Jumping into the Deep End

Transcription

1 Jumping into the Deep End Now is the Time to Take a Hard Look at the Transformative Potential of Emerging Faster Payment Solutions April 08, 2019 Session #2

2 Discussion Outline Looking Over the Edge and Surveying the Current Landscape Evaluating the Contenders Taking the Plunge Start Thinking About Strategic Applications and Potential Use Cases Looking to Make a Splash in Your Organization 1

3 Looking Over the Edge Surveying the Current Landscape

4 Surveying the Current Landscape Financial Technology Companies Introduce Innovation and Disruption PARTNERSHIP 82% of financial institutions (FI s) expect to increase fintech partnerships in the next 3 5 years 45% are currently engaging with fintechs INTERNAL INNOVATION 77% of FI s expect to increase internal efforts to innovate CUSTOMER ALIGNMENT 84% of customers conduct payment activity with fintechs DISTRIBUTION 27% of FI s are offering services through fintechs BARRIERS Primary barrier to innovation: 54% cite data storage, privacy and protection considerations 2017 PWC Global Fintech Report 3

5 Surveying the Current Landscape Millennials/Gen Z are Key Transformation Drivers GENERATION AGE SIZE 1 Gen Z million Millennials million Generation X million THEY THINK DIFFERENTLY Believe everything on the internet, or at least use it to learn about almost everything Baby Boomers million 2016 Workplace Are early adopters of technology and seek out opportunities to innovate 29% 33% 35% Millennials Gen X Boomers Other By 2025, Millennials & Gen Z will represent 75% of the workplace 2 Put a premium on convenience, innovation and flexible payment options Ridesharing services such as Uber highlight the importance of delivering these preferences through a mobile experience 1 Statista Resident Population in the United States (2017) 2 Inc.com How Millennials (and Gen Z) Will Transform the Workplace (2018) 4

6 Surveying the Current Landscape Peer to Peer Networks Offer New Financial Connection Channels Millennial Phone Access Average smartphone users tap, click or swipe their phones 2,617 times per day (DSCOUT 2017) Peer-to-Peer Network Growth Electronic-based payments are projected to increase at a CAGR of 19.4% reaching $133.8B by 2018, expected 188M users (Statista 2018) 5

7 Surveying the Current Landscape API s are Enabling Real Time Integration Into Technology Ecosystems Bank Focus 1 Retail 2004 To 2008 Treasury Mgt Comml Lending We tried to create every feature in the world and said, O.K., we can do it, why should we open up to let a third party do it? We should have picked 5 to 10 key features that we totally focused on and let other people innovate on everything else Chris DeWolfe, cofounder of MySpace Trade Finance Supply Chain Finance % of Respondents 1 Aite Group: Corporate Banking API Strategies (2018); Which product management areas of your bank are involved in API projects? 6

8 Surveying the Current Landscape Migration to New Information Standard From ANSI / BAI to ISO ISO first connected large financial institutions, then was leveraged by multinational corporations, and is now moving into the mainstream Adoption of ISO will position organizations to take full advantage of the data that can be sent within the ISO messages Remittances/Invoices ERP systems are adopting ISO as standard inputs and outputs for domestic and international transactions For organizations operating on dated, legacy systems, it will be important to partner with banks that can accept and translate existing outputs into this format TOP FIVE REASONS CITED FOR ADOPTION OF ISO Future-proof payment operations Align with international requirements for payments such as SEPA Communicate with multiple banks using a common set of standards Implement common payment processes across multiple business units and geographies Greater straight-through processing Business Payments Coalition (2017): US Adoption of ISO

9 Surveying the Current Landscape Payments Are Speeding Up Around The World Many countries are developing faster payment systems to increase the speed that transferred funds are made available to recipients Over 20 immediate payments systems in operation and/or planned Majority of countries that have or will implement new payments systems had regulatory mandates to institute them Traditional U.S. payment system infrastructure does not enable ubiquitous, faster e-solutions that make immediate funds movement possible The U.S. s RTP system is being driven and developed by the private sector 8

10 Surveying the Current Landscape Digital Transformation Initiatives Impacting a Variety of Business Processes Key Transformation Value Drivers Where is the Most Activity? Identified by Respondent Top Performers Digital Transformation Projects By Life Cycle Stage Customer Satisfaction Agility Service Quality Cycle Time Business Value Operating Cost System Usability 0% 20% 40% 60% Disbursements Revenue Cycle Accounting Planning Business Analysis Treasury 0% 20% 40% 60% 80% 100% Completed Piloting Exploring The Hackett Group: Building a Value Driven Business Case for Digital Transformation (August 2018) 9

11 Surveying the Current Landscape Sysco View The Sysco Story Sysco is the global leader in distributing food and non-food products to restaurants, healthcare and educational facilities, and lodging establishments around the world. Vision To be our customers' most valued and trusted business partner. Enrich the Customer Experience Enhance digital customer facing tools. Over 50% of orders are completed online. 60% of customer payments are made electronically. 10

12 Surveying the Current Landscape Sysco View ISO in Sysco Landscape ISO payment files already incorporated into the new financial system for AP ACHs and wires. In process of implementing RTP in the Treasury workstation using ISO Pros Field tags allows the average person to decipher data more easily. Reduces the number of files layouts created and maintained. Less effort needed to onboard new staff both in Treasury and IT. Next steps are to convert remaining AP payment types along with bank statement files to ISO layout. In future we will consider incorporating RTP s request for payment feature into customer payment options. Cons Some networks do not allow for straight-through processing using an ISO layout. Banks charge for ISO layouts to be translated into other payment formats, increasing bank fees. 11

13 Evaluating the Contenders Introducing a Variety of New Accelerated Payment Channels

14 Evaluating the Contenders What About Same Day ACH? Same-day processing of ACH credits became a reality in September 2016, with ACH debits following in September 2017 Brought improvements in speed for bulk payments within existing legacy systems Origination deadlines tied to east coast banking hours Transaction limits impact utilization Continue to be subject to returns Recent operating rule changes Extending window by 2 hours (effective Sept. 2020) Increasing dollar limit to $100,000 (effective Mar. 2020) Increasing speed of funds availability for credits (effective Sept. 2019) 13

15 Evaluating the Contenders Same Day ACH Tidal Wave or Ripple? 2018 ACH Network Volume Annual SDACH Volume 2017 Same Day Credits 178 Million Payroll B2B Other 22.9 Billion 2017 Same Day Debits Consumer Bill Pay / Acct Transfer B2B Source: NACHA 14

16 Evaluating the Contenders epayments Directing Consumer Payments Through P2P Network Enables expedited, electronic payment without associated banking information payee address is the token used to execute notification and payment Company submits payment file to FI 1 Company receives reconciliation information 5 2 FI sends Payee notification that Company is attempting to send payment FI receives selected payment method and processes accordingly 4 3 Payee enters required information and selects payment preference 15

17 Evaluating the Contenders epayments Explosive Network Growth 100,000 Consumers enrolling daily 247 million+ Payments processed in 2017 $75 billion Value of network payments in Participating network banks Zelle,

18 Evaluating the Contenders The Clearing House Introduces Real Time Payments First New Core Payments System in the U.S. in more than 40 Years Initiates First Live Payments (Nov 14, 2017) 17

19 Evaluating the Contenders Real Time Payments SPEED INFORMATION TRANSPARENCY Funds sent and received 24/7/365 Extended remittance details delivered in ISO Real-Time confirmation to both parties COLLABORATION SECURITY UBIQUITY RFI, RFP, Payment Acknowledgement Messaging Introduced by The Clearing House enterprise-wide fraud monitoring Targeting effective ubiquity by

20 Evaluating the Contenders RTP Key Developments Leading banks expanding capabilities to transact Building integration foundation through a library of API s Alignment and likely asset sharing between Zelle and TCH Transaction limit increases ERP providers incorporating RTP capabilities 19

21 Evaluating the Contenders RTP Path to Ubiquity Where are we now? Perspective from the past Announcement from Fed Defining effective ubiquity Key next steps 20

22 Evaluating the Contenders RTP Still Lots to Think About Pricing Strategies Evolving When is End of Day 50% 40% 30% How will your bank charge for real-time transactions? What time will end of day be? 1000 PM 10% 1100 PM 5% 20% 10% 0% ACH Wire Between Don t Know ACH/Wire Don t Know 65% 1159 PM 20% Impacts on ZBA / Sweep Notification 100% Will you offer ZBA and sweep services on accounts that receive RTP? 100% How will your bank offer alerts for incoming real-time credits? 80% 60% 40% 20% 0% Yes No Don't Know 80% 60% 40% 20% 0% SMS Online Don't Know None Aite: Operational and Behavioral Considerations for Corporate Real-Time Payments (June 2018) 21

23 Evaluating the Contenders Summary of Key Attributes Payment Type Same Day ACH epayments Real-Time Payments Network ACH Zelle Real-Time Payments Network Availability Funds Availability Type of Payment Finality Send and receive transactions on business days (cutoff times apply) Same day Credit or Debit $25,000 Reversals and returns allowed Send transactions 1 24x7x365 Within minutes (in-network) days (out of network) Credits only Limits are based on recipient s payment preference 3 Disputes may result in reversals and returns Send and receive transactions 24x7x365 Instant Credits only $25,000 to start Irrevocable Status Visibility Not available Real-time Real-time Messaging 9,999 addenda records of 94 characters each 200 characters of remittance information Robust real-time messaging: Request for Payment, Payment Acknowledgement, Request for Information and Extensive Remittance Advice Confirmation Only if returned Yes, end to end Yes, end to end Payee Information International Availability Routing # + Account # or mobile phone Routing # + Account # No No Domestic U.S. transactions to start 1 epayments is limited to business-to-consumer (B2C) transactions. Recipients can receive payments 24x7x Funds availability is dependent on whether the originator has enabled expedited payments and whether the recipient is able to receive expedited payments via an in-network bank or a debit card as an out-of-network user. 3 Transactions to recipients accepting funds on a debit card are limited to $50,000. Transactions to recipients accepting funds on a prepaid card are limited to $1,

24 Evaluating the Contenders Sysco View Next Day ACH Same Day ACH Wire RTP The vast majority of electronic payments are next day ACH. ACHs can be scheduled using ERP systems, customer web portals, the Treasury workstation, and text messages. Occasionally used for customer, vendor, payroll, and disaster relief payments. Same day ACH is available in all the same systems as next day ACHs. Used mainly for financial transaction, payroll exception, and international vendor payments. A small number of customers pay by wire. Wires are created in our Treasury workstation, new financial system, and via bank portals. Functionality being stood up in our Treasury workstation, with financial system set-up to follow. Will begin using for payroll exceptions, disaster relief, and emergency vendor payments within next three months. 23

25 Taking the Plunge Start Thinking About Strategic Applications and Potential Use Cases

26 Taking the Plunge Envisioning the Ideal Financial Ecosystem Bills delivered without delay, in electronic format and including all details needed by the customer. ability to effectively connect to both business and consumers Business remittance information received for straight-through processing into established payables environment Consumer received through preferred channels such as mobile device and provides ease of use to return payment Deliver electronic payment, with all associated remittance detail with immediate confirmation to both parties Collaborative ability to communicate for items requiring additional information to post 25

27 Taking the Plunge RTP Makes This Vision Possible in the United States Request for Payment billers can deliver remittance document from a variety of connections to their enterprise and other relevant system environments - web, batch, API Business deliver ISO formatted data consistent with primary enterprise system development requirements Consumer delivery through retail banking online and web channels RTP Credit 24/7/365 ability to execute a payment with extended remittance capability both sender and receiver are notified in real time (Payment Acknowledgement) future potential to affect cross-border transactions Request for Information biller can create a message asking for additional details on a received payment original payment details consolidated with subsequent communication 26

28 Taking the Plunge Early Use Case Examples for Faster Payments Same Day ACH epayments Real-Time Payments 27

29 Taking the Plunge Other High Priority Use Cases 28

30 Taking the Plunge Sysco Priorities Faster Payment Use Cases Customer Disputes Payroll Exceptions Customer Holds Disaster Relief AP Exceptions Business Travel 29

31 Taking the Plunge Sysco Priorities Faster Payment Considerations Time Sensitivity Cost Revocability Payment Approval Time Amount of Transfer Routing Information Available 30

32 Taking the Plunge Sysco Priorities Faster Payment Focus Payroll Exceptions Best Solution - RTP Approval completed in afternoon ACH routing information Disaster Relief Best Solution Either same day ACH or RTP Approval occurs at any point in the day ACH routing information Customer Disputes Best Solution - RTP Approval most likely to occur after noon ACH routing information Cost Same day ACH and RTP are cheaper than wires. Difference in next day ACH cost is acceptable. Amount of Transfer Current $25k limit is generally sufficient. Revocability No particular need for these payments to be irrevocable. 31

33 Taking the Plunge Sysco Priorities Faster Payment Implementation Faster Payment Considerations RTP Specific Considerations Implementation Methods What is the volume of payments you want to move faster? What costs are you willing to absorb? Are you willing to keep track of the routing numbers live on RTP? Do you want the bank to convert payments not eligible for RTP to same day or next day ACH? Utilize bank portal. Build ISO layout into financial system. Leverage API connection. 32

34 Looking to Make a Splash in Your Organization Envisioning the Future and Planning Tangible Next Steps

35 Looking to Make a Splash in Your Organization Evaluating Alternatives Based on Desired Focus and Scope Desired Attribute Same Day ACH epayments RTP Consumer Payees Corporate Payees Debit Credit Funds Availability Immediate Payment Confirmation Payment Finality Extended Remittance Information Communication and Collaboration Throughout Enable End-to-End Experience Payee Banking Information not required International Expansion Potential 34

36 Looking to Make a Splash in Your Organization Parting Shots Think about solutions that create, enhance and transform a digital experience with customers, suppliers and employees this topic extends beyond paying faster Faster payment channels are not mutually exclusive Consider both niche and end-to-end possibilities Imagine beyond current state 35

37 Looking to Make a Splash in Your Organization The World Will Keep Spinning Even if You Don t Act Receivables Environment how will you process, recognize and reconcile an inbound RTP? Payables Environment how will you receive, process, approve and pay a RFP? Customers how will you respond to evolving customer preferences for a robust digital experience? Other The rest of the world is continuing to pursue faster payments will you begin to suffer competitively? Is your transaction processing model aligned with future ERP direction? What about new Fintech developments? 36

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39 Disclaimer This presentation was prepared for general information purposes only and is not intended as legal, tax or accounting advice or as a recommendation to engage in any specific transaction, including with respect to any securities of PNC, and does not purport to be comprehensive. Under no circumstances should any information contained in this presentation be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon the presentation is solely and exclusively at your own risk. Please consult your own counsel, accountant or other professional advisor regarding your specific situation. Any opinions expressed in this presentation are subject to change without notice. 38