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Digital ePayroll and the Future of Payments 2013 and Beyond 20th Annual APA Illinois Statewide Conference.

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Presentation on theme: "Digital ePayroll and the Future of Payments 2013 and Beyond 20th Annual APA Illinois Statewide Conference."— Presentation transcript:

1 Digital ePayroll and the Future of Payments 2013 and Beyond 20th Annual APA Illinois Statewide Conference

2 Digital ePayroll and the Future of Payments 2013 and Beyond Agenda 1.Audience Survey 2.Making the Case for Prepaid 3.Users of Prepaid Cards 4.Are Prepaid cards a viable alternative to a bank account? 5.Reasons Why Paycards Don’t Achieve Company Goals 6.Questions/Comments

3 Digital ePayroll and the Future of Payments 2013 and Beyond How many more years will CASH EXIST? How about the Penny, All Coins, Dollar or All Paper Money?

4 Digital ePayroll and the Future of Payments 2013 and Beyond How many of you NEVER produce a PAPER CHECK out of your payroll office?

5 Digital ePayroll and the Future of Payments 2013 and Beyond WHY? Your explanations ARE VALID!

6 Digital ePayroll and the Future of Payments 2013 and Beyond How many of you NEVER produce a PAPER PAY STUB out of your payroll office?

7 Digital ePayroll and the Future of Payments 2013 and Beyond WHY? Your explanations ARE VALID!

8 Digital ePayroll and the Future of Payments 2013 and Beyond Could the Underserved Segment be the CAUSE? 821,000 more U.S. households have become unbanked since the first survey in 2009, representing a 0.6 % point increase Other key findings of the survey include: 8.2 % of U.S. households are unbanked with approximately 17 million adults live in unbanked households % of U.S. households are underbanked. This represents 1 in 5 households, or 24 million households with 51 million adults % of households do not have a savings account, while about 10 % do not have a checking account. 25% of households have used at least one alternative financial service (AFS), such as non-bank check cashing or payday loans in the past year, and almost 1 in 10 households have used two or more types of AFS products or services. In all, 12 percent of households used an AFS in the past 30 days, including 4 in 10 unbanked and underbanked households.

9 Digital ePayroll and the Future of Payments 2013 and Beyond 1 Employee = Huge Savings By switching to Direct Deposit, an individual employee, paid every two weeks, can: Save a pound of paper per year Avoid the release of 4 gallons of wastewater into the environment Avoid the release of 1 pound of greenhouse gases into the atmosphere. This amount of greenhouse gases is the equivalent of: –4 miles not driven in your car –½ square foot of forest preserved Could Management be the CAUSE?

10 Digital ePayroll and the Future of Payments 2013 and Beyond Making the Case for Prepaid

11 Digital ePayroll and the Future of Payments 2013 and Beyond Payroll dominates the commercial segment General use is expected to have the largest potential in the consumer vertical US Prepaid open loop expected to reach $442B Source: “BCG Prepaid Market Sizing Study”, May Research commissioned by MasterCard Projected US Prepaid Open Loop by Vertical ($Billions)

12 Digital ePayroll and the Future of Payments 2013 and Beyond Why Are Prepaid Cards a Payroll Option Network branded prepaid cards provide consumers, businesses and governments with the efficiency, security and flexibility of direct deposit. Most prepaid cards benefit from broad acceptance, as they can be used anywhere the card brand (Amex, Discover, MasterCard, Visa) credit/debit card is accepted. May provide a point of FREE CASH DELIVERY and EMPLOYEE ACCESS for their payroll

13 Digital ePayroll and the Future of Payments 2013 and Beyond Who Uses Prepaid Cards Millions of Americans use network branded prepaid cards for the choice and protection they provide Much of today’s economy REQUIRES ELECTRONIC PAYMENT Who would not otherwise have a way to participate –Employees who are seeking a non-credit payment tool, that helps the users control their budget and offer many of the same fraud and loss protections. –Funds are loaded by employers for payroll, rewards/incentives and by government for benefits –Employees/parents of college-aged students who want a safe and secure way to give money without the risk of running up debt

14 Digital ePayroll and the Future of Payments 2013 and Beyond How Prepaid Cards Work For the consumer, the cards work like traditional debit/credit cards. A consumer can take a prepaid card to their favorite store or online retailer and use it just like they would a regular credit or debit card. They can also use the card to pay bills, book airline tickets, rent a car, buy dinner, etc. Many cards allow consumers to take cash out at ATMs. The cards offer the same fraud and loss protections as any credit or debit card, but with one big difference: the funds on the card are pre-paid (by the consumer, business or government on their behalf). Prepaid cards help the consumer control their budget and avoid interest charges, running up debt and overdraft fees.

15 Digital ePayroll and the Future of Payments 2013 and Beyond Who is the user for Prepaid Cards? Is it YOU?

16 Digital ePayroll and the Future of Payments 2013 and Beyond People might be surprised to learn that so many prepaid card customers actually have bank accounts. Ron Hynes, Executive Vice President of Global Prepaid Solutions at MasterCard : It's an emerging phenomenon. I don't think consumer behavior has changed, necessarily. Consumers have always been interested in control, budgeting, segmented spending, etc. In fact, I can go back forty years and remember my mother with her Christmas Club account. That was a very segmented system, and she was systematic in how she put money away so that when the holidays came she had money to go out and spend. So I don't think the consumer dynamic has changed. What consumers are beginning to understand is the ease with which they can accomplish some of that planned spending through prepaid products and offerings. Is the Prepaid Card a True Employee Benefit?

17 Digital ePayroll and the Future of Payments 2013 and Beyond Do Any of These Cases Fit In With Your Company? “Cashing my check every week used to cost me a lot in fees and charges and I wasted a lot of time waiting in line. Now my pay is automatically deposited on a prepaid card. I get free purchases and free cash back, free bill pay and I don’t have to stand in line anymore. It means freedom to me and I have a card that looks and works just like my friends who have checking account debit cards” – Diane, Payroll Card “I love using my reloadable prepaid card because it's convenient, safe and allows me to spend only the money that's on the card. I use it to buy everything from gas and groceries, and even pay bills for phone or utilities. When I go out to dinner with friends and we split the bill, I can use my prepaid card just like a bank debit card or credit card” - Chris, Reloadable Card “My daughter is 15 and I want to teach her how to manage money. Instead of a giving her cash or a debit card, I give her a reloadable prepaid card, which I can reload with her allowance and other money received from babysitting or as gifts. Knowing her card is protected if it lost or stolen gives me piece of mind. I also like the fact that she can't overspend” - Claudia, General Purpose Reloadable Card for Teens NBPCA

18 Digital ePayroll and the Future of Payments 2013 and Beyond Are Prepaid Cards a Viable Alternative to a Bank Account?

19 Digital ePayroll and the Future of Payments 2013 and Beyond Prepaid Card Costs vs. Traditional Bank Account Costs 2009 For the Consumers Union transaction pattern, general purpose reloadable (GPR) prepaid card users’ costs range from $76 to $380 annually. The reloadable prepaid card costs would decrease after the first year by the amount of the activation fee. With the current turnover of these cards, many consumers will incur these costs unless they are payroll cards; therefore, maintaining the same card will reduce the annual costs. Bank customers pay from $218 to $314 annually for a basic checking account with the same common usage patterns referenced above. It should be noted that these costs include five overdrafts per year, a 17% reduction from last year. However, recent analyses indicate that many more consumers than anticipated are opting in for the debit card overdraft coverage. Also, Bretton Woods’ 2009 study of overdrafts indicated that active household users of overdrafts incur more than four overdrafts per month, or 51 per year.

20 Digital ePayroll and the Future of Payments 2013 and Beyond What about FREE Checking? Or Check Cashing? To be consistent with the reloadable prepaid card comparison, if bank account customers meet the criteria (e.g. $1,500 average balance, direct deposit or electronic access only) to minimize fees, these customers would pay $127 to $250 annually. However, given that the average deposit is $350 twice per month, the likelihood of maintaining a $1,500 average balance is negligible. Check cashers and cash users pay $140 to over $720 annually. Walmart is at the low end of the scale and the company is a formidable competitor given its presence in the United States. The more expensive end of the scale includes Western Union and Ace Cash Express. While most consumers will find a lower cost alternative than this mix, we believe it is important to see the possibility of the higher costs to consumers.

21 Digital ePayroll and the Future of Payments 2013 and Beyond Costs Comparison – Consumers Union Transaction Pattern

22 Digital ePayroll and the Future of Payments 2013 and Beyond The shifting cost model is resulting in an increased acceptance of prepaid cards The early users of branded prepaid cards tended to be the underbanked. With new fee structures on basic checking accounts and fewer branch offices in low to middle income communities, the underbanked face more obstacles to mainstream banking. Appropriate education to these consumers will allow reloadable prepaid cards to be a safe and cost-effective means of conducting basic financial transactions. Also, today more mainstream banking consumers are adopting branded prepaid cards for unique purposes like budgeting and funding the pending needs of children, students and parents without the risk of overdraft. The costs are typically lower than alternative payment methods and the convenience and security of branded prepaid cards are on a par with checking accounts and are far superior to cash.

23 Digital ePayroll and the Future of Payments 2013 and Beyond I heard that prepaid cards are unregulated and I would be safer carrying a debit or credit card. Is this true? All network branded prepaid cards are issued by highly regulated financial institutions and are subject to examination, review and oversight by federal agencies such as the Federal Reserve Board, the United States Treasury, the Office of Thrift Supervision and/or the Office of the Comptroller of the Currency. They are processed through an online system that tracks and records every use: both the cardholder purchase and the merchant where the purchase is taking place. Network branded prepaid cards are subject to the same zero liability protection offered by the brand mark on the card (American Express, Discover, MasterCard or Visa). If a prepaid card is lost, stolen or used for purchases without authorization, report it to the customer service number immediately and the card may be reissued and the funds replaced.

24 Digital ePayroll and the Future of Payments 2013 and Beyond But My Employees Like to Cash Checks!

25 Digital ePayroll and the Future of Payments 2013 and Beyond Payroll Card Compliance Map State Sized by Population Size

26 Digital ePayroll and the Future of Payments 2013 and Beyond ATM Networks

27 Digital ePayroll and the Future of Payments 2013 and Beyond Prepaid Card Satisfaction GPR Cardholders: Who are they really? Dispelling the myths., The Aite Group, March, Aite Group’s Survey of 500 U.S. consumers who use alternative financial services, Q1, 2011 Cardholders: Who are they really? Dispelling the myths indicates that prepaid cards are not just a tool for the underbanked. 43% are Gen Y’ers 1/3 earn more than $45,000 34% have a college degree or higher There is high consumer satisfaction Q. How satisfied are you with using a prepaid debit card? (n=250) Not: It’s not particularly helpful 6% Extremely: It’s even more helpful than I thought it would be 29% Very: It’s as helpful as I thought it would be 44% Somewhat: It’s helpful, but not as much as I’d expected 22%

28 Digital ePayroll and the Future of Payments 2013 and Beyond The National Urban League - Reason to use a prepaid card What Prepaid Users Liked Most

29 Digital ePayroll and the Future of Payments 2013 and Beyond Direct Deposit Will Lead My Employees to Free Banking

30 Digital ePayroll and the Future of Payments 2013 and Beyond PAY CARD ANALYSIS AUGUST, 2011 BRETTON WOODS, INC.

31 Digital ePayroll and the Future of Payments 2013 and Beyond PIN vs Signature Transaction ratio On a percentage basis, the cost of the pay card to the pay card consumer is only 1% of their total earnings. This is much more favorable than other available options. The PIN versus Signature transaction ratio for pay cards is 56% for Signature and 44% for PIN transaction compared to the 2010 Federal Reserve Payments Study of 62% for Signature and 38% for PIN: (63%) 9.4 (37%) 14.5 (38%) 23.4 (62%) 14.8% Signature PIN Debit Card billions

32 Digital ePayroll and the Future of Payments 2013 and Beyond Q. For what do you use a prepaid debit card most frequently? (n=250) At stores and restaurants Source: Aite Group’s survey of 500 U.S. consumers who use alternative financial services, Q For online shopping To pay billsAt ATMs 40% 27% 24% 9%

33 Digital ePayroll and the Future of Payments 2013 and Beyond Reasons Why Paycards Don’t Achieve Company Goals

34 Digital ePayroll and the Future of Payments 2013 and Beyond Hurdles to Successful Payroll Card Adoption and Enrollment Payroll Card

35 Digital ePayroll and the Future of Payments 2013 and Beyond Inadequate Employee Training A PayCard company without a STRONG client education and training system is WEAK. PayCard Providers must offer… PayCard Education Training on Use An Employee Satisfaction guide PayCard programs with inadequate client training will have LOW satisfaction and program success will be MINIMAL. Client training is Critical!

36 Digital ePayroll and the Future of Payments 2013 and Beyond Overdrafts: What to look for? Some payroll debit cards can be overdrawn and the card programs charge “Overlimit or NSF fees” The primary reason the unbanked are unbanked is largely due to past exposure to and their desire to avoid overdraft fees. Why put your employees back in the same position. If overdraft is possible – what is the opt-in process? Look for Instant Issue Branded-Visa, MasterCard, Discover: Be aware that some paycards offer an upgraded, embossed VISA or MasterCard branded card for a fee. The unbranded instant issue Card is simply an ATM card. This ATM only card brings into question an employee’s ability to gain access to their “pay to the penny”. Access to “pay to the penny” is a requirement in many states for a paycard to be legally compliant to the “letter” of the law. Reasons Why Paycards Don’t Achieve Company Goals

37 Digital ePayroll and the Future of Payments 2013 and Beyond Evaluate the Issuing Bank: The issuing bank is IMPORTANT!, You should evaluate if the relationship is new to the paycard provider. If it is new, why? Is it due to a Bank Failure? With the environment today, it is important to ask the question. Take Caution with a bank that has been through FDIC acquisition due to the FDIC Acquiring Bank being new to the prepaid business. This represents future risk to your cardholders and additional work for your company. Prepaid issuing banks are specialized and require depth of knowledge for BSA and AML program underwriting. Without experience or understanding the NEW bank may simply discontinue their participation in the card program. Don’t assume that a major bank houses the accounts and system – most outsource the entire system. Reasons Why Paycards Don’t Achieve Company Goals

38 Digital ePayroll and the Future of Payments 2013 and Beyond What is Card linking?: Historically lost and stolen cards can be a huge issue for a company with unbanked workers. Not all paycard providers handle the process of lost or stolen card replacement the same way and they may inevitably lead to a negative cardholder experience. Be aware that employees may not have access to all features of program with a PIN only replacement card, there may be a period of time without account access and transfer fees to bring over balances. Reasons Why Paycards Don’t Achieve Company Goals

39 Digital ePayroll and the Future of Payments 2013 and Beyond You want reports! Lots and lots of reports! Beware – the requested report may be a violation of the Gramm- Leach-Bliley Act. While there are many reports available to paycard clients, you don’t want to access to information on employee spend. o This is for one very important reason… The Account is Private and Owned by the Employee. Having access to this “spend” information puts your company and employees at risk. Select a paycard team that stays current with this dynamic area of regulation through participation in the Visa-sponsored Paycard Roundtable, which is a group focused on creating a legislative environment favorable to paycards and The Network Branded Prepaid Card Association’s (NBPCA) Government Relations Committee. Reasons Why Paycards Don’t Achieve Company Goals

40 Digital ePayroll and the Future of Payments 2013 and Beyond If you have any questions please contact rapid! PayCard: George LaBanca (727)

41 Digital ePayroll and the Future of Payments 2013 and Beyond If you have any questions please contact rapid! PayCard: Steve McDonald (503)

42 Digital ePayroll and the Future of Payments 2013 and Beyond Review of Prepaid Terms, Definitions and Resources

43 Digital ePayroll and the Future of Payments 2013 and Beyond What defines “Open Loop”? There are two general categories of Prepaid Cards: Retailer Branded (often called Closed Loop), typically issued by a Retailer and redeemable only at the issuing Retailer and Network Branded (often called Open Loop), typically redeemable wherever the Card Brand is accepted. Some consider Restricted Authorization Network (RAN) Cards a third category of Prepaid Cards. These cards typically are accepted for payment at multiple retailers (such as those in a mall or a certain geographic location) but are not universally accepted like Network Branded Prepaid Cards. Often, RAN Cards “run” on the rails of the Card Brands, meaning they make use of the Card Brand processing and financial settlement infrastructure but do not include a Card Brand Acceptance Mark. Prepaid Cards may be Consumer Funded, Corporate Funded or Government Funded.

44 Digital ePayroll and the Future of Payments 2013 and Beyond What Defines “Closed-Loop”? One of the two major categories of Prepaid Cards. Closed-Loop Prepaid Cards are typically issued by a Retailer and redeemable only at the issuing Retailer (in a store and/or online). Characteristics of Closed-Loop Prepaid Cards include: Plastic version of a paper gift certificate Issuer is the Retailer that accepts the card Cards useable only at the issuing Retailer’s locations (which sometimes includes the Retailer’s Website) or at approved multiple, affiliated merchant locations, such as Merchants owned by the same parent company Usually non-reloadable, but some permit reloads Runs on the Retailer’s POS system (Clerks know the outstanding balance and often can provide a receipt with the remaining balance to Cardholders)

45 Digital ePayroll and the Future of Payments 2013 and Beyond What is a Payroll Card A Prepaid Card that is directly or indirectly established through an employer and to which electronic fund transfers of the Cardholder’s wages, salary or other employee compensation (such as commissions) are made on a recurring basis, whether the account is operated or managed by the employer, a third-party payroll processor, a depository institution or any other person. Payroll Cards are a smart and safe alternative to checks and direct deposit for unbanked employees, who use the cards to access cash, pay bills and make purchases. Payroll Cards also are useful for banked employees in a variety of situations such as per diem workers.

46 Digital ePayroll and the Future of Payments 2013 and Beyond Customer Identification Program (CIP) (U.S.) In the United States, an established process used by financial institutions to establish a reasonable belief that they know the true identity of their customers. A CIP must include new account opening procedures that specify the identifying information (such as name, address, date of birth, taxpayer ID number or Social Security Number for individuals, or other government-issued ID) that will be obtained from each customer and reasonable and practical risk-based procedures for verifying their identities. CIP is required by the USA PATRIOT Act. The law, implemented by regulation in 2003, requires financial institutions to develop a CIP appropriate to the size and type of its business. The CIP must be incorporated into the financial institution’s BSA/AML compliance program, which is subject to approval by the financial institution’s board of directors. See for the NBPCA’s Recommended Practices document.

47 Digital ePayroll and the Future of Payments 2013 and Beyond Debit Card A plastic card, embossed or printed with the Cardholder’s name, which is used by the Cardholder to access funds held by a financial institution in a demand deposit (checking, share draft or current), savings or other asset account established individually for or by the Cardholder. Debit Cards that display a MasterCard or Visa Acceptance Mark “ride the rails” of the credit card networks and, therefore, require a signature for card-present purchases. Debit Cards that display an EFT Network brand (such as NYCE, Star, PULSE, Interlink or Maestro) ride the rails of the ATM Networks and, therefore, require a PIN for card present purchases.

48 Digital ePayroll and the Future of Payments 2013 and Beyond General Purpose Reloadable Prepaid Card (GPR) A type of Consumer-Funded Prepaid Card, purchased by a consumer for his/her personal use, to use to pay for purchases, pay bills and/or access cash at ATMs. Approximately half of GPR Cards are purchased by those who don’t want or don’t qualify for a bank checking account or a credit card. GPR Cards may be purchased online and in retail locations from a variety of providers. Reloads (the addition of funds to the Prepaid Card) may be accomplished through Reload Networks sponsored by the Card Brands and Program Managers or via Direct Deposit from by employers or government. Consumers pay various fees for GPR Cards, typically including an upfront purchase fee, monthly fees and transaction fees (for ATM transactions, for example).

49 Digital ePayroll and the Future of Payments 2013 and Beyond Instant Issue Card A Prepaid Card that is issued “on the spot,” in contrast to one that is mailed, delivered or received by the Cardholder at a later time. Instant issue cards are not personalized with the Cardholder’s name—although they may be.

50 Digital ePayroll and the Future of Payments 2013 and Beyond Network Branded Prepaid Card A Prepaid Card displaying the logo of a Card Brand (e.g., American Express, Discover, MasterCard, Visa, NYCE, PULSE, Star) that can be used at unrelated Merchants to pay for goods and services and for ATM cash access.

51 Digital ePayroll and the Future of Payments 2013 and Beyond Interchange (Reimbursement) Fee A fee paid from one financial institution participant to the other financial institution participant in a transaction. Typically, it is a fee assessed by a Card Brand, which requires the Acquiring (Merchant) Bank to pay the Issuing (Cardholder) Bank. Fees vary by Card Brand, transaction category and payment instrument type.

52 Digital ePayroll and the Future of Payments 2013 and Beyond Types of Cards and uses for Prepaid Cards This increasingly popular financial product comes in many forms. Take a look at these examples to understand how they are used. Card Type/Purpose General Purpose Reloadable: A type of prepaid card typically purchased by a consumer for his/her personal use to pay for purchases, pay bills and/or access cash at ATMs. GPR cards may be purchased online and in retail locations from a variety of providers. Funds may be loaded onto the card by direct deposit of wages or benefits or at retail locations offering prepaid card reload services. Payroll: A Prepaid Card that is directly or indirectly established through an employer and to which electronic fund transfers of the cardholder's wages, salary, or other employee compensation (such as commissions), are made on a recurring basis. Incentive Cards: Payment made to a consumer as a reward for purchasing a product or by a company to an employee as an incentive bonus.

53 Digital ePayroll and the Future of Payments 2013 and Beyond Types of Cards and uses for Prepaid Cards (continued) Health Care: Pre-tax Benefit cards linked to Health Savings Accounts (HSA), Flexible Spending Accounts (FSA) or Healthcare Reimbursement Accounts (HRA); funds can be used to pay for current or future medical expenses. Government Disbursement Cards: Prepaid cards used for the purpose of disbursing government payments such as Social Security payments, disability payments, disaster relief payments, WIC or Food Stamp disbursements or government payroll. Gift Cards: A prepaid card that is purchased by a gift giver to be given to a gift recipient

54 Digital ePayroll and the Future of Payments 2013 and Beyond Societal Benefits of Prepaid Card Prepaid cards provide consumers, businesses and governments with the efficiency, security and flexibility of digital payments through a non- credit payment option. Benefits: Open The Doors to Economic Participation An estimated 100 million Americans are considered unbanked or underbanked. These are individuals who have no bank account or have limited or no access to credit. Many of these Americans are forced to rely on a combination of cash, money orders and pay-day loans. Network branded prepaid cards allow these Americans, many of whom are minorities, access to our increasingly card-based economy and provide an improved sense of control and empowerment.

55 Digital ePayroll and the Future of Payments 2013 and Beyond Promote Financial Responsibility. For many Americans, prepaid cards serve as a tool with which to more effectively budget their spending. With a prepaid card, consumers avoid the risk of over-spending or overdraft, thus avoiding the interest, fees and potential negative credit score implications of traditional credit cards. And for parents, prepaid cards provide tools to maintain control over their teens' or college students' spending. Provide Cost-Effective Convenience to Governments, Businesses and Consumers. Many US households have used a prepaid card in one of its forms. Today businesses use prepaid cards to deliver payroll, provide and track health benefits and as a reward or incentive to employees and customers. Governments use network branded prepaid cards to deliver benefits to those who are eligible, as well as to disperse disaster relief funds in a more easily tracked, cost-effective and expeditious manner. Societal Benefits of Prepaid Card (continued)

56 Digital ePayroll and the Future of Payments 2013 and Beyond Provide a Safe and Regulated Alternative to Credit or Cash Network branded prepaid cards are issued by highly regulated financial institutions, each having to comply with federal regulations from the Federal Reserve Board, the United States Treasury, the Office of Thrift Supervision and the Office of the Comptroller of the Currency, among other regulators. These benefits result in strong consumer satisfaction. NBPCA research shows that more than 80 percent of consumers are satisfied with their prepaid card experience, and direct interviews show a high frequency of cardholders who would recommend the product to their friends and relatives. Societal Benefits of Prepaid Card (continued)

57 Digital ePayroll and the Future of Payments 2013 and Beyond Is having a prepaid card cheaper than having a bank account? Prepaid cards can be a good alternative to a bank account for a growing number of people. A recent study by Bretton Woods showed that an average consumer could spend as little as $76 per year using a prepaid card (and even less with direct deposit) versus $218 to use a bank account for the same services and average balance. Consumers can often avoid fees by using direct deposit and fee- free cash options like in-network ATMs, surcharge-free ATMs and cash back at the point-of-sale. Consumers appreciate that many cards offer free texting of your balance and transactions, online or phone balance inquiry, free cash back with purchase, free purchases and free electronic bill pay.

58 Digital ePayroll and the Future of Payments 2013 and Beyond The Consumers Union Report released in September, 2010 used the same transaction profile as their August, 2009 report: 3 ATM withdrawals 3 bill payments (rent, utilities and phone) 8 point of sale purchases (groceries and meals once a week) 4 balance inquiries 2 deposits/loads Based on confidential interviews within the prepaid industry, actual transaction patterns may more closely resemble the following: 2 ATM withdrawals 1 ATM declined withdrawal 1 bill payment 8 point of sale purchases 1 ATM balance inquiry 3 call center inquiries 2 deposits/loads Analysis of Reloadable Prepaid Cards in an Environment of Rising Consumer Banking Fees

59 Digital ePayroll and the Future of Payments 2013 and Beyond Prepaid Cards VS Alternative Payments As it did in 2009, Bretton Woods compared the costs of the largest reloadable prepaid card programs versus alternative payments tools for similar transaction activity. The 2011 report adds analysis on the “sea change” that is occurring in consumer banking due to new regulations. Some key findings include: Check cashing and paying bills with money orders are the most expensive payments options available to consumers of the options compared Traditional checking account costs are rising with additional restrictions on account activity, this is affecting the underbanked demographic the most Reloadable prepaid card prices are falling while features of the cards have become more robust

60 Digital ePayroll and the Future of Payments 2013 and Beyond Community banks, especially under $1 billion in assets, struggle to devise a 21 st century business model that accounts for changing consumer behavior, legacy cost structures, continued interest margin squeeze, loss of fee income sources and technology drivers. To meet consumer demands, the Alternative Financial Services industry is moving forward to develop products and services outside of the traditional banking model.

61 Digital ePayroll and the Future of Payments 2013 and Beyond Bretton Woods’ analysis of research indicates the following: The top 50 banks in the United States (0.65% of the total number of banks) control 65% of all deposits. These banks, by and large, do not offer free checking. Many banks have either a recurring direct deposit or a daily minimum balance requirement of $1,500 to avoid service charges. It costs a bank around $300 to provide a checking account. For the past 15 years, banks have subsidized these costs with overdraft and debit card interchange fees. Banks are now charging monthly fees to re-coup the lost revenue due to regulatory changes.

62 Digital ePayroll and the Future of Payments 2013 and Beyond A growing segment of the population that eschew traditional bank accounts due to either cultural, cost or qualification issues Costs of issuing checks by government and corporate entities Political and societal needs to move from a cash based economy including  Costs of producing and distributing coin and currency  Loss of tax revenue due to unreported income  Safety concerns of carrying cash Why are PayCards Growing?

63 Digital ePayroll and the Future of Payments 2013 and Beyond Q. How satisfied are you with using a prepaid debit card? (n=250) Not: It’s not particularly helpful 6% Extremely: It’s even more helpful than I thought it would be 29% Very: It’s as helpful as I thought it would be 44% Somewhat: It’s helpful, but not as much as I’d expected 22% Source: Aite Group’s survey of 500 U.S. consumers who use alternative financial services, Q1 2011

64 Digital ePayroll and the Future of Payments 2013 and Beyond Market Innovation Payments generated by mobile devices

65 Digital ePayroll and the Future of Payments 2013 and Beyond What’s happening at the POS: 53% of locations will be enabled to take mobile transactions by 2015 U.S. Pentration Schedule for NFC, P2PE, and EMV POS Locations, 2010 to e2015 (In millions of locations/percentage of locations) e2011e2012e2013e2014e % 3% 8% 18% 33% 53%

66 Digital ePayroll and the Future of Payments 2013 and Beyond Major supply-side changes in the market, with demand-side support Supply-side changesDemand-side support Standardization of NFC in new devices October, 2015 Liability shift for counterfeit Card transactions when dual-interface (EMV/NFC) terminals are in place

67 Digital ePayroll and the Future of Payments 2013 and Beyond POS Device Replacements At current sales volumes, the most rapid pace possible is 4.6 years: 2.5M devices sold per year -> to replace 11.5M devices in force e2011e2012e2013e2014e Replacement device sales (in millions) New device sales (in millions) Devices inforce (in millions) Time to replace all devices (in years) Device Replacement Cycle, 2006 to e2015


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