Benefits of adding Debit & ACHLowering Cost of Payments

Nandan Sheth, First Data, SVP, Global Debit Solutions…

Your source for payments education

Key Takeaways 1. Evolution of commerce and expansion of payment acceptance/disbursements

2. Customer Experience considerations

3. How to evaluate and create strategy

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1950s 1960s 1970s 1980s 1990s 2000s 2010s 2015

National EFT networks completed; universal ATM

access established

History of PaymentsThe transformation of the U.S. ecosystem

Credit cards introduced, including the BankAmericard

Beginning of modern ATM & POS systems

Online ATMs developed; ATM networks established; shared networks emerge

BankAmericard becomes Visa

First debit card launches

Checks used as a mass instrument in the 1950s &

1960s

Master Charge becomes MasterCard

Source: Federal Reserve Bank of Kansas City, Federal Reserve Bank of Boston, Federal Reserve Bank of Philadelphia, Aite, Mercator, Double Diamond Research, Intele-CardNews, The Next Web, company websites.

Credit cards see widespread use

Debit terminal installation &online debit transactions begin

growing rapidly in the early 1990s

Online & offline debit transactions speed up in the

mid-1990s; POS network consolidation begins

First merchant PIN pads for debit transactions installed in supermarkets

Supreme Court ruling encourages interstate EFT networks; consolidation of shared ATM

networks begins

Discover card launches

Online shopping begins; PayPal founded

Gift cards introduced

Amex (founded in 1850) is incorporated

Ameritech is the first U.S. firm to offer prepaid cards

Debit is the fastest-growing retail payment method in the U.S. as of 2006, with double digit annual growth from 2002-2006

Durbin Amendment goes into effect

mCommerce is born in Finland

Bitcoin beginsModern smartphones emerge (i.e. iPhone,

Android)

The rise of mPOS begins

Mobile wallets/payments gain momentum

EMV liability shift looms

Mobile wallet/payments battleground continues to intensify

with new entrants

Increasing demand for omni- channel/omni-

commerce capabilities

Continued proliferation of cloud POS systems for SMBs

The ACH network conceived

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ACH and Debit Network Renaissance

2010

2020

Beyond!!

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• ACH use trending: • less paper; Digital emergence• new use cases

• Debit Rails• routing/new options

Types of Electronic PaymentsAn un-ending proliferation of product options

Charge

Prepaid

Credit

Debit

Examples

And More…

• American Express• Diner’s Club

• Gift cards • Payroll• General purpose reloadable

• ATM card• Signature debit (aka ‘offline debit’)• PIN debit (aka ‘online debit’)

• General purpose (i.e. Visa, MasterCard, Discover, Amex) • Private label

Automated Clearing House (ACH)

• Payroll (direct deposit)• Online bill pay (i.e. mortgage, utilities)• Funding PayPal account

Source: Nerdwallet, NBPCA, NACHA.5

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Understanding the Total Cost of Acceptance (TCA)Payment processor costs represent a small fraction of the total cost of acceptance at the point of sale

Total Cost of Acceptance$4,141,265

Interchange Fees – Paid to the issuing bank that issued the card Payment Brand Fees – Paid to the card brands, i.e. MasterCard, Visa, Discover Processor Fees –per transaction fees, etc.

$3,126,50475%

$614,14615%$211,881

5%

$114,3793%

$71,9402%

$2,4150%

Interchange FeesPayment Brand FeesValue Added SolutionsAcquirer Item FeesPCI FeesChargeback Fees

Maximize savings: ROI examples

PIN Debit PINless

Merchant total annual PIN Debit spend provided:

– $587MM in spend

– 10MM transactions

– Average transaction: $58.56

Savings per transaction: $0.04+

Three-year savings opportunity to merchant:

Merchant annual Signature Debit spend provided:

– $4.4B in total spend, $2.0B in eligible spend

– 184MM eligible transactions

– Average transaction: $10.89

Savings per transaction: $0.01+

Three-year savings opportunity to merchant:

Retail Quick Service Restaurant

$1.3MM+ $3.6MM+

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Unlock New Payment Options

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Pinless DebitACHPayment Disbursements

Acceptance

Cost opportunity New business

Opportunity for volume

shift9

ACH - more options than ever

Point of Sale

Online Mobile APP

Payment Type Usage by Age

1 https://www.firstdata.com/downloads/thought-leadership/choosing-pin-network-wp-updated.pdf2 https://www.firstdata.com/downloads/thought-leadership/MerchantPayOptionsWP.pdf3 https://www.federalreserve.gov/paymentsystems/2017-December-The-Federal-Reserve-Payments-Study.htm

Chart Source: The Federal Reserve Bank of San Francisco Findings 2015

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Economical› Freedom from interchange fees› Guarantee solution removes

burden of chargebacks

Engaging› Complements any loyalty program, reward consumers for paying from their bank account

Debit routing is more relevant than ever

In 2011, Congress passed the Durbin Amendment giving U.S. merchants the “right to route” debit transactions by requiring card issuers to support two or more unaffiliated network routing options. Interchange fees were also capped for large issuers.1

Because of this legislation, we now have:

Increase in Network Competition

Decrease in Cost of Debit Acceptance2

Promotion of Choice

73.8 BillionAnnual Debit Transactions3

0%

10%

20%

30%

40%

50%

18-24 25-34 35-44 45-54 55-64 65+

Cash preference Credit preference Debit preference

Payment Type Usage by Age

Debit is the payment method of choice

1 https://www.firstdata.com/downloads/thought-leadership/choosing-pin-network-wp-updated.pdf2 https://www.firstdata.com/downloads/thought-leadership/MerchantPayOptionsWP.pdf3 https://www.federalreserve.gov/paymentsystems/2017-December-The-Federal-Reserve-Payments-Study.htm

Chart Source: The Federal Reserve Bank of San Francisco Findings 2015

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Disbursements

Seen as an extension of cash

• Direct to Debit• ACH• PP- Wallet

Formats to utilize

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Disburse-to-Debit solution benefits

BENEFIT PROOF POINTDESCRIPTION

Faster payments, cost reduction and customer service differentiation

Deliver near real-time payments to debits cards in seconds

Available immediately to millions of U.S. consumers

Tokenized and encrypted payments data replaces use of sensitive PAN data

More secure than mailing paper checks

Fully traceable, reconcilable

Uses ACH as backup when debit is not available

Limits PCI data points

<5 secondsfor a payment to clear

700M+accessible accounts

Proof Point Sources: Nilson, FDC Internal analysis

More Secure, Faster Payments

BENEFIT PROOF POINTDESCRIPTION

Deliver near real-time payments to debit cards in seconds

Reduce friction by eliminating need for third-party accounts, pre-registration and search for bank account numbers

Incremental revenue stream/earning potential by charging for faster payments

More responsive than mailing a check

Self-service functionality

70% of providerssay it takes +45 days to get paid

25% reductionin payment status inquiries

DifferentiatedCustomer Service

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Disburse-to-Debit solution benefitsFaster payments, cost reduction and customer service differentiation

Proof Point Sources: Nilson, FDC Internal analysis

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Disburse-to-Debit solution benefitsFaster payments, cost reduction and customer service differentiation

Proof Point Sources: Nilson, FDC Internal analysis

BENEFIT PROOF POINTDESCRIPTION

Less expensive than paper check handling processes

Route disbursements to a cost-effective global debit gateway and bypass checks, wires and ACH

Ability to access 8 U.S. network connections and 6 international networks connections

Route disbursements away from Visa®/MasterCard® to domestic debit networks to obtain immediate ROI

Daily reporting capability promotes back office efficiency

23% savingsvs. traditional paper check costs

96% savingsvs. wire transactions

Reduced Costs

© 2018 First Data Corporation. All Rights Reserved. The First Data® name, logo and related trademarks and service marks are owned by First Data Corporation and are registered or used in the U.S. and many foreign countries. All trademarks, service marks and trade names referenced in this material are the property of their respective owners.

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Disbursement opportunities for vertical marketsBusinesses are in a prime position to use Disburse-to-Debit offering competitive differentiation in the market and enhance the customer experience

Faster Settlement – Speed Check Replacement – Efficiency

Sharing Economy Contract Staffing Property & Casualty Healthcare Government

Merchant Settlement Marketplaces Lotteries & Gaming Education Utilities

Online Lending Affiliate Marketing Financial Institutions Telecoms Travel

Merchant Benefits

Cross-Border Expansion

New customers from new markets

Operational Efficiency

Reduce cost of debit acceptance

Revenue Growth

New volume from existing

customers

How to evaluate and create strategy

How do you take advantage

Debit innovation – technology•Increased savings•What to look for in partner/provider•Take advantage of innovation

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Future• Global – Debit Landscape

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Key Takeaways 1. Evolution of commerce and expansion of payment acceptance/disbursements

2. Customer Experience considerations

3. How to evaluate and create strategy

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Thank you

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• Don’t forget to submit your session evaluation!

• Nandan Sheth, First Data, SVP, Global Debit Solutions