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The Road to B2C Digital Disbursements 2016 Rocky Mountain Summit
Barbara I. Weiss, CTP Director, Senior Core and Emerging Payments Product Specialist May 5, 2016
Strap in…our journey begins now…
2
Consumer trends…boy, have things changed!
The ever-morphing payments landscape!
Let’s split the bill…the P2P alias-based payments revolution is here!
Get ready, get set….B2C alias-based payments have arrived!
Questions?
Consumers trends… boy, have things changed!
For decades consumers had the same shopping process
The Commerce
Lifecycle
“I need to buy a birthday present” “What are some gift ideas?”
“Where should I buy the present?” “How am I going to Pay?”
4
“Where should I buy the present?”
Today the process is much more complex
“I need to buy a birthday present” “What are some gift ideas?”
“How am I going to Pay?”
I ask my friends on Facebook
I read product reviews on Amazon
I check out the blog post my Facebook friend sent me
I found something I like… but want to make sure it’s safe
I look for deals and coupons
Who has the best price?
What do people think about the store with the best price?
What store with the product is closest to me?
Which account has extra $$$?
Credit ? Cash ? What is easiest and fast?
Do I get a reward or points?
The Commerce
Lifecycle
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advertising/promotional materials are the property of their respective owners, who may or may not be affiliated with, connected to, or sponsored by Bank of America Corporation.
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Consumers leverage online channels more than ever before
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
2008 2009 2010 2011 2012 2013
Global Offline Sales Growth for Top Retailers
*Includes Wal-Mart, JC Penney, Best Buy, Gap
Offline sales growth
Offline vs.
Online
Source: Forrester Research, 9/14 Source: Business Insider, August 2014
Offline sales have plummeted while
online sales account for nearly all growth in retail volumes1 –
driven by ubiquity of mobile technology.
1. Source: Business Insider, August 2014
U.S online retail forecast 2012 to 2017
6
The move to widespread mobile use
7
1. Board of Governors of The Federal Reserve , Consumers and Mobile Financial Services 2015., March 2015
2. Javelin Strategy & Research, MOBILE BANKING, TABLET AND SMARTPHONE FORECAST 2013-2018: Smart Device Adoption Drives Mobile Banking Boom, March 2014
3. GMSA, The Mobile Economy 2015, www.gsmamobileeconomy.com;
4. Trends in Consumer Mobility Report, Bank of America, 2014
Life has changed ▪ 87% of the U.S. adult population has a
mobile phone (91% for 18 - 44, 87% for 45 –
59, and 80 % for ≥ 60)1
▪ By 2018, 63% of the mobile consumer
population is forecasted to be using mobile
banking2
1990s
2010s
Ranked by importance to daily life4
Your mobile phone is indispensable
Half of the world’s
population now has a
mobile subscription. With an
additional billion by 2020,
taking the global penetration
rate to 60%3
Consumer online shopping trends mean . . .
In-store sales have plummeted
Source: Business Insider, August 2014
The USPS wants to close facilities and
introduce new delivery standards
U.S. retail store closings
226 225
200
189
180175
33
0
50
100
150
200
250
Barnes & Noble Staples GameStop Gap Abercrombie & Fitch
Aeropostale JCP
U.S. Retail Store Closings
* To close between
2011-2021* To close by
end of 2015
* Closed in 2013
* Closed in 2012-13
* To close by 2015 * To close between 2014-19
* To close by 2014
What’s happening to bank branches?
8
Interaction with banks are changing too
▪ Customer transaction trends moving rapidly towards online, mobile and ATM options
▪ Resulting in significantly lower volume of over-the-counter transactions
▪ Geographic redundancy and distance to replacement services
▪ Customers seeking convenient, self-service options for transaction banking
▪ Desire for transactions that are faster, expedient and cost-effective
▪ Desire for more personalized service, financial expertise and advice
SELF-SERVICING
MORE AND ENHANCED ATMS
PERSONAL SERVICE
ONLINE BANKING
MOBILE CHECK DEPOSIT
9
Our customers are changing the way they interact with us Customers are choosing convenient self-service options for transaction banking
1. Trends in Consumer Mobility Report, Bank of America, 2014
Mobile
Online Banking
ATM
▪ >15 million active users, and growing by more than 200,000 customers/mo
▪ >165 million logins/mo
>170,000 checks are deposited via Mobile Check Deposit every day
> 30 million Online Banking customers log into and manage their accounts in one place – 24/7
>50% of all deposits are made at an ATM
+ 162% increase in mobile users
- 45% decline in
transactions at banking centers
From 2010 to 2014
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Mobile Check Deposit
The migration to mobile banking
Mobile banking
Of those using mobile banking apps, more than four in five (82%) access it once a week or more. Nearly a third (31%) access mobile banking at least once a day or more.
Trends in Consumer Mobility Report, Bank of America, 2014
Smartphones are changing the way consumers access financial services
52% of smartphone owners with a bank account have used mobile
banking in the past 12 months1
1. Board of Governors of The Federal Reserve , Consumers and Mobile Financial Services 2015., March 2015 11
The ever-morphing payments landscape!
▪ Credit usage is growing quickly at 5.8% per year
▪ Debit volumes increase by 5.7% annually
▪ 'Other' payment types increase by 8.81% annually
$1
44
.5
$1
52
.9
$1
61
.7
$1
71
.1
$1
81
.1
$1
91
.6
$1
05
.3
$1
11
.3
$1
17
.6
$1
24
.4
$1
31
.4
$1
38
.9
$1
02
.0
$1
10
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$1
20
.2
$1
30
.8
$1
42
.5
$1
55
.6
$0.0
$50.0
$100.0
$150.0
$200.0
2013 2014 2015 2016 2017 2018
Major Credit Card Debit Card Other Online Payments
Online Payment Volumes 2013 2014 2015 2016 2017 2018 CAGRs
Major Credit Card $144.5 $152.9 $161.7 $171.1 $181.1 $191.6 5.80%
Debit Card $105.3 $111.3 $117.6 $124.4 $131.4 $138.9 5.70%
Other Online Payments $102.0 $110.7 $120.2 $130.8 $142.5 $155.6 8.81%
Total Online Payment Volume $352 $375 $400 $426 $455 $486 6.68%
1. Data Source: Javelin Strategy & Research – February, 2014.
U.S. Online Payment Volumes
Online shopping is driving change in payments
13
Online alternative payments grows by 7.4% per year adding $21.4 BB in volumes annually by 2018
Prepaid cards continue to show strong growth prospects with a 6.9% CAGR and $29 BB in online volumes by 2018
Online Credit services (e.g. BML) grows at the fastest rate of 20.7% annually
$5
0.0
$5
3.7
$5
7.7
$6
1.9
$6
6.5
$7
1.4
$2
0.8
$2
2.2
$2
3.8
$2
5.4
$2
7.2
$2
9.0
$1
9.6
$2
1.0
$2
2.4
$2
3.9
$2
5.6
$2
7.4
$9
.4
$1
1.3
$1
3.7
$1
6.5
$2
0.0
$2
4.1
$2
.2
$2
.4
$2
.7
$3
.0
$3
.3
$3
.6
$0.0
$20.0
$40.0
$60.0
$80.0
2013 2014 2015 2016 2017 2018
Online Alternative Payments Prepaid Card Store-branded Credit Card Online Credit Service Gift Card Linear (Online Alternative Payments)
Other Online Payment Volumes 2013 2014 2015 2016 2017 2018 CAGRs
Online Alternative Payments $50.0 $53.7 $57.7 $61.9 $66.5 $71.4 7.40%
Prepaid card $20.8 $22.2 $23.8 $25.4 $27.2 $29.0 6.90%
Store-Branded Credit Card $19.6 21.0 $22.4 $23.9 $25.6 $27.4 6.90%
Online Credit Service $9.4 $11.3 $13.7 $16.5 $20.0 $24.1 20.70%
Gift Card $2.2 $2.4 $2.7 $3.0 $3.3 $3.6 10.60%
Total Online Payment Volume $102.0 $110.7 $120.2 $130.8 $142.5 $155.6 8.81%
Data Source: Javelin Strategy & Research – February, 2014.
'Other' U.S. Online Payment Volumes $Billions - USD $
Alternative payments capture share of online payment volume
14
Global information exchange and commerce
15
The combination of the internet and the mobile phone have created the “digital
identity” and the ability to make purchases and move money anywhere, anytime
The internet provides an interconnected method of
communication
Mobile phones are the world’s first truly
ubiquitous technology
Global Mobile Phone Users 1995 | 80M – 1% Population Penetration 2014 | 5.2B – 73% Population Penetration
Global Internet Users 1995 | 35M – 0.6% Population Penetration 2014 | 2.8B – 39% Population Penetration
Source: Internet Trends 2015, KPCB
Adoption of Digital Wallets
Digital or “e-wallets” are the fastest growing payment type globally
U.S. most used digital wallets as of January 2015
U.S. Digital Wallet Payments1 Transactional value and market share
2012 | $295B / 17%
2017e | $1,656B /41%
▪ They’re easy to use ▪ Favored for digital content (books, music, games, etc.) ▪ Young shoppers are driving this growth ▪ Globally, Alipay and PayPal continue to dominate
1. Worldpay, Your Global Guide to Alternative Payments Second Edition 2014
Now Android Pay
Now Soft Card
16
Now owned
by PayPal
Bank of America, Merrill Lynch and the Stripes design mark are registered trademarks of Bank of America Corporation. All other trademarks not owned by Bank of America Corporation that appear in any Bank of America Merrill Lynch advertising/promotional materials are the property of their respective owners, who may or may not be affiliated with, connected to, or sponsored by Bank of America Corporation.
Select companies, products and services that have shaped digital
connectivity and e-commerce
Digital advancements are accelerating
40 years
1950s • Packet networking 1960s • 1st packet network systems to use an
internet protocol • 1st electronic mail sent 1970s • Cell phones conceptualized
and patented 1980s • Patent filed for RFID • Commercial ISPs emerge
New Products & Services
Foundings / Mergers
25 years
2000 1990 2005 1995 2014
Large Scale data Security Breaches at Target, Home Depot, Snapchat, and accounts compromised at Apple
Digital Foundation E-Commerce Online Payment Options Social Media Mobile & NFC Wallets / Mobile Payments
2010
Bank of America, Merrill Lynch and the Stripes design mark are registered trademarks of Bank of America Corporation. All other trademarks not owned by Bank of America Corporation that
appear in any Bank of America Merrill Lynch advertising/promotional materials are the property of their respective owners, who may or may not be affiliated with, connected to, or sponsored
by Bank of America Corporation.
1950
17
Let’s split the bill… the P2P alias-based payments revolution is here!
The resulting payment paradigm shift
19
Traditional Payments Account Numbers
Rigid payment/settlement rules
Storing static account data
Local interoperability challenges
Lost payments data
Future Payments Phone number, email address (“alias” based instead
of bank account number)
Simplified payment/settlement rules
Tokenization for added security
Local interoperability managed
Data capture flexibility
email phone
number
Bank of America, Merrill Lynch and the Stripes design mark are registered trademarks of Bank of America
Corporation. All other trademarks not owned by Bank of America Corporation that appear in any Bank of America
Merrill Lynch advertising/promotional materials are the property of their respective owners, who may or may not be
affiliated with, connected to, or sponsored by Bank of America Corporation. 1. Statista.com 2015
‘Snap Shot’ of
Leading North
America Alias
Networks
PayPal users have more than
doubled—from 84.3 MM in Q1
2010 to 173 MM in Q3 20151
Cash Checks Credit/Debit ACH/Wire
Global adoption of alias-based payments
PayPal users have more than doubled from 84.1MM in Q1 2010 to 173MM in Q3 20151
More users of Alipay (800MM) than internet users (629MM) in China at year end 20132
Used by 2/3 of Kenya’s adult population with 25% of the country’s GDP flowing through it3
The growth of these alias-based payment networks has brought millions into the formal economy
Local alias-based payment networks have solved geographic interoperability challenges
Alias-based platforms are critical enablers of increasing global payment needs
Benefits: Broad acceptance and penetration across the globe
Sources: 1. Statista.com; 2. Mercator ’14; 3. theeconomist.com
email Phone
Cash Checks Credit/Debit ACH/Wire Traditional Payments
Bank of America, Merrill Lynch and the Stripes design mark are registered trademarks of Bank of America
Corporation. All other trademarks not owned by Bank of America Corporation that appear in any Bank of America
Merrill Lynch advertising/promotional materials are the property of their respective owners, who may or may not
be affiliated with, connected to, or sponsored by Bank of America Corporation. 20
The birth of clearXchange
21
Supporting P2P transfers since 2011 Now used for B2C payments
Bank of America, Merrill Lynch and the Stripes design mark are registered trademarks of Bank of America Corporation. All other trademarks not owned by Bank of America Corporation that appear in any Bank of America Merrill Lynch advertising/promotional materials are the property of their respective owners, who may or may not be affiliated with, connected to, or sponsored by Bank of America Corporation.
▪ The first U.S. P2P payment network created by financial institutions for financial institutions
▪ clearXchange members reach over 50% of all U.S. online and mobile banking customers
▪ Now includes 5 of the largest banks in the United States, serving over 100 million customers
▪ Early Warning purchased clearXchange in January 2016 – PNC and BB&T will be integrating in the future
▪ Transactions settling with certain participating clearXchange member banks are posting real-time
Member:
Adoption of mobile money transfers
Transfer of funds from one person’s bank account to another person’s bank account via online/mobile using an email address or mobile phone number
In the U.S., the number of mobile P2P users is expected to grow from 69 million
adults in 2015 to 126 million (57% of all mobile device owners) by 2020
Source: Javelin, Mobile P2P Payments in 2015: The Growth and Adoption of Mobile Money Transfers, 9/15
With mobile P2P you don't need the correct change, a paper check, or a nearby ATM
Transactions are fast compared to the time it often takes to wait for a check or bank transfer to clear
Mobile P2P payments remove some of the stigma of asking for money—users can request money remotely
Here’s why: 33%
Mobile P2P Transfers in 2015 Over a third of all consumers made a mobile P2P transfer in 2015
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$5 $7 $10
$15
$26
$50
$5 $9
$16
$28
$49
$86
$0
$20
$40
$60
$80
$100
2013 2014 2015 2016 2017 2018
Moderate Aggressive
Data Source: BI Intelligence – April 2014.
U.S. Mobile Peer-To-Peer Payments Forecast to reach $50-$86 Billion in flows by 2018
Billions Of U.S. Dollars
Mobile P2P payments dollar growth projections
23
Person-to-person mobile payments
Transfer of funds from one person’s bank account to
another person’s bank account via online/mobile
using an email address or mobile phone number
In Q1 2013, did you use your mobile device to…
Transfer money to another person's bank account?
Receive money from another person?
Gen Y (22-36 years old) 56% 52%
Gen X (37-50 years old) 36% 27%
Boomers (51-69 years old) 16% 9%
>50% of Gen Y
are already
sending and
receiving
mobile
payments1
Bank of America has 1.5 million P2P transactions each month—with 89% year over year growth2
1. Alite Impact Notice: How Millennials Manage Their Money, 5/14
2. Statistics provided by Bank of America’s Consumer Banking division 2/11/15 24
Smartphones are changing the way consumers make and receive payments
Get ready, get set… B2C alias-based payments have arrived!
U.S. move away from paper payments
Other payments
Checks 2009-12
B2
B
B2
C C
hec
ks
15.2%
3.8%
10.4%
Car
d 5.1%
AC
H
Initiate Reconcile Research Forecast
paper process
electronic process
vs.
~$6 Average cost per check payment 1
For electronic payments
Reduced Costs
1. 2015 AFP Payments Cost Benchmarking Survey; Best Estimated Cost for issuing a paper check on a per item basis—mean: $5.91, median: $3.00
2. 2013 Federal Reserve Payments Study
Check challenges driving decline:
▪ Increasing cost of paper processes—including postage costs ▪ Slow to reach customers—perceived as poor customer service ▪ Loses from fraud and theft—plus the additional costs for stop-
payment and reissues
79% Working to achieve P2E
check conversion1
88% 82%
Top reasons cited for P2E Migration1
Increased efficiency
Reduced costs
Non-cash payments are growing while check payments decline2
26
Electronic payments may help reduce fraud
73% of companies surveyed were targets of
payments fraud1
1. 2016 AFP Payments Fraud and Control Survey, 3/16 2. KOFAX White Paper • Verify Checks in Real-Time: Meet Customer Expectations While Reducing Fraud, 1/2015
71% reported checks were the primary target
for fraud attacks at their companies1
Companies are moving away from manual, paper-based payments to help deter fraudulent activity.1
As the EMV is adopted in the
United States, and credit
cards become a less
attractive payment method
to attack, fraudsters will
follow the path of least
resistance: checks.2
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The Ripple Effect of Fraud The check was only for $21.22 but that’s not what the thief cared about.
The value was the paper itself—that supplied:
▪ The company's logo
▪ Their DDA number
▪ Their bank’s routing number
▪ The check number series
▪ And an authorized signature
B2C payment solutions
Payment Profile Anticipated Benefits
NEW Alias-based Payments
▪ For recurring or non-recurring payments ▪ U.S. bank account required, but no
account details needed ▪ Use email or phone number within
payment file
▪ Innovative, customer-centric option provides fast payment
▪ Eliminates need to request and store bank account information
▪ More predictable settlement than checks
Prepaid Card
▪ For recurring or non-recurring payments ▪ Great for unbanked ▪ Established payment type, accepted
world-wide
▪ Full escheatment management ▪ Faster, less costly then check and
more secure than cash ▪ Provides a branded reminder
ACH Transfer (Automated Clearing House)
▪ Recipient must provide bank account information
▪ Robust remittance capabilities ▪ Credit push and debit pull
▪ Most cost-effective electronic payment method
▪ Broadly used, highly reliable ▪ Flexible payment value date
Checks • Customers who will not accept an
electronic payment method ▪ Broadly used, existing process
Solutions have evolved to lower costs while increasing customer satisfaction
28
It’s time to rethink your payment process
Distribute funds without paper
To anyone with a U.S. bank account
Using mobile phone number or email address
1. Anecdotal estimates shared with us by our clients have ranged as high as $25 per payment. In recognition of the variability of costs across our clients and of the presumed partial cost offset offered by check float, Bank of America typically references a conservative estimate of $4 per check when discussing the potential benefit of electronic payments.
Recipients receive payments more quickly
No need to obtain sensitive bank account information
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Higher customer satisfaction
Potentially reduce payment expenses by 75%1
Potential use cases
AIRLINES: Lost luggage claims, involuntary off-loading reimbursements
GOVERNMENT: Tax refunds, jury duty
HEALTHCARE: Patient/member refunds, conference travel, clinical trials
HIGHER EDUCATION: Stipends, housing allowance, research
studies, student refunds, athletic fees
INSURANCE: Claim settlements, annuities, membership dividends
OIL & GAS: Royalty and right-of-way payments
RETAIL: Returns, cancelled services, deposit refunds,
employee rewards
STUDIOS: Residual payments
TECHNOLOGY: Developer dollars
UTILITIES: Account closures, overpayments, deposit refunds
WIRELESS CARRIERS: Customer incentives, employee
bonuses, account closures, overpayments, deposit refunds
ANY: Loan/account overpayments, conference travel, recruitment travel reimbursement, company-paid relocation expenses, T&E payments, charitable donations or sponsorships, class action awards, employee tuition reimbursement
Claim payments to one payee
Annuities, Royalties or Residuals
Recruitment reimbursements
Account closure or overpayment refunds
Tax Refunds
Donations or sponsorships
Conference travel or tuition reimbursement
Research or Focus Group participants
30
What payments do you need to make to your consumer customers?
B2C alias-based payments – high level process flow
An innovative solution that uses a credit push model providing faster payments with near real-time messaging
* Refers to period of time during which payments are generally available. Depending on the receiving bank and time of day, payments could be received same day or next business day. Actual times may vary.
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Registered recipient notification (Bank of America customer example)
Registered recipients receive notification from their bank or clearXchange and the funds are deposited same or next business day.*
By email message if using email
By text if using mobile
number
* Refers to period of time during which payments are generally available. Depending on the receiving bank and time of day, payments could be received same day or next business day. Actual times may vary.
32
Unregistered recipient notification Email Recipient
Unregistered recipients receive notification of funds with a call-to-action to enroll to accept the funds. 1
After choosing their bank to enroll in the service, they are able to accept funds. 2
Logo goes here
33
Unregistered recipients receive notification of funds with a call-to-action to enroll to accept the funds.
Unregistered recipient notification Mobile Recipient
After choosing their bank to enroll in the service, they are able to accept funds.
2
1
34
clearXchange registration process Four simple steps
❶ Sign up to establish
clearXchange profile and register. Enter email or mobile where notification was sent and create password. Agree to terms and select “Get Started”
❷ Enter your
Name, Date of Birth and Account information
❸ Verify your
email or mobile number
❹ Click on link
to verify
Registration is Complete!
35
Addressing enrollment concerns
36
▪ Amount sent matches expectation ▪ Reminder of payment reason may be
included in memo field email notification
▪ Payment sent soon after communication ▪ Logo or branding is included with the
notification
▪ Obtain recipient’s opt-in ▪ Let them know what to expect and when COMMUNICATION
Three phase approach to mitigate phishing concerns
ACCURATE INFORMATION
RAPID EXECUTION
Providing the right information, in a manner which does not overwhelm the consumer
Emphasizing security in the sign-up process
Highlighting the benefits of digital disbursements, namely faster receipt of payment
Best practices to encourage consumer adoption
37
When these elements are
addressed, consumers are
much more likely to move forward with
digital disbursements.
There are three key elements in the initial communication to the consumer:
Benefits for businesses and their customers
38
Recipients
Robust
Security
Convenience
Paperless
Lower
cost than
paper
checks
No sensitive
bank account
information
needed
Streamlined
Process and
Reconciliation
Faster than
paper check
payments
Customer-
centric
payment
solution
No need to
provide
bank
account data
Faster
access
to funds
Innovative
and
efficient
Provides
mobile
access
Benefits for your customers
Benefits for you
Shared Benefits
Anticipated benefits:
▪ Replaces high cost check payments ▪ Reduces risk—eliminates the need to store and maintain
bank account information ▪ Reduces fraud and escheatment issues related to check
payments ▪ Promotes your brand as being customer-centric and
innovative
Delight customers – offer: ▪ Faster payment—funds are deposited directly
into customers’ accounts ▪ Convenience—easy to use mobile technology ▪ Privacy—no need for customers to share
sensitive bank account information
Focus group reactions to a B2C alias-based payments solution
39
Question: What would you think of an organization that used this method of payment?
Questions?
40
Contact:
Barbara I. Weiss, CTP Director, Senior Payments Product Specialist Bank of America Merrill Lynch 631-547-7590 [email protected]
Notice to recipient
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