Transforming Electronic Receipts to a

Straight-Through Process

Jeff Hill Supervisor Business Operations

Duke Energy

Steve Bernstein ACH Product Specialist

J.P. Morgan

Utility Payment Conference

JEFF HILL Supervisor Business Operations

Duke Energy

Duke Energy “Fast Facts”

• July 2012, completed merger with Progress Energy

• Headquartered in Charlotte

• Serve 7.2 million electric retail customers in six states (FL, SC, NC,

KY, OH, IN)

• Serve 0.5 million gas customers in OH and KY

• 2012 Revenues just under $20 billion

• Approximately 28,000 employees

• 57,700 MW generating capacity

Payments Vision and Purpose

Vision:

Create the foundation for payment processing

across all channels to move to a fully electronic

and streamlined model.

Purpose:

Serve our customers by delivering efficient,

accurate and timely payment processing.

2006 to 2013: Making Progress

• Where Duke was in 2006 Compared to Where We Are in 2013

2006 2013

Mail 56% 36%

Over-the-Counter 20% 11%

Auto Draft 7.5% 8%

One Time Credit Card &

Check by Phone 4.5% 11%

Electronic (e-Bill, EFT, other): 12% 34%

Total Electronic: 24% 53%

Incoming EFT Payment “Opportunities”

• Four separate billing systems

• Name change for legacy Progress customers

• New remittance PO Boxes in Charlotte for legacy Progress

customers

• Upgraded lockbox process to have one job to “rule them all”

• Multiple EFT concentrators (JPMC, Wells Fargo, PNC, Metavante,

Fiserv/CheckFree, RPPS)

• Confusion for customers and consolidators

• Customers not including correct remittance information

Electronic Payment Issues – What’s the Solution?

How Duke is Addressing:

• Working with assigned Duke account managers to contact certain

large account customers to correct issues

• Streamlined process to setup new EFT customers, detailing steps

on our web site

• Considering JPMC’s “ACH eLockbox Transaction Repair” tool or

other internal Duke enhancements to help expedite payment

posting, i.e. the “Black Box”

Future of Payments at Duke Energy

• More choices/options for customer convenience, but only if it

makes sense

• Push to lower cost channels and self service models

• Recently expanded pay agent network to include mostly ‘fee

based’ agents

• Recently implemented mobile pay option

• Improve ‘quality’ of incoming electronic payment data through

multiple efforts/projects, i.e. “scrub files”. Considered option of

rejecting EFT payments in certain cases but have chosen not to

pursue.

STEVE BERNSTEIN ACH Product Specialist

J.P. Morgan

US Transactions Volume

217 billion

US Transaction Value

$84,093 billion

Cash

Check

Debit/Prepaid Card

Credit Card

ACH

Wire

108 (50%)

24 (11%)

43 (20%)

22 (10%)

19 (9%)

$1,872 (2%)

$31,595 (38%)

$1,593 (2%)

$1,917 (2%)

$37,163 (44%)

$9,953 (12%)

U.S. Payment Trends

• ACH and Check are the dominant payment methods – 82% of all

payments by value

• Rise of debit and prepaid cards – primarily consumer driven,

contributing to a negligible amount of business payments.

• Wires dominate cross border payments – 69% of cross border

payments are wires and represent 12% of total payments by value

Sources – 2010 Federal Reserve Payments Study, and The Clearing House, Project Compass – Comprehensive Payments Study (2011)

U.S. Shift in Overall Payments Mix

• Check payment decline, 2000-2015

• Average yearly decline: -6.5%

• Aggregate decline: -49%

• The majority of this check volume migrated to ACH & Debit Card

payments:

• ACH average yearly growth: 15%

• Debit Card average yearly growth: 15%

0

20

40

60

80

100

120

140

2000 2003 2006 2009 2012e 2015e

Check ACH Debit Credit

Source – 2010 Federal Reserve Payments Study and Company estimates

Payment Landscape

• ACH not initially intended to convey $ and data

• Current market needs to migrate away from check to electronic

• Current market requires integration of various payment types,

whether ACH, check, wire, card

• Must support SAP, Peoplesoft, XML, Wall Street systems, ISO, etc

• Integration is a requirement

• Enrollment services are key

• Solution should be global in nature

Recommendation

ACH is recommended for corporate and consumer payments. This

convenient electronic option offers significant benefits:

• Transaction costs can be significantly lowered by the reduction of the

internal processing of vendor checks, plus reduced mail costs

• Select one or two divisions with high levels of check volume to pilot

the test of this service. Once successful, roll out to all divisions

• Electronic payment permits to obtain discounts, since the payments

will be made on the precise date that has been defined

• Improved funds availability - will know exactly when payments will

clear your accounts

• Enhance vendor relationships by offering a range of payment options

• Use of ACH provides assurance that payments have been made

safely and consistently, thereby increasing security

How to Reengineer The Payments Process

Considerations

• Understand all payment flows by analyzing payment mix, i.e.,

Check, Card, ACH

• Benchmark current payment practices to industry

• Recognize customer preferences such as risk, timeliness, cost

Demographics

• Maturity and flexibility of customers

• Develop payment goals and plan to achieve

Drivers

• New technologies and trends

• Industry-specific regulatory requirements and trends

Having Issues with ACH Payments?

• You may already receive ACH payments but find them difficult to

understand, process, and apply to open receivables.

• Sometimes businesses receive one ACH payment that covers

multiple outstanding invoices, but that payment is not accompanied

by the remittance information needed to understand and reconcile

the payment to the open receivables items.

• ACH can assist with this situation:

• An electronic ACH payment file offers a standard format to carry

remittance information to explain what the payment is for – e.g.,

invoice numbers, adjustment information, discounts and so on.

• Many businesses use the ACH network to send both payment

and related remittance information, which is often referred to as

Electronic Data Interchange or EDI.

Having Issues with ACH Payments?

• If you want to receive electronic remittance information with an

ACH payment from a business partner, you’ll need to ask them to

provide it and ask your FI to deliver that remittance data to you.

Your trading partner may be able to send it to you in several

different electronic formats.

• You may find out that your trading partner is already sending the

remittance information to you, but that your FI has not been

passing it on to you. Ask your FI to deliver this information to you:

• All FIs are required by the ACH network rules to provide this

information to business customers, if asked. Be sure to specify

the method of delivery and the format you want. If you are

looking to integrate this file into your accounting software, you

may want to bring your IT support to a meeting with your bank.

Solutions

Your financial institution has tools available to provide you with

remittance information delivered through the ACH network.

• Many FIs have software installed as part of their ACH service

allowing them to provide you with the remittance information you

want.

• FIs that don’t already have their own software available can access

easy to use, low cost capabilities through one of the two ACH

operators in the U.S. Both of these ACH operators offer services or

products that translate remittance information carried in an ACH

payment file into reports or electronic files that your FI can provide

to you.

Virtual Reference Numbers: Streamline Invoice Reconciliation

Your concerns Virtual Reference Numbers

“I spend too much time and

resources aggregating and

reconciling receivables in multiple

accounts.”

• Consolidate electronic payment types into a single

demand deposit account (DDA) and manage this

information centrally.

“We need to improve operational

efficiencies.”

• Reference numbers are available to assign at your

discretion to your remitters. This improves matching

rates and reduces exceptions.

“My days sales outstanding (DSO)

times are too long.”

• By shortening the settlement process, you reduce

DSO and improve straight-through processing.

“I’ve got limited liquidity and visibility

across my accounts.”

• Balances are concentrated into a single master

account. Reference number to payer ID is a one-to-

one match. You also gain greater visibility across

your receivables.

“I need detailed information to

streamline my receivables posting.”

• Visibility on receipts helps you facilitate faster

decision making when releasing goods or extending

credit to payers.

eLockbox — How it Works

• Notify your payment processors to send the payment files directly

to your ACH eLockbox. Work with each consolidator to complete

the payment redirection.

• Customers send you payments electronically (e.g., online banking,

credit cards, bank-by-phone, government remitters)

• After validating that the billing account numbers and data match,

payments are consolidated automatically upon receipt

• A single credit plus all remittances post to your account on the

same business day

Benefits of eLockbox

• Reduced costs from the

elimination of postage

• Eliminates the use of having

to write paper checks and

mailing it to the receiver

• Pay bills in as little as 1 days

versus a week or more using

the traditional paper

methods

• Eliminate manual exception

processing and collection costs

• Consolidate multiple electronic

consumer payments into a

single transaction

• Expedite exceptions handling

and data validation, improving

the accuracy of remittance and

customer account number data

Consumer Benefits Receiver Benefits

eLockbox FI

eLockbox Process Flow

Consumer initiates bill

payment via their

payment originator

• Online Banking

• Mobile Banking

• MasterCard remote

payment and

presentment services

Receives, edits and

processes payment:

• Mod 10 calculation

• Account length

• Dollar amount

Credit is applied to

receiver’s account

Additional reporting

transmitted to receiver,

including:

• Transmittal Report

• Prenote Report

• Rejected Report

Exelon

Consumer Receiver

Review file from Receiver

determines Acceptance

or Rejection

eLockbox Timeline

Day Zero Day One (Early A.M.) Day One

Federal Reserve

Bank

Consumer account

updated

Consumer initiates

bill payment through

payment originator

Financial institution

edits payment

Consumer account

debited at retail

bank

Client receives data

transmission & credit

!

• Receive transactions that do not meet the edit/validation instructions

and correct these transactions securely online, where they will be sent

back to you automatically

• Eliminate future exceptions as any updates you make can be

"remembered“ and applied to any incoming subsequent transactions,

auto corrected

• Validate/Decision ACH received CIE, CTX, CCD+, CCD payments for

acceptance, rejection, or correction.

Handling eLockbox Exceptions

Looking for Efficiencies in ACH Payments?

Do you have an accounting package that can upload electronic files of

ACH payment-related remittance information? This could be as simple

as a spreadsheet or a comma delimited file format. Talk to your

software vendor for details they can provide.

If your accounting package can accept electronic files, you’re in luck. You

won’t need to manually reconcile payments to open receivables

anymore. Many FIs can automatically send a machine-readable file with

this information.

So, what are the Best Practices that can be Utilized?

• NACHA remittance coalition

• Partner with enrollment providers that can execute check to ACH

conversion

• Partner with a provider that can maintain vendor files and validate

formats

• Partner with a provider who can translate XML, ISO as needed

• Integrate fraud prevention solutions, e.g. UPIC, ACH positive pay,

into the process

• Consider Virtual Reference Numbers as a possible global solution

• Seek commonality with your business partners to streamline the

payment and remittance process