Payments Systems Presented By Wayne Shah

1. Payments Systems Presented By Wayne Shah

2. Discussion Discussion

3. Trends 2009+

4. Discussion Concepts • A payment system is a system used for the transfer of money • What makes it a "system" is that it employs cash-substitutes • Payment systems are used in lieu of tendering cash in domestic and international transactions • Payment systems are require processing, cut off times and currency specifications

5. Discussion Pays SWIFT ATMs On Line Banking Internet Payment – Paypal, Amazon, Face Book Mobile Phone Payment Wire transfer Book transfer Domestic ACH Letters of credit Hawala • Cash Substitute • Checks • Drafts • Credit Card – Visa, MasterCard, Discover American Express, • Diners Club • Debit Card • Stored Value card • International ACH • E commerce Payments

7. CSM CAD RUB $ £ CSM FI CSM FI MXN € INR CSM CSM AED BRL ARS FI ZAR CSM ¥ CSM ¥ • FX • Markets • Language • Regulation • Time Zones • Local Banking Practices AUD FI

8. Discussion Major Markets • USA • Japan • China • India • Europe • Latin America and Caribbean • Brazil, Chile, Mexico • Panama, Guatemala

10. Discussion Payments - USA • Wholesale (High Value/Low Volume) CHIPS Fedwire • Retail (Low Value/High Volume) Automated Clearing House Check Clearing System Debit/Credit Cards • Book Transfer ?

11. 1. Credit Card Presented toMerchant for Purchase Merchant Merchant Bank 2. Authorization Request 5. Charges sent for clearing Consumer Account 5. Hold Convertedto Charge 3. Hold Placed on Credit Limit 5. Funds Remitted Issuing Bank Credit CardNetwork 6. Settlement 4. Authorization Granted Settlement = Authorization = Clearing = Credit Card Payment Clearing Process

13. Discussion Payments - Japan • There are 4 major clearing systems for settling inter-bank payments in Japan • Three are private and one is operated by the BOJ • The 3 private systems are • Zengin System – retail credit transfers • FXYCS – Yen legs of FX transactions • BCCS – Bills and Checks collected at regional Clearing houses • BOJ Net – settles inter-bank transactions • Net positions calculated by these clearing systems are settled through current accounts at the Bank of Japan

15. Discussion Payments - China • 4 Large State-Owned Commercial Banks dominate banking system • Bank of China (120) (11,608) • Industrial and Commercial Bank of China (134) (24,129) • Agricultural Bank of China (110) (48,163) • China Construction Bank (131) (16,472) • 4 banks control 55% of the banking assets and 60% of the market share • Extensive nationwide branch network w/ as many as 5 tiers or layers in some cases

16. People’s Bank of China State-owned Policy banks State Administration of Foreign Exchange State-owned Commercial banks State Council Shareholding Commercial banks China Banking Regulatory Commission City Commercial banks Foreign Banks & JVs Chinese Banking System

17. City Name Similarities

19. New Image Geared for International Commerce

20. Indian Banking Structure 68,300 branches Can have FX acctounts FX and Rupee. No positions in FX rupees only

22. Discussion Payments - Europe The Pre Euro Landscape • Large differences in payment practices and price levels • Every country has it’s own clearing systems • Difference in local data formats and contents (e.g. account number) • Substantial differences in tax, legal and central bank reporting requirements • “Fragmented”

23. Retail Clearing Systems in Euro Area • CEC - Belgium • CHS -Brussels • PMJ - Finland • SIT - France • RPS -Germany • ACO - Greece • DIAS - Greece • IRECC - Ireland • IPCC - Ireland • BI-COMP - Italy • LIPS-Net - Luxembourg • CSS - Netherlands • SICOI - Portugal • SNCE - Spain • STEP 2 - European Banking Association

24. Euro (EUR) Payment Systems TARGET – RTGS (being replaced by TARGET2) EURO 1 - Netting System STEP 1 – A sub-system of Euro 1 STEP 2 – European ACH system (SEPA) Domestic Schemes – RTGS/Net/ACH – Phased out Revenue Loss as a Consequence ?

25. Discussion The Caribbean

26. Where is the Caribbean headed • Government and regulation • Policy • Technology • Foreign Banks • Globalization Are we a geography or a financial region?

27. Major Challenges

29. REGULATION AND COMPLIANCE • Compliance and regulation have dominated the banking sector. • Several banks have been levied heavy fines by regulatory authorities in the past 5 years for failure to comply with regulations • As regulatory bodies are highly reactive to world events, compliance and regulations will remain a top priority for banks to survive.

30. Managing Risk • Regulatory Environment • FIU • SEC • CATF • CRA • BASEL • FDIC • BIS • ISO • BSA • PAC • KYC • KYCC • AML • EDD • FATF • FINCEN • OFAC • PEP

32. This is a real fear and is the cause of a lot of compliance and regulation

33. Discussion Trends

34. AML Sensitivity 34

35. PAYMENTS - TRENDS

36. PAYMENTS - TRENDS • North America • Debit card use continues to grow rapidly • Demand for more detailed remittance data • Europe • Credit cards have not been embraced • Significant margin pressure across region due to SEPA • Asia Pacific • Fast growth in domestic non-cash payments • Significant payments innovation • Mobile Phones • Middle East and Africa • Individuals more likely to have a relationship with a mobile network operator (MNO) than a bank • Latin America • Credit cards are growing rapidly 36 Source: BCG, KPMG, and McKinsey reports, and EPS analysis

37. Discussion How do I choose the right system

38. Selecting A Payments System

39. Discussion Things to consider • Type of bank in food chain • Retail, Corporate, Private/Wealth • Footprint, Scale, Reach • Tactics and Strategy - direction • Target Market – level of sophistication, technology adoption of customers • Spend and Budget • Human capital

40. Discussion Things to consider • Ease of expansion and upgrades • Product deployment - modular • Product development - Business • Independence from vendor • Trainability • Open Architecture – Hardware Independence • Standards and best practices – SWIFT, IACH • References that are relevant – right sizing

41. Discussion Things to consider • Reporting and Metrics • TRX Tracking and research • Workflow • Compliance interface – AML, OFAC • Enhanced data capture and transfer – e.g. Travel Rule and Bene Information • FX and Multicurrency • Customer Pricing and Flexibility - IQ