The Future of Payments (Is Now)
Steve Bernstein David Hudson Jeffrey Clennon Executive Director VP, Global Payments Senior Treasury Manager J.P. Morgan ADP Discover, Inc.
1 Agenda
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1 Changing Payment Environment 2 ◼ Current Payment Trends 2 ◼ Industry Trends 8 ◼ Mobile Adoption 14 2 Faster Payments 16 3 Looking Ahead 32 4 3DS 41 Federal Reserve Annual Supplement Data Annual growth rates by payment type, by number and value, 2012-17
2 Source: Federal Reserve Payments Study 2018 Annual Supplement Card Based Payments on the Rise
Trends in Noncash Payments, 2000-17 Number Number of payments inbillions
Source: Federal Reserve Payments Study 2018 Annual Supplement
3 ACH Volume Trend ACH payments increased 5.7% from 2016-2017
4 Source: Federal Reserve Payments Study 2018 Annual Supplement Same Day ACH
The ACH network is thriving – below reflect the 2018 same day ACH volumes as reported by NACHA
5 Source: www.NACHA.org Feb 2019 Focus on Human Capital Management (HCM) and Payroll
ADP Overview • Global leader in Human Capital Management (HCM) software and solutions • 810,000+ clients in 140 countries • Delivers payroll for 26 million (1 in 6) US workers and 15 million international workers • Partners with over 7,100 tax agencies across all levels of government throughout the US • Moved $2.1 trillion of US payroll and taxes on behalf of our clients and our clients’ employees in FY19 • 18M+ ADP Mobile Solutions App users
Sources: “ADP Investor Presentation, Summer 2019” – linked from https://investors.adp.com/events-and-presentations/default.aspx “ADP Corporate Overview” (last updated November 2018 – linked from https://www.adp.com/about-adp.aspx
6 Current Payment Methods: What Employers Offer Versus What Employees Use
From an online survey of ~7000 employers and employees across 13 countries in companies with 50+ employees to assess their perceptions of pay methods, pay cycles and elements of financial wellness
In North America
Source: “Evolution of Pay” Report, May 2019, ADP Research Institute: https://www.adp.com/resources/articles-and- insights/articles/e/evolution-of-pay.aspx 7 Agenda
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1 Changing Payment Environment 2 ◼ Current Payment Trends 2 ◼ Industry Trends 8 ◼ Mobile Adoption 14 2 Faster Payments 16 3 Looking Ahead 32 4 3DS 41 Focusing on and responding to the payments trends Analytics allow the payments ecosystem to respond to change
Real-Time Transaction Flow: Personalized Customer Engagement: Real-time transaction graph analysis Contactless mobile wallets and data provides insights for merchants to partnerships with merchants lead to manage cashflow, inventory, and contextualized offers based on “asking service levels the right question”
Digital Onboarding: Leverage Compliance Investments: Use digital onboarding to collect Consumer Financial Protection KYC data, automate account Bureau(CFPB) compliance and KYC/AML opening forms, and identify investments lead to better “voice of customer needs promptly customer” measurement and customer Payments experience analytics of the future Faster Payments: Robotics & Process Automation: Innovation produces faster rails, Automate transactional testing, international transfer, and B2B solutions fulfillment, and dispute to enable cheaper payments and reduce management to reduce manual reliance on cash work
Real-Time Fraud Analytics: Preferred Payments: Issuers use scalable machine A single card becomes “top of wallet,” learning platforms to generate so include this in behavioral fraud alerts and mitigate cyber segmentation to target the “moments risk that matter’”
8 Source: Deloitte December 2018 – The Financial Brand The Move to Digital Payments
◼ Digital Payments are a multi-initiation, multi-rail payment engine with powerful intelligent routing capabilities
◼ Mobile and web-based solutions enable you to issue electronic payments to your customers using their email address or phone number1
Improve customer experience
◼ U.S. usage of smartphones 80% (and growing)2
Reduce total costs
$ ◼ Average cost to process a 3.00 single check3
Increase payment security
◼ Organizations experienced check ◼ Online and mobile portals have the ability to use strong fraud in 20164 password requirements and multi-factor authentication for 75% enhanced security
1 Consumer must provide consent in order for their phone number to be used to initiate payments. 2 Source: ComScore, February 2016 U.S. Smartphone Subscriber Market Share 3 Source: 2015 AFP Payments Cost Benchmarking Survey 4 Source: 2017 AFP Payments Fraud & Control Survey 9 Omnichannel Payments on The Rise Consumers expect to buy anytime, anywhere and any way they choose
10 Source: PWC Holiday Outlook December 2018 Giving Clients a Choice
Simplifying Package Solutions that Focus on the Client’s Objective
Simple Seamless Immediate Analytical Interconnected
Transform cross-product capabilities: Store all payments data in one place Real-time data: Open connectivity: and create optimization capabilities Flexible data exchange for Global Provide interactive all clients Inventory Optimizer Manager Payments reporting/recon in real- time Enterprise Resource Interactive Planning Dashboard (ERP) Redefine core bank processing: Adapter Clear and track payments in many currencies, by account, anytime Virtual Account Management Managed Payments Network Payments Visual Application FX end-to-end Mapping of Programming Accounts Interface (API) Payment Tracking
11 Access Several Payment Rails from a Single Point of Contact
Client initiates payment
Bank
RTP Same Day ACH ACH Zelle® Check Day 0 Day 0 Day 0-2 Day 0 Day 3-5
◼ Restricted to ◼ Transaction limit of $25,000 ◼ Leverages traditional ◼ Member Bank 2: Straight ◼ Receive check if 1 participating banks ◼ 1pm EST acceptance cutoff, ACH rails for payment through notification is declined or ◼ Transaction limit of if missed will convert to – If payee’s bank is a expires $25,000 Standard ACH process member of Zelle and ◼ No e-mail address? Send payee enrolled via their payments direct to check bank without having to pass additional files Intelligent routing logic would facilitate payments based on your preferences
Did the customer Is the payment less Is ABA RTP eligible? Real Time Payment accept the payment? than $25,000?
Same-day ACH if before 1PM EST Check ACH Payment Next-day ACH if after 1PM EST
12 1 Visit www.theclearinghouse.org/payments/real-time-payments for current member list 2 Visit www.zellepay.com for current member list Nontraditional pay options: Employer offerings, Employee usage, and Employee acceptance is growing
“Nontraditional” options: Pay Card, Mobile payment (pay deposited to a mobile wallet), Digital platform (similar to Venmo or PayPal), or Cryptocurrency)
In North America Globally Employee usage/acceptance Employee views (% selecting) • 43% of Employers offer Nontraditional options • 5% of Employees use Nontraditional options • 49% of Employees willing to accept Nontraditional options
Source: “Evolution of Pay” Report, May 2019, ADP Research Institute: https://www.adp.com/resources/articles-and- insights/articles/e/evolution-of-pay.aspx 13 Agenda
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1 Changing Payment Environment 2 ◼ Current Payment Trends 2 ◼ Industry Trends 8 ◼ Mobile Adoption 14 2 Faster Payments 16 3 Looking Ahead 32 4 3DS 41 Mobile Adoption Smartphones ultimately influence 56 cents of every dollar spent in brick-and-mortar stores
◼Around the world, 36% of smartphone users currently make mobile payments ◼In 2018 the 55 million people who made mobile payments equates to 20.2% of all Americans ◼Expected to grow to 39.2% within the next year ◼When Google Pay launched in 2014, 3% of U.S. retail stores accepted it; now, half do
◼One thing Starbucks does that Apple and Google don’t is incentivize consumers to use its app ◼66% of shoppers who use WalMart Pay, which is also on track to surpass Apple and Google in users, end up using the service again within 3 weeks ◼These payment apps facilitate seamless transactions, which drive loyalty and repeat visits
14 Source: https://www.clickz.com/mobile-payments-2019-beyond/222602/ Deloitte Digital research; https://www.emarketer.com/content/the-mobile-payments-series-the-us Mobile Wallet Usage Survey Conducted in 2018 of over 120,000 consumers reflecting usage of mobile payment providers
15 Source: Statista 2019 Agenda
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1 Changing Payment Environment 2 2 Faster Payments 16 ◼ U.S. Updates 16 ◼ Regional Updates 23 3 Looking Ahead 32 4 3DS 41 Same Day ACH Updates Greater payment flexibility: With 70 different consumer and business options, same day ACH is greatly enhancing payment processing options for our clients.
Consumer to Business Consumer to Consumer Business to Business Business to Consumer ◼ Bill pay ◼ Person to person ◼ Trading partner ◼ Payroll ◼ eCommerce ◼ Account to account payments ◼ Insurance ◼ POS check conversion ◼ Due-date and invoice ◼ Refunds payments ◼ Merchant debit ◼ Collections
Upcoming and Proposed Same Day ACH Rule Changes
September 2019 March 2020 March 2021
Funds from Same Day ACH credits Expanding the dollar limit for Adding a third Same Day ACH processed in the existing, first Same Day debits and credits from exchange at 4:45 pm ET with end processing window will be made $25,000 to $100,000 of day availability available by 1:30 p.m. in the 1 RDFI's local time credits exchanged in 2 3 the 10:45 as ET Same Day ACH window
16 RTP– 1st new U.S. payment system in 40 years Initiative overview Key features
◼ Real Time Payments (RTP) are immediate, irrevocable, secure, contextual, and 1 Speed: Money is available to payee within 15 seconds convenient
◼ API based, which supports unified payments integration and contextual 2 Amount: Credit transfers in USD of up to a $25,000 maximum (currently) commerce
◼ Robust remittance detail allows for Availability: Payments available 24/7/365 streamlined reconciliation with payment 3 confirmation and reporting of information- rich content 4 Messaging: Extensible messaging (ISO 20022) supports more sophisticated ◼ TCH owner banks include (total 25): applications (e.g., bilateral messaging)
5 Security: Sender initiates the transaction from own funded DDA
6 Reach: Today the RTP network reaches 50% of U.S. transaction accounts, and is on path to reach nearly all U.S. accounts in the next several years
Source: https://www.theclearinghouse.org/payment-systems/rtp/institution
17 What is Request for Payment?1
Speed Once the request is Availability paid, money is available to Available 24/7, requestor within including holidays seconds
Remittance Payment ISO 20022 supports Request for Payment allows Acknowledgements sophisticated a sender to initiate a notification remittance, including Instant confirmations requesting payment from another PDFs and additional when funds are attachments party, typically for goods or services transferred rendered.
Amount Security Credit transfers in $25,000 Payer initiates the USD of up to a transaction from their $25,000 maximum own funded DDA
1Request for Payment is a future technology that is under development and timelines are subject to change. 18 Request for Payment1 Benefits
Billers Payers
Instant reconciliation streamlines the accounts Easy access for customers to records of all bills receivable process and gives full visibility into paid via online banking portal payment details in the remittance
Instant payments adds the potential for a day of Immediate funds availability reduces chance of extra liquidity and allow for last-minute bill- funds arriving late pay/emergency transfers
Enhanced customer experience creates a Straight-through digital processing reduces the need competitive advantage and reduces costly manual for high-cost checks and mail billing processes
Bill delivery through secure banking channels (not Bill delivery through secure banking channels (not through e-mail or public internet) reduces risk for through e-mail or public internet) reduces risk for both parties both parties
Instant notifications that the customer has Instant notifications that Verizon has successfully successfully received the bill received funds
1Request for Payment is a future technology that is under development and timelines are subject to change. 19 What is Zelle®? Zelle® is a digital payments network that facilitates the transfer of money to anyone with a U.S. domiciled bank account and email address or U.S. mobile phone number
The solution
◼ Zelle is a product of Early Warning®, which is a private company owned by seven of the nation’s largest financial institutions The Zelle network consists of 220+
financial institutions, over 100 million customers1 who have access to Zelle through their bank or credit union
◼ For consumers who are already enrolled with Zelle through their bank, email or U.S. mobile phone number act as a “token” that is linked to an existing bank
account, allowing payments to be automatically pushed to recipients
Key benefits
◼ Speed – Consumers do not have to manually register to a new portal and accept payments, allowing for faster funds transfer
◼ Efficiency – Clients only need to provide an email or U.S. mobile phone number to identify Zelle-enrolled consumers
◼ Reach – Zelle financial institution participants represent nearly 80% of the online DDAs in the U.S. and can reach 97% of the U.S. debit card holders. On average, more than 100,000 consumers are enrolling daily2
◼ Safety – With the security consumers already know and trust from their financial institution 1 Source: http://www.zellepay.com/ Note: Zelle is a trademark of Early Warning Services 2Source: 2018 Zelle in a nutshell webinar hosted by NACHA 20 Adoption of Mobile Money Transfers In the US, the number of mobile P2P users is expected to increase to 126 million (57% of all mobile device owners) by 2020
◼With mobile P2P you don't need the correct change, a paper check, or a nearby ATM ◼Transactions are also fast compared to the time it often takes to wait for a check or bank transfer to clear Transfer of funds from one person’s bank ◼Mobile P2P payments remove some of the stigma of asking for money— account to another person’s bank account via users can request money remotely online/mobile using an email address or mobile phone number
Source: https://www.forbes.com/sites/ronshevlin /2019/02/11/venmo-versus- zelle/#63fbb3043c62 21 Data based on Q2 Cornerstone advisors Employees: Security, Speed, Tracking, and Details are the most important elements of pay
Employee View: Most Important Elements of Pay, by Generation (% Selecting, respondents asked to pick the top three most important)
Source: “Evolution of Pay” Report, May 2019, ADP Research Institute: https://www.adp.com/resources/articles-and- insights/articles/e/evolution-of-pay.aspx 22 Agenda
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1 Changing Payment Environment 2 2 Faster Payments 16 ◼ U.S. Updates 16 ◼ Regional Updates 23 3 Looking Ahead 32 4 3DS 41 PSD2 Open Banking – XS2A (Access to account in EMEA)
Overview: Access to Account (XS2A) Bank acting as a PISP
◼ XS2A concept provides the ability for regulated Third Party Bank PSU Bank Providers (TPPs) to offer services to account holders for (TPP) accessing account information and initiating payments from Access Data their bank account Bank Client ◼ AISP – Account Information Service Provider ◼ PISP – Payment Initiation Service Provider ◼ Regulatory Technical Standards (RTS) are being developed by the EBA, which will cover the communication standards for PISP AISP and PISP to interact with banks and PSPs PSD2 allows regulated third-party PISPs to initiate payments ◼ The connection between AISP/PISP and banks is likely to be directly from customer payment accounts so long as they enabled using Application Programming Interface (APIs) have the customer’s consent. which enable companies to connect directly to financial institutions
PSU Banks Bank Bank acting as a AISP Client
Access Data AISP
Regulated third-party AISPs can access customer data (with the customer’s consent) to provide an overview of a customer’s payment accounts (balances and transactions) with different banks Bank in one place (TPP)
23 Real Time Payments landscape
24 A focus on selected Instant Payment solutions
U.K. – Faster Payments (FPS) – live since 2008
◼ Credit transfers in GBP within 15 seconds, with a maximum value of £250,000
◼ The clearing is facing an overhaul through the creation of the NPSO (New Payment Systems Operator) and the merger of U.K.’s three ACH-clearings (Bacs, FPS and C&CCC)
◼ J.P. Morgan currently operates as an indirect agency with 18 by 5 availability. Our strategic ambition is to become a Direct Participant and offer 24 by 7 processing during 2019
◼ For further information, please visit; http://www.fasterpayments.org.uk/
SEPA Instant Payment – Live Nov 2017, critical mass expected by 2020
◼ Credit transfers in Euro within 10 seconds, with a value of up to EUR 15,000
◼ SEPA ‘inst’ payments available 24 x 7 x 365 across the SEPA region
◼ J.P. Morgan is an original funding member of EBA Clearing’s SEPA Instant Payments, and launched SEPA Instant in April 2019
◼ For further information please see; https://www.ebaclearing.eu/services/instant-payments/introduction/
TARGET Instant Payments Settlement (TIPS) – Live Nov 2018 across markets with Euro as currency
◼ Credit transfers within 20 seconds in any currency – settled on accounts held with the European Central Bank
◼ No value limit applied for any available currency, however the clearing is expected to be predominantly Euro focused
◼ The European Central Bank has announced plans to enhance TARGET2 with TARGET Instant Payments Settlement (TIPS); J.P. Morgan is a direct TARGET2 member and part of the Central Bank’s TIPS Contact Group
◼ J.P. Morgan is currently evaluating the business case and the proposed requirements by direct members. For further information please see; https://www.ecb.europa.eu/paym/initiatives/html/documents.en.html
25 A focus on selected Instant Payment solutions
Saudi Arabia - Future-Ready ACH – In planning phase. Expected to be deployed during 2018
◼ The Saudi Arabian Monetary Agency (SAMA) is playing a pioneering role in the region when it comes to transforming the payments landscape by establishing an innovative and efficient payments infrastructure
◼ SAMA is initiating the development of a new market infrastructure for low-value retail payments that aims to reduce reliance on cash and improve the efficiency of the financial ecosystem. The new infrastructure will have 24/7 capabilities and support ISO 20022 messaging standards
◼ J.P. Morgan is closely monitoring the development across the region through our local branch. For further information, visit; http://www.sama.gov.sa/en-US/Pages/default.aspx
Switzerland – SIC – setting an industry standard since 1987
◼ Switzerland was one of the very earliest adopters of real-time payment systems which handles a combination of low, medium and high value transactions
◼ Today’s system is the 4th generation, processing Swiss franc payments between financial institutions in real time on a gross settlement basis – 24 hours per day from Monday to Friday
◼ Proprietary message formats with introduction of ISO 20022 was initiated in 2015, with full migration completed by 2018
◼ J.P. Morgan is currently supporting SIC (same-day) transactions through our local branch with direct membership of the clearing. For further information please visit; https://www.snb.ch/en/iabout/paytrans/sic/id/paytrans_swiss_interbank_clearing
Sweden - BIR (Betalning i Realtid) – Instant Payments via phone numbers – live since 2012
◼ BIR is a Bankgiro developed clearing, mainly to support the mobile-app ‘Swish’, which allows C-2-B and C-2-C users to make instant payments via mobile phones to recipients based on their telephone number The advantage of not having to utilise account numbers, IBAN etc excels the user experience and the app has more than 6 million users - 60%+ of the population
◼ The rapid uptake has accelerated the already steep decline is cash, making Sweden one of the least cash dependent countries in the world
◼ J.P. Morgan is currently supporting Bankgiro (next-day) transactions through our partner bank arrangement across the Nordic region. For further information please visit; https://www.bankgirot.se/en/about-bankgirot/our-offer/payment-systems/payments-real-time/
https://www.six-interbank-clearing.com/en/home/payment-services/sic/how-it-works.html26 APAC Real Time Payments Real time payment capabilities progressively expand across APAC
Messaging Amount Availability Speed Security
ISO 20022
ISO 20022 supports Money is available to payee Credit transfers in local Instant payments Sender initiates the transaction sophisticated within seconds currency of up to available 24/7/365 from their own funded DDA applications permissible limits Client Benefits Asia Pacific Real-time Payment landscape
▪ Allows 24x7 availability E-commerce Enabler ▪ Instant payment confirmation ▪ Rich payment format with ISO20022 KR JP CN Instant ▪ Real-time transaction confirmation Payment IN HK ▪ Real-time view of cash position TH Finality and PH Visibility ▪ No return, reversal or chargebacks MY SG
▪ Introduction of Pay Alias (e.g. Pay Now SG) Markets Live in APAC Industry API-based, supports frictionless payment integration Digitization ▪ ▪ Supports value-added services e.g. QR code, Request to AU Pay
Improved ▪ Increased DPO via last second initiation Liquidity ▪ Better controls Management ▪ Immediate funds availability and visibility
27 Digital disruption is sweeping Asia, making it the next big eCommerce opportunity
Technology Disruption Evolving Payments Landscape eCommerce Global Growth Internet penetration will be ~49% by 2019 E-wallets dominant APAC leading the opportunity
Online Penetration Asia Pacific e-Commerce sales by payment methods APAC eCommerce sales1 (U.S. $’B) Smartphone Penetration Worldwide eComm Sales Internet Penetration 67.0% 2016 2021E 5,000 APAC eComm Sales 68% APAC % of Total 65.8% 48.8% 4,500 40% 50% 64.1% 66% 45.8% 51% 4,000 35% 43.1% 62.1% 64% 45% 3,500 30% 40.6% 62% 3,000 59.6% 25% 60% 40% 30% 2,500 20% 56.6% 58% 22% 2,000 4,479
35% 3,879 56%
15% 16% 16% 1,500
3,305 3,001
10% 11% 10% 2,774 54% 10% 9% 1,000 2,552 7% 7% 2,290
30% 2,120 1,859
4% 4% 1,723 3% 500 52% 5% 1,365 29.5% 32.8% 35.7% 38.5% 1,053 0% 25% 0 50% Credit eWallet Bank Cash on Debit Pre-Paid Others 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 Card transfer Delivery card Cards
Source: eMarketer Nov 2017, Statista Aug 2015 Source: Worldpay as of Nov 2017 Source: eMarketer Jun 2017;Note:Includes products or services Note: Individuals of any age who own at least one ordered using the internet via any device, regardless of the method smartphone and use the smartphone(s) at least once per of payment or fulfillment; excludes travel and event tickets; 1Dollar month amount of Retail e-commerce transactions (includes both B2C and C2C) - gross merchandise value
Significant growth in online mobile Digital wallets are overtaking traditional APAC e-retail revenue is expected to usage and internet penetration cash payment methods nearly double by 2021
More than 75% of connected consumers in APAC made their most recent eCommerce purchase via mobile, attributed to emerging, mobile-first markets in the region
Source: Kantar TNS annual study of digital behaviors, Dec 2017; 28 Further expansion of mobile payment users and rapid growth of mobile payment transactions
2012-2019E online and mobile payment transactions 2014-2019E China user scale and forecast (100 million) (CNY tn)
8.0 70% 300.0 707.0% 800% 65.1% 6.98 229.0 6.44 60% 5.60 250.0 6.0 50% 165.9 600% 4.62 200.0 391.3% 3.55 40% 381.9% 4.0 150.0 400% 30.1% 30% 98.7 2.15 21.2% 100.0 2.0 20% 58.8 15.0% 89.2% 103.5% 200% 10% 50.0 68.0% 68.0% 38.0% 8.4% 1.2 6.0 12.2 0.2 0.0 0% 0.0 0% 2014 2015 2016 2017 2018E 2019E 2012 2013 2014 2015 2016 2017 2018E 2019E Mobile payment users Growth rate Online payment Mobile payment Online payment growth rate Mobile payment growth rate
◼ 2017 total mobile payment users of 560mm; increase of 21.2% compared to ◼ 2017 online payment transactions of CNY 26tn; increase of 30.7% compared 2016 to 2016 ◼ 2018E flattening growth rate for mobile payment users; forecasted to amount ◼ 2017 mobile payment transactions of CNY 98.7tn; increase of 68.0% to 644mm compared to 2016
Market share of third-party payment providers by transaction size
Online payment Mobile payment 5.8% ◼ Alipay ◼ Alipay 32.5% 31.5% ◼ Tenpay.com ◼ Tenpay.com 39.8% 54.4% ◼ ChinaUMS ◼ Others 16.7% 19.3% ◼ Others
Source: iResearch
29 Global Employer and Employee perspectives on Nontraditional pay options: Offerings and Usage
Source: “Evolution of Pay” Report, May 2019, ADP Research Institute: https://www.adp.com/resources/articles-and- insights/articles/e/evolution-of-pay.aspx 30 Global Employer and Employee perspectives on Nontraditional pay options
Employee usage/acceptance
Employee views (% selecting)
Source: “Evolution of Pay” Report, May 2019, ADP Research Institute: https://www.adp.com/resources/articles-and- insights/articles/e/evolution-of-pay.aspx
31 Agenda
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1 Changing Payment Environment 2 2 Faster Payments 16 3 Looking Ahead 32 ◼ Impact of New Technologies 32 ◼ Innovation through Blockchain 38 4 3DS 41 Prepare for Real-Time Treasury With markets moving to 24/7 clearing, treasurers should be prepared to receive payments at any time. With cash settlement taking place 24/7, the need for real time visibility, automated processing and dynamic liquidity management becomes critical
Benefits to Treasury Data Virtual Analytics Accounts
Enhanced working capital Real time Automated analytics payments
Automated APIs Real time collections Robotics Reduced operating cash buffers transaction reporting
Automated Real Time reconciliation Improved yield optimization Real time Treasury balance reporting Automated Machine postings Learning Increased straight through Decision Making processing and reconciliation Automated cash Automated concentration investments Automated More time to focus on strategic FX activities Virtual Accounts
Unitized Time Deposits
32 Role of Technology in Treasury Management However the technology tools to help Corporate Treasurer’s achieve their objectives have evolved over time
Past Future
Batch Task Driven Physical Real-Time Intelligence Virtual Processing Systems Processing
API Robotics Cloud Host-to-Host Spreadsheets ERP Systems
v
ACH Specialist Tools Treasury Systems Blockchain Machine Learning
Technology Tools
33 The Six D’s of Technology Disruption Understanding the technological progression of these new technologies is critical to planning for their disruption.
The Six D’s: Exponential Growth Path of New Technologies 1. Digitized Growth Exponential growth 2. Deceptive 3. Disruptive Democratized 4. Demonetized Dematerialized 5. Dematerialized 6. Democratized Demonetized Cloud Disruptive Linear growth Robotics Data Analytics
APIs Deceptive Machine Learning
Digitized Blockchain
Time
Source: Singularity University
34 Transforming the Future of Payments Emerging technologies continue to impact change and fuel innovation across all industries
Control Growth Optimization
◼ Providing the tools you need to put you ◼ Providing unparalleled access to the ◼ Creating efficiencies helping you to in the driver’s seat market save time and money
◼ Enabling you to Implement automated ◼ Enabling opportunity to grow your ◼ Visibility into global payments controls to help mitigate your risks and business locally, regionally and information in one place to effectively improve visibility and control over your globally mange cash position, FX exposure and payments …
Innovation fueled by emerging technologies
Distributed Ledger Technology Application Programming Cloud Computing Other technologies (Blockchain) Interfaces (APIs)
A distributed network that Set of integration tools and A shared computing model Machine Learning, Artificial uses cryptography to validate rule sets that specify how that provides resources and Intelligence and Data transactions in real time counterparties interact with data on demand Streaming, etc. without relying on a central each other intermediary
Innovative Technology Examples in Treasury Services: Innovative Technologies drives J.P. Morgan Treasury Services:
◼ Big Data – Liquidity/Cash Management Dashboard ◼ Enhanced client experiences
◼ Cyberfraud Detection – Wire Positive Pay ◼ Create new revenue streams
◼ AI / Machine Learning – Intelligence Repair System ◼ Operational efficiencies
35 Employers and Employees agree: Optionality on pay will be critical for talent management and recruitment When making a decision to accept a job offer, Employers agree that… employees say… companies will need to customize payment options the ability to to remain competitive in select pay frequency would the war for talent. make a difference.
their company has seen a the ability to have early need for different employee access to earned wages payment options. would make a difference.
it is important to have the the ability to receive same ability to customize pay day pay would make a methods for different types difference. of workers.
Source: “Evolution of Pay” Report, May 2019, ADP Research Institute: https://www.adp.com/resources/articles-and- insights/articles/e/evolution-of-pay.aspx 36 Employers: a majority believe changes are needed in the delivery of pay and the benefits outweigh the risks
Source: “Evolution of Pay” Report, May 2019, ADP Research Institute: https://www.adp.com/resources/articles-and- insights/articles/e/evolution-of-pay.aspx 37 Agenda
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1 Changing Payment Environment 2 2 Faster Payments 16 3 Looking Ahead 32 ◼ Impact of New Technologies 32 ◼ Innovation through Blockchain 38 4 3DS 41 How Blockchain Can Improve Global Payments
• Through smart contracts, • Enable international • Allows transfer of funds with foreign exchange can be regulators to monitor minimal fees and efficient sourced from participants transactions in real-time and delivery without need of willing to facilitate the enforce AML Policies. correspondent banks conversion of fiat currencies
Source: https://gomedici.com/overview-of-the-payments-industry/ 38 Interbank Information Network (iiN) A global distributed network for real-time, interconnected flow of information that will address immediate pain points across the financial industry and enable new services
Key developments IIN model for compliance inquiries
◼ An industry platform that leverages J.P. Morgan’s Quorum, Remitter a blockchain technology, to enable frictionless information Bank exchange across banks
◼ Information is exchanged and maintained through a Remitter 3 secure and permissioned network
◼ IIN’s first application called Resolve streamlines the 2 Interbank 2 process for resolving compliance inquiries Information ◼ Platform provides the foundational technology and Network architecture for participants to develop new applications Correspondent or value-added services Bank B Beneficiary bank ◼ Applications will facilitate informed, real-time risk 1 4 management, fraud prevention, compliance screening and reduce timely payment errors and returns Compliance inquiry Client benefits 1 Data request 2 Data exchange 3 4 Data remittance
◼ IIN’s first application called Resolve streamlines and automates compliance related inquiries reducing payment delays, increasing efficiency, and improving the payor and payee experience
◼ Enables cross-border payments to reach beneficiaries faster while reducing costs associated with compliance inquiries
◼ Maintains Personal Information (PI) within secure network provisioned for validated payments Scan the QR code with your smartphone or click the image to view the video on Interbank ◼ Actively growing network with key foreign correspondent banking clients to further Information Network enable faster payment execution
39 iin Continued
40 Agenda
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1 Changing Payment Environment 2 2 Faster Payments 16 3 Looking Ahead 32 4 3DS 41 3D Secure Summary
State of Industry
• Fraud is shifting from POS to online now that EMV is rolled out
• Phishing and hacking of PII information is becoming more prevalent
• Proliferation of wallets and migration of commerce to mobile
3D Secure (3DS) is the industry standard protocol that allows the issuer to authenticate digital transactions pre- authorization
41 How 3DS Works
Risk Assessment
ALLOW CHALLENGE DENY
1. The 3DS Merchant contacts Directory Server (DS) to complete a 3DS request 2. If the Issuer participates the DS will attempt to connect the Issuer’s Access Control Server (ACS). If the Issuer does not participate or the DS cannot connect to the Issuer’s ACS, the DS will generate and send the 3DS data to the merchant via the Attempts ACS 3. The Issuer will use the data supplied by the merchant and customer to authenticate the cardholder and provide a response back to the DS (it is during this step that the consumer may be challenged with OOB) 4. The 3DS data required for the authorization is provided to the Merchant by the DS 5. The Merchant (or Merchant’s Processor) transmits the 3DS data in the Authorization Request 6. The Issuer provides response results of the 3DS data validation in the Authorization Response
42 In App User Experience Step 3. Step 2: Step 1: Issuer challenges CM Step 4: CM selects item and CM visits Merchant site for further verification Transaction is completed moves to checkout (Risk-based)
Discover
• ALLOW transactions bypass the challenge view and move to checkout • ACS provides HTML in accordance of mobile template to enable issuers to provide consistent experience across merchants
43 Phone fraud by the numbers
1 in 2500 Fraudulent calls to financial call centers
5 Avg. # of calls needed to compromise an account
$0.57 Lost for every call into your call center
44 Phoneprinting™
LOSS • Packet loss • Robotization • Dropped frames Call Audio SPECTRUM • Quantization • Frequency filters • Codec artifacts 147 audio features in each fingerprint NOISE • Clarity • Correlation • Signal-to-noise ratio
Phone Type Geo-Location Risk Score
45