Presented to:Presented to:Presented to:Purchasing Card as a

Payment Tool

June 11, 2015

Jody L. LutzSenior Vice PresidentPNC Treasury Consulting Group

(412) 768-2364Jody.Lutz@pnc.com

For travel & entertainment expenses Preferred method of payment for these vendors Improves financial controls (SOX compliance)

For smaller dollar decentralized purchasing Reduces time for receipt and payment of goods Value for both buyer and vendors

For one time and specialty payments Web Services integration an option Improves payment cycle time

Payments requiring backend approval Enables card settlement on P.O.’s Automated solution (both push & pull)

For preferred (contract) vendor ordering Facilitates online ordering and payment Value for both buyer and vendors

Dis

trib

ute

d

Card

sN

on

-Dis

trib

ute

dC

ard

s

T&E Cards

TraditionalP-Cards

Embedded Ghost Cards

Single Use Ghost Accounts

Virtual

AP Cards

2

Card DeploymentA Continuum of Options

Source: 2013 Electronic Payments Survey, The Association for Financial Professionals as presented in the AFP® Payments Decision Guide To Creating a Payables Strategy, Part II

3

Payment TrendsB-to-B Payments

4

2005 2013

32%

53%58%

34%

7%10%

3% 3%

Pcard

Check

ACH

Wire

Sources: 2014 RPMG Purchasing Card Benchmark Survey

Payments by Transaction SizeTransactions under $2,500

5

2005 2013

15%

32%

71%

47%

9%15%

5% 6%

Pcard

Check

ACH

Wire

Sources: 2014 RPMG Purchasing Card Benchmark Survey

Payments by Transaction SizeTransactions $2,500 to $10,000

6

2011 2013

9%

13%

60% 58%

19% 20%

12%9%

Pcard

Check

ACH

Wire

Source: 2014 RPMG Purchasing Card Benchmark Survey

Payments by Transaction SizeTransactions $10,000 to $100,000

0% 20% 40% 60% 80%

Professional Services

Repair/Maint.

Utilities

Inventory

Transportation/Delivery

Business Services

Computer/Mobile

Education/Training

Operating Goods/Supplies

Office Equip/Supplies

Sources: 2014 RPMG Purchasing Card Benchmark Survey

Purchasing Card UsageSpend by Category

7

% of Category Spend Average Program % of Category Spend Top Programs

8

6%

10%

12%

34%

37%

56%

67%

72%

Data for Price Negotiations

Reduction in maverick spend

Improved compliance withcontracts/purchasing policies

Working Captial (DPO)

Reduction in procure-to-pay cycle time

Lower processing cost

Rebates & Incentives

Increased convenience for employees

*2012 PayStream Advisors

Benefits of a P-card ProgramWhy are Companies using this payment method?

9

Purchase Order Process

Purchasing Card Process

Typical Process FlowsP.O. Process vs Purchasing Card

$90.26

$69.82

$20.38

Traditional PO with Check

Payment

Cost Reduction w/P-card

P-card

Average Cost Per Transaction Average Cycle Time Per Transaction

Traditional Purchase

Order

8.0Days

Cycle time Reductionw/P-card

11.4Days

3.4Days

Source: 2014 RPMG Purchasing Card Benchmark Survey

P-card

Transaction Costs & Cycle TimesP.O. Process vs Purchasing Card

10

11

Distribution and Access

Distribute on average three times as many cards than low performance programs*

Allow departments or business units to decide on how many cards should be distributed

Less likely to restrict card use to only supervisors, managers, or purchasing personnel

Control

Have per transaction limits that are, on average, 61% higher than low performance programs*

Customize monthly card spend limits depending upon individual spending responsibility.*

Have a wider “allowable span of spend” for any given category of goods or services

Sourcing

Conduct data mining of card transactions to ensure policy compliance

Restrict some or all of their card activity to “preferred vendors”

Use card spending data as basis to request higher discounts from vendors

*2014 RPMG P-Card Benchmark Survey Report

Best PracticesCommonalities of High Performing Programs

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77%

34%

25%

10%

27%

45%

25%

7%

1%

20%

Checks

CorporateCards

ACH Debits

ACH Credits

Wire Transfers

Payment Method Cited as Greatest Financial Loss as the Result of Fraud (All Respondents)

% of Organizations citing Fraud Attempt by Payment Type

Source Data: 2015 AFP Payments Fraud & Control Survey

Card Fraud in PerspectiveA Look at Fraud By Payment Type

13

Card Fraud and Misuse

Yes

32% No

68%

Suffered LossPURCHASING

CARD1

Employee Misrepresentation

Internal Fraud

External Fraud

Median dollar loss per incident

$167 $400 $250

Loss as a percentage of spend

0.004% 0.002% 0.003%

TRAVEL CARD2 Employee Misrepresentation

Internal Fraud

External Fraud

Median dollar loss per incident

$100 $67 $100

Loss as a percentage of spend

0.003% 0.002% 0.004%

Fraud committed by: Employee – 25% External – 77%

Sources: 12014 RPMG Purchasing Card Benchmark Survey22013 RPMG Corporate Travel Card Benchmark Survey

Card Fraud in PerspectiveKey Stats Related to Fraud and Misuse

14

Cardholder Usage Agreement

Review Decline Activity

Prompt Cancellations

Thoughtful use of Card Controls

Prohibit Cash Advances

Liability Waiver

Mitigating Fraud and AbuseBest Practices for the Organization

15

Partnership and Education

EMV Card Adoption

Replace Cards At Risk

PCI ComplianceIntelligent Fraud

Monitoring

Integration of CAMS Data

Mitigating Fraud and AbuseBest Practices of your Banking Partner

16

*statistics reference the 2014 RPMG Purchasing Card Benchmark Survey Results

18.0%

26.0%

34.0%

43.0%

2013 2014 (projected) 2015 (projected use) 2016 (projected use)

Actual and Projected Trends in EAP Adoption 2005-2014

Category 20132014

(Projected Use)2016

(Projected Use)

Fortune 500-Size 24% 37% 56%

Large Market 26% 34% 56%

Middle Market 13% 20% 30%

Government and Not-for-Profit 16% 24% 40%

All Respondents 18% 26% 43%

Switching GearsLet’s Look at e-Payables using Virtual AP Cards

Traditional Purchasing Card Virtual Accounts Payable Card

Account number located on physical cards held by employees

Account #’s

Account number provided to vendor uponenrollment

or

Vendor provides merchant processing information for direct settlement to their

account

To specific employee(s) Card Assignment To specific vendor ID

Amount set by card to cover anticipated spending needs

Spending Limits$0 card that is funded to the specific amount of the invoice(s) on approved

payment file

Review and “Approval” completed post-purchase.

Approval ProcessFollows existing Accounts Payable process

prior to payment being initiated.

Physical interaction with merchant(in-person, on phone, or entered into

online application)Payment

Automated advice sent to vendor upon receipt of approved payment file. Vendor

initiates payment with card # on file.

A mixture of default mapping & cardholder reconciliation post

transaction purchaseAccounting

Follows existing Accounts Payable process for coding payment information into accounting system prior to making

payments

Compare and ContrastTraditional P-card vs. Virtual AP Cards

17

Sourcing Receiving

Invoice

VoucherPaymentDecision

Current Accounts Payable Process Remains the Same

Push Settlement(Buyer-Initiated)

Funds directed to suppliers established merchant service account

Electronic remittance advice directed to supplier

Single Use Pull Settlement

Approved funds added to single use card account

E-mail directed to supplier

Supplier will obtain single use card account number, expiration date, CVV

Pull Settlement(Seller-Initiated)

Approved funds added to dedicated supplier card account

Electronic remittance advice directed to supplier

Supplier processes along with other card transactions

Supplier funded in 24-48 hours

Virtual AP Cards

18

$50.00

$24.11

$3.29

($0.00) ($0.13) ($1.59) ($7.00)

($10.00)

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

Card ACH Check Wire

Co

st/

Ben

efi

t o

f P

aym

en

t

Payment Type

Based on Average $5,000 Transaction

Cost

Working Capital Gain

Revenue Share

19

Why Virtual AP Cards?Payment Economics

1 dayA/P CYCLECOMPLETES

ACH File

transmitted

Virtual AP Card1. Card Funded2. Remittance

email sent to vendor

CHECKSChecks Mailed

Funds Deposited into Vendor’s bank account

Vendor receives

and deposits check

Vendor charges AP Card Account

ACH transactions funded by daily

Treasury payment to disbursement

bank

2 days 0 days

~ 3 days~ 1 days Check is

presented to disbursement

bank

0 daysChecks

funded by wire to

disbursementbank

Vendor receives

funds daily from its

merchant processor

~2 days

AP Card transactions funded by monthly Treasury

payment to issuing bank

~22 days on average0 days ~ 1 days

0 days

20

Why Virtual AP Cards?Working Capital Improvements

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75

PURCHASEPAYMENT

TERMS n/30

PaymentCheck

of $100

22 day FloatExtension

ACH toCard Issuer

Billing CycleCut-off

Billing CycleCut-off

14 day termsacceleration

Offer vendor 14 day acceleration in payment if they agree to accept alternatecard based settlement. If managed in relation to card billing cycle cut-off,

customer cash flow impact can be unaffected or mitigated

CUSTOMER CASH BALANCE

21

Working Capital BenefitsVirtual Cards Naturally Extend DPO

Misc. Expense, Local Procurement and Individual Travel

Centralized/Recurring Expenses (Temp Help, Office Suppliers, Courier, Large Ticket Travel)

Direct & Strategic Spend

Capital Markets, Fiduciary, Tax,

Cap Ex

RemainingIndirect Spend

22

Vendor AcceptanceStart by Examining your Vendor Base

23

Targeted vendors are already accepting card payments from other companies. Many have already built the interchange cost into their pricing models.

* 2014 NAPCP End-User Perspective on Suppliers’ Acceptance of Commercial Card Payments

20%

22%

32%

37%

39%

68%

Reduce AR staff

Decrease costs

Process ease

Preferred payment

Guaranteed payment

Quick payment

Other Primary Factors Leading to Acceptance*

Vendor AcceptanceFactors Leading to Acceptance

24

Card-based Supplier PaymentPoints of Consideration

You Suppliers

Retain current sourcing, approval and payment decisioning

Lever established connectivity to a card network

Payment authorization file created and delivered to bank

Receive electronic remittance advice and accompanying detail

Retain current payment timing & create natural extension of terms

Eliminate postal delays, next day transaction settlement

Eliminate check printing, postage and bank costs

Eliminate lockbox and other depository costs

Create revenue streamCost for access to the network

Interchange optimization Alternate rate structure

Integration

Information Delivery

Settlement Timing

Processing Costs

Interchange

25

Card-based Supplier PaymentKeys to Success

Early Engagement and Involvement

Vendor Targeting and Engagement

Multiple Settlement

Options

Various Rebate Structures

Organic GrowthQuick Pay Options

Thank You!Thank You!

Any Questions?

26