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

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