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Please turn off all cell phones or mobile devices.

Thank you to today’s sponsors!This morning’s Continental Breakfast sponsored by Javelin

Breakfast Roundtables sponsored by SWACHAThought Leadership Spotlight Session sponsored by Fundtech

Monday Night Celebration sponsored by Fiserv

Most of the education sessions at the conference can be counted towards yourcontinuing AAP accreditation. If you are interested in becoming an Accredited ACHProfessional (AAP), please stop by the NACHA & RPA booth.Please take a moment to complete session evaluations! Each evening attendees willreceive an email link to access session evaluations that are offered each day.Attendees are automatically entered into a daily drawing for a chance to win a $50gift card. Register now for PAYMENTS 2012 –Receive the PAYMENTS 2011 Early­Bird Rates –Only available onsite –Visit the Registration Desk for more details.

Thanks to all of our TrackSponsors!

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NACHA Payments 2011April 3­6

Austin, Texas

Making Waves Across the Atlantic

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Presenters

Elizabeth McQuerry, Ph.D.Federal Reserve Retail Payments Office

Dr. Udo MilkauHead of Strategy & Market DevelopmentDZ Bank

Michael SteinbachEquens, CEO & Chairman of the Board of Directors

Timothy SchmidtVice President, Global Treasury ManagementU.S. Bank

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FedGlobal U.S.­Europe Payments

•Bidirectional credits between accounts in U.S. andaccounts in 22 countries in Europe

• Multiple foreign exchange options•Gateway operator exchange built on the business rules

and formats of the International Payments FrameworkAssociation (IPFA)

•U.S. financial institutions originate and receive paymentsin IAT format

•Service began in late October 2011

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Payments in Europe in a Nutshell:It’s always a little bit different …

Source: Capgemini „World Payments Report 2010“

0% ­

25% ­

50% ­

75% ­

100% ­

Europe2001 2008

North America2001 2008

27%38% 38%

58%

24%

31%

17%

27%

4%

10%7%

6%

52%

25%8%

Cheques

Cards

Direct Debit

Credit Transfer

27%

Payments in Europe and N America Usage of Electronic Payments

0 ­

100 ­

200 ­

300 ­

400 ­

Non­cash Transactions per Inhabitant

U.S.Finland U.K.

Germany

Poland

Ireland

’01 ’08’02 ’03 ’04 ’05 ’06 ’07

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The Single Euro Payments Area:458m Inhabitants, 250m Trx per day

Before SEPA … After SEPA ...

Various national payment systems,payment infrastructures and providers A Single Euro Payments Area …

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The Single Euro Payments Area (SEPA)

§ The €uro as single currency andmonetary basis for SEPA

§ Single set of payment instruments:–credit transfers–direct debits–card payments

§ Efficient processing infrastructuresfor euro payments

§ Common technical standards(based on ISO20022 and XML)

§ Common business practices and aharmonized legal basis

§ Development of new customerservices

But at least a lot of investment in thenew SEPA infrastructure paid by theEuropean banks.

SEPA consists of: What does that mean for banks?

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| 8

Cooperative Banks in Germany and DZ BANK ascentral bank: How to leverage investments?

Cooperative Banks

Cooperative Financial Network in Germany

DZ BANK Group

nearly 1000 localcooperative banks

OwnershipMarket sharein Germany100% 25%

10000+ branches andother distribution channels

30 million customers,thereof

16.4 million “shareholders”

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And DZ BANK’s Approach to leverage SEPA

Double Economies of Scale And beyond Economies of Scale

Bank A Bank Z

Equens asPayment Service

Provider

Bank …

§ There is an efficient processinginfrastructure for €uro payments.§ There are technical standards

(ISO20022 and XML).§ There is Equens as a capable

service provider.§ So, why aren’t we going beyond

SEPA and beyond the doubleeconomies of scale?

§ Why don’t we use existinginfrastructure for more?

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Intro to Equens:Founding principles & Key milestones

§ Equens has been created by a group ofleading European banks from Germany, theNetherlands and Italy (ABN AMRO, DZBANK, ICBPI, ING, Rabobank)

§ These founding banks share the same visionon the consolidation, internationalization andindustrialization of the payments market

§ Set up as a commercial company, Equenshas the explicit intent to continuously reduceprices for its clients (banks)

§ Acknowledging that the payments market isscale driven, the banks have committed tosupport Equens’ European growth strategy

§ Volume growth from sales activities, mergers& acquisitions and partnerships will lead tosynergies and thus price reductions

Leading pan­European payment and cardservice provider

Headquarters: Utrecht, The Netherlands

Payments service offering

– Back office processing, clearing andsettlement

– 9.7 billion payment transactions p.a.

Cards service offering

– Issuing and acquiring processing of debitand credit cards

– Hosting, switching, authorisation, clearingand settlement

– 3.7 billion card transactions andauthorisations p.a.

– Management of ca. 700,000 ATMs and POSterminals

Market share in Europe: > 15%

Equens’ founding principles Facts & Figures

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Intro to Equens:Extensive network of clients and partners –full reach in Europe

United States ofAmerica

The Federal Reserve Banks andEquens process low­valuecross­border payments between theUSA and Europe based on thepayments framework of the IPFA

Equens full EuropeanSEPA Credit Transfer reach

Legend

= Countries with CSM clients

= Countries with CSM partners

= Countries predominantly reachedby Equens EBA connection

= Countries with CSM clients &partners

PolandGermany

Austria

Netherlands

Spain

IrelandUnitedKingdom

CzechRepublic

France

Greece

Italy

RomaniaHungary

Slovakia

Norway

FinlandSweden

LithuaniaDenmark

Latvia

Estonia

Iceland

Slovenia

Bulgaria

Portugal

Luxembourg

Belgium

Switzerland

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Equens both a provider of CSM andPayments Back Office services

Traditional Equens CSM model in Netherlands:“Facilitating a community”

Traditional Equens role in Germany and Italy:“Offering Payments Back Office

services to banks”

Equens European strategy:“CSM services plus complete Payments Back

Office services for banks”

CSM

Proce

ssin

g

E

B E

EE

E

E

Ban

k pay

men

tsBO

 Pro

cess

ing

CSM

 + P

aym

ents

BO

 Pro

cess

ing

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Equens provides much more to support Bank’spayments operations

Retail

Wholesale

FinancialInstitut.

...

Branch

Internet

Call­center

Fax

...

Credittransfer

Dom./SEPA

DirectDebit

Dom./SEPA

Internat.Payments

High value/urgent

Payments

Finance ...Servicemgmt.

Mgmt.information

Problem &incident mg.

Changecontrol

Processmgmonitoring

Tracking &Tracing

Liquidity mgmt.Services &

Pooling

Client & Accountmaintenance

Accountentries

Accountreporting

Billing

FX Conversion

Liquidity mgt(Treasury)

EquensCommunity

ACHs

EBA/Target

Swift

Central Bank ReportingGeneral LedgerTrade Mortgages Securities …

Customer Channels Products

Paymentsinitiation &

capture

Pre­treatment

/processing

Clearing Settlement

Customerservice/

interaction

Bank internal administrations

Networks

Bank wide supportprocesses

Generic support processes

Payment infrastructure support processes

Payments value chainCheques

...

CardsIssuing/Acquiring

IPF

...

Client & account administration processese.g., credit approval and booking

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US to Europe Payment Flow

IAT or localformat

FedGlobal

IAT

$USD

$USD

EUR, GBP,CHF

EUR, GBP, or CHF toaccount of Receiver

Foreign Exchangerate conversion

Fixed­to­Variable (FV) –USD to Euros, Pounds, or Swiss Franc

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Clearing and settlement services forEUR­ and Currency­payments

SettlementSupport

Back­OfficeProcessing Clearing Services

Verification/Entrance

Data entry

Correction/Amendment

Data processing/­output

PostingSupport

Delivery

Targ

et2

    E

BA

    N

ost

ro/

Lo

ro

Clearing &Settlement

Equens

DZ Bank

INGKBC

…

EACHA

SIAVoca

PBS

KIR …

BGC

Multi­lateral

…

NBs …

EBA

…

Bi­lateralDresdner

……

…

…

On­us

VR­Bank

……

…

…

SettlementSupportClearing Services

Cen

tral B

an

k *

 Corr

esp

on

den

t N

etw

ork

*   N

ost

ro/

Loro

 * P

art

ner

corr

esp

on

den

t N

etw

ork

IPF

…

SWIFT

Dedicated (SSI)

…

Currency

Currency

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.

U.S. Bank’s International ACH

§ Allows Corporate Originators to make payments in 6 currencies across 25 countries.

§ Ensures that originators can make payments in USD or an exact amount of foreigncurrency.

§ Provides an international payment option that prevents beneficiary deductions.

§ U.S. Bank utilizes correspondent relationships and the Federal Reserve’s FedGlobalACH Payments program.

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What is the U.S. market opportunity?

§ 40% of U.S. middle­market importers ($50million ­ $250 annual revenue) have non­U.S.trading partners; approximately 78% of those businesses make international payments.

§ Approximately two­thirds of U.S. importers that conduct business overseas currently pay all orsome of their foreign suppliers in their local currency.

Source:  Aite Group

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How does it work?

Example: Payments to German SuppliersExample: Payments to German Suppliers

1.Customer initiates

Int’l ACH viaCorporate Portal

3.USB takes the customer’s

Int’l ACH file andreformats file. (IPF, IAT,

CPA, etc)

5.USB send payment file  tothe Federal Reserve our

European Gatewayprovider.

4.USB FX Dept buys/sells

foreign currency and fundsUSB Nostro account at our

partner bank.

6.Equens receives payments

instructions from the FederalReserve and issues ACH to

German beneficiaries (suppliers).

2.Customer accepts Int’l ACHFX rate online.  U.S. Bank

performs FX.

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Who are the participants?

Receiving DepositoryFinancial Institution (RDFI)

Corporate initiates an Int’l ACH Payment viaDirect Transmission or Corporate Portal.

Originator

Originating DepositoryFinancial Institution

(ODFI)

Operator

Originating GatewayOperator (OGO)

Receiving GatewayOperator (RGO)

Receiver/Beneficiary

U.S. Bank processes (performs FX)and OFAC scans the Int’l Payment androutes to our Operator.

Operator (Fed or EPN) processes theInt’l Payment and routes to the OGO.

Federal Reserve validates theInt’l Payment and routes to theRGO.

Equens translates the IPF formattedpayment into the in­country format,performs the FX (if required) androutes to the RDFI.

Beneficiary Bank receives the Int’lpayment from the RGO and posts thepayment to the beneficiary’s account.

Vendor/Supplier receives a credit totheir EUR account.

=

=

=

=

=

=

=

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What does it look like?

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What opportunities and challenges are there?

Opportunities

• Provide non­urgent internationalpayment capabilities tocorporate originators

• Ability to perform ForeignExchange

• Utilize International PaymentsFramework Standards and Rules

• FedGlobal ACH Payment servicereduces management required ofcorrespondent relationships

Challenges

• Couldn’t avoid the constructionof multiple correspondentrelationships

• Training corporate originators onnon­urgent payment routingrules  (IBANs, BIC, CLABE, etc)

• Transferring internalInternational Wire Transferknowledge to International ACHteams

• Managing and mapping in­country formats

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U.S. Bank corporate originators utilize International ACH as an easy, safe and “known” payment channelfor payroll, pension, vendor payments and inter­company transfers.  They chose International ACh as anoption due to customer dissatisfaction with Foreign drafts, International Wire Transfer fees, and beneficiarydeductions.  Marketing of this new option was very limited during the pilot.

International ACH Online User Feedback:§ Dedicate extra time to the initial payment instruction setup phase.  IAT is more complicated then

domestic ACH, not due to software, just the additional “wire­like” variables.§ Ability to see real time rates online at initiation and approval.§ Integrated International ACH functionality within standard domestic ACH workflow

Customer feedback§ Likes:

– Speed of Payment (nearly as fast asa wire)

– Love that there are no beneficiarydeductions

– Cost to the originator and receiver(cost savings can exceed $20 forboth parties)

§ Dislikes– Limited Prenotification capabilities– Truncated Return and NOC

information available.

How have customers responded?

§Who: Quality Schools International§Problem: High cost of wires for teachersalaries§Solution: International ACH§Customer benefit: 86% savings intransaction fees§Bank benefit:  Customer retention andincreased satisfaction

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What are Originators asking for next?

§ Enable Foreign Exchange on International ACH Payments initiated via transmission(FTP, HTTPs, VAN, etc)

§ Settlement out of  Multi­Currency and Foreign Currency Accounts.

§ Expanded remittance capabilities on forward payments, CTX like addenda capabilitieswithin the NACHA IAT format or the new expanded remittance capabilities availablewith Wire Transfers beginning Nov 2011.

TURKEY

CYPRUS

JORDAN

ISRAEL

LEBANON

ARMENIAAZERBAIJAN

GEORGIA KYRGYZSTAN

TAJIKISTAN

KUWAIT

QATARBAHRAIN

U. A. E.

YEMEN

SYRIA

IRAQ IRAN

OMANSAUDI

ARABIA

AFGHANISTAN

PAKISTAN

INDIA

CHINA

KAZAKHSTAN

TURKMENISTAN

UZBEKISTAN

MYANMAR

THAILANDCAMBODIA

NEPALBHUTAN

VIETNAM

SRI LANKA

LAOS

BANGLADESH

MALAYSIABRUNEI

SINGAPORE

PHILIPPINES

TAIWAN

INDONESIA

JAPAN

MONGOLIA

SOUTHKOREA

NORTHKOREA

EASTTIMOR

PAPUANEW GUINEA

HONGKONG

§ Broader country and currency reach.Expansion into new markets andnew currencies.