Solutions Consultants dedicated to addressing the challenges facing the public sector Government entities are accepting credit / debit cards and ACH for payment more than ever before Diverse constituents base desire multiple convenient payment options With budgetary cutbacks public agencies turn to Web and IVR payment solutions for efficiency to trim costs Convenience fees charged to the payer to mitigate payment administration costs becoming commonplace Faced with cost to protect a against cardholder data breach, End-to-End Encryption & Tokenization security solutions lead the way to de-scoping PCI compliance requirements 9 10 Sample Treasury Management Strategy Reduce processing time and expenses while improving operating cash flow E-Pay Improve collection processes Collect payments over the web, by phone (VRU), mobile applications, or via kiosks to offer alternatives Internet connection through web site pay/donate button Merchant Services through processor of choice With or without convenience fees, bank managed or provider collected ACH Credit Push/E-Disbursements Improve disbursement processes Recipient provides account information and disbursement method preference online enabling disbursement of funds electronically to recipient s bank account or a prepaid stored value card or via paper check allowing them to maintain account information confidentiality while offering 100% electronic funding method to the governmental entity with substantially less maintenance efforts. Payment Cards Replace paper checks with electronic payments Stored value card replaces checks for recurring disbursements Can be VISA or MasterCard branded cards accepted at millions of locations Bill Pay allows card holders to use pay card to make online payments Strategies To Think About Active or Passive Strategies Collection Disbursement Processing/Operating Investment Credit Efficiency & Automation Through: ACH/ UPIC Wire Transfer Lockbox Bill Consolidator Merchant Card Processing Electronic Image Check Deposit Image Cash Letter E-Payment Kiosks Efficiency & Automation Through Controlled Disbursement ACH Credit Cards Payroll Cards Purchasing Cards

4 Which Paperless Option is Best? Lots of Tools in the Payables Tool Kit E-Payments ACH/EDI Commercial Cards Wire Electronic Accounts Payable Dynamic Adjustment Accounts Single Use Accounts Ghost Accounts Electronic Invoice Presentment & Payment End-to-End Automation E-Payment Convenience / Service Fees Typically Web, IVR MO/TO, and call center environments Credit card, debit card, PINless debit, check, and e-check / ACH transactions Card Associations have rules governing how and when convenience fees can be charged Typically there must be a convenience tied to the transaction (i.e. non-in-person payments) Rules differ for tax payments versus non-tax payments MasterCard and Visa rules differ; however, if you intend to accept Visa AND MasterCard, then Visa rules take precedent Biller Managed Biller manages all aspects of the program Biller defines fee(s) to be charged to Consumer Biller receives payment and convenience fee Biller pays all month-end fees Biller can define if program generates revenue (fee collected is higher than processing costs), is revenue neutral, or is a partially subsidized (fee collected is lower than processing costs) Biller is responsible for compliance of the program VS Third-Party Managed Third-Party (bank, processor, gateway etc.) manages the program Third-Party defines the fee(s) to be charged to the payer Third-Party typically retains all fee-based revenue Third-Party typically pays all month-end fees Third-Party programs are generally revenue-neutral to the biller Third-Party is responsible for compliance of the program (ECS) A paper check is scanned through a check imager and converted into an electronic transaction and imaged with the speed of credit card transactions. Faster Access to Funds Checks automatically converted to electronic transactions. Funds are settled with the same speed and ease as credit card deposits, typically within 2-8 hours. Reduced Costs ECS eliminates the time, labor and paperwork associated with paper checks and returned items. Minimized Risk Verification and Guarantee services reduce the risk and costs associated with returned checks. With ECS, transactions that result in non-sufficient funds will be automatically resubmitted up to two times. Improved Reporting All electronic payment activity processed is consolidated on reports and statements. POP Point-of-Purchase processing of check-present, customer-present transactions. ARC Accounts Receivable Conversion processing of checkpresent, customer-not-present transactions for receivable payments through the mail, drop box, or lockbox. BOC Back Office Conversion for multi-lane check-present, customer-present check verification with conversion to electronic item in the back office

5 Electronic Bill Presentment & Payment EBPP offers any size biller the ability to electronically present bills/invoices and accept consumer payment in response Prepaid Cards Displacing Cash & Checks Prepaid cards can fit a wide variety of needs Speeds payments to decrease your receivables and improve cash flow Payments accepted online through Interactive Voice Response (IVR) and call center Accepts credit, e-check via ACH, and where appropriate, PINless debit payments Manages recurring payments Bill Mail option generates with embedded dynamic PDF sent to consumer with consumers pay bill the day they get the Optional merchant, bank or processor managed convenience and service fee programs Employers/Corporate Payroll Per Diem Reimbursements Incentive/Bonuses Corporate Rewards Cards Government Payroll Child Support Unemployment Temporary Assistance Workers Comp Tax Rebates Prison Release Gift Cards (malls, web, branches) Rebates General Purpose Reloadable Travel Teen Spending Consumer Prepaid Debit Cards Defined Key Characteristics: Very similar to a traditional debit card tied to a checking or savings account No credit check or existing bank relationship necessary to have a card Association branded (typically Visa or MasterCard) Pre-funded by a 3rd party such as an employer or government agency Single load or reloadable Personalized or non-personalized Can be used anywhere branded cards are accepted Point of Sale only or Point of Sale, Internet, ATMs & Banking Offices Prepaid Card Solution A reloadable prepaid debit card designed as an alternative direct deposit solution for payroll and other check or cash disbursement needs Check-less checking account designed to be cost free to client and cardholder Not a credit card, and not tied to a traditional checking account FDIC insured up to $250,000 per depositor Universal eligibility Zero liability fraud protection Funded via direct deposit (ACH) 2x7x365 toll-free cardholder support Secure online account access including pay-anyone bill payment tool Text alerts, notifications, portability, secondary card and downloadable app Great transaction access Visa / PLUS / Interlink / MasterCard / Maestro Signature and PIN-based point of sale everywhere Visa / MasterCard debit is accepted (30 million worldwide locations / 8 million USA). Also online, phone and catalog purchases. Cash-back with purchase at participating merchant locations 1.2 million worldwide Visa / MasterCard ATMs 87,000 USA 20,000 of which are fee-free Nearly 100,000 Visa / MasterCard branded banks and credit unions available nationwide for tellerassisted cash advance transactions

6 (EGS) Closed Loop Stored Value Card Not just for the holidays and retailers Merchandise / service credits / refunds / rebates Prepaid vehicles for recurring services Promotional marketing tools Public Sector Venues Parks & Recreation, Waste Management Gift Shops at Zoos, Amusement Parks, Historical Sites, Public Golf Courses Gift & Souvenir Shops, Book Stores, Municipal Liquor Stores, Food Service Multiple Card Styles Basic: Single card design Standard: Select from 10 card designs Custom: Completely customized Integrated with POS Terminals Direct certification or through VAR using existing tools Consolidated reporting Instant Issue Cards Solves a number of instant funding problems where cash and/or checks are currently being utilized Turn-key solution to replace checks / cash issued to employees and others Instantly-issued using onhand card stock Non-personalized card Cards funded via secure website by facility staff 2 x 7 x 365 Bank responsible for card inventory management, liability, and customer service Cards can be used for signature and PIN-based purchases, ATM cash withdrawals and teller-assisted cash advance transactions Corporate Rewards Cards Great for awards, incentives, or other single payment events Purchased directly from financial institutions and even some retailers Can be purchased in small or large quantities Variable load values of $25 $1,500 each card (non-reloadable) Non-personalized Multiple card design options Easy ordering process and can fund via credit card Can be used at Visa member merchants worldwide for purchases, but no cash access Card Benefits Government Agency Allows for 100% direct deposit of outgoing payments Less costly than paper checks saves money and resources Easy to integrate into existing payment process Enhances perception of government as forward thinking and expense minded Cost free program implementation and ongoing support Payment Recipients Allows for direct deposit participation (universal eligibility) Safe, reliable, and convenient Less expensive no check cashing or money order purchase fees Can be cost free to use

7 Summary Future Outlook Prepaid cards represent a direct deposit alternative to almost any current check or cash payment delivery system Client Gain efficiency Streamline operations Reduce disbursement related time and expense Cards can fit wide variety of needs Increased payment recipient satisfaction Card-based solutions are fully supported by U.S. Bank Payment Recipient Can be significantly less costly payment method especially for unbanked No pre-qualifications Convenient access to funds Enables online purchasing safer Safer than carrying cash 25 Continuation of global credit issues and regulatory reform impacts May cause the too big to divest allowing others to get bigger - many seemingly strong players may refocus, dissolve, exit or be purchased Banks may have less capital and thus may not want or be able to take on public fund dollars due to cost of collateralization Continual bank debt rating downgrades by S&P and Moody s will cause need for public enhanced debt to be refinanced Letter of Credit availability may be tight for many, may cost more and may require relationship to obtain Consolidation and exiting of players will cause stagnation of product development as bank s push to increase balance sheet liquidity, tie up capital in mergers/acquisitions and potentially become inwardly focused 26 Future Outlook Rates will continue to be held low for 2-3 more years Increased regulatory requirements will add to cost of doing business for all New technologies are presenting new challenges in fraud prevention and risk mitigation, while increased incidents of fraud cases continue Product innovations, cost pressures, and enabling legislation will continue to drive conversion of paper to electronic. Policies need to be created/enhanced Enhanced requirements to support mobile and kiosk collection and disbursement applications Innovations will make information more time critical to determine investment/borrowing positions, analyze same location deposits, and reduce exposure to fraud Information integration will be mandatory to maximize service efficiency and will require ease of integration to legacy systems 27 So what is your strategy? NOTE: Don t be seduced by the newest technologies without research Understand the business case and develop value metrics - understand ways to evaluate usage based on risk, cost efficiency, and potential recourse Keep focused on your customers wants, needs and desires Plan for future business needs. Invest in technology that lays the groundwork for customizable future innovation Don t be afraid to change old habits Ensure that your entire organization understands the reason for change and is adapting to and promoting the new technology Questions? Thank you! 28 7