Kevin Patton, Solution Practice Lead

REAL-TIME PAYMENTS

• Who is ACI?

• Real-Time Payments and the Global Landscape

• Use Cases

• Considerations

• Q&A

Agenda

3Confidential

ACI at a Glance

Global customer base

in 80+ countries on

6 continents

40+ years of payment

industry expertise

4,600+ customers use

hosted solutions

Revenue: $1+B

Backlog: $4.3+B

Invest approximately 14%

on R&D annually

18 of the world’s top 20

banks rely on ACI software

Prevent fraud for 370+

payment organizations

worldwide

Process 65% of all US

FedWire traffic daily

9 of the top 10 banks in the

U.S. are ACI customers

ACI Solutions Span the Payments Ecosystem

Risk and Fraud Management

Payments Integration

Digital Channel Experience

Bill

Payments

Merchant

Payments

Transaction

Banking

Consumer

Payments

Immediate Payments

What is this “Immediate Payment” you speak of?

Immediate Payments – What are they?

• Account 2 Account credit transfer, typically customer initiated (“push”)

• Clearing is real-time (1.5 – 15 seconds), settlement is deferred or real-time settlement

• Certainty – based on “good funds” model with authorization, confirmation and clearing

• Transactions are irrevocable – payment cannot be cancelled or recalled

• Based on richer data standards (ISO 20022) to drive improved efficiency and innovation

• Solutions support tokens and addressing schemes to identify recipients account information

• Solution is accessible 24 * 7 * 365 across all channel devices

• What its not – same as SameDay ACH, Fedwire, or SEPA, just faster

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What’s driving Immediate Payments?Ubiquity, speed, efficiency, flexibility, convenience

A ubiquitous, safe, faster electronic solution(s) for

making a broad variety of business and personal

payments supported by a flexible and cost-effective

means for payment clearing and settlement groups

to settle their positions rapidly and with finality.

US Federal Reserve

Payment Types ComparedPayment Method Ubiquitous Good Funds

Verification

Fast Funds

Availability

Low Cost Flexible

Cards

ACH

RTGS

Alternate

Immediate

Payments

Cash

Checks

No Yes Maybe

Confidential

Market ParticipantsSignificant industry bodies and initiatives

20022 RTPG

European Union North AmericaGlobal

Immediate Payments Around the GlobeAt least 20 live schemes, 6 in development, over 50 in total

Live

In development

In discussion / design

IP is here, what next?• Global Interoperability

• ISO 20022

• Settlement

• Identity & Proxy Services

• Confirmation of Payee

• Request to Pay

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidential

Country Name Year Settlement Working Hours Message Format Technology

Japan Zengin 1973 DNS or Gross 08.30 – 16.40 ISO 20022 (for some msg) Home built

Switzerland SIC 1987 Gross 24/7 ISO 20022 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 07.30 – 17.00 ISO 20022 Home built

Mexico SPEI 2004 Hybrid 23/24 Proprietary Home built

South Africa RTC 2006 DNS 24/7 ISO 8583 (20022 planned) BankServ SA

UK 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 20022 planned Home built

Poland Elixir Express 2012 Prefunded 24/7 ISO 20022 CapGemini

Sweden BIR 2012 Prefunded 24/7 ISO 20022 Home built with Fundtech

Turkey RPS 2014 Gross 08.30 – 17.30 TBC Home built

Singapore FAST 2014 DNS 24/7 ISO 20022 Vocalink

Denmark NETS RT 2014 DNS 24/7 ISO 20022 NETS

Australia NPP 2017 Gross 24/7 ISO 20022 SWIFT

USA TCH RTP 2017 DNS 24/7 ISO 20022 Vocalink

EBA EU SCT Instant 2017 DNS 24/7 ISO 20022 SIA

Spain SCT Instant 2017 DNS 24/7 ISO 20022 RedSys

Netherlands tbc 2019 tbc 24/7 ISO 20022 tbc

Sourc

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hImmediate Payments around the globe

What’s going on in Europe?Nearly 80 banks now invested in EBA SEPA Inst

The new platform is planned to be in line with ISO 20022 messaging standards and fully compliant with the SCTInst Scheme that is currently being

created by the European Payments Council. Operating around the clock, the instant payments service will be available to payment service providers

(PSP) across the EU.

https://www.finextra.com/newsarticle/28762/forty-banks-line-up-in-support-of-eba-clearing-instant-payments-plan

Pilot Launch Targted

2H 2017

© CELENT | NYC-OCR06001-004

SWIFT gpi initiative

• Leverages SWIFT messaging infrastructure for enhancing

B2B cross-border payments

• 70 participating banks representing more than 75% of cross

border SWIFT payments traffic

• gpi Tracker demonstrated at Sibos 2016

• Corporates will be invited to participate in 2017

• Anticipated benefits:

– Operational efficiencies

– Liquidity optimization

– Same day use of funds

– Transparency and predictability of fees

– End-to-end payments tracking

– Transfer of rich payment information

• Potential for adoption of emerging technologies as a phase 2

SWIFT Global Payments Innovation Initiative

Source: SWIFT, Celent analysis

Three independent but related efforts (four if we include NACHA Same day ACH)

Real-Time Payments Initiatives in the US

Zelle (Early Warning / ClearXchange)

EW launched a bank-centric, P2P immediate payments system; BAC and US Bank announced

Combines digital payments network with fraud prevention, risk management, and authentication assets

Leverages ClearXchange person-to-person directory for online and mobile banking

POS payment support not yet announced; other use cases likely in development

Federal Reserve Bank’s Strategies for Improving the U.S. Payment System

Pursuing desired improvements by acting as an industry facilitator, “collaborating” with industry stakeholders

rather than mandating change

More than 20 vendor teams submitted proposals for review; could 3-4+ schemes be possible?

Task Force has announced extension of process to June 2017

Objectives of final assessment report still under discussion; whether to “recommend” one or more

approaches for the private sector to develop and bring to market

TCH scheme development is underway

Latest technical specs released in early May

Expects to make initial functionality available for “sandbox testing” among “pilot banks” during 1H17

All non banks who want scheme access will need to go through an owner-bank

US “Real-time” Schemes

ATTRIBUTE

UBIQUITOUSGOOD FUNDS

VERIFICATION*IRREVOCABLE /

FINALITY

REMITTANCE

PAYLOAD

IMMEDIATE FUNDS

AVAILABILITY TO BENEFICIARY / RT CLEARING

$ LIMITSFI SILO

OWNING RAILS

OPERATING HOURS

SCHEME

TCH Real-time Payments

Not in production

goal to be complete

over time

Yes YesYes

20022Yes $25,000 Business 365 x 24 x 7

Same-day ACH CompleteBest PracticeNot Scheme

ImposedNo

Yes

NACHA / EDI 820

Will Introduce 20022 Integration

Same Day $25,000 Business Business Days

Fedwire CompleteBest PracticeNot Scheme

ImposedYes

Yes

Ext Remit / EDI 820

20022 Conversion by 2021

Hours No Limit Business Business Days

ZelleHigh now moving to

completeYes No No Yes

Yes? In Network and Out-of-Network

Are Handled Differently

Consumer ?

SWIFT GPIB2B initially only

78 subscribed

Xborder pymts

BBK Confirms Credit to

BeneficiaryNo

Yes, MT Msg 140 Chars End–to-End Initially –

Until 20022 is Adopted LaterSame Day No Limit Business 365 x 24 x 7

Visa Direct

Within VISA

network; funds sent

to debit and eligible

prepaid accounts.

30 minutes Card limit NA365 x 24 x 7

Dwolla Yes, in-network No In-network ?

MasterCard SENDWithin MC network,

funds sent to MC

debit card holder

Depends on FI 365 x 24 x 7

0

6

12

18

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Participating Owner Banks

Participating Owners

Owner bank adoption will reach critical mass in 2018

• Three banks expect to go live 1H 2017

• Eight owner banks have communicated plans to go live in 2017

• Early 2018 ramp up is due to 2017 development cycle projects concluding near the end of

the year

• One owner bank has stated that they have no intention of implementing RTP in the near

future

0%

10%

20%

30%

40%

50%

60%Owner Bank Deposit

Coverage

Owner Bank Deposit Coverage

Source: The Clearing House

TCH CONFIDENTIAL 17

TCH Non-Owners will add significant coverage in 2018

Owner Banks50%

Non-Owner Direct 7%

Third-Party Service Provider

10%

Not Covered33%

Owners and Sales Targets Deposit Coverage (est. Q4 2018)

Source: The Clearing House

TCH has reach across the community:

• CHIPS: 48 participants

• ACH EPN: 200+ participants

Tier 2 Banks Svcd by Processors

> $10B

50 in top 1000 global

banks

$4- $10B

66 in top 1000 global banks

Plus thousands of teeny,

tiny institutions (community

banks, credit unions)

TCH CONFIDENTIAL 18

Total US Market Opportunity

Note: There should be no difference in the user experience for customers of direct FIs and those connecting through a TPSP.

TCH RTP is available to all US financial institutions

The Clearing House

Financial Institutions of all sizes

Third-Party Service Providers

Banks*, Bankers’ Banks, Community banks and Corporate Credit Unions

1

2

3

4

5

©The Clearing House Payments Co.

LLC

Source: The Clearing House

ConfidentialMEETS THE CHALLENGE OF CHANGE

The Global Adoption of Real-Time Payment SystemsSource: SWIFT 2016 Whitepaper

• ACI Estimates the volumes to be close

to the Typical Adoption Path even

without regulation.

Top 50 US Banks account for 65% of US

Market and are committed to Immediate

Payments.

There are already 18 countries who are live with

Immediate Payments.

The US has learned from their experience.

Mature Technology.

Consumer Demand for Immediate Payments.

Use Cases

Source: TCH Workshop with 120 participants

Revenue generating opportunities for financial institutions now and positions for the next new thing

Real-Time Payments Use Cases

Real-time Payments offer many opportunities

Corporate DisbursementsPayments in which immediacy is helpful (e.g.,

complaint, refund)

Request for PaymentPayments to micro-businesses upon completion of

work (e.g., the plumber)

Instant confirmationPerson to person in cases where immediate

recognition is useful (e.g., sharing meal bills)

Customer CommunicationsAccess to payment availability and payment status;

who is reachable, access to funds sooner

Bill paymentThe satisfaction of seeing immediate confirmation for bill payments

Emergency paymentsReceiving an immediate payout during an emergency (e.g., an insurance payout)

B2B discountsEnhanced cash management and capture of supplier discounts as a function of faster payments

Data EnhancementSupport the improved reconciliation of payments with improved data flows

B2C Example: Corporate DisbursementBusiness-to-Consumer Service Payment (complaint resolution, refund, etc.)

Customer Complaint

(Phone, SMS, Web Chat, …)

Consumer

Bank

Corporate

Bank

Initiate RT

Payment

Real-Time

Payment

Payment

NotificationResponse

Consumer

UKFP

SDACH

Zelle

TCH RTP, etc

Corporate Business Needs:

Quickly satisfy customer with payment

Transaction may need approvals

Details for accounting and customer experience recording

Corporate Banking Requirements:

Ability to initiate payment (RT credit transfer)

Enter Amount, reference #, additional notes

Ability to reconcile payment

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ResultsB2C Example: Corporate Disbursement

Benefits

Consumer Corporate

Complaint solved quickly.

No need for future follow-up.

Amazing customer service.

Immediate gratification to customer.

Available outside business hours Available outside business hours

Customer does not need to share banking info

(use of alias, or Request for Payment)

Client Retention

No waiting for reimbursement funds. Deposited immediately into

customer’s account.

Significant cost reduction compared to checks

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Use CaseB2C Example: Corporate Disbursement using Bank of America’s Digital Disbursements

C2B Example: Tradesman Casual PaymentSmall/Medium Enterprise (tradesman/plumber/etc.)

Initiate

Request

for

Payment

Creditor

BankDebtor

Bank

Presentment

of Request

Real-Time

Payment

Real-Time

Payment

Response

Approval

SME

Consumer

SME Business Needs:

Wants to bill consumer for immediate payment as job is completed

Could be a partial “Work in Progress” payment

Needs record of payment for accounting

SME Banking Requirements:

Ability to initiate payment (Request for Payment)

Enter Amount, invoice # or bill and additional notes

Ability to receive confirmation of payment while on site

TCH RTP

Real-Time

Notification

Confidential

ResultsC2B Example: Tradesman Casual Payment

Benefits

Small Business Consumer

Immediate Cash Flow Exact knowledge of bill detail

Simplified Accounting (Payment linked to Invoice) Control over timing of cash flow

Fewer customer inquiries (Invoice detail included with payment request) Available outside business hours

Available outside business hours Reduced need for cash (potentially large sums)

Reduced need for A/R follow-up (in person & by phone) No bill collector harassment

Example: eCommerce PurchaseOnline Purchase using Request for Payment

Consumer

Bank

Merchant

Bank

Real-Time

Payment

Consumer

Merchant

Payment Page

Pay

Now

Request for

Payment

Presentment

of Request

Real-Time

Payment

Merchant

Merchant Web Site

TCH RTP

Approval

Real-Time

Notification

Confidential

ResultsExample: eCommerce Purchase

Benefits

Consumer Merchant

Available 24X7 Significant fraud reduction – Eliminates stolen/counterfeiting

Customer does not need to share banking info (use of alias, or

Request for Payment)

Significant cost reduction – no card interchange

Customer can use own funds (like a debit transaction). Avoids

credit.

Immediate funds to merchant. No waiting for processor settlement.

Allows immediate download of digital goods. Payment is guaranteed.

Considerations

Batch systems cannot support the real-time, digital revolution

Batch Payments

Receipt of

PaymentsValidation

Fraud

PreventionClearing

Funds

Availability

Exception

Handling

Advice and

Notification

Liquidity

Management

Real-time Payments

Confidential

Implications of “Real-Time” Payments

Operational Requirements

• 7X24X365 Availability Required

• Stand-in requirements when host applications

are available?

Infrastructure

• TCH/Scheme Rules – roundtrip within 15 seconds

• What is the exception handling strategy?

• Take actions on real-time fraud check and OFAC/Sanctions Scan hit

• This will apply to both originations, and to receipts.

Origination. Event takes place before bank sends to TCH. Response is back to bank

customer. No TCH involvement.

Receiver: TCH response message required. Decline?

Scheme Certification Windows

• Booking certification slot; audit requirements to certify scheme compliance

Payment Silo vs. Payment HubNo single specification

What Drives the Transaction Hub model?

Source: CEB Tower Group

Immediate Payments is a CatalystReal-time banking, open API and immediate payments, financial market places

Sample Overlay Services

Financial Institutions that are ready for immediate payments on day 1 will realize competitive advantage

and steal away customers.

Act Now – ACI Point of View

Customer Benefits

• Certainty of payment

• Improved cash & liquidity management with timely, integrated information

• Faster availability of funds

• Greater transparency & traceability of payments

• Expanded Payment Remittance Data with ISO20022

• Improved Straight Through Processing and Reconciliation

• Notification of financial events can be linked to supply chain to Speed the delivery of goods

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Benefits for BanksExternal and internal innovation can help satisfy customer needs

A platform to win

customers

Internal payments

modernization

Immediate payments offer banks

a platform to develop new

products and services targeting

B2C, C2B, B2P opportunities

Can be achieved by individual

banks or by partnering with non-

bank providers

Banks can invest in IT to

achieve payments renovation

Helps break down siloes and

increase overall efficiency and

STP rates

Minimizes internal constraints

and ensure future flexibility and

innovation

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“Progressive Renovation”

Network Gateway connecting to real-time scheme(s)

Back-office/System integration and payments management

Platform for modernization to address new market initiatives

- Open API

- Mobile

Real-time Hub supporting real-time any to any payments

Thank You!

Kevin Patton, Solution Practice Leadkevin.patton@aciworldwide.com