B2C Payments – A New Way to Pay The road to customer centric payments MN AFP – 34th Annual Conference Dana Christensen, CTP April 26, 2016 Agenda Let the journey begin ▪ Digital advancements and consumer behavior ▪ The resulting adoption of electronic payments ▪ Let’s split the bill… the P2P payments revolution ▪ B2C Solution… Digital Disbursements has arrived ▪ Questions 2 Digital advancements and consumer behavior Digital advancements are accelerating Select companies, products and services that have shaped digital connectivity and e-commerce 40 years 25 years Digital Foundation E-Commerce Online Payment Options Social Media Mobile & NFC Wallets / Mobile Payments 1950s • Packet networking 1960s • 1st packet network systems to use an internet protocol New Products & Services • 1st electronic mail sent 1970s • Cell phones conceptualized and patented 1980s • Patent filed for RFID • Commercial ISPs emerge 1950 1990 1995 2000 2005 2010 2014 Foundings / Mergers Large Scale data Security Breaches at Target, Home Depot, Snapchat, and Accounts Bank of America, Merrill Lynch and the Stripes design mark are registered trademarks of Bank of America Corporation. All other trademarks not Compromised at Apple 4 owned by Bank of America Corporation that appear in any Bank of America Merrill Lynch advertising/promotional materials are the property of their respective owners, who may or may not be affiliated with, connected to, or sponsored by Bank of America Corporation. For decades consumers had the same shopping process “I need to buy a birthday present” “What are some gift ideas?” The Commerce Lifecycle “How am I going to Pay?” “Where should I buy the present?” 5 Today the process is much more complex “I need to buy a birthday present” “What are some gift ideas?” I ask my friends on I read product reviews on Facebook Amazon I look for deals and coupons I check out the blog post my The Facebook friend sent me Commerce I found something I like… but want to Lifecycle make sure it’s safe “How am I going to Pay?” “Where should I buy the present?” Do I get a reward or points? Which account has extra $$$? Who has the best price? What is easiest What do people think and fast? Cash ? Credit ? What store with the product is about the store with the closest to me? best price? Bank of America, Merrill Lynch and the Stripes design mark are registered trademarks of Bank of America Corporation. All other trademarks not owned by Bank of America Corporation that 6 appear in any Bank of America Merrill Lynch advertising/promotional materials are the property of their respective owners, who may or may not be affiliated with, connected to, or sponsored by Bank of America Corporation. Consumer online shopping trends mean . In-store sales have plummeted U.S. retail store closings The USPS is closing facilities and introducing new delivery standards U.S. Retail Store Closings 250 * To close between * To close by 2011-2021 end of 2015 226 225 * Closed in 2013 200 * Closed in 2012-13 200 189 * To close by 2015 * To close between 2014-19 180 175 150 100 50 * To close by 2014 Source: Business Insider, August 2014 33 What happens to bank branches? 0 Barnes & Noble Staples GameStop Gap Abercrombie & Aeropostale JCP Fitch 7 Source: comScore, Q3 2013 Interaction with financial institutions is changing too ▪ Customer transaction trends moving ▪ Customers seeking convenient, self-service rapidly towards online, mobile and ATM options for transaction banking options ▪ Desire for transactions that are faster, ▪ Resulting in significantly lower volume of expedient and cost-effective over-the-counter transactions ▪ Desire for more personalized service, ▪ Geographic redundancy and distance to financial expertise and advice replacement services PERSONAL MORE AND ONLINE MOBILE CHECK SELF- SERVICE ENHANCED ATMS BANKING DEPOSIT SERVICING 8 The resulting adoption of electronic payments Online shopping is driving change U.S. Online Payment Volumes $200.0 $191.6 $181.1 $171.1 $161.7 $155.6 $152.9 $144.5 $142.5 ▪ $150.0 Credit usage is growing $138.9 $131.4 $130.8 quickly at 5.8% per year $124.4 $120.2 $117.6 $111.3 $110.7 $105.3 $102.0 ▪ Debit volumes increase $100.0 by 5.7% annually ▪ 'Other' payment types increase by 8.81% $50.0 annually $0.0 2013 2014 2015 2016 2017 2018 Major Credit Card Debit Card Other Online Payments Online Payment Volumes 2013 2014 2015 2016 2017 2018 CAGRs Major Credit Card $144.5 $152.9 $161.7 $171.1 $181.1 $191.6 5.80% Debit Card $105.3 $111.3 $117.6 $124.4 $131.4 $138.9 5.70% Other Online Payments $102.0 $110.7 $120.2 $130.8 $142.5 $155.6 8.81% Total Online Payment Volume $352 $375 $400 $426 $455 $486 6.68% Data Source: Javelin Strategy & Research – February, 2014. 10 Alternative payments capture share of online payment volume 'Other' U.S. Online Payment Volumes $Billions - USD $ $80.0 ▪ Online alternative $71.4 $66.5 payments grows by 7.4% $61.9 per year adding $21.4 BB in $60.0 $57.7 $53.7 volumes annually by 2018 $50.0 ▪ Prepaid cards continue to $40.0 show strong growth $29.0 $27.4 $27.2 $25.6 $25.4 $24.1 $23.9 $23.8 prospects with a 6.9% $22.4 $22.2 $21.0 $20.8 $20.0 $19.6 $20.0 $16.5 CAGR and $29 BB in online $13.7 $11.3 $9.4 volumes by 2018 $3.6 $3.3 $3.0 $2.7 $2.4 $2.2 $0.0 ▪ Online Credit services (e.g. 2013 2014 2015 2016 2017 2018 BML) grows at the fastest Online Alternative Payments Prepaid Card rate of 20.7% annually Store-branded Credit Card Online Credit Service Gift Card Linear (Online Alternative Payments) Other Online Payment Volumes 2013 2014 2015 2016 2017 2018 CAGRs Online Alternative Payments $50.0 $53.7 $57.7 $61.9 $66.5 $71.4 7.40% Prepaid card $20.8 $22.2 $23.8 $25.4 $27.2 $29.0 6.90% Store-Branded Credit Card $19.6 21.0 $22.4 $23.9 $25.6 $27.4 6.90% Online Credit Service $9.4 $11.3 $13.7 $16.5 $20.0 $24.1 20.70% Gift Card $2.2 $2.4 $2.7 $3.0 $3.3 $3.6 10.60% Total Online Payment Volume $102.0 $110.7 $120.2 $130.8 $142.5 $155.6 8.81% Data Source: Javelin Strategy & Research – February, 2014. 11 Mobile adoption Half of the world’s population now has a mobile subscription. With an additional billion by 2020, taking the global penetration rate to 60%.1 ▪ Now 50.3% of ecommerce website traffic comes through a mobile device2 ▪ In 2013, 95 million U.S. adults used mobile banking—27 million more than 20123 ▪ By 2018, 63% of the mobile consumer population is forecasted to be using mobile banking3 Mobile mindset4 How long could you last without your smartphone? Nearly half (44%) of Americans say they couldn’t make it a day without their mobile device. Older millennials (ages 25-34) and Gen X (ages 35-49) are even more dependent on their smartphones. 1. GMSA, The Mobile Economy 2015, www.gsmamobileeconomy.com; 2. Shopify; 3. Javelin Strategy & Research, MOBILE BANKING, TABLET AND SMARTPHONE FORECAST 2013-2018: Smart Device Adoption Drives Mobile Banking Boom, March 2014; 4.Trends in Consumer Mobility Report, Bank of 12 America, 2015 Adoption of Digital Wallets Digital or “e-wallets” are the fastest growing payment type globally U.S. Digital Wallet Payments1 ▪ They’re easy to use Transactional value and market share ▪ Favored for digital content (books, music, games, etc.) 2012 | $295B / 17% ▪ Young shoppers are driving this growth 2017e | $1,656B /41% ▪ Globally, Alipay and PayPal continue to dominate U.S. most used digital wallets as of January 2015 Now Android Pay Now Soft Card Now PayPal 13 1. Worldpay, Your Global Guide to Alternative Payments Second Edition 2014 Adoption of mobile banking Smartphones are changing the way consumers access financial services Fifty-two percent of Smartphone owners with a bank account have use mobile banking in the past 12 months1 Mobile banking Of those using mobile banking apps, more than four in five (82%) access it once a week or more. Nearly a third (31%) access mobile banking at least once a day or more. Trends in Consumer Mobility Report, Bank of America, 2014 14 1. Board of Governors of The Federal Reserve , Consumers and Mobile Financial Services 2015., March 2015 Let’s split the bill… The P2P payments revolution Consumers are driving a payment paradigm shift to alias-based payments Traditional Payments VS. Future Payments . Account Numbers . Tokenization for added security . Rigid payment/settlement rules . Phone number, email address . Storing static account data . Simplified payment/settlement rules . Lost payments data . Data capture flexibility Cash Phone email Checks Leading North America Alias Networks Credit or Debit PayPal users have ACH or Wire nearly doubled from 84.1 MM in Q1 2010 to 148.4 MM in Q1 U.S. settlement has not changed 20141 Bank of America, Merrill Lynch and the Stripes design mark are registered trademarks of Bank of America Corporation. All other trademarks not owned by Bank of America Corporation that 16 appear in any Bank of America Merrill Lynch advertising/promotional materials are the property of their respective owners, who may or may not be affiliated with, connected to, or sponsored by Bank of America Corporation. Global adoption of alias-based payments Alias-based platforms are critical enablers of increasing global payment needs Alias-based Payments Cash Checks Credit/Debit ACH/Wire Traditional Payments email Phone Benefits: Broad acceptance and penetration across the globe Local alias-based payment networks have solved The growth of these alias-based payment networks geographic interoperability challenges has brought millions into the formal economy PayPal users have more than doubled from 84.1MM in Q1 2010 to 173MM in Q3 20151 More users of Alipay (800MM) than internet users (629MM) in China at year end 20132 Used by 2/3 of Kenya’s adult population with 25% of the country’s GDP flowing through it3 Bank of America, Merrill Lynch and the Stripes design mark are registered trademarks of Bank of America Corporation.