REAL-TIME PAYMENTS (RTP) SUMMIT 18 May, 2018

THE FIRST NEW PAYMENTS SYSTEM IN OVER 40 YEARS

Pete Kooner

Head of Product, Treasury Services

J.P Morgan, Australia & New Zealand 2018

Technology is driving massive changes to the global payments landscape

Global Mobile Users1

Trends and shifts in the payments landscape

1995 – 80M – 1% Population Penetration

2014 – 5.2B – 73% Population Penetration

2017 – 7.1B – 95% Population Penetration

Global Smartphone Users2

First iPhone released a decade ago – today 715

million in use

2014 – 2.6B – 36% Population Penetration

2017 – 4.3B – 57% Population Penetration

Global Internet Users3

1995 – 35M – 0.6% Population Penetration

2014 – 2.8B – 39% Population Penetration

2017 – 3.2B – 43% Population Penetration

What does this mean for payments?

People are now accustomed to obtaining information in real-time and expect no less from payments

The payments landscape has been driven to real-time by the increasingly connected and accessible consumer

1 Ericsson 2017 Mobility Report, Kleiner, Perkins, Caufield and Byers, Internet Trends 2015 2. Ibid 3. Ibid

1

Faster Payments offering around the globe

Countries around the world are implementing faster payment systems

Faster Payments live

Faster Payments under development

2

Immediate Payments: The global view - a sample of global instant payment schemes

Country Name Year Settlement Working hours Message Format Technology

Japan Zengin 1973 DNS or Gross 08.30-16.40 ISO 20022 (for some msg) Home built

Switzerland SIC 1987 Gross 24/7 ISO 20022 by 2018 Home built

Taiwan FISC-FIS 1993 Prefunded 24/7 Proprietary XML Mobile focus, MNOs and Banks

South Korea KFTC 2001 DNS TBC Proprietary XML Home built

Brazil SITRAF 2002 Hybrid 07.30-17.00 ISO 20022 Home built

Mexico SPEI 2004 Hybrid 23/24 Proprietary Home built

South Africa RTC 2006 DNS 24/7 ISO 8583 (20022 planned) BankServ SA

U.K. FPS 2008 DNS 24/7 ISO 8583 Vocalink

Chile TEF 2008 DNS 24/7 TBC Home built

India IMPS 2010 DNS 24/7 ISO 8583 TATA Consulting

China IBPS 2010 DNS 24/7 ISO 20022 planned Home built

Poland Express Elixir 2012 Prefunded 24/7 ISO 20022 CapGemini

Sweden BIR 2012 Prefunded 24/7 ISO 20022 Home built with Fundtech

Turkey RPS 2014 Gross 08.30-17.30 TBC Home built

Singapore FAST 2014 DNS 24/7 ISO 20022 Vocalink

Denmark NetsRT 2014 DNS 24/7 ISO 20022 NETS

Australia NPP 2017 Gross 24/7 ISO 20022 SWIFT

U.S. TCH RTP 2017 DNS 24/7 ISO 20022 Vocalink

EBA EU SCT Instant 2017 DNS 24/7 ISO 20022 SIA

Spain SCT Instant 2017 DNS 24/7 ISO 20022 RedSys

Netherlands TBC 2019 TBC 24/7 ISO 20022 TBC

3

Instant Payments in Europe: Single European Payments Area (SEPA Instant)

J.P. Morgan is an original funding member of EBA Clearing’s SEPA Instant Payments driven by the

European Retail Payments Board. The interbank rules are:

1 15,000 limit is expected to rise over time, in line with historical rollouts of real-time payment systems globally.

Speed

Money available to payee

within ten seconds

Availability

SEPA CT ‘inst’ payments available 24/7/365

Reach

All SEPA participants are

eligible; but full 34 not

expected to initially go live

Amount

Credit Transfers in EUR

Up to maximum 15,0001

10 EUR 15,000

24 / 7 / 365

PAN EURO

Limited Pilots Scheme Published

Industry Build Community

Review Expected

Industry Take-Up Consultation

April 2016

July 2016

November 2016

November 2017

Middle of 2018

Timeline

4

Real-Time Payments in the U.S. market

RTP will address the gaps in current payment methods

ISO 20022 supports sophisticated applications

Messaging

ISO 20022

Security

Sender initiates the transaction from their own funded DDA

Credit Push

Money is available to payee within fifteen seconds

Speed

15 seconds

Availability

Instant payments available 24/7/365

24/7/365

Credit transfers in USD of up to a $25,000 maximum

Amount

$25,000

The first new U.S. payment system in over 40 years RTP use cases

Real-Time Payments (RTP) are immediate, irrevocable, secure, contextual,

and convenient

JPMorgan Chase is an Early Adopter Bank in the U.S., acting as part of a

consortium of banks participating in the new payment rails developed by The

Clearing House1

API and channel-based, which supports unified payments integration and

contextual commerce2

Robust remittance detail allows for streamlined reconciliation with payment

confirmation and reporting of information-rich content

Business-to-business (B2B)

A supplier sending a Request for Payment (RFP) message to a

manufacturer, who then responds by initiating a RTP3

A merchant transferring funds from his online wallet to his DDA

Business-to-consumer (B2C)

A service provider issuing a refund to a customer directly to her phone

An insurance company adjustor reviewing a claim and providing funds to

the policy holder

Consumer-to-business (C2B)

A consumer paying a utility bill last minute to avoid service cancellation

A car owner paying the final balance on a car loan

1 https://www.theclearinghouse.org/press-room/in-the-news/20171114%20rtp%20first%20new%20core%20payments%20system 2. Channel-based RTP is a future functionality that is anticipated to launch in Q4 2018 3. Request for Payment is a future functionality that is anticipated to launch in Q4 2018

5

RTP is a scalable solution for audiences of all sizes

RTP data elements drive new opportunities while supporting integrated and contextual commerce

Business-to-

Business

(B2B)

Eliminating paper and manual reconciliation: Request

for Payments (RFP) on recurring and one-time invoices

Drives efficiencies and potentially enhances

working capital in the order-to-cash and

procure-to-pay cycles for our clients

Business-to-

Consumer

(B2C)

Enhancing customer service: using payments as a

differentiator for resolving customer complaints, issuing

royalties, merchant settlements, refunds, rebates,

incentives, settling claims, etc., anytime

The customer experience is greatly enhanced

by providing real-time resolutions

Consumer-to-

Business

(C2B)

Let them choose: providing choice for consumers on how

and when to pay

Encourages consumers to shift from cash and

cheques

Payment Finality and Visibility Enhanced Client Experience Automatic Reconciliation Improved Liquidity Management

No returns, reversals, or chargebacks

Real-time view of cash positions

Real-time confirmations

No cut-off times- 24/7/365

API based – supports unified payments integration with robust messaging and acknowledgments

Invoicing capabilities with RFP reducing days sales outstanding

ISO 20022 allows for information rich messaging

Reduced settlement times allow for last-minute payments

Increased control and immediate funds availability

6

Innovation: U.S. Real-time payments

Premise

Every day thousands of companies deliver physical goods to food stores,

package stores, restaurants and supermarkets

Store personnel accept these shipments and pay the driver / delivery agent

onsite

Shipment invoices can be changed at time of delivery based on current store

inventory requirements

Invoice payment is often made by paper cheque or in cash to the delivery

person

This is problematic as…

Although cheque and cash acceptance is a risk for the delivery provider, it is a

preferred method of payment for the payor

Invoice and payment reconciliation is manual and after-the-fact when drivers

end their daily route

Proposed M-Commerce Solution

A Real-Time Payments enabled bank receivables mobile app can eliminate the need to take cash or cheque payments and immediately reconciles the invoice to the payment.

How it works Benefits

The driver can deliver the goods, make changes to the invoice and

immediately send it to the store manager via a mobile app

The store manager can immediately see the invoice through a mobile phone

via an online banking app and clicks ‘Pay’

Transactions are completed immediately

The driver no longer needs to deposit the cheques or carry cash to the bank

Delivery invoice data to payment amounts are recorded and reconciled at

point of receipt

Invoice date is available to the store owner for shipment and order tracking

Less expensive than transporting and depositing cash, cheque and card

payment processing

The Clearing House business-to-business pilot use case – Cashless / Cashless Cash On Delivery (COD)

7

What do corporates need to do to prepare for NPP?

Review and upgrade existing technology e.g. ERP systems

Shift from scheduled payments to real-time e.g. API payment technologies

Assign resources to develop business use cases which will add customer value or internal efficiencies

Partner with your bank to plan your organisational change for real-time payments

J.P. Morgan Corporate

8

Interbank Information Network (IIN)

Interbank Information Network (IIN)

9

Interbank Information Network (IIN)

A secure, decentralized, permission-based network to safely exchange information and address the current

and future friction points within the payments chain

Streamlines and automates compliance-related inquiries reducing delays and inquiry turn-around times

Enables cross-border payments to reach beneficiaries faster while reducing costs associated with compliance inquiries

Maintains Personal Information (PI) within secure network provisioned for validated payments

Actively growing network with key foreign correspondent banking clients to further enable faster payment execution

Client benefits

Key features

A network that leverages J.P. Morgan’s Quorum, a blockchain technology to streamline payment-related

compliance inquiries

Information is exchanged and maintained through a

secure and permissioned network

Enables faster and more comprehensive payment tracking

Facilitates informed, real-time risk management with real-

time sanctions, AML and fraud management tools

Establishes a foundational structure of technology,

network and utility services for the development of future

value-added services

IIN model for compliance inquiries

Interbank Information

Network

Remitter

Remitter Bank

Correspondent Bank B Beneficiary

bank

3

2 2

Compliance inquiry

1 4

1 Data request 2 Data exchange 3 4 Data remittance

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