Thinking The Unthinkable : Banks Relinquishing Control Of Their Payments Infrastructure

1. Thinking The Unthinkable: Banks Relinquishing Control Of Their Payments Infrastructure Celent Webinar10 September 2013 Gareth Lodge, Senior Analyst A recording of today's webinar and copy of the presentation will be available to Celent clients on our website athttp://reports.celent.com/login.asp

2. Before we start… • This webinar is based on areport published recently by Celent: “ Thinking The Unthinkable: Banks Relinquishing Control Of Their Payments Infrastructure”, May 2013 • A recording of today's webinar and copy of the presentation will be available to Celent clients on our website after the event at http://reports.celent.com/login.asp • If you have any follow-up questions about the presentation, please contact Ken Kilduff at kkilduff@celent.com

3. Agenda Where We Are Today Thinking Differently The Path Forward

4. Competitive Differentiators For Transaction Banks

5. Budgets for New Investments Remain Constrained

6. Payment Systems Usually Look Like This

7. Transaction types Customer Channel Standard/ scheme Instrument type Payment Services Hub – A Vision For Payments Architecture Ability to manage, on a single platform, any… A • Credit transfers • Direct debit • Credit card • Debit card • … • SWIFT • ISO 20022 • Domestic RTGS • Domestic ACH • SEPA Direct Credit • SEPA Direct Debit • … • Branch instructions • Online • Mobile • ATM • … • Corporate • Retail • Other FIs • Bank internal departments • … • Outgoing payments • Incoming payments • Batch • Single real-time • Refund • Rejection • … X X X X 1 Instruction receipt, payment object creation and prioritisation Validation, compliance, repairs and storing 2 Clearing preparation (CSM selection) 3 Authorisation 4 Execution 5 Customer notification and reconciliation 6 … and deliver core payment functionality B Delivered as services, drawn from and available to either within the PSH or other areas in the bank (SOA)… … under key conditions 1 C … with ability to customise workflow by any dimension of A or payment characteristics (BPM) 2 … and with sophisticated monitoring and alerting capabilities (BAM) 3 … reliably at large volumes and throughput 4 … with appropriate security, access control and audit trails 5

8. Your Spaghetti Will Now Magically Look Like This!

9. Thinking differently

10. Radical Change For The Better All conform to ISO standards Quiet revolution started in 1956 Has driven price down from $5.86 to $0.16 Industry worth $6.5 trillion

11. Value Drivers Of Success • Operational efficiency • Doing a sufficiently good-quality job (not necessarily high quality) at the lowest possible cost, with companies competing solely on headline price. • Product innovation. • Innovation is often thought to be sexy new gadgets or processes, such as mobile payments. However, it could be as simple as packaging or designing products differently from the way others on the market do. Perhaps one of the greatest product innovations was the Gold card in the cards market. Indeed, a sign of success is that other companies copy an idea. Innovation therefore has to be continuous. • Customer intimacy. • This discipline requires putting the customer at the center of everything the organization does. It could include delivering world-class customer service or simply developing products that allow customers to build their own products, segmenting to the power of one.

12. A model for success?

13. Transaction types Customer Channel Standard/ scheme Instrument type Payment services hub – a vision for payments architecture Ability to manage, on a single platform, any… A • Credit transfers • Direct debit • Credit card • Debit card • … • SWIFT • ISO 20022 • Domestic RTGS • Domestic ACH • SEPA Direct Credit • SEPA Direct Debit • … • Branch instructions • Online • Mobile • ATM • … • Corporate • Retail • Other FIs • Bank internal departments • … • Outgoing payments • Incoming payments • Batch • Single real-time • Refund • Rejection • … X X X X 1 Instruction receipt, payment object creation and prioritisation Validation, compliance, repairs and storing 2 Clearing preparation (CSM selection) 3 Authorisation 4 Execution 5 Customer notification and reconciliation 6 … and deliver core payment functionality B Delivered as services, drawn from and available to either within the PSH or other areas in the bank (SOA)… … under key conditions 1 C … with ability to customise workflow by any dimension of A or payment characteristics (BPM) 2 … and with sophisticated monitoring and alerting capabilities (BAM) 3 … reliably at large volumes and throughput 4 … with appropriate security, access control and audit trails 5

14. Where Do You Draw the Line? 4. Vertical payment services hub Online (retail) Online (corporate) Host-to-host ATM Treasury (bank) … Channel integration Payment processing platforms Payment orchestration layer 4 High-care engine Low-care engine Cards Core banking … CSM integration RTGS ACH SWIFT Card networks STEP2 …

15. The Path Forward

16. Controlling The Cloud is No Longer Seen As An Issue Source: McKinsey

17. My Exciting Bed Time Reading

18. What Could Cloud Do For Your Business? Agility Commercializing payments Supplying peak capacity Variable pricing to control volume flow Insight and analytics

19. Starting on the right foot 1 Choose a Strategic or a Tactical Response 2 Build the Right Team 5 ChooseThePartner 3 Decide on the Form of Outsourcing 4 Build the Business Case

20. Conclusion

21. Thank you! • This webinar is based on areport published recently by Celent: • “Thinking The Unthinkable: Banks Relinquishing Control Of Their Payments Infrastructure”, May 2013 • A recording of today's webinar and copy of the presentation will be available to Celent clients on our website after the event at http://reports.celent.com/login.asp • If you have any follow-up questions about the presentation, please contact Ken Kilduff at kkilduff@celent.com