Electronic Check Capture at the Source

1. Electronic Check Capture at the Source Presentation by Tom Kettell Vice President, Marketing RDM Corporation November 17, 2005

2. Monumental shift in the payments landscape

3. Bank Lockbox Bank Lockbox Clients In-House Lockbox Internal Lockboxes and Third-Party Lockbox Providers Agent/Branch Deposits Point-of- Payment Collections, Drop Box Payments, Low-volume Lockbox, Route Collections Bank/Regional Sites Fed/Local/Regional Clearinghouse Paying Bank The Transformation from Physical to Virtual Physical Items

4. Electronic Bank Lock Box Agent/Branch Electronic Deposits Customer In-House Electronic Lock Box Bank/Regional Sites ARC System ECP/IRDs Fed/Local/Regional Clearinghouse Paying Bank Fed/EPN/ Visa Fed/ECCHO Optimized Items, ACH (POP/ARC) or IRD/ECP The Transformation fromPhysical to Virtual Physical Items

5. The Pricing Dynamic Source: Federal Reserve. Compiled by NACHA ­The Electronic Payments Association

6. Check Electronification is Growing Even as Check Volume Declines

7. 2004 2003 2002 2001 ACH e-checks continue to experience double digit growth Source: NACHA

8. Growth of ACH e-Check Entries Source: 2004 Federal Reserve Payments Study

9. Check 21 has fostered change and significant opportunities

10. In September 2005, processed ~35 million items through Check 21 services All were converted to substitute checks for presentment Peak day: 2.5 million items (3% of total items processed Worth $16 billion ($10,000/check, 16% of dollar volume) FedReturn volume averaging 25,000 items/day Check 21 – First Nine Months Federal Reserve Experience

11. Check 21 - The Lighter Side

12. Is Check Electronification Strategic to Your Organization? (Its not just for the Big Guys)

13. Channel Proliferation • Walk in payments – • Distributed Locations • Drop Box • ARC • Substitute Check • Image Exchange • Mail in payments – • Centralized Locations • Lock Box • ARC • Substitute Check • Image Exchange • Point of Purchase • Face to face • POP • Substitute Check • Image Exchange

14. What technologies/capabilities? Cost savings? Customer demand? Revenue or marketing opportunities? Faster collections? Breaking the bonds of “footprint” What are the Implications?

15. What are the Implications? • With the implementation of Check 21 married with ACH, check conversion becomes true check electronification • No exception items - All checks can be electronified (business checks, money orders, et al) • Items can be cleared through the most optimal clearing channels based on: • ACH eligibility • Dollar value of the item • Time required to clear the item • Cost to clear the item • Check Electronification Tool Kit • ARC • POP • WEB/TEL • Substitute Check • Image Exchange

16. What are the Implications? • Check electronification at the source will yield the best cost dividends • The greater cost benefits are achieved the earlier in the process the check is electronified • Major contributor is in the workflow

17. What are the Impacts of a Check Electronification Program?

18. Impacts of Check Electronification • Complete electronification at the source will lead to the following benefits: • In-person, drop box and exception payments handled outside of a lockbox operation environment can be electronically settled. • Agent and branch offices can electronically deposit all items accepted in the branch (with the exception of cash) • This leads to the potential to eliminate significant levels of your cash management structure, such as local depository accounts, cash concentration of funds into home office, account reconciliation of depository accounts and streamlined posting of billing data. • Lockbox operations can be re-engineered to eliminate processing passes associated with encoded and sorting checks, as all items could be deposited electronically via Image Cash Letters.

19. Impacts of Check Electronification • Increase funds availability, better cash forecasting • Electronically deposits all checks to company’s account next business day, providing faster collection and faster notification of returned entries • Reduced number of return items • Electronic debits typically post before checks, resulting in more items clearing on first presentment • Automate and accelerate return item processing • ACH provides early notification of return items, carrying deposit location identifier • Immediate or delayed re-presentment of returns • Does not require consumer behavioral change • Reduce or eliminate local depository accounts • Fewer accounts to reconcile, reduced bank fees, elimination of cash concentration costs • Simplification of reconciliation of remaining accounts • Reduce labor and check processing costs • Eliminate check deposit preparation • Decrease deposit transportation charges and check float

20. Check Electronification: Offensive or Defensive?

21. Check Electronification: Offensive or Defensive? • Financial Institutions are taking one of two strategies in the beginning stages of Check Electronification • Defensive Strategy • Protect current customer base • Offensive Strategy • Protect current customer base • Expand customer base • Expand footprint • A shift in strategy occurred in 2005 from the defensive to the offensive for those early adaptors

22. What Markets Can Benefit From a Check Electronification Program at the Source?

23. Key Market Segments Mid to Low

24. Key Market SegmentsMid to High Volume

25. Case Study | U.S. Treasury • The U.S. Treasury’s Financial Management Services division and the Federal Reserve Bank of Cleveland needed a paper check conversion solution that could be deployed to all agencies • Had to support a highly distributed network of approximately 200 agencies ranging in size from 1 to 1000s of locations. • Had to be scalable (future volumes could be large) • Had to be robust (e.g. Army installations) • Had to be flexible (Variety of agency specific needs) • Had to be secure (Government – Army, Air Force, IRS, etc) • Had to be very easy to use (remote locations, minimal training)

26. Case Study | U.S. Treasury Germany, Belgium, Bosnia, Kosovo Military Bases Singapore, Korea Military Bases United States Patent &Trademark Offices IRS DECCA (Military base stores) & other agencies Qatar, Kuwait Military Bases

27. FRB Dallas Archival ACH Processing Verification Database Local Verification Update From Main Database in Dallas Daily https Transmissions Images & Transaction Data Case Study | U.S. Treasury

28. Case Study | Large University • Accepted check payments for Tuition, Residence fees, Books, etc. • In addition to a centralized repository a significant volume of walk-in payments at multiple locations • Desire to improve float position • Reduce or eliminate local depository accounts • Fewer accounts to reconcile, reduced bank fees, elimination of cash concentration costs • Simplification of reconciliation of remaining accounts • Reduce labor and check processing costs • Eliminate check deposit preparation • Decrease deposit transportation charges and check float • Desire to provide better management of cash • Wanted one provider to “do it all” – did not want to manage it

29. Case Study | Insurance Company • Significant volume of walk-in payments at multiple branch locations • 16% - 17% of all payments are walk-in or mailed to the branch location • Desire to improve the check handling efficiencies at the branch location • Desire to improve float position • Desire to reduce deposit accounts • ACH non-eligible (business checks, money orders, convenience checks) and cost structure for equipment for large number of locations caused challenges for ARC-only

30. Deployment Thorough planning is the key critical success factor for successful deployment

31. Steps in Planning • Project management • Resource allocation • Training • Investigating • Testing • Implementation

32. Operational ConsiderationsPlanning • Plan every installation in advance • Get IT involved early in the process • Are there any restrictions on Internet use or special procedures for Internet access? (i.e. Firewalls, Proxy Servers, etc) • Do you or your customers have access rights to the workstation/network that will allow you to load the software on the workstation? (i.e. Administrative Privileges) • Are there any special security considerations regarding workstations or networking? • Identify any need of the remittance systems to interface with any other applications and test the interfaces before installation • Is any new development required on legacy systems? • Select providers that can help you integrate your program • Establish a System Administrator who will be involved in assigning duties to the personnel at each workstation

33. Operational Considerations Planning • Conduct a 360º site survey of the local environment prior to implementing new solutions • Create a checklist that will ensure a thorough inspection of the location • Understand the work flow, identify any issues • What is the average daily transaction volume including peak times? • How is work distributed for data entry (i.e. single operator or multiple)? • Does the communications at the customer site provide adequate throughput to handle the transaction volume? (i.e. Dial-up vs. high-speed Internet) • Are remittance coupons submitted with payments? • Conduct an end-point analysis to gage the volume of ACH vs. IRD/Paper/Image Exchange • What is the procedure for non-convertible items…IRD? Paper?

34. Operational ConsiderationsImplementation • Training • Ensure that the all staff is well trained and understand their roles before implementation • System Administrators • Operators • Help Desk • Internal Trainers • Pilot before you roll-out !!! • Many skip this important step • Helps you understand the work flow changes • Gives you time to refine your procedures • Controlled Environment

35. Operational Considerations Implementation • Have clear cut measurements to define pilot success • What makes for a successful pilot? • Conduct formal pilot assessment to ensure pilot success metrics are met? • Investigate why certain success metrics were not met and document a plan to address each one • Are you ready to roll-out? • The pilot should drive the business case

36. Operational ConsiderationsPitfalls • Plan for the Unexpected • Endorsement Returns How are the payee financial institutions going to react? • Duplicate Items – Safeguarding from the double post • Updating procedures and best practices to reduce double postings • Corporate • Financial Institutions • Fed • Administrative Returns • Insure controls are in your process (or your vendors process) to avoid them • MICR read and verification • MICR scrubbing and swapping • Plan for future business needs. Invest in technology that lays the groundwork for future innovation • Image Exchange • IQA

37. Comprehensive Check Electronification Platform • Off-Premise cash letter (customer lockbox) • Distributed payment capture (drop box) • Person present • ASP model – faster time to market with little to no capital investment • Supports ACH, Paper Draft (traditional and substitute check), and Image Exchange initiatives • Consistent rules base across multiple touch points of presentment • Provides a consistent customer experience • Basic remittance capabilities – scanning remittance coupons for decisioning • Can scan multiple coupons and multiple checks

38. ODFI Modem Banks Retail POS locations(terminal-based) Lockbox Comprehensive CheckElectronification Internet (ISP) https

39. Rules for “e-nabling” your Check Processing Environment • Don’t be seduced by new technologies for the “cool” factor • Understand the business case, and develop metrics • Keep focused on your customers • Plan for future business needs. Invest in technology that lays the groundwork for future innovation • Don’t be afraid to change old habits • Ensure that your entire organization understands the reason for change and is adapting to and promoting the new technology

40. Thank you! www.check21solution.com Q&A