Q4 2016 ISSUE 110 In This Issue Evolving Payments Landscape: pg 1 Ⅰ Quick Deposit Mobile: pg 4 Ⅰ Cybersecurity: pg 5 Ⅰ DOL Overtime Changes Delayed: pg 7

AdvisorTreasuryManagement

NAVIGATING THE EVOLVING PAYMENTS LANDSCAPEWhat are the implications for your business?

Businesses and consumers are increasingly in need of “real-time” or immediate payment options to transfer funds from one account to another conveniently and instantaneously. This is a standard expectation of the modern global economy, and its participants demand faster electronic payment mechanisms and dynamic tracking and reporting. To support new real-time payment (RTP) options and accommodate evolving technologies, global-standard payment infrastructures are the focus of critical development. The payments industry is at the crossroads of globalization, innovation, regulation, and business and consumer expectations.

To meet the challenges, a new payments frontier highlighted by fintech (financial technology) pioneers,as well as established financial institutions, is emerging, giving rise to two distinct factions– industry collaborators and disruptors. These dynamics are prompting rapid acceleration in payment speed and supporting infrastructure, with dozens of faster payment systemseither in operation or in development globally.

Incremental Advancements with Same Day ACH Among many industry collaborators is NACHA®, the association that manages and governs the ACH electronic payments network. In May 2015, NACHA adopted the Same Day ACH Rule to provide the capability for expediting Automated Clearing House (ACH) payments. Supported by the Federal Reserve, the rule – once fully implemented in March of 2018–will enable same-day processing of nearly all payments conducted via the ACH Network. Currently, most ACH payments are settled on the next business day, though ACH credit transactions have been eligible for same-day processing since September of 2016 to support business uses such as hourly payroll, person-to-person (P2P) payments and same-day bill pay.

Same Day ACH meets demands to move funds faster, and the infrastructure is expected to be a springboard to facilitate future payments innovation for low-value commodity payments. However, NACHA alone cannot satisfy every payment need and is under pressure to maintain global competitiveness against new and emerging real-time payment alternatives.

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The Fed’s Task Force Approach The Federal Reserve also is encouraging modernization of financial systems to facilitate RTP by establishing the 331-member Faster Payments Task Force in 20151. The task force’s objective is to support efforts to improve the speed, security and efficiency of payments, with a specific focus on identifying effective approaches for implementing faster payment capabilities in the United States. The Faster Payments Task Force is working to assess solution proposals from industry providers to make better choices available for U.S. consumers and businesses for sending and receiving convenient, cost-effective and timely payments.

The Clearing House’s New to Us Approach The Clearing House (TCH) is leading one of the major efforts for building a clearing and settlement system to support RTP consistent with the Federal Reserve’s mandate. The New York–headquartered industry consortium advocates regulatory, legislative, and legal public policy issues on behalf of the largest commercial banks in the United States and abroad, and is considered a formidable force in advancing RTP.

Notably, TCH’s real-time payments initiative is a totally new solution for the U.S. market, but is based on the International Organization for Standardization’s (ISO) 20022 XML format, the standardized electronic data messaging infrastructure utilized within the European Union and a growing number of countries. ISO 20022 provides the underpinning for a common data language for financial institutions. The format allows consumers and businesses to send and receive instant payments directly from their accounts at financial institutions with rich payment data – a key solution differentiator. It also includes non-payment messages that financial institutions can use to build innovative digital commerce solutions. ISO 20022’s data capability, for example, facilitates payments via mobile phone by matching the phone number to a bank account. ISO 20022 is expected to emerge as the dominant real-time payment format in the U.S. with the support of the Federal Reserve.

Another RTP utility regarded as a contender in the U.S. market is ZelleSM, currently operational and supported by notable U.S. banks. These payments are delivered using the ACH infrastructure and are delivered near real-time. The early focus of these developments is on P2P payments. The potential drawback to this model is a lack of enhancement to support B2B remittance information.

Environmental Forces and the Disruptors A flurry of fintech innovators are driving process improvements across the financial industry and helping usher real-time payments to market globally. Originally perceived to be a threat to traditional financial institutions, fintech innovators are helping to improve payments transparency through advanced technology as well as improve the delivery of services offered by traditional banks. The two are not mutually exclusive by any measure; the collaboration among banks and fintech innovators has created new benefits for businesses and consumers such as near-field communication payment options like Android Pay,TM 2 Apple PayTM 2 and digital wallets. Consumers will continue to benefit as innovators and traditional institutions find deeper ways to partner.

The Rise of Blockchain Technology Blockchain technology has been best known for providing the infrastructure for Bitcoin and is now giving rise to major technological advancements not limited to the financial sector.

Digital cryptocurrencies like Bitcoin are based on blockchain technology, or distributed ledgers, where every transaction completed on the network is recorded chronologically in a digital file. The data in the digital files are bundled into blocks, creating a chain of blocks. Once a block is completed, it cannot be altered. Each new block references and identifies the preceding block, creating a time stamp of each transaction that prevents alteration and establishing a public, permanent ledger through an unbroken chain.

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For more about Same Day ACH: Visit www.nacha.org/same-day-ach. Or, contact your Treasury Management officer or relationship manager to learn about Regions Same Day ACH.

For more about ISO 20022: Visit https://www.iso20022.org

For more about The Clearing House and real-time payments: Visit https://www.theclearinghouse.org/payments/real-time-payments

For more about the Federal Reserve’s vision for U.S. payments: Visit https://www.fedpayments improvement.org

Storage of information on a publicly distributed ledger network also makes counterfeiting nearly impossible, because there is no central ownership or control, and blockchains are heavily encrypted with public and private keys. This technology can thus provide for improved transparency and speed of execution across a broad range of transaction types.

Financial services organizations are joining forces to explore practical applications for blockchain’s distributed ledger technology and are working to accelerate development and adoption of standard security protocols. Proactive efforts to adopt distributed ledgers are already revolutionizing information storage and how transactions occur within the payments value chain. New payment services like Visa B2B Connect rely on distributed ledger technology to offer

near real-time funds transfer for bank-to-bank payments. Blockchain technology is also being evaluated for financial products like cross-border payments, derivatives and syndicated lending.

All Innovation Considered Real-time payments are on track to completely change the way business is transacted globally. Once readily available, RTP will provide added convenience and security for consumers and improved funds availability for businesses. Accompanying innovations and new infrastructures will enable traditional financial institutions to provide more responsive services. While integration and scalability with existing processes and systems remain a challenge, banks and regulators are focused on revolutionizing the U.S. payment systems.

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NACHA is a registered trademark of the National Automated Clearing House Association. Venmo is a registered trademark of PayPal, Inc. Zelle is a trademark of Early Warning Services, LLC. clearXchange is a registered trademark of CLEARXCHANGE, LLC. Visa B2B Connect is a registered trademark of Visa. MasterCard Send is a registered trademark of MasterCard International Incorporated. CheckFree is a registered trademark of Fiserv, Inc. Ripple is a registered trademark of Ripple, Inc. 1Federal Reserve System, “Strategies for Improving the U.S. Payment System,” https://fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us-payment-system.pdf; January 26, 2015. Android Pay. 2Android Pay is a trademark of Google, Inc.; Apple Pay. Apple, the Apple logo, and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. Apple Pay is a trademark of Apple, Inc.

Toward Real-Time Payments in the U.S. and Improved Payment Infrastructure

Payment Entity Structure Applications Implications

NACHA®

Industry utility; primary focus on low-dollar, commodity payments

The Clearing HouseLarge financialinstitution-owned utility open to all banks

ZelleSM

Large financialinstitution-owned utility available for subscription membership

Card AssociationsVisa B2B Connect® &MasterCard Send®

• $25,000 maximum• Same Day ACH Credits

currently available• Same Day ACH Debits

available 9/15/17• Faster ACH credit funds

availability requirementsintroduced for RDFIs 3/16/18

• Initially $25,000 maximum,credit only with option of debitrequest

• Operates on new paymenttype ISO 20022 format

• True real-time payments withreal-time settlement, robustdata capabilities

• Initially $25,000 maximum• Real-time payments with

end-of-day settlement• Leverages ACH platforms

• Initially $25,000 maximum• Push payments using the debit

infrastructure to push credits torecipient’s checking account orcredit card

• Near real-time• May leverage blockchain• May leverage ISO 20022 format

• Emergency payments

• Risk of loss mitigation

• High value

• Deeper ERP integration

• Greater intraday finalityof payment

• B2B payment focus

• P2P payments

• C2B bill paymentplatforms (CheckFree,®iPay,® etc.)

• P2P payments

• Cross-border payments

• Remittances

• B2C – Insurancepayments, etc.

• Faster funds availabilityand payments

• Likely to remain the lowvalue, commoditypayment vehicle

• Competitive advantagedue to the liquidityefficiency of a nettingsystem and the intradayfinality of real-time grosssettlement and ImageExchange capabilities

• Faster to implement

• Response to platforms likePayPal’s Venmo® paymentapp

• Already global• Existing infrastructure

with settlement leveragingcurrent card processes

• FX processes in use• Competitive with fintech

such as Ripple® distributedfinancial technology