IBM Commerce Payments Real-time processing, same day settlement with IBM April 20th, 2015

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Important Notice

© 2014 IBM Corporation 3

NACHA Same Day ACH

UK Faster Payments

G3 faster payments

Poland’s Express Elixir

Nigeria’s NIBSS Instant Payment (NIP)

All around the world, “immediate payments” initiatives are underway…

NPP Fast Payments proposal

Finland’s Finvoice

South Africa’s RTC

Brazil’s TED Payments

FED Payments Improvement

Some of the possibilities of “Immediate Payments” …. Governments

Replace Cash & Check Payments Increase the speed of money for general society Improve Risk Management

Businesses Wages & Customer Claims Increase speed and lower risk Faster availability of funds & Easier Reconciliation Insights from Payments Rich data (i.e. ISO 20022)

Consumers 24 hour availability Immediate confirmation of payments Irrevocability of payment Immediate use of funds**

Faster A2A (account to account) payments could provide the following benefits: 1. facilitate business-to-business (B2B) payments, which are still accomplished largely by paper check; 2. facilitate mobile payments, a rapidly developing payments application; 3. improve payment security8; 4. be available at all times (24/7/365), unlike clearing houses run by the Bank of England or the Federal Reserve; 5. facilitate person-to-person (P2P) payments, which are typically handled by cash and check in the United States; and 6. facilitate faster international payments using standards such as ISO 20022.

Source: Current Policy Perspectives No 14-5: Costs and Benefits of Building Faster Payment Systems: The U.K. Experience and Implications for the United States

US momentum driven from NACHA, the FRB, and TCH…

Here in the US, we can learn from our friends in the UK …. The similarities of the two countries’ payment systems suggest that the experience of the United Kingdom with respect to faster payments may be instructive for the United States.

Source: Current Policy Perspectives No 14-5: Costs and Benefits of Building Faster Payment Systems: The U.K. Experience and Implications for the United States

Lloyds Banking Group (LBG) consolidates and streamlines its transaction system

Business challenge: Lloyds Banking Group wanted to consolidate and simplify its transaction infrastructure to create a sustainable platform for growth. A number of regulatory requirements were looming that would be difficult to satisfy with the current payment system.

The Commerce solution: The financial institution implemented a transaction management hub that connects all channel and payment systems and provides a core set of centralized payment processing capabilities. The hub serves as a single point of control and information for all payment transactions across the company, and it minimizes the effect on existing payment flows and processes while reducing the cost and risk of payment changes.

2,500+ transactions processed per second

40% of all UK payments at project completion

Improved agility, control and operational flexibility

Choices we will have to make …. There are different, sometimes hotly debated, ways of implementing a faster payments scheme:

1. Speeding up an existing A2A payment system; for example, making the Bacs (ACH batch based) clear transactions several times during a 24-hour cycle.

2. Building a totally new A2A faster payment system.

3. Modifying other existing payment networks to make them suitable for A2A transfers; for example, using an existing debit card or an ATM network.

4. Using an existing Real Time Gross Settlement (RTGS) network by reducing end-user fees for low-value funds transfers.

…. or perhaps choosing multiple paths such as SameDay ACH and the TCH Real Time Payment System…

Source: Current Policy Perspectives No 14-5: Costs and Benefits of Building Faster Payment Systems: The U.K. Experience and Implications for the United States

Decisions facing banks when determining “what to do” ….

Add yet another platform (or maybe two) without reducing current payments footprint “We always add to our payments processing

footprint and never subtract”

Patch multiple “single purpose payment silos” Continue to be held hostage to legacy technology

and cumbersome processes

Take a different approach Address SameDay ACH “immediately” Address Faster payments “immediately” Assimilate legacy payment silos/process “over

time” at your own pace and finally reduce the payments processing footprint at your institution

IBMs Vision and Approach to this global transformation…

Design and implement for “real time” payments

Deliver multi-payment, multi-currency platform for payments convergence

Enable predictive insights to provide new innovative services for clients

Imagine if a single platform enabled organizations to process …. Real Time, SameDay, Batch via processing rules

Real Time Gross Settlement (RGTS), Multiple SameDay

Settlements, and traditional settlement models

High Volume/Low Value & High Value/Low Volume payments

Multiple Payment Types (ISO 20022, NACHA, SWIFT, ANSI x9, CPA, etc.)

Multiple Roles (ODFI, RDFI, Operator, Central Bank, Third Party Service Provider (TSP), etc.)

Laptop to midrange to mainframe to Cloud

Provide analytics and insights for more advanced business services

Financial Transaction Manager portfolio SWIFT

Network Services

FIN

Processing

FileAct Processing

InterAct

Processing

Payment Analytics

Liquidity Management

Trends Analysis

Predictive Analytices

Financial Transaction Manager (FTM) Base

Database Services (DB2)

Application Services (WebSphere Application Server)

Reporting & Analytics (COGNOS 10)

Workflow Modelling (Rational Software Architect)

Event Management (Integration Bus (IIB)

Messaging Services (WebSphere MQ)

Product Toolkit Product Services Transaction Orchestration

Integrated SOA Foundation Layer

ACH Clearing Services

NACHA

Processing

Risk Management

Legacy System

Renovation

Corporate Payment Services

Integrated Payables

FEDI (Netpay) Processing

Payment

Services Hub

Transformation (WebSphere Transformation eXtender (WTX)

Dashboard (WebSphere Business Monitor)

SEPA Services

SEPA Credit Transfers

SEPA Direct Debit

STEP2 CSM Integration

UIs & Dashboard Consolidated Database

Corporate Receivables

Recon. Engine

Automated & Manual Match

Customer

Remittances

SWIFT Business Services

Message

Mgmt Services

BackOffice Integration

Operations Support /

RMA

UK Payments

Integration

Prebuilt mappers

to/from FTM ISF

Integration

with common payment schemes

Ongoing

maintenance & support

Check Clearing Services

Processing & Remediation

Distribution &

Exchange

Legacy System

Renovation

Three Tiered Architecture

FTM Base Canonical Database

Bulking / De-bulking Transformation Dashboard Admin &

Configuration UI Event & Workflow

Orchestration Rational Models

Alert Management

Services

Request / Response Correlation

WODM Integration

Services

Product Onboarding

Client Onboarding

User Security/ Entitlements

Auditing & Logging Alerting Warehousing Operational UI Business Day

Management Calendar Services Data Setup Utility

Landing Zone Management

Inbound Deadline

Management Expected Events Transaction

Validation Transaction Enrichment FX Services

Optimal (Intelligent)

Routing

Customer Acknowledgemen

ts

Duplicate Detection

Recurring Payments

Operational Exception

Management Limit Checking Prefunded

Accounts Payment

Authorization Positive Pay Stop Pay Image Compliance Payments Repair Remediation

Services Cancellation &

Reversals

Distribution Outbound Deadline

Management Extracts Advices Reporting Accounting

(Settlement) Adjustments Correction & Reconciliation Billing Archiving

Research & Investigations

NOC & DNE Management

Duplicate Detection (Item

Level) Returns Reclears Message Type

Monitoring Transaction

Review (OFAC) Check

Conversion SWIFT Access

Gateway Receivables

Reconciliation

Message Entry & Repair

Relationship Management

Services

Product Onboarding

Client Onboarding

User Security/ Entitlements

Auditing & Logging Alerting Warehousing Operational UI Business Day

Management Calendar Services Data Setup Utility

Landing Zone Management

Inbound Deadline

Management Expected Events Transaction

Validation Transaction Enrichment FX Services

Optimal (Intelligent)

Routing

Customer Acknowledgemen

ts

Duplicate Detection

Recurring Payments

Operational Exception

Management Limit Checking Prefunded

Accounts Payment

Authorization Positive Pay Stop Pay Image Compliance Payments Repair Remediation

Services Cancellation &

Reversals

Distribution Outbound Deadline

Management Extracts Advices Reporting Accounting

(Settlement) Adjustments Correction & Reconciliation Billing Archiving

Research & Investigations

NOC & DNE Management

Duplicate Detection (Item

Level) Returns Reclears Message Type

Monitoring Transaction

Review (OFAC) Check

Conversion Receivables

Reporting Receivables

Reconciliation

Web Services

Message Entry & Repair

Relationship Management

Message Validation Message Printing SWIFT Network

Emulation SWIFT Multi

Tenancy SWIFT Access

Gateway

App

licat

ion

Ti

er

Dat

a

Ti

er

Pre

sent

atio

n

Ti

er

Operational UI Business Monitoring Mobile Notifications & Alerts Corporate Portal

HTTP/S HTTP/S SOAP

HTTP/S SOAP

HTTP/S SMTP MQ

Messaging File

Transfer

Warehouse Rules System Config

Partner Profile

Analytics &

Reporting

Business Monitoring

Duplicate Detection

ODS Active

Historical

IBM is ready to help financial institutions…. Immediately…

The IBM platform supports the entire NACHA payment life cycle whether SameDay or Traditional processing is required…

ACME Payments

Corporates (Receiver)

First Global Bank (FGB) (Originating Depository

Financial Institution - ODFI)

Second National Bank (SNB) (Receiving Depository Financial

Institution - RDFI)

ACH Operator(s) Federal Reserve Bank (FRB)

or Electronic Payment Network (EPN)

1. Authorization/agreement between originator and receiver

First Global Bank Posting Systems

2. Entries initiated in an agreed-upon format via browser-based platform or CPU link

3. Items distributed for processing

4. Items distributed to receiving banks

5. Settlement occurs to ODFI and RDFI Fed accounts

6. Entry posted to receiver’s account and reported to receiver

Individuals (Receivers) or

Other Banks

7. Returns, Dishonored Returns, & Contested Dishonored Returns

Origination Support

Landing Zone Management Validation, Enrichment & Optimal Routing Control Totals Etc.

Exception Management

Exceptions are routed to remediation personnel

Approvals, risk management exceptions, etc. Processed at the ACH entry or batch level Etc.

Distribution

Distribution to Operators, Third Parties, etc. Transit & ONUS support SameDay & Traditional Support Etc.

Multi-Payment, Multi-Currency, Multi-Bank, Support

Rules Based Processing

Financial Governance (Adjustments, Accounting, Settlement)

Dashboards and Reporting for Payment Insights…..

Previously released FTM base and features

New FTM feature released in year Planned FTM feature

IBM asset or value added partner offering considered for FTM

Base FTM

CPS

SEPA

ACH

2013

Establish Consolidate Expand

2011

Base FTM Base FTM

CPS

SEPA

2012

Base FTM

CPS

SEPA

Chec

k

SWIF

T Bu

s Sv

cs

ACH

Enable Cloud Delivery

Trad

e Fi

nanc

e

Reco

n.

Trad

e Fi

nanc

e

UK

Paym

t In

teg

2015

Com

mer

ce

Base FTM CP

S

SEPA

Chec

k

SWIF

T Bu

s Sv

cs

ACH

Prepare for Cloud Delivery

UK

Paym

t In

teg

2014

SWIF

T N

etw

ork

Serv

ices

Payments Analytics – Fraud…

IBM Payments continued growth and expansion

IBM supports the NACHA SameDay initiative… Today!

Find out more about IBM Payments

Visit us at booth 223 Follow us on twitter #IBMCommerce, #IBMPayments Download this presentation from Slideshare http://www.slideshare.net/ibmsmrtcommerce

8501 IBM Drive Charlotte, NC 28262 Phone (704) 942-3278 Mobile (704) 281-3803 gcrector@us.ibm.com

Gerald Craig Rector Offering Management & Strategy Payments Software IBM Commerce

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Legal Notice The information contained in this presentation is provided for information purposes only. While efforts were made to verify the completeness and accuracy of the information contained in this presentation, it is provided “as is” without warranty of any kind, express or implied. In addition, this information is based on IBM’s current product plans and strategy, which are subject to change by IBM without notice. IBM shall not be responsible for any damages arising out of the use of, or otherwise related to, this presentation or any other documentation. Nothing contained in this presentation is intended to, nor shall have the effect of, creating any warranties or representations from IBM (or its suppliers or licensors), or altering the terms and conditions of the applicable license agreement governing the use of IBM software. References in this presentation to IBM products, programs, or services do not imply that they will be available in all countries in which IBM operates. Product release dates or capabilities or pricing referenced in this presentation may change at any time at IBM’s sole discretion based on market opportunities or other factors, and are not intended to be a commitment to future product, feature availability, pricing in any way. Nothing contained in these materials is intended to, nor shall have the effect of, stating or implying that any activities undertaken by you will result in any specific sales, revenue growth or other results.