Real Time Payments What it means to you.

1. Real Time PaymentsWhat it means to you. Brian Dao, AAP AVP Electronic Payments April 2019

2. Trends in Payments Defining Real Time Payments (RTP) US Direction and Context How it Impacts You Questions

3. Global Trends in Payments

4. Payment Trend – Quick Topics Mobile Ordering and Payments Real Time Payments AI/Voice/Chat bots Security Blockchain APIs and Open Banking

5. Market Problems TRANSACTION RETAIL Increasing real-time value limits FAST in Singaporeincreased its transactionlimit from $10,000 to $50,000 to address corporate users’ business needs (ABS). The UK increased the limit to £250,000 - UKFP Declining B2B rails usage 8% say real-time payments will reduce ACH transactions, and 5% predict reductions in RTGS/wire transfers. – Banking Technology No more divisions UK Faster Payments has replaced BACS (ACH) as the credit transfer of choice (Lipis Advisors). 99.9% of the banks active in Chile are participating in TEF - Centro de CompensacionAutomatizado - CCA Real-time, anytime 49% of payments using the UK Faster Payments system are made outside of business hours - Vocalink Real-time, anywhere 22% of Swedes have access to the Swish mobile app and 10% have actually used the app to make a payment in the last month- Bankgirot Capturing future customers 73% of US consumers have either used, or want to use real-time payments. Amongst 18-34 year olds, the future decision makers, this is 86% - Accenture

6. Electronic Payments Continued Growth Less expensive more efficient Automated Clearing House (ACH) payments continue to rise Source: AITE Group surveys of 2,429 consumers in Q3 2016, 1,107 in 2013 and 4,696 in 2010

7. Where Real Time is Taking Place

8. Defining Real-Time Payments

9. Real-Time Payment is a New Rail First one in 40 years! Not using the same rails Bank account to bank account electronic transfer that is posted and confirmed within seconds to sender the beneficiary Designed to work like cash • Credit push • Fast and final • Always available • Complete transparency

10. Real-Time Payment is a New Rail First one in 40 years! Not using the same rails Bank account to bank account electronic transfer that is posted and confirmed within seconds to sender the beneficiary • Designed to work like cash • Credit push • Fast and final • Always available • Complete transparency

11. Real-Time vs. Current Channels

12. Defining a “Real-Time” Payment + FAST CONNECTED • End to end transaction time < 5 seconds • 24x7x365 availability • Expanding number of end points • Integration to existing networks and systems as well as new for immediate payments • Liquidity management volatility • Instant settlement of funds highlights cash management discipline • Global and local payment schemes • 18 schemes live globally, increasing annually • Minimal exception processing • Straight Through Processing is the norm • Convergence of consumer & corporate • Blurring of the division between consumer and corporate demands

13. US Direction and Context

14. The Catalyst for Real-Time Payments • Global schemes & standards come of age • Regulatory Drivers promote innovation and consumer protection, speed up commerce • Commercial Drivers harder to justify today • 18 real-time payment schemes live, it will soon be 140 – Celent • ISO 20022 is the new standard for financial processing, including for many of the new immediate payment systems – Accenture • Transaction volumes reach critical mass • UK Faster Payments system saw 1.1 billion transactions in 2016, growing at 20% per year - Accenture • 69% of consumer payers and 75% of business payees prefer instant or one-hour payment speed – Federal Reserve • 82% of US Banks believe real time payments will displace existing payment types - Banking Technology • In its first 2 days Singapore’s FAST system cleared more daily transactions than the Polish Express ELIXIR system, which has been available since 2012 - Association of Banks in Singapore (ABS) • China’s IBPS saw over 200% growth in volume and 166% growth in value- China National Advanced Payment System (CNAPS) • Transaction & retail Banking converge • 64% say both retail and corporate banking businesses are the initiators of real-time payments projects – Banking Technology • 24% say real-time payments are a core part of their company’s overall strategy in the next two years – Banking Technology • UK Faster Payments is able to support 70% of larger retail payments – such as house purchases – that currently go via the UK’s more expensive RTGS system, CHAPS – ACI Worldwide

15. Disruptors, Challengers, and Insurgents

16. What’s Ahead for US Business Consumerization of corporate payments Disruptive entrants are consistently raising the bar API’s (Application Program Interface) are making integration easier “Always On” culture and data Regulators will need to “step up” and work more effectively together International trade is normal, even for small business Banks need to invest to add new rails and make it easy for customers to utilize. Strategic initiatives tied to payments

17. Why and How Real-Time will be used

18. How it Impacts You

19. How will Businesses Receive Payments Consumer selects to pay in real-time Consumer enters website after receiving a bill Consumer receives a notification (request for payment) from their bank Step 5 Step 3 Step 1 Step 6 Step 2 Step 4 Consumer will see payment options: Card ACH Real-Time Consumer is authenticated to complete payment Consumer selects checking account to pay from

20. Buyer paying urgent invoices Buyer paying to meet discount terms Business How will Businesses Receive Payments B2B B2C P2P/A2A C2B • Investor moving funds to another account • Consumer splitting bills • Emergency funds • Bill payments • Consumer for general support services • Insurance/healthcare companies paying out claims • Emergency payroll • Investment companies paying out withdrawals

21. Where Smart Banks are Investing Customer EducationStay ahead of the curve Provide information and transparency Continual Investments Customer facing systems Core Infrastructure Preparation for the future Customer ExperienceMaking it easier to do business with us Automation Cleaner processes Less paper, Providing configurable options Process/ToolsNever standing still Build, Buy and Partner to ensure best of breed options Activities & CommunicationRegular updates with our customer through various channels Internal Training Making sure we are the value added partners you should expect, educating all teams on payment continuum available

22. Non-Negotiables of Real-Time Payments Availability – 100% uptime Scalability – No “plateaus” Predictability – 100% expectations of payments/data Resiliency – Recovery must be instant, automated, and predictable Security – Integrity of transaction and data

23. Things to Consider • How you pay and receive funds • Where does RTP fit in your payment strategy? • How could this impact your business? • Especially if you have younger customers • In today’s rising rate environment • Risk • Who has access to see information and create information/payments? • With more straight through processing (STP) for all, how do you protect your company? • How you reconcile your cash position • Depends on your bank too . . . . • If payments can come and go 24/7/365 what does that mean to your cash needs? Systems, IT, Infrastructure, etc • How you staff to service customers • If payments can be me 24/7/365, how do you ensure you can receive (and send) payments if needed at non-traditional times?

24. Questions? Brian Dao, AAP AVP, Electronic Payments Email: Brian.Dao@CommerceBank.com