ice bank of america presentation 10-23-07 final-v2

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Insurance Payments Transformation

Aaron Schneider, VP, Bank of America Merchant Services

October 23, 2007

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Agenda

Introduction Credit Card Players, Debit Card Players

Costs of Credit Card, Debit Card Acceptance

PIN-less Debit, What is it?, Costs

Current Landscape

Benefits

Payment Methods

Growth Opportunities

Merchant Marketing

Technology/Implementation Options

Questions/Comments

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Introduction

Major trends in billing and payment technology in the insuranceindustry:

Increase in electronic presentment and payment

Increase in credit card payment

Decrease in check payments

Payment card growth is slowing in the most mature bill paymentssegments telecommunications and cable/satellite/ISPs whilegrowth remains healthy in the insurance and utility segments.

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Credit Card Players

Visa and MasterCard Issuers Includes Citibank, Wells Fargo, Wachovia, Bank of America, Chase,

Suntrust, PNC, and hundreds of others

Visa and MasterCard Acquirers (Processors)

Includes Chase, Bank of America, First Data, Fifth Third, and manyothers

Independent Sales Organizations (ISOs)

Third-Party Technology Vendors

Includes Bill Matrix, Fort Knox, Speedpay, Kubra, CyberSource, VariousBank Technologies, and many others

American Express and Discover (act as issuer and acquirer)

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For a typical credit cardtransaction, the Interchangefee represents over 90% of thetotal cost of card acceptance.

Visa and MasterCard have

created more than 152different Interchange levels,although only a few typicallyapply to insurance companies.

Interchange qualificationrepresents a significant cost toall insurance companies.

Costs of Card Acceptance

90% to 93% Interchange Cost

5% Visa and

MasterCard

Associations 2% to 5% Merchant

Processor

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Costs of Card Acceptance

Visa Interchange fees (paid to issuing banks) for insurance companies are:

1.43% + $.05 for credit or .80% + $.25 for debit/check card

+ Visa assessment fees of .0925% (paid to Visa)

+ Acquirer fees of X (negotiable depending on volume)

____________________________________________________

= Total Cost of Acceptance

Example Cost Calculation

$100 Insurance Premium= $1 .48 in Interchange fees (paid to issuing bank)

+ $ .09 paid to Visa

+ $ .08 paid to acquiring bank processor

$1 .66 in total cost (1.66% effective rate)

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Costs of Card Acceptance

MasterCard Interchange fees (paid to issuing banks) for insurancecompanies are:

Credit (card not present consumer non-rewards rate) is1.89% + $.10 or .80% + $.25 for debit/check card

+ MasterCard assessment fees of .095% (paid to MasterCard)

+Acquirer fees of X (negotiable depending on volume)______________________________________________________= Total Cost of Acceptance

Example Cost Calculation

$100 Insurance Premium= $1 .89 in Interchange fees (paid to issuing bank)+ $ .09 paid to MasterCard+ $ .08 paid to acquiring bank processor$2 .06 in total cost (2.06% effective rate)

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Costs of Card Acceptance

Interchange and assessment fees for other industries: Mail Order/Phone Order Merchant = Visa Consumer Card (non-rewards)

Interchange of 1.85% + $.10

Consumer Utility = $.75 Interchange flat fee for Visa and MasterCard

Supermarket = Credit Visa Interchange of 1.24% + $.05

Petroleum = Debit MasterCard Interchange of .70% + $.17

Large Ticket B2B ($7500 +) = Visa Interchange of .95% + $35

Example Cost Calculation for $10,000 Visa Insurance Premium Payment fromLevel 3 Corporate Card Customer

$10,000 Insurance Premium= $130.00 in Interchange fees (paid to issuing bank)+ $ 6.93 paid to Visa+ $ 10.00 paid to acquiring bank processor$146 .93 in total cost (1.46% effective rate)

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PIN-less Debit

Allows ATM/Debit cardholders to pay bills at bill payment merchant Web site

Voice response unit (VRU),

Live customer service representative or call center

Recurring payment

Transactions are processed online, in real time Transactions limited to biller categories that fit a specific low-risk

model (utilities, insurance, telecom, financial institutions)

Bill payment merchant assumes the transaction liability and isresponsible for authenticating cardholder at time the transaction is

initiated

Source: First Data : Real-time Debit Alternative Payments STAR PIN-Secure & STAR Bill Payment

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PIN-less Debit

Insurance is a core category for the STAR Bill Payment Service.Nearly 15% of total transaction volume comes from insurers.

558 billers

89 new in 2007

78 insurers

Approval rate for STAR Bill Payment is 90%. Research shows that when asked what type of card they would prefer

to use to make a bill payment, consumers selected debit cards overcredit cards by nearly a 5-to-2 ratio.*

More than one-third of consumers say that they would pay more billselectronically if they could use their debit cards.*

* 2007 Consumer Payments Preferences and Usage Study; Phoenix Marketing International / ESP Payments PracticeSource: First Data : Real-time Debit Alternative Payments STAR PIN-Secure & STAR Bill Payment

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PIN-less Debit (Bill Pay Debit)

STAR, NYCE, and PULSE Debit Networks have approved insurance companiesto accept PIN-less debit transactions

.65% + $.175 = capped at $.62 + processor/third-party vendor fees

Sample Effective cost of a $500 premium= $.62 + $.25= $.87

This equals effective rate of .17%

Litigation currently exists regarding PIN-less debit patents. Litigation may beresolved in next 12 months.

ATM/debit transactions increased about 23% between 2005 and 2006 *

One third-party vendor insurance client saw a 224% growth in PIN-less ATMdebit transactions from May 2005 (15%) to July 2006 (33.6%)

* Source: ATM&Debit News EFT Data Book September 2006

AS1

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Slide 11

AS1 Aaron Schneider, 10/15/2007

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Current Landscape

Bill payment volume is a sizeable opportunity with volumeconcentrated in insurance, utilities and telecommunications

9%

11%

18% 20%

34%

Insurance

Utilities

Telecom

PropertyManagement

Cable/Satellite/ISP

Other

34%

20%

11%

Other

12%

PropertyManagement

9% Insurance

Telecom

Utilities

Life/P&C Insurance

Consumer Bill Pay Sales Volume*

$953 billion (CY05)Business Bill Pay Sales Volume*

$419 billion (CY05)

Source: Visa U.S.A. PIC Analysis

* Represents bill payment portion of segment volume only; totals may not sum due to rounding.

5%8%

36%

28%

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Current Landscape (e-Commerce)

Personal Insurance Can policyholders send payments via

Web site? Yes 100%

Payment methods customers can setup from Web site.

Single payment credit card 20%

Recurring credit card 10% Single payment EFT 25%

Recurring EFT 15%

Recurring debit card 10%

Electronic bill presentment forcustomers?

Yes 40%

No 60%

Electronic bill presentment for agents? Yes 40%

No 60%

Commercial Insurance Can policyholders send payments via

Web site? Yes 47%

No 53%

Payment methods customers can setup from Web site.

Single payment credit card 17% Recurring credit card 10%

Single payment EFT 24%

Recurring EFT 17%

Single payment debit card 17%

Recurring debit card 10%

Monthly pay plan only 3%

Electronic bill presentment forcustomers?

Yes 24%

No 76%

Electronic bill presentment for agents? Yes 30%

No 70%

Source: ICE survey

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Current Landscape (Payment Plans and Fees)

Personal Insurance Methods of charging credit card fees

Do not offer credit card payments 10%

Do not charge fees on credit cardpayments 20%

Charge standard installment fee 60%

Discount standard installment fees 0%

Charge more than standard installmentfee 10%

Amount charged for electronic paymentsmade via Web site

No charge 62.5%

$0.01 to $3.00 12.5%

$3.01 to $5.00 12.5%

$5.01 to $8.00 12.5%

Amount c