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American Express and Discover (act as issuer and acquirer)

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American Express and Discover (act as issuer and acquirer) 5 ... Visa, MasterCard, American Express, Discover, STAR, NYCE, PULSE, and many of the ... – PowerPoint PPT presentation

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Title: American Express and Discover (act as issuer and acquirer)


1
Insurance Payments Transformation
  • Aaron Schneider, VP, Bank of America Merchant
    Services

October 23, 2007
2
Agenda
  • Introduction
  • Credit Card Players, Debit Card Players
  • Costs of Credit Card, Debit Card Acceptance
  • PIN-less Debit, What is it?, Costs
  • Current Landscape
  • Benefits
  • Payment Methods
  • Growth Opportunities
  • Merchant Marketing
  • Technology/Implementation Options
  • Questions/Comments

3
Introduction
  • Major trends in billing and payment technology in
    the insurance industry
  • Increase in electronic presentment and payment
  • Increase in credit card payment
  • Decrease in check payments
  • Payment card growth is slowing in the most mature
    bill payments segments telecommunications and
    cable/satellite/ISPs while growth remains
    healthy in the insurance and utility segments.

4
Credit Card Players
  • Visa and MasterCard Issuers
  • Includes Citibank, Wells Fargo, Wachovia, Bank of
    America, Chase, Suntrust, PNC, and hundreds of
    others
  • Visa and MasterCard Acquirers (Processors)
  • Includes Chase, Bank of America, First Data,
    Fifth Third, and many others
  • Independent Sales Organizations (ISOs)
  • Third-Party Technology Vendors
  • Includes Bill Matrix, Fort Knox, Speedpay, Kubra,
    CyberSource, Various Bank Technologies, and many
    others
  • American Express and Discover (act as issuer and
    acquirer)

5
Costs of Card Acceptance
  • For a typical credit card transaction, the
    Interchange fee represents over 90 of the total
    cost of card acceptance.
  • Visa and MasterCard have created more than 152
    different Interchange levels, although only a few
    typically apply to insurance companies.
  • Interchange qualification represents a
    significant cost to all insurance companies.

90 to 93 Interchange Cost
6
Costs of Card Acceptance
  • Visa Interchange fees (paid to issuing banks) for
    insurance companies are
  • 1.43 .05 for credit or .80 .25 for
    debit/check card
  • Visa assessment fees of .0925 (paid to
    Visa)
  • Acquirer fees of X (negotiable depending
    on volume)
  • ________________________________________________
    ____
  • Total Cost of Acceptance
  • Example Cost Calculation
  • 100 Insurance Premium 1 .48 in Interchange
    fees (paid to issuing bank)

  • .09 paid to Visa

  • .08 paid to acquiring bank processor
  • 1
    .66 in total cost (1.66 effective rate)


7
Costs of Card Acceptance
  • MasterCard Interchange fees (paid to issuing
    banks) for insurance companies are
  • Credit (card not present consumer
    non-rewards rate) is
  • 1.89 .10 or .80 .25
    for debit/check card
  • MasterCard assessment fees of .095 (paid
    to MasterCard)
  • Acquirer fees of X (negotiable depending
    on volume)
  • ________________________________________________
    ______
  • Total Cost of Acceptance
  • Example Cost Calculation
  • 100 Insurance Premium 1 .89 in Interchange
    fees (paid to issuing bank)

  • .09 paid to MasterCard

  • .08 paid to acquiring bank processor
  • 2
    .06 in total cost (2.06 effective rate)

8
Costs of Card Acceptance
  • Interchange and assessment fees for other
    industries
  • Mail Order/Phone Order Merchant Visa Consumer
    Card (non-rewards) Interchange of 1.85 .10
  • Consumer Utility .75 Interchange flat fee for
    Visa and MasterCard
  • Supermarket Credit Visa Interchange of 1.24
    .05
  • Petroleum Debit MasterCard Interchange of .70
    .17
  • Large Ticket B2B (7500 ) Visa Interchange of
    .95 35
  • Example Cost Calculation for 10,000 Visa
    Insurance Premium Payment from
  • Level 3 Corporate Card Customer
  • 10,000 Insurance Premium 130.00 in Interchange
    fees (paid to issuing bank)

  • 6.93 paid to Visa

  • 10.00 paid to acquiring bank processor

  • 146 .93 in total cost (1.46 effective rate)

9
PIN-less Debit
  • Allows ATM/Debit cardholders to pay bills at bill
    payment merchant
  • Web site
  • Voice response unit (VRU),
  • Live customer service representative or call
    center
  • Recurring payment
  • Transactions are processed online, in real time
  • Transactions limited to biller categories that
    fit a specific low-risk model (utilities,
    insurance, telecom, financial institutions)
  • Bill payment merchant assumes the transaction
    liability and is responsible for authenticating
    cardholder at time the transaction is initiated

Source First Data Real-time Debit
Alternative Payments STAR PIN-Secure STAR
Bill Payment
10
PIN-less Debit
  • Insurance is a core category for the STAR Bill
    Payment Service. Nearly 15 of total transaction
    volume comes from insurers.
  • 558 billers
  • 89 new in 2007
  • 78 insurers
  • Approval rate for STAR Bill Payment is 90.
  • Research shows that when asked what type of card
    they would prefer to use to make a bill payment,
    consumers selected debit cards over credit cards
    by nearly a 5-to-2 ratio.
  • More than one-third of consumers say that they
    would pay more bills electronically if they could
    use their debit cards.

2007 Consumer Payments Preferences and Usage
Study Phoenix Marketing International / ESP
Payments PracticeSource First Data
Real-time Debit Alternative Payments STAR
PIN-Secure STAR Bill Payment
11
PIN-less Debit (Bill Pay Debit)
  • STAR, NYCE, and PULSE Debit Networks have
    approved insurance companies to accept PIN-less
    debit transactions
  • .65 .175 capped at .62
    processor/third-party vendor fees
  • Sample Effective cost of a 500 premium .62
    .25 .87
  • This equals effective rate of .17
  • Litigation currently exists regarding PIN-less
    debit patents. Litigation may be resolved in next
    12 months.
  • ATM/debit transactions increased about 23
    between 2005 and 2006
  • One third-party vendor insurance client saw a
    224 growth in PIN-less ATM debit transactions
    from May 2005 (15) to July 2006 (33.6)
  • Source ATMDebit News EFT Data Book September
    2006

12
Current Landscape
  • Bill payment volume is a sizeable opportunity
    with volume concentrated in insurance, utilities
    and telecommunications

Consumer Bill Pay Sales Volume 953 billion
(CY05)
Business Bill Pay Sales Volume 419 billion
(CY05)
Other
Other
Property Management
Cable/Satellite/ISP
9
Insurance
8
Insurance
5
Property Management
Utilities
36
34
11
12
Telecom
20
28
Telecom
Utilities
Life/PC Insurance
Source Visa U.S.A. PIC Analysis Represents
bill payment portion of segment volume only
totals may not sum due to rounding.
13
Current Landscape (e-Commerce)
  • Personal Insurance
  • Can policyholders send payments via Web site?
  • Yes 100
  • Payment methods customers can set up from Web
    site.
  • Single payment credit card 20
  • Recurring credit card 10
  • Single payment EFT 25
  • Recurring EFT 15
  • Recurring debit card 10
  • Electronic bill presentment for customers?
  • Yes 40
  • No 60
  • Electronic bill presentment for agents?
  • Yes 40
  • No 60
  • Commercial Insurance
  • Can policyholders send payments via Web site?
  • Yes 47
  • No 53
  • Payment methods customers can set up from Web
    site.
  • Single payment credit card 17
  • Recurring credit card 10
  • Single payment EFT 24
  • Recurring EFT 17
  • Single payment debit card 17
  • Recurring debit card 10
  • Monthly pay plan only 3
  • Electronic bill presentment for customers?
  • Yes 24
  • No 76
  • Electronic bill presentment for agents?
  • Yes 30
  • No 70

Source ICE survey
14
Current Landscape (Payment Plans and Fees)
  • Personal Insurance
  • Methods of charging credit card fees
  • Do not offer credit card payments 10
  • Do not charge fees on credit card payments 20
  • Charge standard installment fee 60
  • Discount standard installment fees 0
  • Charge more than standard installment fee 10
  • Amount charged for electronic payments made via
    Web site
  • No charge 62.5
  • 0.01 to 3.00 12.5
  • 3.01 to 5.00 12.5
  • 5.01 to 8.00 12.5
  • Amount charged for payments via phone
  • No charge 62.5
  • 0.01 to 3.00 12.5
  • 3.01 to 5.00 12.5
  • 5.01 to 8.00 12.5
  • Commercial Insurance
  • Methods of charging credit card fees
  • Do not offer credit card payments 44
  • Do not charge fees on credit card payments 11
  • Charge standard installment fee 39
  • Discount standard installment fees 0
  • Charge more than standard installment fee 6
  • Amount charged for electronic payments made via
    Web site
  • Does not offer electronic payments 33
  • No charge 55.5.
  • 3.01 to 5.00 5.56
  • 5.01 to 8.00 5.56
  • Amount charged for payments via phone
  • Does not offer payments via phone 39
  • No charge 50
  • 3.01 to 5.00 5.5
  • 5.01 to 8.00 5.5

Source ICE survey
15
Current Landscape
  • Online bill payments accounted for 39 of bill
    payments among online households in 2006, an
    increase of 4 from 2005.
  • Volume of checks sent by mail fell 4, accounting
    for only 34 of the volume of payments.
  • Consumers paying at least one bill online per
    month rose to 74, compared to 69 in the
    previous survey.
  • Consumer adoption of online bill payment has more
    than doubled since January 2002, when 37 of
    online households reported paying at least one
    bill online.
  • Half of property/casualty insurers are currently
    offering electronic bill presentment and payment
    to their policyholders, and nearly half have it
    for their agents.

Source The 2007 Consumer Bill Payment Survey, a
study by Harris Interactive Inc. and The
Marketing Workshop Inc. Source 2006 Celent
report, Billing Business and IT Issues for P/C
Insurers.
16
Benefits of electronic payments
  • Benefits to insurance companies
  • Improves cash flow and increases profits
  • Timely payment
  • Streamlines payment processing
  • Reduces handling costs and losses
  • Reduces risk of losses from bad checks
  • Improved customer service and consumer perception
  • Labor and operational efficiency
  • Consolidate and automate electronic deposits to
    your accounts
  • Decrease lapse rates

17
Benefits
  • Benefits to your customers
  • Choose from multiple methods of payment
  • Take comfort in knowing payments are fast,
    reliable and secure
  • Rewards (frequent flier miles, cash back, ease
    of accounting)
  • Addresses most consumer security concerns
  • Speeds up time to statement

18
Payment Methods
  • Cardholders demonstrate a desire to pay through
    various channels, indicating opportunity in both
    the biller direct and consolidator models
  • Example of biller direct is a merchant who allows
    payment directly on the merchants Web site
  • Example of consolidator is a third-party vendor
    who accepts the payment on behalf of the merchant
  • Advantages of consolidator include ease of
    implementation, speed of implementation, less
    compliance liability
  • Disadvantages of consolidator include loss of
    control

19
Payment Methods
  • While card acceptance has grown, most Visa
    cardholders use multiple methods to pay bills.

Bill Payment Methods of Choice, 2006 Responsible
for Household Bill Paying (n308)
Pay directly to biller by payment card or EFT
from checking or savings (online or by
phone) Source Visa U.S.A. Research Services,
2006
20
Growth Opportunities
  • Statistics reported from a top 5 insurance
    company (based on revenues)

Approximate of overall payments (among all
types of insurance) paid via credit card
21
Stats for Top Insurance Company
Percentage of payments paid via credit cards in
2006 and 2007 for specific lines of insurance
22
Growth Opportunities
  • In terms of credit card acceptance, this top 5
    insurance company reported their credit card
    growth rates over the past three years are as
    follows
  • 2005 29 growth
  • 2006 30 growth
  • 2007 13 growth (year-to-date)

23
Insurance Inserts
24
Insurance Company Statement Insert
25
BillPay Marketing
26
BillPay Marketing
27
Merchant Marketing
  • Biller (merchant) marketing of Visa Bill Pay
    generated more than 180 million direct marketing
    impressions in the last year.
  • Participating marketing partners within the
    insurance industry included Farmers Insurance and
    St. Paul Travelers Insurance.
  • In the retail (non-bill payment) marketplace,
    there is minimal amount of growth potential for
    payments.
  • Visa, MasterCard, American Express, Discover,
    STAR, NYCE, PULSE, and many of the major issuers
    are all focused on increasing the amount of bill
    payments paid via credit card, debit card.
  • These companies are going to more aggressively
    market bill payment to consumers who are going to
    request bill payment capabilities from insurers.
  • Marketing will include television, Web, statement
    inserts, magazine and other forms of media.
    Incentives are being increased to push consumers
    in this direction.
  • What is the message to pass to your customer
    service agents who will be taking calls from
    customers that want to know, can I pay with my
    credit card?

28
Technology and Implementation
  • Outlining needs Which lines of insurance?,
    pricing concerns
  • Accept payments face to face at agent office,
    mail order via lockbox, phone order via customer
    service rep or automated phone system (IVR), Web
    payments, Direct or Consolidator model?
  • Convenience fees or no convenience fees?
  • All customers or exception items? (marketing or
    no marketing?)
  • Which payment types?
  • ACH/E-Check
  • Visa Consumer Transactions, Visa B2B-Level 2 and
    Level 3
  • MasterCard Consumer Transactions, MasterCard
    B2B-Level 2, 3
  • STAR, NYCE, PULSE
  • American Express Consumer, American Express B2B
  • Discover
  • International Payment Types

29
Technology and Implementation
  • Business to Business Examples Agent to
    Insurer, Corporation to Insurer
  • Visa Level 2, Level 3, and Large Ticket Level 3
  • Mastercard Level 2, Level 3, and Large Ticket
    Level 3
  • International Payments Consumers in many
    international markets prefer methods other than
    Visa/MC/Amex/Discover
  • Example- France Carte Bleue, Carte Vert
  • Italy Carta Si
  • UK Maestro, Solo, Electron
  • Ireland Laser
  • Scandinavia Dankort
  • Germany Bank Transfers,
    Direct Debit
  • Asia Bank Transfers
    (similar to wire transfer)
  • There is no single source acquirer with a single
    platform that can process all domestic and
    international payments. Multiple acquirers would
    need to be chosen for many implementations
    involving both domestic and foreign processing.

30
Technology and Implementation
  • Choose third-party vendor, bank vendor, or choose
    to code directly to a payment processor
    (proprietary or non proprietary concerns)
  • Choose processor (acquirer)
  • Establish connectivity (Internet API, frame
    relay)
  • Test and certify connectivity
  • Train users
  • Go live
  • Closely monitor fees and Interchange levels
  • Stand-alone payment projects can take 4-6 weeks
    to implement
  • Fully integrated payment projects can take 2-6
    months to implement

31
Questions/Comments/Discussion
32
Thank you
  • Aaron Schneider, 1.954.558.0252
    aaron.schneider_at_bankofamerica.com

33
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