successfully managing payment innovation...successfully managing payment innovation steve bernstein...
TRANSCRIPT
Successfully Managing
Payment Innovation
Steve Bernstein
Executive
Director
J.P. Morgan
Jeffrey Clennon
Director, Cash
Management
Discover
Karen Redwood
Director, Global
Core Payments
PayPal
Kristin Walle
VP, Global
Money
Movement &
Compliance
ADP
PayPal Enables New Commerce
130+ million accounts
75% of online shoppers
C u s t om ers
$145B total payment volume/ 2012
$266M volume/day
B u y i n g P o we r Tr a f f i c
99% brand awareness
Brand Awareness: Q10. Aided Awareness: How familiar are you with each of the following? {Have you heard of brand} (N=550)
Comscore Mobile Wallet Study, April 2012: PayPal is #1 choice for smartphone purchases over Visa, MC, AMEX, Discover, Amazon Payments, Store branded cards, Google Wallet.
#1 for smartphone purchases
WORLD-CLASS SECURITY | FRAUD EXPERTS | 190 MARKETS | 25 CURRENCIES | 20 LANGUAGES
Digital Wallet > Mobile Wallet
• Any device or
operating
system
• Accessible
anywhere,
anytime
• Compatible with
and value-
creating for the
ecosystem
Card
Free
Mobile
Check-In NFC
Card
Mobile
Bar Code
Tablet 120+ million
Wallets in
the Cloud
5
Weekday Device Usage Patterns
MOBILE PHONES BRIDGES THE GAP
DESKTOP DOMINATES WORK
TABLETS RULE THE HOME
Mobile Payments a Reality Today at PayPal
0.1 0.8
4.0
14.0
20.0
2009 2010 2011 2012 2013E
PayPal Mobile Payment Volume ($US Billion)
275% COMPOUND
ANNUAL GROWTH
Requirements for Mobile Payments Success
Consumer &
Account Base
Merchant
Acceptance
FOOD MART
DRUG STORE
Pet Store
Barber Shop
Ecosystem
Partners
The trends driving change
Traditional Buying Process
Intent Discovery Shopping Buying Payment Post-Sale
Wallet
The flow of the traditional buying process is linear with a wallet (and the payment methods in
it) closely tied to the payment.
TRADITIONAL BUYING DEFINED
BY: + Retailers and marketers bet heavily to
influence consumers at a single process
step.
+ Wallets are simple containers for the cash
and cards needed at the payment step.
+ Payment methods compete solely on the
“terms” of payment and repayment.
‘Mashable’ Buying Process
Intent Discovery Shopping Buying Payment Post-Sale
The buying process is now reconfigured in an infinite number of ways, creating opportunity
for a “digital wallet” critical to each step of the process.
NEW COMMERCE DEFINED BY: + Fluid, non-linear process.
+ Retailers and consumers engaged in
constant conversation, no longer a locked
negotiation.
+ Old wallet, holding cash, is insufficient.
+ Smarter wallet provides capabilities to
facilitate and navigate process.
Wallet
The trends driving change
Consumer Driven approach
• Designing experiences that resonate with consumers
and merchants is critical to success
– Simple & easy
– Wallet as ‘holder’ of all payment options
• Technology is enabling giant steps forward in commerce
experience
• The world is getting smaller….Global payments
M
Foreign Vendor Payments
M A
Vendor
Invoice
A/P System Wire Report
M
Wire Request
Bank Wire Portal
Accounting Vendor
A/C FX Rates
M
• Foreign vendor
payments have
required
significant
manual
intervention
• Variety of FX rate
sources make
accrual recon
difficult
• Delays occur due
to differing
holiday calendars
Manual M
A Automated
Foreign Vendor Payments
M A
Vendor
Invoice
A/P System
FX Payment Service
Provider
Accounting
Vendor
A/C
FX Rates
A
A
Alignment of AP
System with bank FX
services allows for
improvement in
multiple areas
1. Coordination of FX
rates
2. Opportunity to
deliver funds via
cheapest channel
3. Dramatic reduction
in manual
intervention
4. Quicker deliver of
funds
A A A
GL Entries
M
A Automated
Manual
AribaPay
• Cloud-based service AribaPay will transform B2B payments by
eliminating paper transactions
• Provide buyers with a reliable and cost-effective way to create
purchase orders, receive invoices and send payments
• Discover’s transaction processing infrastructure will facilitate
electronic payments between buyers and sellers with more
detailed remittance information
• 100% electronic payments
• Limited release in the U.S. targeted for the first half of 2014
Discover & PayPal Partnership
• PayPal partnering with Discover to reach the physical POS
• Transactions governed by PayPal operating regulations and
program rules
• Acceptance of PayPal is seamless to participating merchants
• Discover serves as a 3rd Party service provider by leveraging its
U.S. merchant footprint
• Merchant payments executed on a straight through basis using
Discover technology
U.S. Payment Trends
• ACH and Check are the dominant payment methods – 82% of all
payments by value
• Wires dominate cross border payments – 69% of cross border
payments are wires and represent 12% of total payments by value
Sources – 2010 Federal Reserve Payments Study, and The Clearing House, Project Compass – Comprehensive Payments Study (2011)
US Transactions Volume
217 billion
US Transaction Value
$84,093 billion
Cash
Check
Debit/Prepaid Card
Credit Card
ACH
Wire
108 (50%)
24 (11%)
43 (20%)
22 (10%)
19 (9%)
$1,872 (2%)
$31,595 (38%)
$1,593 (2%)
$1,917 (2%)
$37,163 (44%)
$9,953 (12%)
Shift in Overall Payments Mix
• Check payment decline, 2000-2015
• Average yearly decline: -6.5%
• Aggregate decline: -49%
• The majority of volume migrated to ACH & Debit Card payments:
• ACH average yearly growth: 15%
• Debit Card average yearly growth: 15%
0
50
100
150
2000 2003 2006 2009 2012e 2015e
Check ACH Debit Credit
Source – 2010 Federal Reserve Payments Study and Company estimates
Global Payments
• 2011 Federal Reserve
Bank study:
– 2/3 of FIs process cross-
border transactions today,
as compared to only 1/3 in
2009
– Wire transfers remain the
most common cross-
border payment option
– 43% (and growing) utilize
cross-border ACH
payments
12%
86%
43%
39%
14%
69%
24%
48%
0% 50% 100%
Purchasing Card
Wire
ACH
Check
Global Payment Types 2009 2011
Key Hurdles for Global Adoption
• Integration
– Integration with a global solution delivery state
– Need to have similar look/feel for U.S. and beyond for
on-boarding and customer experience
– Critical need for straight-through processing
• Incorporating future state opportunities
– Mobile payment adoption and integration
– Working with payment systems across the globe
– Integration with all payment players, e.g. Paypal,
Square, Western Union, Intuit, Google, etc.
Integrated Solutions
• Single file for initiating mixed
payments including:
– US Wire
– Domestic ACH
– Cross Border ACH
– Foreign Exchange
– Check Print
• Standard electronic formats
– EDI: ANSI X12, UN/EDIFACT
– ERP integration: SAP IDoc/XML
• Communications and data security
– Leased-line, internet, VAN, Internet
– Authentication, encryption
Wire
Transfers
US
ACH
Global
ACH FX
Check
Payment Services
Client
EDI
•ANSI X12
•EDIFACT
•XML
Proprietary
•GFF
•CSV
•Client-Specific
ERP
•SAP iDoc
(PEXR2002)
•SAP iDoc XML
Connectivity & Translation
Network Connection,
Transport & Security
• Internet
• SWIFTNet
• VAN
• Leased Line
• IP VPN
Translation
• Authentication
• Validation
• Reformatting
• Distribution
Financial Institution
ISO 20022
• Next-generation of financial services industry messaging
standards addressing all service domains including
Payments, Security, Card, FX and other
• Partnership between multiple standards organizations
including SWIFT, IFX, OAGi, X9, and TWIST
• Enables efficient and consistent communications
between corporations and banks facilitating payment
straight-through processing (STP)
• Implemented by financial application providers (SAP,
Oracle) for use when interfacing ERP & treasury
applications with banks.
ISO 20022 Integration with SAP
• Have worked with SAP to develop an “adapter” which
when used in conjunction with SAP’s Payment Medium
Workbench (PMWB) utility, enable SAP to produce CGI
compliant pain.001 v3 payment and pain.008 v2 direct
debit ISO 20022 messages.
• Advantages of this ERP integration approach include:
– Significantly reduced tech resource and time required to deploy
CGI compliant corporate to bank interfaces
– Minimal configuration to address bank-specific formatting
requirements (per bank’s CGI specs)
– Official SAP sourced ISO 20022 CGI compliance
Healthcare Payments
• Patient Protection and Affordable Care Act (ACA or PPACA)
section 1104 – Administrative Simplification
– Established a new healthcare EFT standard
– Established standard for remittance information
– Defined “Health Care EFT” as a transaction under HIPAA for the
first time (45 CFR 162.1601)
– Identified NACHA CCD+ as the EFT standard (45 CFR 162.1602
– Identified the ASC x12 TRN Segment (“reassociation number) as
the standard for the data content of the addenda record of the
CCD+
Healthcare Payments
• The CCD+Addenda must contain the TRN Reassociation Trace
Number data segment as defined by ASC X12 version 005010 835
Implementation Guide
* * * \
Supporting Healthcare Clients
• Financial Institutions with health plan and provider clients are
making adjustments to support their clients’ implementation of the
mandated Healthcare EFT Standard, NACHA Operating Rule
changes and the EFT & ERA Operating rules
• Examples of what your bank may be doing include:
– Educating staff on the new standard and operating rules and
what is required of financial services
– Dedicating extra implementation support to ensure seamless
transitions for clients
– Upgrading products and services to support transaction flow and
compliance
– Identifying options to provide reassociation data to provider
clients
65%
73%
77%
85%
45%
63%
71%
75%
0% 50% 100%
2004
2006
2008
2009
Cell Phone Ownership Teens Adults
Mobile Trends
• Mobile payments are on the
rise
– 85% of all adults & 75% of
teenagers have a mobile
phone
– 20% of consumers who own
an Internet-capable mobile
phone had used the device
within the past 30 days to
pay bills through a financial
institution or a biller Web
site
SOURCE: March 2010 NACHA , FIS and eCom Advisor research study
Mobile Trends
• Those with the newest touchscreen Smartphones are
more likely to make purchases via their mobile phones
SOURCE: March 2010 NACHA , FIS and eCom Advisor research study
0%
10%
20%
30%
40%
50%
60%
70%
80%
Apps Songs Video Games Ringtones Online Store Purchase
Picture / Image
Food Movie Tickets
Mobile Purchase Trends by Phone Type
Basic Phone Non-Touch Smartphone Touchscreen Smartphone
Mobile Innovation
Chase QuickPay
• Online platform that enables
electronic payments between
two parties (Chase or non-Chase)
using only an email address.
• The parties involved do not share
personal financial information
(i.e. account numbers)
Mobile Innovation
Square & GoPayment
• Accept credit card payments on Android,
iPhone or iPad devices using card
reader accessory
• Funds from transactions are
deposited via ACH into a linked bank
account the next business day
• Card numbers and security codes are
not stored on devices
• Data is encrypted and transmitted
for processing via SSL and PGP
Mobile Security
Apple TouchID
• Fingerprint identity sensor built into the
new iPhone that can be used to unlock
the phone rather than using a passcode
• Fingerprints can also approve purchases
from iTunes Store, the App Store and the
iBooks Store
• Future: potential replacement for hard /
soft tokens and passwords enhancing
security on-the-go.
Mobile Payables Innovation
Business to Consumer Payments
• Gives businesses an electronic
payment alternative which
dramatically reduces payment
costs while overcoming electronic
migration constraints.
– Coordination costs of exchanging
bank account information
– Transmitting payment remittance
details to consumers
Originator J.P. Morgan ACH Network RDFI / Receiver
Payables Innovation
Artificial Intelligence
• Transaction scanning engine coupled with a collection of relational
databases which together reduce returns by correcting transactions
before they are processed through the ACH Network.
3
! 2
1
Payment
Receipt
Payment
Origination
Payment
Clearing Scanning
Receivables Innovation
Virtual Reference Number
• Consolidate electronic payment types into a single demand deposit
account (DDA) and manage this information centrally.
• Reference numbers are available to assign at your discretion to your
remitters. This improves matching rates and reduces exceptions.
• Balances are concentrated into a single master account. Reference
number to payer ID is a one-to-one match. You also gain greater
visibility across your receivables.
• Visibility on receipts helps you facilitate faster decision making when
releasing goods or extending credit to payers.
Receivables Innovation
eLockbox Transaction Repair
• Receive transactions that do not meet the edit/validation instructions
and correct these transactions securely online
• Minimize future exceptions, as any updates can be "remembered“
and applied to any incoming subsequent transactions, automatically
correcting them
!
Customers Financial Institution Client
How to Reengineer The Payments
Process • Considerations
– Understand all payment flows by analyzing payment mix, i.e., Check, Card, ACH
– Benchmark current payment practices to industry
– Recognize customer preferences such as risk, timeliness, cost
• Demographics
– Maturity and flexibility of customers
– Develop payment goals and plan to achieve
• Drivers
– New technologies and trends
– Industry-specific regulatory requirements and trends
Steve Bernstein
J.P. Morgan
(212) 552-7960
Jeffrey Clennon
Discover
(224) 405-2868
Karen Redwood
PayPal
(408) 967-4532
Kristin Walle
ADP
(909) 394-6814