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

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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

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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

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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

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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).

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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).

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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).

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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)

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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

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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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