Markets & Markets – Analyst Briefing Research Analyst – Varun Jain A New Look at Merchant Remote Deposit Capture

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Reduces the overall workflow by 30-40% Eliminates costs associated with conventional process of depositing checks – visiting bank, photocopying of checks, purchasing deposit slips Improves cash flow – extended business hours to deposit checks and same day ledger transactions After the phenomenal adoption of RDC by FIs, the next opportunity segment is merchant capture. In 2004, RDC usage by merchant was expected to reach around 16 million by Currently, only 7.3 million merchants are expected to be use the product by RDC – A Time & Cost Saver

Merchant Capture: The next opportunity segment in RDC Timeline US Business (Millions) Low adoption among large businesses. Lack of effective solution for small & mid size businesses. Effective solutions for small & mid-size merchants Opportunity gap Actual rate of adoption Expected rate of adoption

Key Findings - RDC users to reach about 7.3 million by 2014 Among the top 180 commercial banks as per asset size in 2009, 78% offer merchant RDC. All banks with $1 trillion in assets provide merchant capture whereas only 44% of banks with asset between $5 billion and $10 billion offer RDC. Merchant RDC adoption was low as users feared fraud and operational risks associated with its use. In 2007, only 25,000 of 24 million merchant in U.S. were using RDC. Our research estimates the number of RDC users to reach about 7.3 million by Creating awareness is one of the key playing fields in RDC. Banks are bundling RDC with other products and educating merchants through campaigns and awareness programs. Multiple names for RDC, like ‘electronic check deposit’ and ‘merchant capture’, are confusing merchants. The solutions offered by most of the banks facilitates single account check deposit, whereas businesses demand a product with multiple account deposit facility. Banks and ISOs can offer products as per the varying needs, such as different scanners with varying features, speed and check scanning capacity, for businesses with different check volumes.

Market Dynamics of Merchant RDC Key Competitive Points Enhanced, customized products Customer awareness & training Reduced operational risk & regulatory compiled solutions Opportunities Huge untapped segment of merchants Tailored products for different business segments Supply Side Drivers Almost all major commercial & community banks offer merchant RDC ISOs aggressively marketing merchant RDC Restraints Depleting check transactions Merchant’s unawareness about RDC Lack of optimal solution Demand Side Drivers Huge commercial base with over 24 million businesses Large number of check transactions encourage use of RDC RDC saves time and cost, improves cash flow and enhances customer service

Channels of Merchant RDC Merchant Merchant Bank A/C - 1 Merchant Bank A/C - 2 Merchant Bank A/C - 3 Merchant RDC Bank Agnostic Channel – an upcoming channel Independent Sales Organizations (ISO) provide the facility of multiple account deposits using merchant RDC. MerchantMerchant RDC Merchant Bank A/C - 1 Bank Centric Channel - an existing channel Provide the facility of single account deposits.

Pros & Cons of RDC channels Bank Centric Channel- Advantages Higher margins as no third party involved Confirmed retention of deposits Service culture of bank helps retaining customers Bank Agnostic Channel - Advantages Multiple account deposit facility for opportunity segment – as small and micro businesses Small and micro businesses are secondary target for banks but primary for ISOs ISOs have sales culture – proactive sales and focused product approach ISOs command expertise in training and installation of product Bank Centric Channel - Disadva ntages Not very good at handling and installing equipment for customers Doesn't provide multi-account facility Banks are weak marketers Bank Agnostic Channel - Disadvan tages Integration of ISOs increase the cost of services for banks RDC not beneficial as credit card terminal – cost of scanning check is pennies when compared to cards having basis point ongoing revenue

Merchant Bank (RDC Provider) Makes Multi- account deposits Bank 1 Bank 2 Bank 3 nBanks Bank act as third party processor/ presentment bank for multi-account deposits Hybrid Model - realized but yet to be utilized Benefits of Hybrid Model Multiple account deposit facility Visibility of customer ‘s cash flows will lead to new cross sell opportunities Elimination of ISOs leading to cost effective solutions

Value Proposition of RDC for Merchants

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