NACHA Online Payment Initiatives: Joint Payment Center Conference

1. NACHA Online Payment Initiatives: Joint Payment Center Conference Rob Unger, AAP Sr. Director Network Services NACHA 703-561-3913, runger@nacha.org

2. Agenda • NACHA/ACH Overview • EBIDS (Electronic Billing and Information Delivery Service) • Secure Vault Payments • Exception Processing Mitigation (c) NACHA

3. Introduction to NACHA • Not for profit association • Two primary functions • Establishes operating rules for Automated Clearing House Network • Trade association to promote electronic payments (c) NACHA

4. What is the ACH Network? • “ACH” stands for Automated Clearing House. • The ACH Network is an electronic banking system: • Batch processing, store and forward • Transactions are stored during the day and sent to the network in batches, usually in the afternoon and/or evening • Transactions are not real-time or online. • The ACH Network processes both credits and debits. (c) NACHA

5. Scope of ACH Rules • 18,000 Financial Institutions • 6 million companies • 145 million consumers • 16 billion transactions in 2006 • 33 trillion dollars in 2006 • Direct Deposit • Direct Payment • Corporate payments • And more (c) NACHA

6. ACH Volume Growth Growth of selected ACH transactions update 20052006 Increase Total ACH 13,957 15,984 14.5% POP 224 356 59.0% Avg $ 79 WEB 1,343 1,807 34.5% Avg $ 385 ARC 2,154 2,839 31.8% Avg $ 290 TEL 319 388 21.5% Avg $ 403 (c) NACHA

7. Agenda • NACHA/ACH Overview • EBIDS (Electronic Billing and Information Delivery Service) • Secure Vault Payments • Exception Processing Mitigation (c) NACHA

8. EBIDS Discussion • EBIDS Concept • Processes • Biller Enrollment • Consumer Enrollment • Bill Presentment • Bill Payment • Benefits • Pilot Status (c) NACHA

9. Electronic Billing and Payment Needs • Despite significant gains, overall EBPP adoption still low compared to entire possible volume • Current state bill presentment/delivery • Unique customization requirements for bill • Proprietary channels are the only option for bill delivery • Greater adoption requires interoperable, secure method for bill distribution • Current state bill payment • Check payments still generated from online banking because banks don’t know how to send electronic payments to all billers • Lack of data/incorrect data from online banking systems increases exception processing • Bill payment is a costly “free” service for banks to provide (c) NACHA

10. The EBIDS Breakthrough • Bill delivery: The ACH is an interoperable, rules-based, secure network that can provide a ubiquitous bill delivery/payment channel to thousands of FIs and millions of businesses • Bill payment: The ACH credit model is a low-risk, low-cost option that eliminates non-electronic payments and user-based exceptions from online banking when coupled with bill presentment. • New revenue paradigm: EBIDS proposes a business model for banks to be compensated for enrolling consumers and presenting consumers’ bills, and provides a least cost routing option for payment. • Pilot sponsored by NACHA’s Council for Electronic Billing and Payment (c) NACHA

11. Electronic Billing Information Delivery Service (EBIDS) • Consumer enrolls for ebill via Internet banking with consumer’s bank • Biller (via a bank) sends summary billing information/remittance data in an ACH addenda record with a URL to provide access to bill detail • ACH network serves as ‘switch’ and delivers summary bill information to consumer’s bank • Consumer’s bank provides billing information to consumer via Internet banking system • Consumer authorizes credit payment, transacted through normal ACH processes with remittance data (c) NACHA

12. EBIDS Summary Process Flow • Enrollment • Consumer enrolls through CFI to receive summary bills from Billers via ACH using ENR 2. Acknowledgement Billers need to acknowledge EBIDS enrollment requests. Biller confirms/rejects an enrollment using the ENR entry ACH Operator Biller Financial Institution (BFI) Consumer Financial Institution (CFI) 1 2 3 3. Bill Presentment Biller to route the consumer’s next bill to the CFI using a zero-dollar CTX transaction, with the summary bill info embedded in an addenda record 4 Consumer Biller • 4. Bill Payment • Consumers will connect to CFI system to view summary bills and authorize payment to Biller (c) NACHA

13. Biller Enrollment • Allows for data capture, storage and retrieval of biller and bank information. • Supports consumer banks’ need to know which billers are participating • Supports consumer enrollment and delivery of electronic payments with remittance data • Support delivery of epayments without e-bills • Ensure e-payment and remittance data go to most current and correct electronic lockbox • A web-based application (c) NACHA

14. Biller Profile Information

15. Consumer FIs download biller directory data via XML file, add biller to their billpay system

16. Consumer Enrollment Automated Enrollment Entry (ENR) via the ACH 2. Consumer Financial Institution (CFI) initiates ENR for each biller and transmits entries to ACH Operator 3. ACH Operator routes ENR to appropriate BFI Consumer Financial Institution (CFI) Biller Financial Institution (BFI) ACH Operator 4. BFI delivers ENR to biller – biller enrolls consumer 1. Consumer enrolls through CFI providing the required enrollment info MAINTENANCE Consumers may deactivate their EBIDS enrollment through the same process flow through the CFI Consumer Biller (c) NACHA

17. (c) NACHA

18. (c) NACHA

19. (c) NACHA

20. (c) NACHA

21. (c) NACHA

22. ENR Sample: “7” Addenda Record (c) NACHA

23. Enrollment Acknowledgement ENR Enrollment Confirmation 3. ACH Operator routes ENR to CFI, CFI updates bill presentment data system with enrollment status 2. BFI transmits ENR to ACH Operator for delivery to CFI Consumer Financial Institution (CFI) Biller Financial Institution (BFI) ACH Operator 1. After accepting ENR, Biller transmits acknowledgement to BFI to confirm receipt and acceptance (or rejection) 4. Consumer connects to CFI system to view enrollment status Consumer Biller (c) NACHA

24. Bill Presentment Zero-Dollar CTX Bill Presentment 3. ACH Operator routes CTX to CFI, CFI updates bill presentment data system with new bill 2. BFI transmits CTX to ACH Operator for delivery to the CFI Consumer Financial Institution (CFI) Biller Financial Institution (BFI) ACH Operator 1. After receiving ENR and enrolling consumer, Biller transmits zero-dollar CTX with bill summary data embedded in an addenda record 4. Consumer logs on to CFI to view bill Consumer Biller (c) NACHA

25. Click here to see ebill (c) NACHA

26. Bill detail from Verizon site no sign-in required (c) NACHA

27. Accessing Full Bill Detail: SAML Server (Strategic Assertion Markup Language) • Consumer clicks to “view bill” on the consumer FI site then receives bill detail from the biller site • SAML is a message protocol for passing the consumer FI credential to the biller, without requiring the consumer to log-in with the biller • Accomplished through the exchange of assertions and seamless to the consumer • Result: a ‘single sign on’ (c) NACHA

28. CTX (Corporate Trade Exchange) for Bill Summary Sent by Biller to Consumer FI – Sample “7” Record CTX ADDENDA RECORD for EACH CONSUMER (c) NACHA

29. Bill Payment CIE Bill Payment 2. CFI sends CIE to biller via the ACH Operator 3. ACH Operator routes CIE to appropriate BFI, BFI credits Biller account Consumer Financial Institution (CFI) Biller Financial Institution (BFI) ACH Operator 4. BFI routes Biller remittance identifier data to Biller; Biller credits consumer account 1. Consumer authorizes payment to Biller after viewing summary bill on CFI system Consumer Biller (c) NACHA

30. (c) NACHA

31. (c) NACHA

32. CIE (Consumer Initiated Entry) Sent by Consumer FI to Biller – Sample “6” Record ENTRY DETAIL RECORD (CIE) (c) NACHA

33. Biller Benefits • Meets preference for multiple channels • Increased adoption • Reduces unapplied payments • Guaranteed funds • No administrative returns • Accelerated posting of payment • Cost reduction • Improved customer experience (c) NACHA

34. FI Benefits • Supports online banking: lowers attrition, higher account balances, increases cross-sell, lower service costs • EBIDS leverages ACH Network for enrollment, presentment, and payment • Lowest cost channel and best potential reach • Uses industry standards – NACHA rules • Non-proprietary • Provides compensation to consumer’s financial institution – new revenue stream • Enables a more direct working relationship between biller and banks for EBPP • New revenue opportunity for bill delivery/remittance services (c) NACHA

35. Consumer Benefits • Privacy of information – financial account information remains with financial institution • Remains in control of account and timing of payment • Access to more bills, bills are consolidated at one site • Access to bill detail through single sign on (c) NACHA

36. Pilot Status • EBIDS Product Design complete • Processes, rules, and data formats for consumer enrollment, presentment and payment • Biller Directory complete • SAML Server – in final testing phase • Pilot revenue model complete • Participant system update and integration - ongoing • Target date for launching transactions: 3rd quarter 2007 • NEED MORE BILLERS! (c) NACHA

37. Agenda • NACHA/ACH Overview • EBIDS (Electronic Billing and Information Delivery Service) • Secure Vault Payments • Exception Processing Mitigation (c) NACHA

38. Market Drivers • Rapid growth of Internet commerce has led to industry challenges. • Security and privacy concerns • 50% of US Internet users avoid making purchases online, afraid financial information may be stolen(CyberSecurity Alliance Research 5/06) • Nearly half of consumers avoid online Bill Pay due to security concerns(comScore Networks, cited in American Banker 4/20/06) • Alternative online payments will account for 26% of eCommerce volume by 2009(Celent, 5/06) • Continued fraud and chargebacks • 35% of online orders are flagged for manual review related to fraud detection (CyberSource Corp., cited in Digital Transactions 6/13/06) • 6% of good sales lost due to fraud/risk screening(Cardline 2005) • Fraud is the top reason given for chargebacks on several networks(American Banker interviews with network executives, 1/17/06) (c) NACHA

39. Market Drivers Cont. • Businesses want payment options • 72% of consumers surveyed say the have abandoned an online purchase • 74% of consumers willing to spend $960 more per year (Javelin Strategy and Research, 7/06) • 24% of consumers report shopping less online (Visa news release, 1/06) • Open new markets • Digital content – music, games, subscriptions, video • Last-minute/expedited payments • Online account opening • Bank reliance on non-bank providers – CashEdge,Yodlee • Guaranteed & authenticated payment options for billers • Card issuers • Mortgage and loan payments • Bank-centric substitute for biller-direct (c) NACHA

40. The Private, Secure, Bank-Authenticated Payments Solution • ‘Secure Vault’ simply refers to using online banking to initiate Internet payments • Consumers keep financial information private – never disclosed to the seller • Seller receives real-time authorization of guaranteed payment (ACH Credit) • Financial Institution authenticates the buyer, reducing risk, fraud, and charge backs • Relieves seller burden to secure/protect consumer financial information (c) NACHA

41. Demos • Consumer Purchases • Bill Payments • Funds Transfers (c) NACHA

42. Key Features • Bank customers keep financial information private – never disclosed to businesses • Bank leverages existing online banking platform and connections to payment networks • Bank receives interchange revenue for authenticating existing customer and guaranteeing payment • Bank is central to its customers’ transactions (c) NACHA

43. Stakeholder Benefits – Businesses • Real-time authorization of a guaranteed payment (ACH Credit) • Sales lift – new customers, higher tickets, more purchases, less shopping cart abandonment • FI Authentication - reduces risk, fraud and charge backs • Eliminate need to secure/protect customers’ financial data (c) NACHA

44. Stakeholder Benefit - FIs • Use existing infrastructure - costs to support this channel have increased in the areas of authentication and security (FFIEC Guidance) • Create new potential revenue stream - FIs generate little direct revenue from the online banking channel today • Leverage customer relationships • Grow the eCommerce ‘pie’ and enable new online transactions • Take a leadership role in privacy (c) NACHA

45. Stakeholder Benefits – Consumers • Security and privacy – no financial information shared with the seller • Familiar user interface with online banking • More payment control and flexibility • Consumers are most comfortable sharing private financial information and account access with their Financial Institution (c) NACHA

46. NACHA’s Online Payments Pilot • Pilot Participants: • Buyer’s FI (Guaranteeing ODFI) • Seller’s FI (Receiving FI) • Businesses (online merchants, billers, state govt. agencies) • Third Party providers (enable FI and business customers) • eWise (pilot network provider) (c) NACHA

47. Participation Requirements • Participation Requirements: • Buyer’s FI (Guaranteeing ODFI) must be FFIEC compliant for online banking • Businesses must be sponsored by a Receiving FI • Receiving FI warranties performance of sponsored businesses • Resources necessary for integration work with eWise • Pilot Fees • There is no registration fee to join the pilot • Inter-bank and network fees will be collected • Fees will vary by transaction type • Fee structures have been announced (c) NACHA

48. Next Steps INTERESTED IN LEARNING MORE ABOUT THIS PAYMENT TYPE AND THE PILOT? • Check out the new Online Payments Pilot Website at paymentspilot.nacha.org • Contact George Throckmorton at NACHA: gthrockmorton@nacha.org regarding pilot participation • Contact eWise at pilot-info@ewisesystems.com for technical and implementation information (c) NACHA

49. Agenda • NACHA/ACH Overview • EBIDS (Electronic Billing and Information Delivery Service) • Secure Vault Payments • Exception Processing Mitigation (c) NACHA

50. Exception Processing Mitigation • Purpose: to reduce errors (and costs) and improve straight-through processing for bill payment exceptions that originate from online banking systems • Sponsored by NACHA’s Council for Electronic Billing and Payment • Typical issues • Incorrect account number (front-end) • Biller account number changes (back-end) • Biller metrics for identifying costs • Stakeholder costs = $533 million in 2006 • Consumers-$25.9 million • Consumer service providers-$130.6 million • Banks/3rd party processors-$14.1 million • Billers-$362.7 million All data from TowerGroup. All rights retained by TowerGroup. (c) NACHA