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United Statespayments updateHoward N. Forman, AAPSenior Vice PresidentElectronic Payments Consultant
© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Utility Payment ConferenceSeptember 21, 2011
2
2010 Federal Reserve Payments Study – headlines Volume of noncash payments grew at a 4.6% CAGR
between 2006 and 2009; however, the total value of noncash payments declined
Nearly 80% of all noncash payments are now made electronically
Check volume continues to decline and at an increasing rate– The volume of checks written by consumers to businesses
(C2B) is declining dramatically
– Check clearing is almost fully electronic
Debit cards are now the most widely used noncash payment instrument
Credit cards showed slightly negative growth Data Source: Federal Reserve Payments Studies (2001 – 2010).
Distribution of noncash payments volume
3Data Source: Federal Reserve Payments Studies (2001 – 2010).
2006
Checks32%
Prepaid3%
ACH15%
Credit23%
Debit26%
2009
Debit35%
Credit20%
ACH18%
Prepaid5%
Checks22%
95 Billion Transactions 109 Billion Transactions
4
What a difference a decade makes
2000
Debit11%
Credit22%
ACH9%
Checks57%
2009
Debit35%
Credit20%
ACH18%
Prepaid5%
Checks22%
Data Source: Federal Reserve Payments Studies (2001 – 2010).
73 Billion Transactions 109 Billion Transactions
5
Check and ACH account for 95% of noncash payments value
2009 Volume
Debit35%
Credit20%
ACH18%
Prepaid5%
Checks22%
2009 Value
Debit2%
Credit3%
ACH51%
Prepaid0%
Checks44%
Data Source: Federal Reserve Payments Studies (2001 – 2010).
109 Billion Transactions $72 Trillion Value
6
Check writing continues to decline
0.3
2.6
3.1
37.3
30.5
24.4
2003 2006 2009
Number of checks written, paid, or converted to ACH (billions)
Paid as Checks
Converted to ACH
27.5
33.1
37.6
Checks Written
CAGR(‘03-’06)
CAGR(‘06-’09)
-4.1% -6.1%
98.7% 5.4%
-6.5% -7.2%
74% of checks paid are interbank checks 96% of interbank checks are cleared electronically at some point
Data Source: Federal Reserve Payments Studies (2001 – 2010).
7
Consumer to business checks are declining dramatically
8.6
6.0
2.0
0.6
1.6
1.2
5.1
2.4
C2B
B2B
B2C
C2C
Remittance POS Remit/ POS Other
Number of checks written by counterparty(billions)
CAGR(‘06-’09)
3%
-3%
-2%
-11%
7.8
12.2
Data Source: Federal Reserve Payments Studies (2001 – 2010).
8
ACH growth slowed, driven primarily by a slowdown in check conversion
0.3
2.6
3.1
8.4
12.0
16.0
2003 2006 2009
Number of ACH transactions(billions)
All Other ACH
Check Conversion
19.1
14.6
8.8
Total ACH
CAGR(‘03-’06)
CAGR(‘06-’09)
18.7% 9.3%
98.7% 5.4%
12.6% 10.1%
Data Source: Federal Reserve Payments Studies (2001 – 2010).
On-us ACH share is increasing, driven by bank consolidation
7.4(84% )
12.1(83% )
15.2(80% )1.4
(16% )
3.9(20% )
2.5(17% )
2003 2006 2009
Number of ACH transactions by clearing channel
(billions)
Network
On-Us*
19.1
14.6
8.8
Total ACH
CAGR(‘03-’06)
CAGR(‘06-’09)
18.7% 9.3%
21.8% 15.5%
18.2% 7.8%
*On-us volume includes direct exchanges
Data Source: Federal Reserve Payments Studies (2001 – 2010). 9
After years of strong growth, ACH growth slowed markedly in 2009 and 2010
10
10.712.3
13.915.0 15.3 15.6
14.015.1
17.118.3 18.8 19.4
2005 2006 2007 2008 2009 2010
Network Total
ACH Volume 2005 – 2010
Billions of Transactions. Includes commercial and government paymentsTotal Volume includes interbank, direct send, and on-us transactionsNetwork Volume excludes on-us transactionsData Source: Wells Fargo and NACHA
“Headline” Network growth rateof approximately 2.5% in 2010
ARC volume declined 8%
WEB transactions grew at 7%. There are now more WEB trans-actions than ARC transactions
“Native” electronic transactions (non-check conversion entries) increased by over 4%
CTX transactions – a key indicator of B2B activity – grew by over 11%
2010 Highlights
Data Source: Federal Reserve Payments Studies (2001 – 2010).
Selected SEC Code detail
2008Volume
2009 Volume
2010Volume
2010Growth
Accounts Receivable Conversion (ARC) 2,679MM 2,410MM 2,206MM (8.5%)
Point of Purchase Conversion (POP) 479MM 481MM 513MM 6.8%
Back Office Conversion (BOC) 78MM 161MM 181MM 12.9%
Internet Payments (WEB) 2,078MM 2,280MM 2,449MM 7.4%
Telephone Payments (TEL) 347MM 344MM 354MM 3.1%
Direct Deposit (PPD Credits) 4,333MM 4,545MM 4,710MM 3.6%
Direct Payment (PPD Debits) 2,742MM 2,770MM 2,833MM 2.3%
Corporate Credit or Debit (CCD) 1,937MM 1,996MM 2,064MM 3.4%
Corporate Trade Exchange (CTX) 55MM 60MM 67MM 11.1%
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Millions of Transactions. Network volume only – does not include on-us transactionsData Source: Wells Fargo and NACHA
Data Source: Federal Reserve Payments Studies (2001 – 2010).
12
Credit cards lose ground; and the card industry, overall, is changing
19.0
21.7
21.63.3
6.0
15.6
25.0
37.9
2003 2006 2009
Number of card payments by type(billions)
Debit
Prepaid
65.5
50.0
34.6
Total Card
CAGR(‘03-’06)
CAGR(‘06-’09)
13.1% 9.4%
N/A 21.5%
4.6% -0.2%
17.1% 14.8%
Credit
Data Source: Federal Reserve Payments Studies (2001 – 2010).
Prepaid cards are growing faster than other payment types; open-loop cards are growing rapidly
1.9
2.70.3
1.3
1.1
2.0
2006 2009
Number of prepaid debit card payments(billions)
Closed Loop*
General Purpose(open loop)
6.0
3.3
Prepaid Debit
CAGR(‘06-’09)
21.5%
63.4%
11.8%
21.4%EBT
*Closed loop does not include transit systems, toll systems, and phone cards
Data Source: Federal Reserve Payments Studies (2001 – 2010). 13
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And the winner is…
5.3
9.4
14.5
10.315.7
23.4
2003 2006 2009
Number of debit card payments(billions)
Signature
PIN
37.9
25.0
15.6
Total Debit
CAGR(‘03-’06)
CAGR(‘06-’09)
17.1% 14.8%
20.6% 15.6%
15.1% 14.3%
Data Source: Federal Reserve Payments Studies (2001 – 2010).
Bank consolidation is concentrating payments with the largest financial institutions
34%
63%
2003 2009
70%60%
2003 2009
Credit carddollar volume
42%
63%
2003 2009
Debit carddollar volume
ACH originationvolume
15Data Source: The Nilson Report (for credit and debit share) and Wells Fargo analysis (for ACH share)
Share of top 5 institutions
U.S. treasury management industry trends
Check- 8.0%
CDA- 6.0%
DDA- 4.5%
C&C- 3.0%
Rlbx- 1.0%
ARP- 1.0%
Info- 1.0%
Wlbx2.0%
Wire3.0%
ACH/EDI3.0%
P- Card13.5%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
2009 revenue growth rates(domestic cash management products)
16
DDA, 21.5%
Wire, 15.5%
Info, 10.0%ACH/EDI ,
8.0%
P-Card, 11.0%
Check, 8.0%
Wlbx, 10.0%
Rlbx, 2.5%
ARP, 3.5%
CDA, 3.0%
C&C, 7.0%
2009 revenue share(domestic cash management products)
DDA, 38.0%
Wire, 14.5%Info, 8.0%
ACH/EDI , 5.0%
Check, 13.5%
Wlbx, 9.0%
Rlbx, 3.5%
ARP, 4.0%
CDA, 4.5%
Vs. 2000
Data Source: Ernst & Young Annual Cash Management Services Survey (2001 and 2010).
The road ahead for checks– Addressing the last of the paper
– Retuned items via image
– Optimized payment routing• “Image and ACH” or “Image vs. ACH”
What can help propel ACH growth in the future?– “Same-Day ACH” solution
– Electronic Billing Information Delivery Service
– B2B Payments Directory
– E-Check applications Rule changes
17
Future drivers for payments in the U.S.
Future drivers for payments in the U.S.
Mobile, mobile, mobile– Mobile banking (e.g., bill payment) and e-commerce
– NFC-enabled smartphones
– Bar code displays
– Mobile Remote Deposit
EMV Standard (“chip and PIN”)– $10+ billion projected
implementation cost
– Already in place in Europe…and the rest of theindustrialized world
Future drivers for payments in the U.S.
Significant regulatory action impacting the card businesses– Credit CARD Act of 2009 (implemented in phases between
2009 and 2010)
– Overdraft Rule for one-time debit card purchases and ATM Withdrawals (implemented in 2010)
– “Durbin Amendment” to the Dodd-Frank Wall Street Reform and Consumer Protection Act (implementation in 2011)
Continued emphasis on prepaid cards– e.g., US Treasury DirectExpress card, WalMart MoneyCard,
Green Dot
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Closing comments
Check usage continues to decline in the U.S. – but checks still represent a significant payment method
– Consumer use declining more rapidly than business use
– Opportunities to increase share of checks “electronified” before reaching the bank
Card-based payments will continue to dominate the US payments business
– Regulatory actions and technology changes will meaningfully alter the card landscape
– General purpose prepaid card usage will continue to increase dramatically
The mobile channel will play an increasingly important role in the US payment system over the next several years
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