1. Payments Operations: Potentials for Modernizing the Check Process
David Walker, NCP
Tiller Endeavors, LLC
April 26, 2018
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

2. Holder in Due Course - Part II
Aug 26, 2014
NOTICES
Nothing in these comments should be understood as legal advice!
I am not an attorney and I am not providing legal advice!
Should you or your company require legal counsel, you should consult with competent legal counsel!
The opinions expressed here are mine unless otherwise noted!
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.
Copyright© 2014 by ECCHO (Certain contributed content subject to third party copyrights)

3. Who Is Tiller Endeavors?
New Consulting Company
Formed when ECCHO sold its assets to The Clearinghouse
My relationship with ECCHO
Formerly the President & CEO for 17 years
Currently have a short-term consulting agreement with ECCHO
Why Tiller Endeavors?
Is this about gardening?
Tiller is also a sailing term and a tiller is used in steering the boat
Tagline: To steer the course you need a Tiller!
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

4. Topical Agenda Payment Trends Business Payment Options
Faster Payments in the United Kingdom
Debit vs. Credit Payments
Economics of Changing Business Payments
Alternative Business Payments
Concluding Comments
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

5. Measuring the Value of Payments
How to Measure the Importance of Payment Systems?
One measure is the volume of payments
This is most important in managing the cost/capacity of the system for the providers
Another is the $ amount of the payments flowing through a system!
This is most important in managing the value of the system to the users
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

6. 2016 Comparative GDPs*
U.S. GDP is approximately 172% of the 2nd largest economy
In $ Billions
GDP – Gross Domestic Product is the monetary value of all finished all goods and services
*Source: GDP –Bureau of Economic Analysis, Dept of Commerce
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

7. $ Amount of Checks vs. US GDP*
At $27.4 Trillion, Checks Totaled 147% of U.S. GDP in 2016!
Checks Paid
$ in Trillions
GDP
*GDP- Gross domestic product is the monetary value of all finished goods and services.
*Sources: GDP –Bureau of Economic Analysis, Dept of Commerce Check Image Collaborative
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

8. Aggregate GDP of These 7 Countries = < U.S. Check Dollars
US Check Vs. World GDP*
2016 GDP Comparisons
Aggregate GDP of These 7 Countries = < U.S. Check Dollars
U.S. Checks 2016
In $ Billions
In 2016 UK Faster Payments Totaled $1.5 Trillion or 5.5% of U.S. Check Dollars
*Sources: GDP –Bureau of Economic Analysis, Dept of Commerce and 2016 Federal Reserve payments Study
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

9. COLLECTING BANK (BOFD)
Current Check System
Current Check Payment System
FIs and intermediaries are all processing electronics – only paper handled is for exceptions
Fed reports 99.9% of checks cleared through it are cleared electronically
Check users are the only parties with paper processes
Image
Image
Image
CHECK WRITER
Statement
Image
CHECK WRITER
DEPOSITOR
Remittance Data
RDC
COLLECTING BANK (BOFD)
INTERMEDIARY BANK
PAYING BANK
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

10. Current Check System Comments on Check Payments
“Check are now effectively all processed electronically once they enter the banking system and are increasingly being scanned and deposited electronically by businesses…”- From Federal Reserve
“The decline of checks over the period (2012 – 2015) was slower than previous studies had shown for prior periods since 2003” – From AFP
On interbank checks – “…fell at an annual rate of 3.4% while growing at an annual rate of 1.1% by value from 2012 to 2015”
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

11. AFP - Business Checks What Has Happened? 81% 74% 67% 50% 51%
10%
20%
30%
40%
60%
70%
80%
90%
Percentage of Organization’s B2B Payments Made by Checks
(Percentage of B2B Payments Made by Organizations)
What Has Happened?
“Declining Trend from 2004 is Broken!"
“Check Use is Not Declining Anymore!”
“To Switch from Checks to Electronic Payments May Be More Difficult Than First Anticipated.”
Source: Electronic Payments, Association for Financial Professionals
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

12. Business Payments Sources Other Than AFP Phoenix-Hecht
Show that use of check payments:
Among large businesses total about 50% of all payments
Among mid-size businesses total about 66% of all payments
Among smaller businesses check payments are > 80% of all payments
Phoenix-Hecht
Over 40 years of market research
Conducts an annual survey of businesses to determine how they use payments
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

13. Business Use of Checks 2013 - 2016
Middle Market Corps ($20 - $500 MM in Sales)
2015
2013
2014
2016
“Although there is a slight movement down in the use of check in the middle market, we would argue that it is no more than 1% per year…”
% of Total Payments
Note: In 2016, checks = 3.3 times the next largest payment type
*Phoenix-Hecht 2016 Treasury Management Monitor
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

14. Business Use of Checks 2013 - 2016
Large Corporate (>$500 MM in Sales)
2013
2014
2016
“The documented trend of little or no contraction in B2B check usage over the past three years may continue into the future.”
2015
% of Total Payments
Note: In 2016, checks = 1.4 times the next largest payment type
*Phoenix-Hecht 2016 Treasury Management Monitor
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

15. Polling Question #1 What Type of Organization is Your Organization?
Depository financial institution (FI)
Non-FI
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

16. Polling Question #2
Are Significant Savings Available to Businesses that Transition from Paper Payments to Electronic Payments?
Yes No
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

17. Potential Business Savings
2016 Fed Payments Study reported:
5.3 billion B2B paid checks for $18.4 trillion
2015 AFP Payments Cost Benchmarking Survey reported:
Estimated median costs B2B checks $4.57
Estimated median cost to initiate and receive an ACH debit $.11 to $.25
Potential savings if all B2B payments were electronic rather than paper
~$23 billion per year
$4.32 X 5.3 billion payments
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

18. Business Payment Options
Current Business Options
Paper check
ACH debit
ACH credit
Wire transfer
Future Business Options:
Credit push, real-time faster payments
Alternative Option
Complete the electronification of the check
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

19. UK Faster Payments *Total Non-Cash Payments
Growth in volumes 9 years after FP implementation:
Total Payments million/mo.
Faster Payments million/mo.
SI Payments million/mo.
May SI Payments only 4.5% of Total Non-Cash Payments
Market demand for non-cash payments grew 9.2 times faster than demand for SI payments
1,782,527*
Single Item Immediate (SI) FP
In Thousands of Payments
All Faster Payments
1,051,667*
141,012
79,998
*Source: UK Payments Council –
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

20. # of Payments / Month (in thousands)
UK Payment Trends
*Total Debits vs Total Credits
Growth in volumes 9 years after FP implementation:
Total Debits ,870
Total Credits ,989
Demand for debit pull payments grew 9.2 times faster than demand for credit push payments since introduction of Faster Payments
Trend Line
Debit Pulls
Credit Push
# of Payments / Month (in thousands)
Credit Push
Debit Pulls
*Sources: UK Payments Council & UK Cards Association
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

21. Debit vs. Credit Payments
Payments Flow - Debits
Payment & Data
From A/P Sys
Payment Deposited
& Data to A/R Sys
Payment
Payment
Payment
Payment
Payee
Payor
PAYEE’S BANK
INTERMEDIARY BANK
PAYOR’S BANK
Payment & Remittance Data Together
Payment & Remittance Data Flow Together to Payee
Directly between payor & payee
Without the need for a directory
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

22. Debit vs. Credit Payments
Payments Flow - Credits
Payment & Data
From A/P Sys
Payment & Data
Reconciliation
Payment
& Data
Payment
& Data
Payment
& Data
Payment
& Data
Payee
Payor
PAYEE’S BANK
INTERMEDIARY BANK
PAYOR’S BANK
Data Flows through Payment System
Volume of remittance data significantly larger than the volume of payment data!
Potential to increase cost of payment system!
Potential to exceed capacity of payment system!
Potential for increased holdovers!
Requires a national directory!
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

23. Debit vs. Credit Payments
Payments Flow – Credits (Alternative)
Payee Deposits
Payment
Payment
Payment
Payment
Payment & Data
Reconciliation
Payment & Data
From A/P Sys
Payor
PAYEE’S BANK
INTERMEDIARY BANK
PAYOR’S BANK
Remittance Data & Payment Separate
Payee Reconciliation
For large volume remittances, increases complications of reconciliation
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

24. Debit vs. Credit Payments
Payments Flow – Credits (Alternative/Debit Request)
Payor
Payee Sends Payment Request
Payee Deposits
First
PAYEE’S BANK
INTERMEDIARY BANK
PAYOR’S BANK
Payment & Data
From A/P Sys
Payee Deposits
Payment
Payment & Data
Reconciliation
Payment
Payment
Payment
Second
Payor
PAYEE’S BANK
INTERMEDIARY BANK
PAYOR’S BANK
Remittance Data & Payment Separate
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

25. Credit Payments Considerations/Requirements Universal Question Is
One or more universal directories with bank account information
Expensive/difficult to establish and expensive and risky to maintain
Standard format for remittance data
Changes in the businesses process and control
Universal Question Is
How to achieve a predictable ROI with the front-loaded investments listed above?
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

26. Economics of Changing Business Payments
Payments Decisions by Businesses
Payments for businesses are overhead expenses
Businesses will spend money on reducing overhead expense if:
There is a pressing problem impacting their ability to do their normal business, or
There is return on investment that is greater than the normal return on investment from their normal goods and services – where their profits are generated
Especially true for publicly traded corporations
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

27. Economics of Changing Business Payments
Payments Decisions by Businesses
New investments must be made by both payer and payee
Sending with no receiver does not achieve savings!
Today no mandate exists to create business certainty of return!
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

28. Polling Question #3
How Likely is it that Businesses’ Investments in Credit Push Payments will Create Greater ROIs Than from Their Normal Goods and Services?
Highly likely
Likely
Somewhat likely
Not likely
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

29. Polling Question #4
How Likely is it that Real-Time Payments will Sufficiently Increase ROI for Businesses to Encourage the Transistion from Paper Payments to Credit Push Payments?
Highly likely
Likely
Somewhat likely
Not likely
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

30. Business Payment Options
Current Business Options
Paper check
ACH debit
ACH credit
Wire transfer
Future Business Options:
Credit push, real-time faster payments
Alternative Option
Complete the electronification of the check
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

31. Electronically Created Items (ECIs)
Statement
ECI
Originator
Receiver
Originator
Remittance Data
RDC
COLLECTING BANK (BOFD)
INTERMEDIARY BANK
PAYING BANK
What is an ECI?
Debit payment
Never existed in paper form
Flows through the existing check system as if it were a check – Uses X
Soon to be defined in Reg CC as of July 1, 2018
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

32. Payment Options
Replace an entire existing payments system that works with a completely new system, or
Enhance a small piece of an existing payment system that businesses prefer by margin of 3 to 1 over other payment options
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

33. Potential Business Investment Dollars
New Investment Required for Businesses? Minimal
Reformat data on AP system and transmit to payee
Interface ECIs with electronic deposit application; e.g. RDC
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

34. Polling Question #5
Would Businesses Like the Option to Use ECI Payments?
Yes No
Not sure, would like additional discussion
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

35. Closing Comments Best Course for Businesses
Continue to enhance all payment systems including the check system
Encourage market forces to determine which payments and payment functions are most valued by users
Eliminate paper checks by replacing them with electronic payments
Create significant cost savings for businesses by check electronification
Support ECIs
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

36. Thank You David Walker David.walker@tillerendeavors.com 214.642.9268
AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.