William B. Nelson Executive Vice President NACHA - The Electronic Payments Association Wired for Success Austin, Texas September 10, 2002 Electronic Payments Update About NACHA Federal Reserve Payments System Research - The Demise of the Check? Traditional ACH Services New Developments Questions Agenda What is NACHA? Rulemaking body for the ACH Network and other EFT payment systems Rules enforcement Education and Marketing services Council memberships open to FIs and non-FIs NACHA The Electronic Payments Association NACHA The Electronic Payments Association Membership: Payment Associations Direct Financial Institutions Councils: Electronic Check Council Affiliate Forum Internet Council EBT Council Council for Electronic Billing Global Payments Forum & Payment Other Programs: Project ACTION Federal Reserve Retail Payments Study Check Volume (Revised) 1978 1995 2000 39B 49.5B 42.5B Point-of-Sale 23.3 billion ATM 13 billion Direct Deposit 3.3 billion Bill Payment 2.2 billion Business-to-Business 1.2 billion Cash Concentration 0.19 billion Wire Transfer 0.17 billion Total 43.36 billion Check Substitution - 2000 Electronic Payment Volume Payment Volumes Traditional ACH Services Business-to-person ACH payment Payroll Travel and expense reimbursement Dividends Distributions - annuities, pensions, IRAs Refunds, rebates 3.3 billion Direct Deposits, mostly for payroll Direct Deposit % of Households With Transaction Accounts * Source: Federal Reserve Survey on Consumer Finances, 1998 19.5% average annual growth rate for past 5 years; 9 billion bill payments by check remain Direct Payment Growth E-checks Internet Telephone Point-of-Purchase Accounts receivable - Lockbox RCK - electronic collection of NSF checks Volume - 0 to 100 million in 3 years Projected volume 2002 - 300 million New Applications/E-Checks Revolution in the ACH Network Non-Recurring Payments - e-checks Demonstrates Advantages of ACH Network universal, low cost, flexible, convenient Raises new challenges Risk Management Authentication Exception Items Customer Care Issues Allows consumers to authenticate debits orally Final rule effective September 14, 2001 New SEC Code - TEL 6.3M TEL in 2001 Telephone Authorization Internet/Web-Initiated ACH Debits Allows consumer to initiate one-time debits over the Internet Final rule effective March 16, 2001 New SEC code - WEB 54M WEB in 2001 ACH Rules Growing e-check Acceptance Common Uses Among Companies Catalog sales and on-line retailing Utility payments Credit card and loan payments Taxes, government fees and licenses Other bill payments Investments e-check Benefits to Companies Expands potential market Alternative payment method for consumers with high credit card balances Eliminates 00uyers00Remorse00/font> The Case for DDA Access 23% of HHs do not have credit cards 10 million HHs without credit cards are online 45% of consumers with credit cards are within 5% of their credit limit Source: First Data TeleCheck Independent Research Among Customers of 3 Types of On-line Retailers: 55% interested in e-checks 40% would buy more using e-checks *Books, music; retail clothing; consumer electronics E-Check - Are you Limiting your Market? Impulse buyers00remorse or uncertainty of matching payment with order On-line sales Drop off rate of 40 + % if relying on 00ailed in00checks Problems with Web Initiated ACH Debits Consumer Online Merchant NSF Unauthorized Account # Privacy Project ACTION Purpose Launched 4/01 to address problems with Internet payment from DDAs Privacy of Financial Information consumer does not have to provide account info to unknown merchant Lower Risk Use Existing Infrastructure European Model ACTION Applications EBPP/C2G Funds Transfer (Funding Investment Accounts) C2B B2B Recurring/Spontaneous Flow Process Flow for Good Funds Model Buyer Selects ACTION Seller Info and Buyer Routed to Buyer FI Authentication of Seller and Buyer FI by ACTION Server Buyer FI Authenticates Buyer Buyer Confirms Payment Data Buyer FI Initiates Payment Buyer FI Issues Payment Guarantee to Seller Seller Confirms Payment Receipt ACTION Demonstration Project ACTION Benefits New Source of Revenue for FIs Centralizes FI Brand in each Transaction Reduce Fraud in Internet Payments Solves Privacy/Security Problems New Source of Revenue Interbank compensation fees will be based upon the level of risk involved in a transaction Full amount flows to ODFI FIs may charge other fees Primary Emphasis: FI Brand Buyer routed to FI for every transaction Gartner shows consumers trust FIs more than technology companies NACHA Consumer Focus research: consumers like idea of paying via FI Proof of Concept Phase Need $1 - 1.2 mm in FI investment Deliverables Establish LLC Patent Investigation Distribute RFP, Select Vendor(s) Conduct Proof of Concept DILBERT reprinted by permission of United Feature Syndicate, Inc. DILBERT reprinted by permission of United Feature Syndicate, Inc. DILBERT reprinted by permission of United Feature Syndicate, Inc. ??Questions??

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