FUNDAMENTALS OF THE PAYMENTS ENVIRONMENTENVIRONMENT
P t d b Ch l GPresented by Cheryl GurzManaging DirectorBank Segment ManagerBNY Mellon
June 4, 2013
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CONTENTS
1. U.S. Payment Environment
2. U.S. Payment Systems
3. Key Trends and Issues in Payment Systems
Q4. Questions
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THE GLOBAL PAYMENTS MARKETPLACE
REGIONCAGR
(‘08 ’11)CAGR
(‘11 ’12 )GROWTH(‘11 ’12 )
NUMBER OF WORLDWIDE NON-CASH TRANSACTIONS (IN BILLIONS), BY REGION, 2008-2012e
212720
25
266285
312339
280
350
REGION (‘08-’11) (‘11-’12e) (‘11-’12e)
GLOBAL 8.1% 8.8%
REST OF ASIA 19.7% 24.4%
20.6%CEMEA 26.3% 25.5%
elop
ing
22 26 3035
4119
2426
2934
1114
1721
1214
17247
266
210
280LATAM 15.8% 14.3%
MATUREAPAC
16.5% 16.8%
EUROPE (INCLUDING 4 3% 1 3%
Dev
e
73 75 7982 83
1405.4%
(INCLUDING EUROZONE)
4.3% 1.3%
Mat
ure
111 113 117 124 130
0
70
2008 2009 2010 2011 2012E
NORAM 3.7% 4.8%
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Source:Capgemini Analysis, 2012; ECB Statistical Data Warehouse, 2010 figures released November 2011; Bank for International Settlements Red Book, 2010 figures released December 2011; Central Bank Annual Reports, 2010
PAYMENT SYSTEMS IN THE UNITED STATES
SVPCO
The Clearing House
The FederalEPN Check and ACHSVPCOCheck Image Exchange (TCH)
The Federal Reserve Bank System
EPNElectronic Payments Network (TCH)
Check and ACHSettlement
• The four main interbank payment clearing systems in the United States are Fedwire, The Clearing House Interbank Payments System (CHIPS), Automated Clearing House (ACH) and check clearing. Th Cl i H d Th F d l ll th i t t f b k i th U it d St t• The Clearing House and The Fed clear all these instruments for banks in the United States.
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U.S. PAYMENTS – 2009 FEDERAL RESERVE PAYMENTS STUDY
U.S. PAYMENTS GROWTH RATE 2006-2009, BASED UPON PAYMENT TYPE AND VOLUME (IN BILLIONS)
2006 2009 CAGR
TOTAL VOLUME(ALL PAYMENT TYPES)
95.2 109.0 4.6%35
40
S)
-7.1%CAGR
14.8%CAGR
20
25
30
ME
(IN
BIL
LIO
NS
9.4%CAGR
-0.2%CAGR
10
15
20
21.5%CAGR
VO
LUM
0
5
CHECKS ACH CREDIT DEBIT CARD PREPAID
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CHECKS (PAID)
ACH CREDIT CARD
DEBIT CARD PREPAID CARD
2006 2009
PAPER TO ELECTRONIC – A JOURNEY
DISTRIBUTION OF NON-CASH PAYMENTS IN 2009
PAYMENT TYPE AS A PERCENTAGE VALUE OF PAYMENT TYPE AS A PERCENTAGE
15%
4% 0%
PAYMENT TYPE AS A PERCENTAGE VALUE OF PAYMENT TYPE AS A PERCENTAGE
32%
44%
51%
23%
51%
26%
CHECKS PAID DEBIT CARD CREDIT CARD
2%3%
CHECKS PAID DEBIT CARD CREDIT CARD
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ACH PREPAID CARD* ACH PREPAID CARD*
Source: The Federal Reserve 2009 Payments Study; Internal analysis * Pre-paid includes EBT
CASH IS MOST USED INSTRUMENT – CHECK AND ACH DOMINATE BY VALUE
AVERAGE ANNUAL PERCENTAGE GROWTH IN TRANSACTION VOLUME (2000-2009)
CURRENCY IN CIRCULATION SOARS
18 4%18.4%
13.5%
3 7%3.7%
DEBITCARD
ACHCREDITCARD
CHECK
Debit card and ACH use have grown dramatically,
-5.8%
CARDCARD
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Debit card and ACH use have grown dramatically, while check volume has dropped.
Source: Federal Reserve Bank of San Francisco 2012 Annual Report (both charts)
FEDWIRE
NAME OF SYSTEM FEDWIRESettlement type Real-time gross settlement
Settlement cycle Same-day basis with immediate finality
Payments processed Domestic high-value and urgent electronicpayments
Currency of payments USD
Value and other processing limits There are no value thresholds
Operating hours 21:00 prior night – 18:30 ETp g p g
Cut-off times USD transfers to a foreign central bank or international bank with an account at the FED of NY = 17:00 ETDomestic payment orders = 18:00 ETDomestic payment orders = 18:00 ETInterbank settlements=18:30 ET
Participants Approximately 8,000 financial institutions linked to the 12 Federal Reserve Banks
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Source: The Federal Reserve Bank of New York
THE CLEARING HOUSE INTERBANK PAYMENTS SYSTEM
NAME OF SYSTEM CHIPSSettlement type Real-time net settlement
Settlement cycle Same-day basis with immediate or end-of- day finality
Payments processed Domestic high-value and urgent electronicpayments both domestic and cross borderpayments, both domestic and cross-border
Currency of payments USD
Value and other processing limits There are no value thresholds
Operating hours 21:00 prior night – 17:00 ET
Cut-off times 17:00 ET
Participants 50 direct participants. Non-direct participants may send transfers through a CHIPS via a direct member.
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Source: The Clearing House
AUTOMATED CLEARING HOUSE
NAME OF SYSTEM ACHSettlement type Multilateral net settlement
Settlement cycle Debits settle on a next-day basis at 11:00 ETCredits settle on a two-day basis at 08:30 ET
Payments processed Low value and non urgent electronic paymentsPayments processed Low-value and non-urgent electronic payments
Currency of payments USD
Value and other processing limits There are no value thresholds
Operating hours 03:00 to 17:00 ET
Cut-off times Dependent upon operator
Participants Approximately 20,000 institutionsp pp y ,
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Source: The Clearing House
CHECKS
NAME OF SYSTEM PAPER CHECKSSettlement type Multilateral net settlement
Settlement cycle Depends upon presentment – direct exchange, correspondent bank or Federal Reserve
Payments processed Paper checks via images
Currency of payments USD
Value and other processing limits There are no value thresholds
Operating hours Depends upon bankp g p p
Cut-off times Dependent upon bank
Participants Multiple ABA’s
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PAYMENT RISK FACTORS
ASPECT DESCRIPTIONMITIGATIONSTRATEGIES
1) Fraud Payments executed with the consent or authorization of the payer due to deliberate criminal actions such as counterfeiting,alteration of instruments or deception
• KYC• Fraud review• AML• BSA• SARs• SARs
2) Operations Systems or operations failure due to natural or man-made causes, preventing the timely, accurate execution of payments
• Business continuity• Disaster recovery• Resilient IT design• Regular testing of plansRegular testing of plans
3) Credit/Settlement Failure of a counterparty to a payment transaction or participant in a payment scheme to fulfill gross or net settlement obligations
• Underwriting• Exposure limits• Exposure monitoring• Nettingg g• Collateralization• Linked settlement
4) Compliance Civil, criminal and market sanctions resulting from failure to comply with laws,
• AML• OFAC
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rules, regulations or codes of conduct • Capital/liquidity requirements• Consumer protection
THE ABC’s OF REGULATION
REGULATION NAMEPAYMENT INSTRUMENTS IMPACTED
Reg B Consumer Credit Protection Act Cards
Reg B Electronic Fund Transfer Act ACH
Reg B Federal Reserve Act, Expedited Funds Availability Act, Check Clearing for the 21st Century Act (Check 21) Checks/Wire Transfers
Reg O Federal Deposit Insurance Act of 1991 Cardsg p
Reg P Gramm-Leach-Billey Act Checks, ACH, Wire Transfers, Cards
Reg S Right to Financial Privacy Act Wire Transfers
Reg Z Truth in Lending Act CardsReg Z Truth in Lending Act Cards
Reg AA Federal Trade Commission Act Cards
Reg CC Expedited Funds Availability Act, Check Clearing for 21st Century Act Checks
Reg DD Truth in Savings Act Checks, ACH, Wire Transfers
Reg FF 15 U.S.C 168 1b Cards
Reg GG Unlawful Gambling Enforcement Act Checks, ACH, Wire Transfers, Cards
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UFC Uniform Commercial Code Checks, ACH, Wire Transfers
Source: The U.S. Treasury, Office of the Comptroller of the Currency
CORPORATE PRIORITIES FOR PAYMENTS
PAYMENTS INITIATIVES IN PRIORITY ORDER (AFP SURVEY, MAY 2011):1. Same-day ACH2. Industry standard for account opening/maintenance docs3. Account owner verification for ACH4. Remittance standards harmonization5. Small business (trading partners) electronification6. Cross-Border ACH 7. Wire transfer ERI and notification
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Source: The Association of Financial Professionals, Payments Survey, May 2011
PAYMENT METHOD COMPARISONS
SERVICE BENEFITS CHALLENGESACH ACH is cost effective when compared to other
electronic paymentsWithout lifting fees, beneficiaries will receive the full value of the payment
Lack of standardization, with each country employing its own set of standards and rulesRegulations affecting local clearing systems are constantly evolvingvalue of the payment
Increased control over value date of the paymentconstantly evolvingLack of common standards in terms of format and communication methodsLimitation on payment value varies country to country
TRANSFER Standard global payment format Higher cost for issuers and beneficiaries:TRANSFER Standard global payment format Can generally be repaired up frontSame Day/Next Day delivery for time critical paymentsRemittance information can travel with the paymentNo limitation on payment value
Higher cost for issuers and beneficiaries:– Transaction cost for issuer– Lifting fees
Varied degrees of self-servicing capabilities
p y
CHECKS Complete beneficiary bank details not required
Less possibility for returns
No limitation on payment value
Access to float
Higher cost for issuers, including check printing costsDelivery time varies dramatically between countries and takes longerIncreased exposure to fraud riskStop and Payment Recall rules vary and can be p y ycumbersome country to country
CARDS Eliminates paper
Ability to develop robust analytics around spend
Improve working capital management
Higher cost for vendors/suppliers as a result of interchange fees
Acceptance as a payment method may vary country to country
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Rebate opportunity Increased exposure to fraud risk
Potentially less control over spend
FOR MORE INFORMATION
CHERYL GURZManaging DirectorBank Market Segment ManagerBank Market Segment ManagerBNY Mellon Treasury Services101 Barclay Street, 19th FloorNew York, NY 10286212 815 5313212 815 [email protected]
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