1. Critical Issues with Electronification Alternatives
Woody Tyner
Senior Vice President
Payment Systems Strategist
BB&T Corporation
BITS ECP Forum
January 14, 2003
Birmingham, Alabama

2. Agenda Changes in the Payments Business Economic Impacts Regulation E
Check Conversion Initiatives
Client Service Issues
Bank Systems Issues
Check Conversion Economics
Implications for Banks
Opportunities

3. The Payments Business is Changing
The latest Fed study shows the number of checks, in absolute terms, are less than thought; 42 billion in 2000 and declining 3% - 6% annually versus estimations of 68 billion.
Several different independent evaluations suggest check volume may have peaked in the late 1990s.
Checks are 50% of non-cash payments today, down from 85% twenty years ago.
By 2006, checks will be outnumbered by electronic payment transactions.
The number of payment transactions per account will continue to increase.
The future volume of checks is unknown, but checks will not go away.

4. The Changing Landscape: Economic Impacts
Interchange : PIN versus Signature based authorizations
Loss of deposited check fees
Client servicing expense
Infrastructure and systems expense
Revenue shifts related to payment migration
“Free or No Fee Checking”
Electronified fraud

5. Regulation E A check is not always a check!!!
Notice equals authorization for a one-time conversion of a check to an electronic debit.
“It depends on your definition of ‘is’.”
- William Jefferson Clinton

6. Check Conversion Initiatives
Point-of-sale (retail checks)
Check to ACH debit
SafeCHECK
VISA POS Check
Returned Checks to ACH debit
Lockbox (retail checks)
Check to ACH
Between Financial Institutions
ECP
CTA and Image Replacement Documents
Commercial Checks - TBD

7. Client Service Issues “I wrote a check ………”
Voice Response Unit
Statements
Call Center
Financial institutions can no longer direct the clearing and settlement of a check.
Web Banking
ATM
Branch Offices

8. Systems Issues By 2006, electronic payments will outnumber checks.
ACH and POS systems capacity
Check fraud filters
Stop payment orders
Cash Management Services
controlled disbursement
positive pay

9. Check Conversion Economics
Check to ACH debit
SafeCHECK/Visa POS Check
RCK, WEB & TEL
Debit Cards and NSF/OD income
ACH Interbank Compensation
Business Method Patents

10. Implications: Revenue, Expenses, and Investments
A substantial portion of bank revenues is based in legacy payment products.
Some estimates suggest that profitability from financial institutions’ payments business may decline by as much as 30% in the next five years in an unmanaged environment.
Need to make proper investments in new products and in the payments infrastructure.
Decisions made in isolation may be good for a specific line-of-business but not for the whole enterprise.
Payment information remains fragmented.

11. Opportunities
Build payments-related informational databases and mine the derivative information consistent with the principles of good personal information use.
Develop and promote higher margin payment products.
Align payment products and incentive systems to promote more incremental revenue producing payment transactions.
Continue to make strategic investments in emerging payment mechanisms.
Identify new payment processing business opportunities.

12. Conclusions The rate of change in the payments business is increasing.
These changes present opportunities for new payment revenues and risks to legacy streams of revenues.
The changes are impacting our clients’ payment choices.
The changes in payment behaviors are creating infrastructure challenges.
Yesterday’s payments management model will not succeed.

13. Payment Systems Strategist
For More Information
Woody Tyner
Senior Vice President
Payment Systems Strategist
BB&T Corporation