SVPCo Image Exchange and Payments Evolution

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SVPCoImage Exchange and Payments Evolution
Hank Farrar President and COO
hank.farrar_at_svpco.com
November 7, 2002
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SVPCo Participating Banks
SVPCo Participants Represent 2.392 Trillion in
deposits 54 of US Commercial Bank Deposits a/o
6/30/02
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SVPCo
ECP ACH POS CHECK ELECTRONIFICATION
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SVPCo VisionImage Exchange and Payments
Evolution

• Bank-Owned
• Industry Utility
• - Low Cost Provider
• Payments Evolution
• Electronification Driver
• Efficiency Enabler
• Cross-Payments Franchise
• - ACH
• - ECP
• - SafeCHECK
• Transformation

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SVPCo

• A banked-owned, private-sector, payment delivery
  system
• Twenty U.S. Banks
• Formed July 28,1998
• Encouraging Additional Participation
• Industry focal point to
• Electronify check payments and returns
• Provide high quality, low cost ACH services
• Risk mitigation
• Streamline payment processing

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EPN ACH Volume Projections

• EPN transaction volume is projected to grow from
  450 million to 6 billion over five years

Total EPN volume (orig/recv) in billions
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ECS ECP Volume Projections
October 21, 2002 - 5,268,699 items Volume
projected to grow from 400 thousand items per day
to 14 million items per day over 10 years.
Daily average volume .4 .8
1.6 2.4 3.1
4.3 6 8.4 10.8
14 in millions Year receive volume

1.075 1.5
2.1 2.7 3.5 in
billions Growth from previous year 100
100 50 29
39 40 40 29
30
Excluding Image
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ECP Progress
How Do We Expand ?

• Continue to bring in new exchange partners
• Increase regional exchange volume
• (BITS regional seminars)
• Enable truncation using digital images
• Increase inter-regional exchanges

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Image Exchange Represents an Opportunity for
Significant Industry Savings

• The SVPCo Image Study indicates industry-wide
  savings
• of nearly 2.1 billion annually even with
• Lower interest rates
• Reduced check volume
• Both cost savings and float benefits
• Float benefits are up to 39 of the total
  benefits
• Up to 69 of the total benefits are operational
  cost savings

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Cost Savings Generated by Check Truncation at
Point of Deposit
Teller Deposit Handling US454 m
(assuming 40 of deposits at ATM, 50 of tellers
relocated in bank)
Manual envelope opening US30 m
Transport Costs gtUS250 m
Check Processing Center
Branch
On-us checks
ATM
Checks for clearing
Mail
Transport Costs Armored car US20 m (off-premise
ATMs) Courier US410 m
- Cost Cut
Fraud Reduction ltUS50 m
.. between 2006 and 2008, early-mover banks will
venture into check truncation in the back office
and then push it out to the point of deposit.
Economics will be the primary driver. Source
Celent Communications, February 2002
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Interoperability Ensures That Banks Maximize
Value By Linking To Other Service Providers
Third Party Processors
Outsourcers
Community Banks
Bank
Image Returns
FANS
Bank
Fraud Database
Electronic Returns
ACH
Fraud
ECP/Image
POS
SafeCheck
Adjustments
Earns
Electronic Returns
Settlement
ECP
Image Exchange
Return Item Notification
Fraud Database
PPS
Other Fraud Databases
FRB
Archive Providers
ACH or ECP ?
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Image Exchange Leverages Image Investment
Image Exchange
Archives
Shared Fraud Data
Bank 1
Bank 3
FRS
Bank 2
3rd Party Processors
Enhanced Fraud Mitigation and Related Services
Work Flow Management
Image Delivery
Branch
ATM
Revenue Creation(ROI from Image Cascade)
Capture
Image Repository
POS
Lockbox
Transactions
Image Back Office
Corp.
Image Archive
All Transaction File
Fraud Expense
Reduction
Distributed Image Capture
Blended Paper/ Electronic Capture Stream
Expanding Beyond the Check Into Other Payments
Docs
Accelerated Payment Capture Electronification
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The Challenge Of An Efficiency Driven Environment
Where Electronic Products Have Increasing Share

• Cost pressures are intense
• markets demand
• low cost,
• high value,
• information rich products
• Information driven innovation in products and
  services

• Large FIs dominate a highly fragmented market
• Mergers and industry consolidation continue to
  increase complexity of checks processing
• Banks focus on maximizing effectiveness
• In most banks, check growth is flat or declining

Environmental Impact on Check Market
Industry Dynamics
Business Drivers
Transformation

• Check conversion (ARC, POS), SafeCHECK
• Replacement debit cards,
  credit cards
• Electronic check presentment
• Image
• Legal/regulatory modifications

Business Profitability
Market Innovation

• Adoption of Image Exchange
• Checks continue
• Reduces physical movement of checks
  cost reduction, float
  benefits
• Image-based check systems - require
  investment
• Deploy risk management tools, products, and
  services risk reduction and new revenue

• Not transforming will ultimately result in an
  economically unattractive business proposition
  where
• Costs are high
• Value is low
• The product is completely commoditized

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Payments Convergence Consolidated Strategy
Single, unified, multi-payment strategy
Current Segregated Approach
Blended Approach
Single Operational Flow
Check
ACH
Debit
conversion
conversion
ATM/POS
Capture
PEP
CPCS, et al
Electronic Rails
EFT
ECP
ACH
Exception Processing
Dedicated
Dedicated
Dedicated
Fraud Protection
Dedicated
Dedicated
Dedicated
Customer DDA Account Memo Post and Actual Post
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Image Delivery Capabilities Create Revenue
Opportunities . . .