A Look at the US Banking Industry

A Look at the US Banking Industry

5 Years Ago 20,000 Financial Institutions (2002) Paper check clearings totaled over 42 billion checks for more than $39 trillion dollars ACH Volume approached 9 billion ACH Dollars $24 trillion

Now (nearly) 17,000 Financial Institutions (2006) Paper check clearings declined to 36.7 billion (2004) ACH Volume 15.5 billion (2007) ACH Dollars $33 trillion (2007) Image Exchanged check volumes increasing by triple digits. (June 4, 2007 = 16 million items)

The Rate of Change is Accelerating Dec 6, 2004 the Federal Reserve confirms that electronic payment transactions in the United States have exceeded check payments for the first time. Total # of Paper Checks Total # Electronic Transactions Source: FRB Atlanta 2004 Circular 2000 2004 41.9 billion 30.6 billion 36.7 billion 44.5 billion

Exit the Paper? Paper (cash and check) is definitely declining, and plastic (payment cards) is increasing. Payments made with plastic have now overtaken payments made with paper. Most of this paper to plastic transformation is a substitution from checks to debit cards, which are growing strongly, especially among heavy debit users, defined as people who make 19 or more payments per month. Source: Visa Payment Panel Study 2006

Paper check clearing a thing of the past? 7,500 Financial Institutions are now image enabled. The Federal Reserve announced in early 2007 that they will cease carrying paper checks by 2009. By 2009, 80% of FI s will be getting out of processing paper checks.

Annual Number of Noncash Payments in the US 90 80 70 60 50 40 30 20 10 0 1979 1995 2000 2003 Electronic Payments Checks Source: Federal Reserve Board

Distribution of Noncash Payments for 2003 7% 1% 13% Check 45% Credit Card ACH 11% Offline Debit Online Debit EBT 23% Source: 2004 Federal Reserve Payments Study

Consumer Demand is Driving Payment Choices Gen X and Gen Y. Cell phones, IPODs, debit cards, stored value cards. Wireless almost exclusively compared to parents and grandparents who used only checks.

The Landscape Ahead ACH Growth expected at 15% Check decline continues at 5-8% Debit Card growth in double digits Credit Card growth at 2-5% Electronic transactions are expected to double over the next 5 years. 50 billion?!

So you don t think e-payments will fly? There is no reason anyone would want a computer in their home. Ken Olsen, president, chairman and founder of Digital Equipment Corp (DEC) maker of big business computers, arguing against the PC in 1977 Remote shopping, while entirely feasible, will flop-because women like to get out of the house, like to handle merchandise, like to be able to change the minds. Time, 1966, in one sentence writing off e-commerce long before anyone had ever heard of it. The telephone has too many shortcomings to be seriously considered as a means of communications. The device is inherently of no value to us. - a memo at Western Union 1878 (or 1876)

Enter the Emerging Technologies

Mobile Payments 1,977 million people have mobile handsets 1,046 million people are internet users 2 billion mobile phones worldwide

Mobile Payments Visa study 57% of consumers with a card are interested in mobile payments 90% of those would pay extra for a device that would support mcommerce 64% of 18-42 yr olds would switch carriers 58% would switch banks

Mobile Payments Two basic types Proximity Payments NFC chip in phone Special POS reader Remote Payments payments made anytime, anywhere SMS/Text messaging WAP (Internet on you mobile phone) Mobile Application on your phone

Mobile Payments Extend basic technology on a device everyone already has Enhance security It takes 6 minutes to notice your phone is lost 18 hours for a lost credit card

Mobile Payments

Mobile Payments

MasterCard PayPass http://www.priceless.com/us/personal/en/ cards/paypass/index.html

MasterCard PayPass Tap & Go! Card, key fob, mobile phone

MasterCard PayPass Global acceptance 12 countries in addition to US Canada UK Japan Korea Thailand Turkey Lebanon Malaysia Australia Taiwan Philippines South Africa

MasterCard PayPass

Visa paywave http://www.usa.visa.com/personal/cards/p aywave/demo.html

Visa paywave Wave to pay! Card or Mini Card

Visa paywave

Pay by Touch Registration process required Driver s license or state id Personal check and/or credit card Loyalty/membership cards Your finger!

Micropayments Vending machines Parking meters

Micropayments Laundromats Self-service kiosks North American consumers will spend over $525 billion at self-checkout lanes, ticketing kiosks, and other self-service machines in 2007

Loyalty Rewards Payment Card Mid-2007 Pilot at 141 Indianapolis-area stores Get CVS ExtraCare Plus rewards and pay by swiping one card.

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