Current Payment Trends – CMTA A focus on working capital and expense reduction

If only it were this easy… Working Capital © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Agenda Common A/R pain points Cost and prevalence of payment types Paper checks ACH Debit Website collections CC and E-Check OBP Cash Integration with accounting system Migration to electronic payments Parting thoughts © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Common A/R Pain Points Inefficient paper posting process Tedious re-keying of data in multiple places Need to increase throughput without adding staff Pressure to lower transaction costs Lack of visibility and control Need for better auditing and reporting A/R follow-up when collection issues occur © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Checks Still Dominate for Bill Payment ACH Debits 12% Other 14% Checks 66% E-Check 2% Credit Card 6% Checks continue to dominate C2B landscape for utility type services Easy to receive Setup not technical Universally accepted Issues with checks Per item costs are high Availability delays Method of payment received from “Major Business Customers” Source: 2007 AFP Electronic Payments Survey © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Payment Methods More Company Control Less Expensive More Expensive ACH Debit Credit Card Debit OTC Check Less Expensive More Expensive E-Check Online Bill Payment Credit Card Average ticket is 100 and ACH Debit is $0.25 cents the cost is .0025. Credit card cost on 100 at 2% is $1 and $2 bucks Check by Mail/Drop Less Company Control © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Internal or External Lockbox Internal Lockbox Remote Deposit Scanned by provider Remittance data scanned and/or keyed from invoice/coupon Electronic posting file available from bank Eliminates keying from images Scanning Keyed Data Posting File Scanned at company site Remittance data scanned and/or keyed from invoice/coupon Posting available at scanning point Eliminates keying from most images Scanned at company site Discretionary data can be keyed with each check or scanned from coupon Electronic posting file available, combined with other payment types Information is input a part from the deposit process © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Key considerations for item processing Internal factors Equipment upgrades Staffing BCP and continuity plans Audit control Process customization Customer contact Centralized Decentralized External factors Declining number of checks Environmental forces Check 21 ARC BOC Bank fees Location of provider Some banks starting to shed assets Few banks maintain large retail shops Bank Fees lower now than they will ever be again – cost are climbing © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Decentralized Deposits Courier or Drop-Off Pros Effortless for company Customer contact and convenience Cons Availability of funds subject to delivery method Armored carrier forces early cut-off Desktop Deposit Pros Can be deposited immediately Setup is universal Cons Multiple steps for staff Entry cost can be a barrier Courier may still be needed for cash Security of check items being deposited © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Recurring ACH Debits The silver bullet? Not quite Most control for biller Least expensive method Internal processing Bank fees Most companies report a plateau Returns, NOCs, and NSF still remain Environmental changes Internationally consumer protection laws are tightening Some Co-ops are offering no deposit if customer signs up for DD Site Canadian and UK rules © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Company Maintained Website Payment collection methods Credit Card Client entered Voice entered E-Check – One-time debit Multi-functional tool Company information Service bulletins Payment function is usually provided by third-party Credit Card and E-Check options are expensive Strict regulations on data Cumbersome for consumers Usually for one-time payments 63.1 mln US households are paying their bills online rather than writing paper checks, according to Fiserv. 13% of respondents cited online security as the top reason for not using the online bill payment service, down from 17% in the 2007 survey. Overall, online security ranked third among barriers to online bill payment adoption 2008, compared to its number-one ranking in 2007. The primary barrier (15%) in the new study was “I don’t know enough about how it works.” 31 mln households are using online banking websites to pay bills, 47.9 mln households are using biller websites and 16 mln are using both online banking and biller sites to receive and pay bills. 63.1 mln of Internet-using households pay at least one bill online in an average month, up from 61 mln in the 2007 survey. These households collectively paid 934 mln bills in a typical month, according to the survey results. Online bill payments made at both bank and biller websites rose to 42% of the total volume of household bill payments made each month, up from 39% in the 2007 survey. Online bill payment adoption has significantly grown since the 2002 survey, when only 14% reported paying their bills online. Internet-using households pay an average of 11 bills per month. Consumers use an average of three different ways to pay bills, with online, check, automatic debit and in-person topping the list of popular bill payment methods. Online bill payments at bank and biller websites comprised 42% of total monthly payments, followed by 31% of bills paid by check. 51% of survey respondents cited the environment as a reason why they chose to view and pay bills online. Of these, 72% identified paper and clutter reduction as chief benefits, followed by tree conservation (19%) and reduction in gas consumption (16%). Saving time and gaining control over their finances were major online bill payment benefits cited by 44% of respondents. © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Credit Card Payments Cons Pros Different state laws and statutes affect strategy Regulated vs. Non-Regulated Comparatively expensive on an average ticket basis vs. other methods Very tight rules around protecting consumer data Complicated pricing structure Chargebacks can be a problem Good funds model Less risk of returns Widely used and accepted © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Payment Processing Center Check © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Online Consumer Preferences Source: 2007Javelin Strategy & Research 52% of consumers prefer to pay bills at their bank’s site Benefits cited by consumers: Flexibility & control Easy set-up of automatic payment Protection Streamlined process Fraud/Identity Theft © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Online Bill Payment Usage © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Electronify Your Online Bill Payments! Number of US online households that pay bills online by generation 60M Actual Forecast 50M Gen Yers (b. 1975-1990) 40M Gen Xers (b. 1964-1975) 30M 20M Boomers (b. 1946-1963) 10M Seniors (b. 1900-1945) 0M Source: Forrester’s Consumer Technographics® 2000-2005 North American Benchmark Studies, Forrester’s North American Consumer Technology Adoption Study 2006 Benchmark Survey, and US Census Bureau © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Online Bill Payment Projection Bank online channel growth 30% faster than overall online bill payment growth Banks will achieve nearly twice the five-year growth rate of biller sites by 2011 Source: Forrester Research, 2007 © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Online Bill Payment Projection Gen Y EBPP adoption will increase by 157% Gen Y will represent only 26% of US households, yet they will make up 36% of EBPP users By 2011, Gen X and Gen Y will constitute 65% of EBPP users Source: Forrester Research, 2007 © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

How do you handle cash? Expedited payments made by consumers at in-person or walk-in agent locations. In person payments provide an alternative for your customers who do not have bank accounts and can’t mail a check or pay by credit/debit card. Service validates and processes payments in real-time or in a periodic batch mode. Your customers receive a confirmation number and real time posting credit. Reduces the expenses of late payment processing as well as cutting off and reinstating services Data transmissions improve the accuracy and efficiency of A/R postings © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Online Bill Payment Trends In Summary Online bill payment growth expected to continue surging Faster growth expected in bank-hosted channel Not a “bank vs. biller” battle Large billers need a strategy for handling increased volumes of online banking payments and the challenges created by electronic exceptions May require a mindset shift around billing/payments practices Paper remittances can be expected to continue declining Further impetus to outsource paper remittance processing Marketing campaigns © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Working Capital Value Proposition Increased number of electronic payments Reduced DSO Reduced Account Analysis fees Reduced time spent reconciling account Reduced number of rejected payments Reduced number of inbound data transmissions Compressed month end reconciliation © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

How to Streamline Receipt and Posting? Automate Integrate Electronify Automate the receivables process Receive a data file for both paper and electronic receivables Standardize the use of remittance data across payment type Integrate automated file to your accounting system Import file into system and initiate automated posting Only work the exceptions that do not meet matching rules Convert as many payments as possible Encourage trading partners to pay via ACH and OBP Use electronic methods to receive data for paper payments Maximize your online bill payments © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Automating Your A/R Process ACH Credits/Debits Incoming Wires Data files sent to Receivables Hub for each payment type Hub creates standardized file per requested time and format File transmitted to Acct system at requested time File is imported and used for auto-posting Data files Card Payments Accounting System / ERP Online Bill Payments Consolidated Data File Data files Bank Receivables Hub Mail/OTC Payments Remote Deposit Data files © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Accounting System / ERP Integration Defined Automated file received from bank File uploaded into accounting system Data used to identify customer and apply receipt Receipts applied automatically by system Leverages matching logic to minimize exceptions Only exceptions need to be worked Reconciliation can also be automated . Accounting System / ERP Consolidated Data File © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Key Considerations Business case is straightforward Automate Integrate Electronify Business case is straightforward Banking partner can be consultative partner on this Benefits can quickly offset initial investment Need to consider future staffing needs Smaller companies starting to automate/integrate Software providers more focused on bank integration for payables and receivables Less demand on IT Resources required Time to benefit doesn’t have to be measured in “months” © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Glossary ARC – Accounts Receivables Conversion BCP – Business Continuity Plan BOC – Back Office Conversion BSP – Banking Service Provider EBPP – Electronic Bill Payment and Presentment NOC – Notification of Change NSF – Non Sufficient Funds OBP – Online Bill Payment OTC – Over the Counter © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Pathway to Electronic Receivables ACH Direct Debit 1 OBP 2 3 ACH Credit Payment via your website 4 Image Based Deposit 6 Lockbox with Conversion 5 © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Distribution of How Consumers Pay Bills Source: Javelin Strategy and Research – 2009 Online Banking and Bill Payment Forecast © 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.