1. Check21 Update Thursday, November 17, 2005

2. Update Startup Statistics State of solutions Customer experiences Today Experience good/bad/lessons learned Future Shifting Payments and the Silo Meltdown Startup Statistics State of solutions Customer experiences Today Experience good/bad/lessons learned Future Shifting Payments and the Silo Meltdown

3. Image Capture Image Archive Largely Mature: Most all Banks have some solution in place in these areas. Mature to moderately mature at Industry leaders. Less mature at followers. Re- engineering still to be done in many banks. Pilot solutions, no major commitments, paper still follows. Startup – State of Payments Electronic Check Presentment (ECP) Process Re-engineering (Day 2 and Services) Image Product Introduction POP Transaction Electronification Generally lower volume, data only, with paper to follow.

4. Startup Statistics a few brave “early adopters” Pilots, low volume Focus on Forward- Presentment Statistics a few brave “early adopters” Pilots, low volume Focus on Forward- Presentment

5. Startup Expectations (from BAI Survey 2004) “Two-thirds of the respondents believed that one of the highest payoffs from Check 21 would come from faster funds collection” “More than half believed that reductions in transportation costs would be another big payoff” “More than half the respondents expected more efficient processing also would be among the highest payoffs” All expected new product offerings to result Expectations (from BAI Survey 2004) “Two-thirds of the respondents believed that one of the highest payoffs from Check 21 would come from faster funds collection” “More than half believed that reductions in transportation costs would be another big payoff” “More than half the respondents expected more efficient processing also would be among the highest payoffs” All expected new product offerings to result

6. Startup Solution Offerings Tactical solutions most often selected Financial Institutions hesitant to make major investment Initial reliance on existing, proven technology ECP Legacy Item Processing Immature definition forced early adopters to look for solutions that address a gamut of possibilities Solution Offerings Tactical solutions most often selected Financial Institutions hesitant to make major investment Initial reliance on existing, proven technology ECP Legacy Item Processing Immature definition forced early adopters to look for solutions that address a gamut of possibilities

7. Startup What did we miss? Rollout not as progressive as anticipated Legal worries Regulations too vague to deal with image Surprise – in most cases, paper was moving as well as image Current infrastructure not conducive to exchange, but very controlled New infrastructure built for image, but implementation of controls falling behind Many have stepped into solutions without a complete view of requirements What did we miss? Rollout not as progressive as anticipated Legal worries Regulations too vague to deal with image Surprise – in most cases, paper was moving as well as image Current infrastructure not conducive to exchange, but very controlled New infrastructure built for image, but implementation of controls falling behind Many have stepped into solutions without a complete view of requirements

8. Startup Networks – which one do I use? SVPCo Viewpointe Endpoint Exchange Federal Reserve Direct Send Once I choose, how do I settle? What kind of images do I use? What happens when something goes wrong? Networks – which one do I use? SVPCo Viewpointe Endpoint Exchange Federal Reserve Direct Send Once I choose, how do I settle? What kind of images do I use? What happens when something goes wrong?

9. Customer Experiences Exchange Low volume, account level Highlighted back office and Day 2 deficiencies Forward Presentment IRDs Successful, particularly west to east Settlement Difficult at first, matured through use of NCHA Exceptions Image Quality, not the nightmare expected Returns, remain manual Exchange Low volume, account level Highlighted back office and Day 2 deficiencies Forward Presentment IRDs Successful, particularly west to east Settlement Difficult at first, matured through use of NCHA Exceptions Image Quality, not the nightmare expected Returns, remain manual

10. State of Today “A year after the Check Clearing for the 21st Century Act took effect, and supposedly triggered a race to use image exchange networks, many bankers are still at the starting blocks.” American Banker

11. Image Capture Image Archive Largely Mature: Most all Banks have some solution in place in these areas. Mature to moderately mature at Industry leaders. Less mature at followers. Re- engineering still to be done in many banks. Pilot or scaling solution at leaders. Followers are in evaluation or pre- commit position. Today – State of Payments Electronic Check Presentment (ECP) Process Re-engineering (Day 2 and Services) Image Product Introduction POP Transaction Electronification Generally lower volume, data only, with paper to follow. Image Exchange

12. Everybody wants to “send” Partners required

13. State of Today Statistics IRD Creation FED 1.8m+ per day EDS ~1m+ per day Multiple other sources Exchange Volume low, but on the rise SVPCo 240,000 images per day Viewpointe – current low volumes, but… Endpoint Exchange 3,500 banks live (8m:sept) Statistics IRD Creation FED 1.8m+ per day EDS ~1m+ per day Multiple other sources Exchange Volume low, but on the rise SVPCo 240,000 images per day Viewpointe – current low volumes, but… Endpoint Exchange 3,500 banks live (8m:sept)

14. State of Today – Federal Reserve Product usage: FedForward: 200 ICL customers; 200 paper-to- image customers FedReturn : 3 customers depositing FedReturn image cash letter FedReceipt : 4 customers receiving image cash letters as presentment Projections: 100,000 new items per day per month through year end 2006 20% of Check 21 presentments will be via FedReceipt or FedReceipt Plus by year end 2006 (currently.01%) Product usage: FedForward: 200 ICL customers; 200 paper-to- image customers FedReturn : 3 customers depositing FedReturn image cash letter FedReceipt : 4 customers receiving image cash letters as presentment Projections: 100,000 new items per day per month through year end 2006 20% of Check 21 presentments will be via FedReceipt or FedReceipt Plus by year end 2006 (currently.01%)

15. State of Today Trends Image Exchange Volume rising Substitute Check Volume rising Expected to plateau after 2007 Methodologies are maturing Point of Entry Impact Corporate Capture and ATM Deposits Trends Image Exchange Volume rising Substitute Check Volume rising Expected to plateau after 2007 Methodologies are maturing Point of Entry Impact Corporate Capture and ATM Deposits

16. State of Today Solutions Maturing Strategic View, but siloed Bank insistence on “best of breed” Components, rather than end-to-end Substitute Checks – when do they go away? Methodology varies, but is being rationalized Networks are maturing Solutions Maturing Strategic View, but siloed Bank insistence on “best of breed” Components, rather than end-to-end Substitute Checks – when do they go away? Methodology varies, but is being rationalized Networks are maturing

17. State of Today Expected this… What happened? Mass adoption of exchange Use of substitute check as transition instrument only Business case development around exchange of images Image Formats Standards Image Security Features Fraud expected to be among the highest risks of Check 21 Belief that Check 21 would increase exposure to fraud Expected this… What happened? Mass adoption of exchange Use of substitute check as transition instrument only Business case development around exchange of images Image Formats Standards Image Security Features Fraud expected to be among the highest risks of Check 21 Belief that Check 21 would increase exposure to fraud

18. State of Today Didn’t expect that… Substitute Checks Multiple sends Duplicates Fraud (intentional and inadvertent) Business case windfall (especially east-west) Develop a life of their own Slow adaptation of Exchange Lack of partners Low volumes leading to poor business cases What downstream changes are required when the paper not available? Didn’t expect that… Substitute Checks Multiple sends Duplicates Fraud (intentional and inadvertent) Business case windfall (especially east-west) Develop a life of their own Slow adaptation of Exchange Lack of partners Low volumes leading to poor business cases What downstream changes are required when the paper not available?

19. Future

20. Image Capture Image Archive Process Re-engineering (Day 2 and Services) Image Product Introduction POP Transaction Electronification Image Exchange Payments Convergence Shared Commodity Largely Mature: Most all Banks have some solution in place in these areas. Mature to moderately mature at Industry leaders. Less mature at followers. Re-engineering still to be done in many banks. Pilot or scaling solution at leaders. Followers are in evaluation or pre- commit position. Early days at majority of banks. Exploration or planning in process. “reconstructing the check world” Future – One Step at a Time

21. SILO “something that is kept separate or compartmentalized” Check Processing Credit/Debit Card LockboxACH Corporate Deposits Retail Branch Point of Sale

22. Future Offerings Will address multiple forms of payment Will integrate traditional Day 2 functions in-line, near real time Fraud Detection Exceptions identification Vendor co-existence matures Offerings Will address multiple forms of payment Will integrate traditional Day 2 functions in-line, near real time Fraud Detection Exceptions identification Vendor co-existence matures

23. Future Convergence – The Silo Meltdown Paper vs Electronic vs ACH vs … Fraud Detection Payments Tracking Across silos “Batch of One” view Convergence – The Silo Meltdown Paper vs Electronic vs ACH vs … Fraud Detection Payments Tracking Across silos “Batch of One” view

24. Summary Volume Trends to Continue Payments view shifting Silos Merging Volume Trends to Continue Payments view shifting Silos Merging

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