Presentation Before The World Bank Payments Reform Seminar November 4, 2003

1. Addressing the Needs of the Public SectorChallenges and Opportunities in the U.S. Government’s Payment System: Domestically and Internationally Presentation Before The World Bank Payments Reform Seminar November 4, 2003 Richard Gregg, Commissioner Financial Management Service U.S. Department of the Treasury Moderated By: Theresa Trimble, Manager, Fiscal Services Division of Reserve Bank Operations and Payment Systems Board of Governors of the Federal Reserve System

2. Emerging Technology Driving Change in the U.S. Government—Key Themes • Internet technology a driving force in change for individuals, corporations, and governments conducting financial transactions • Electronic payments and supporting data are key • Simplifying interfaces and accounting a priority

3. Four Major Business Lines within FMS • Payments • Collections • Governmentwide Accounting • Debt Management

4. The Landscape • Payments We Make: --FMS makes 85% of U.S. Payments --Annual Dollar Value: $1.6 Trillion --Annual Transactions: 918 Million (77% Electronic) • Payments We Receive: --Annual Dollar Value: $ 2 Trillion --Number of Transactions: 337 Million (30% Electronic)

5. Where we are—Forms of Payments • Payments We Make --ACH (Credit) --Fedwire --Check • Payments We Receive --ACH (Debit) --Fedwire --Credit Cards --Check

6. Objectives—Key Factors Laying Foundation for Future Payments and Collections • Lower Costs --Increase Electronic Transactions --Reduce Interchange Fees --Streamline Processes • Maximize Cash Management --Improve Funds Collected --Enhance Cash Forecasting • Ensure Proper Security --Web Based Systems --Lockboxes

7. Objectives—Laying Foundation for Future Payments and Collections (Continued) • Simplify Processes --Single stream of data for agencies --Fewer Systems • Take advantage of technology in U.S. financial infrastructure --Federal Reserve—check truncation legislation --Commercial Financial Institutions—pilot new approaches; better service --Use email to inform customers • Think and act globally in our approaches to financial transactions

8. Payments We Receive: Challenges and Opportunities Ahead • Conversion to Electronic Payments --High Dollars/Low Transaction Volume --Market Research --Incentives vs. Mandates

9. Payments We Receive: Challenges and Opportunities Ahead • EFTPS (Taxes) --Web Based --Scalable and Secure --Payment Confirmation and History --Linking to Tax Filing Software --PIN and Password through mail --Some resistance

10. Payments We Receive: Challenges and Opportunities Ahead (Continued) • Pay.gov (Non-tax) --Web Based --Scalable and Secure --Forms plus payment --Verification Engine --Backlog of Agencies --Comfort with current Processes

11. Payments We Receive: Challenges and Opportunities Ahead (Continued) • Check Conversion --Check clearing/ACH rules --Float Reduction and minimize paper --Notice to individuals --Corporate checks

12. Payments We Receive: Challenges and Opportunities Ahead (Continued) • Check Truncation (Check 21) --Federal Reserve Leadership --Effective in one year --Voluntary --Quality of Images --Image Replacement Document (IRD): Quantity and Costs --Option for Lockboxes

13. Payments We Receive: Challenges and Opportunities Ahead (Continued) • Integrated Agency Processes --Payment and Accompanying Information Link to Agency System --Fewer “Stove Pipe” reporting sources/more commercial products --Easier interface with FMS

14. Payments We Receive: Challenges and Opportunities Ahead (Continued) • Security and Privacy --Web introduces new challenges --Checks present challenges too --Convenient yet secure --Secure Yet Protect Privacy --Contingency planning and testing --Innovation and vigilance

15. Payments We Make: Challenges and Opportunities Ahead • Conversion to Electronic Payments --High Percentage of Transactions But High Volume Remaining --Incentives vs. Mandates --Paying the “unbanked” --Market Research

16. Payments We Make: Challenges and Opportunities Ahead (Continued) • Payments Plus --Sufficient information for all parties --Accounting data that “fits” --Streamlining FMS Processes --Debt Collection

17. Payments We Make: Challenges and Opportunities Ahead (Continued) • Innovative Products --Internet Payment Platform (IPP) --Stored Value Cards --Debit Cards --Opportunities Driven by Business Case

18. Payments We Make: Challenges and Opportunities Ahead (Continued) • Security and Privacy --Electronic Payments Provide Many Pluses --Fraud can occur despite payment mechanism --Enseal Technology for Treasury Checks --Anthrax Threat --Approaches to “close the loop”, I.E., easy confirmation

19. Agenda for the Future • Focus on emerging technology • Address current infrastructure—tendency to hold onto current and outdated systems and infrastructure • Reduce the number of systems • Eliminate redundancy in data and information • Streamline databases, platforms, and tools • Drive toward less paper Sustain Excellence in Financial Transactions

20. Further Information and Communication www.fms.treas.gov