REAL-TIME PAYMENTS (RTP) SUMMIT 18 May, 2018

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1 REAL-TIME PAYMENTS (RTP) SUMMIT 18 May, 2018 THE FIRST NEW PAYMENTS SYSTEM IN OVER 40 YEARS Pete Kooner Head of Product, Treasury Services J.P Morgan, Australia & New Zealand 2018

2 Technology is driving massive changes to the global payments landscape Trends and shifts in the payments landscape Global Mobile Users M 1% Population Penetration B 73% Population Penetration B 95% Population Penetration Global Smartphone Users 2 First iphone released a decade ago today 715 million in use B 36% Population Penetration B 57% Population Penetration Global Internet Users M 0.6% Population Penetration B 39% Population Penetration B 43% Population Penetration What does this mean for payments? People are now accustomed to obtaining information in real-time and expect no less from payments The payments landscape has been driven to real-time by the increasingly connected and accessible consumer 1 Ericsson 2017 Mobility Report, Kleiner, Perkins, Caufield and Byers, Internet Trends Ibid 3. Ibid 1

3 Faster Payments offering around the globe Countries around the world are implementing faster payment systems Faster Payments live Faster Payments under development 2

4 Immediate Payments: The global view - a sample of global instant payment schemes Country Name Year Settlement Working hours Message Format Technology Japan Zengin 1973 DNS or Gross ISO (for some msg) Home built Switzerland SIC 1987 Gross 24/7 ISO by 2018 Home built Taiwan FISC-FIS 1993 Prefunded 24/7 Proprietary XML Mobile focus, MNOs and Banks South Korea KFTC 2001 DNS TBC Proprietary XML Home built Brazil SITRAF 2002 Hybrid ISO Home built Mexico SPEI 2004 Hybrid 23/24 Proprietary Home built South Africa RTC 2006 DNS 24/7 ISO 8583 (20022 planned) BankServ SA U.K. FPS 2008 DNS 24/7 ISO 8583 Vocalink Chile TEF 2008 DNS 24/7 TBC Home built India IMPS 2010 DNS 24/7 ISO 8583 TATA Consulting China IBPS 2010 DNS 24/7 ISO planned Home built Poland Express Elixir 2012 Prefunded 24/7 ISO CapGemini Sweden BIR 2012 Prefunded 24/7 ISO Home built with Fundtech Turkey RPS 2014 Gross TBC Home built Singapore FAST 2014 DNS 24/7 ISO Vocalink Denmark NetsRT 2014 DNS 24/7 ISO NETS Australia NPP 2017 Gross 24/7 ISO SWIFT U.S. TCH RTP 2017 DNS 24/7 ISO Vocalink EBA EU SCT Instant 2017 DNS 24/7 ISO SIA Spain SCT Instant 2017 DNS 24/7 ISO RedSys Netherlands TBC 2019 TBC 24/7 ISO TBC 3

5 Instant Payments in Europe: Single European Payments Area (SEPA Instant) J.P. Morgan is an original funding member of EBA Clearing s SEPA Instant Payments driven by the European Retail Payments Board. The interbank rules are: Speed 10 Amount Availability EUR 15, / 7 / 365 Reach PAN EURO Money available to payee within ten seconds Credit Transfers in EUR Up to maximum 15,000 1 SEPA CT inst payments available 24/7/365 All SEPA participants are eligible; but full 34 not expected to initially go live Timeline April 2016 July 2016 November 2016 November 2017 Middle of 2018 Consultation Community Review Scheme Published Industry Build Limited Pilots Expected Industry Take-Up 1 15,000 limit is expected to rise over time, in line with historical rollouts of real-time payment systems globally. 4

6 Real-Time Payments in the U.S. market The first new U.S. payment system in over 40 years Real-Time Payments (RTP) are immediate, irrevocable, secure, contextual, and convenient JPMorgan Chase is an Early Adopter Bank in the U.S., acting as part of a consortium of banks participating in the new payment rails developed by The Clearing House 1 API and channel-based, which supports unified payments integration and contextual commerce 2 Robust remittance detail allows for streamlined reconciliation with payment confirmation and reporting of information-rich content RTP use cases Business-to-business (B2B) A supplier sending a Request for Payment (RFP) message to a manufacturer, who then responds by initiating a RTP 3 A merchant transferring funds from his online wallet to his DDA Business-to-consumer (B2C) A service provider issuing a refund to a customer directly to her phone An insurance company adjustor reviewing a claim and providing funds to the policy holder Consumer-to-business (C2B) A consumer paying a utility bill last minute to avoid service cancellation A car owner paying the final balance on a car loan RTP will address the gaps in current payment methods Speed Amount Availability Messaging Security 15 seconds $25,000 24/7/365 ISO Credit Push Money is available to payee within fifteen seconds Credit transfers in USD of up to a $25,000 maximum Instant payments available 24/7/365 ISO supports sophisticated applications Sender initiates the transaction from their own funded DDA Channel-based RTP is a future functionality that is anticipated to launch in Q Request for Payment is a future functionality that is anticipated to launch in Q

7 RTP is a scalable solution for audiences of all sizes RTP data elements drive new opportunities while supporting integrated and contextual commerce Business-to- Business (B2B) Eliminating paper and manual reconciliation: Request for Payments (RFP) on recurring and one-time invoices Drives efficiencies and potentially enhances working capital in the order-to-cash and procure-to-pay cycles for our clients Business-to- Consumer (B2C) Enhancing customer service: using payments as a differentiator for resolving customer complaints, issuing royalties, merchant settlements, refunds, rebates, incentives, settling claims, etc., anytime The customer experience is greatly enhanced by providing real-time resolutions Consumer-to- Business (C2B) Let them choose: providing choice for consumers on how and when to pay Encourages consumers to shift from cash and cheques Payment Finality and Visibility Enhanced Client Experience Automatic Reconciliation Improved Liquidity Management No returns, reversals, or chargebacks Real-time view of cash positions Real-time confirmations No cut-off times- 24/7/365 API based supports unified payments integration with robust messaging and acknowledgments Invoicing capabilities with RFP reducing days sales outstanding ISO allows for information rich messaging Reduced settlement times allow for last-minute payments Increased control and immediate funds availability 6

8 Innovation: U.S. Real-time payments The Clearing House business-to-business pilot use case Cashless / Cashless Cash On Delivery (COD) Premise Every day thousands of companies deliver physical goods to food stores, package stores, restaurants and supermarkets Store personnel accept these shipments and pay the driver / delivery agent onsite Shipment invoices can be changed at time of delivery based on current store inventory requirements This is problematic as Although cheque and cash acceptance is a risk for the delivery provider, it is a preferred method of payment for the payor Invoice and payment reconciliation is manual and after-the-fact when drivers end their daily route Invoice payment is often made by paper cheque or in cash to the delivery person Proposed M-Commerce Solution A Real-Time Payments enabled bank receivables mobile app can eliminate the need to take cash or cheque payments and immediately reconciles the invoice to the payment. How it works The driver can deliver the goods, make changes to the invoice and immediately send it to the store manager via a mobile app The store manager can immediately see the invoice through a mobile phone via an online banking app and clicks Pay Benefits Transactions are completed immediately The driver no longer needs to deposit the cheques or carry cash to the bank Delivery invoice data to payment amounts are recorded and reconciled at point of receipt Invoice date is available to the store owner for shipment and order tracking Less expensive than transporting and depositing cash, cheque and card payment processing 7

9 What do corporates need to do to prepare for NPP? Review and upgrade existing technology e.g. ERP systems Shift from scheduled payments to real-time e.g. API payment technologies Assign resources to develop business use cases which will add customer value or internal efficiencies Partner with your bank to plan your organisational change for real-time payments Corporate J.P. Morgan 8

10 Interbank Information Network (IIN) Interbank Information Network (IIN) 9

11 Interbank Information Network (IIN) A secure, decentralized, permission-based network to safely exchange information and address the current and future friction points within the payments chain Key features IIN model for compliance inquiries A network that leverages J.P. Morgan s Quorum, a blockchain technology to streamline payment-related compliance inquiries Remitter Bank Information is exchanged and maintained through a secure and permissioned network Remitter 3 Enables faster and more comprehensive payment tracking Facilitates informed, real-time risk management with realtime sanctions, AML and fraud management tools Establishes a foundational structure of technology, network and utility services for the development of future value-added services Correspondent Bank B Interbank Information Network 2 Beneficiary bank Compliance inquiry 1 Data request 2 Data exchange 3 4 Data remittance Client benefits Streamlines and automates compliance-related inquiries reducing delays and inquiry turn-around times Enables cross-border payments to reach beneficiaries faster while reducing costs associated with compliance inquiries Maintains Personal Information (PI) within secure network provisioned for validated payments Actively growing network with key foreign correspondent banking clients to further enable faster payment execution 10

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