1. FSTC’s 2008 Annual Conference On the Innovative Edge: Successful Strategies for Financial Services Industry Navigators The Financial Services Technology Consortium Empowering the Industry Through Innovative Ideas

2. FSTC’s 2008 Annual Conference On the Innovative Edge: Successful Strategies for Financial Services Industry Navigators Transforming an Industry: Banking at the Crossroads

3. Transforming an Industry: Banking at the Crossroads 2008 FSTC Annual Conference June 19, 2008 Rich Oliver Federal Reserve Retail Payments Product Office

4. 4 Turbulent Times Too many options; too little time; too few resources Laws; rules; regulations are shifting Competition (in-house and out-of-house) squeezing margins Volatile economy confuses business cases Concerns about risk/fraud abound Globalization beckons seductively

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6. 6 Number of Noncash Retail Payments CAGR Checks (paid) Debit card Signature PIN Credit card ACH EBT 41.937.330.6 8.315.625.3 5.310.316.0 3.05.39.4 15.619.021.7 6.28.814.6 0.50.81.1 24.9% 6.7% 23.5% 12.1% -3.8% 21.0% 15.4% 15.8% 4.6% 17.5% 18.6% -6.4% 20.6% 10.0% 200020032006 Total (billions) 2000 - 20032003 - 2006 72.581.493.3 3.9% 4.6%

7. 7 Composition of the Check Market *Population is “prime pass” checks processed by nine large commercial banks. Estimates exclude 0.2% of checks that could not be classified. “B” refers to business or government. Figures may not add due to rounding. Casual Income 32% 6% 13% 51% C2B 16% 5% 3% 25% B2BC2C 7% B2C Remittance Remit/POS POS 17% 2006 distribution of checks by counterparty and purpose Percent of sampled population of checks* Representative random sample of over 32,000 checks. Sample population is about 40% of “prime pass” checks. Consumers write 58% of checks paid. Businesses/government receive 76% of checks paid.

8. 8 The State of “Electronification” Electronic payments now over two- thirds of non-cash retail payments Debit card usage outstrips credit usage on a transaction basis ACH is a core network for payment (and payment information?) delivery Remote deposit capture and Check 21 appear to be on a fast path

9. 9 Cause and Effect Watchwords for the Time Understanding the marketplace Cost cutting/efficiency Sharp business case analysis Collaboration Outsourcing Pricing rationalization

10. 10 Even at the Fed Long-range strategies keyed to market events; not specific dates 45 check processing sites now down to 17 Torturous assessment of future Check 21 needs Working closely with other service providers on connectivity, standards, contingency, etc. Outsourcing major software; project management work Pricing paper, well, like paper

11. 11 Gazing into the Future Checks “fully” electronified by end of 2009 More and more sharing and outsourcing Managing “convergence” boils the water – ACH or Check 21? B2B continues to languor Cyberworld challenges complicate things

12. 12 Forum for Retail Payments Risk Management Small research group at FRB Atlanta Focused promoting dialogue and collaboration among FIs, regulators, law enforcement, and others Sponsor research, education, meetings to facilitate mitigation Fill gaps, facilitate, not duplicate Externally driven agenda Just getting organized

13. FSTC’s 2008 Annual Conference On the Innovative Edge: Successful Strategies for Financial Services Industry Navigators The Financial Services Technology Consortium Empowering the Industry Through Innovative Ideas

14. FSTC’s 2008 Annual Conference On the Innovative Edge: Successful Strategies for Financial Services Industry Navigators Getting To Integrated and Interoperable Mobile Payments