1. Faster Payments in the U.S.
Same Day ACH / Faster Payments / Real-time Payments
September 2015
William K. Grace
Vice President, Senior Product Manager
Payments and Commerce Solutions, Fifth Third Bank

2. Payments Industry Overview

3. 1 2 3 4 5 6 7 Payments Industry Overview – Driving Forces Mobile
Consumer Behavior 2
Generational Influence 3
Technology / Innovation 4
Payment Disruptors 5
Hopefully, this slide also is familiar to you, or at least the language on it should be. These three items highlight the Bank’s focus as together, we work to build the Future Fifth Third.
The items are: Make proactive risk management an enduring part of our DNA, achieve the right business mix and simplify the business. These are all part of how we deliver the Vision, Purpose and Outcome of achieving Growth Company Performance.
Today, we will spend our time on No. 1 on this list: Make proactive risk management an enduring part of our DNA. This is our movement to transform Fifth Third. It goes to the heart of the cultural transformation we need to accomplish the goal of Transforming Fifth Third. Key words in this strategy are Proactive and DNA.
We need to understand and work on what will enable us to best meet the letter and the spirit of the new regulatory environment while also growing the business and meeting the needs of our customers. We must succeed on both the regulatory and the financial performance fronts, and we must achieve that success through an all-in, enterprise-wide commitment. A strong risk culture is all about getting things right and ultimately about protecting the reputation of Fifth Third and its employees, both in the eyes of the regulators and the public whom we serve. I describe it as “doing the right things the right way.”
We need to encourage courage at every level of the Company. Courage to speak out and raise concerns. Courage to act in the best interests of our customers and our Bank. Courage to THINK before acting. And all of this must be part of the fabric of who we are as individuals and as an organization.
Strengthening our risk culture is as much about people as process. It’s a matter of culture. It isn’t enough for us to successfully check the box when it comes to regulation. We need to have a culture where risk controls are ever on our minds and where all of us feel not only free to speak up, but also feel compelled to do so when it comes to doing the right thing.
Faster Payments 6
Vertical Integration 7

4. Competition New Entrants Substitution Seller Buyer HIGH HIGH MODERATE
Payments Industry Overview – Five Forces
FI and Non-FI Players
Price Compression
Competition
Low Barrier to Entry
New Entrants Weekly
New Entrants
Virtual Currencies
Traditional Payments
Substitution
Payments = Commodity
Changing Landscape = Opportunity
Seller
Many Choices Available
Sellers Buying Business
Buyer
HIGH
HIGH
MODERATE
Hopefully, this slide also is familiar to you, or at least the language on it should be. These three items highlight the Bank’s focus as together, we work to build the Future Fifth Third.
The items are: Make proactive risk management an enduring part of our DNA, achieve the right business mix and simplify the business. These are all part of how we deliver the Vision, Purpose and Outcome of achieving Growth Company Performance.
Today, we will spend our time on No. 1 on this list: Make proactive risk management an enduring part of our DNA. This is our movement to transform Fifth Third. It goes to the heart of the cultural transformation we need to accomplish the goal of Transforming Fifth Third. Key words in this strategy are Proactive and DNA.
We need to understand and work on what will enable us to best meet the letter and the spirit of the new regulatory environment while also growing the business and meeting the needs of our customers. We must succeed on both the regulatory and the financial performance fronts, and we must achieve that success through an all-in, enterprise-wide commitment. A strong risk culture is all about getting things right and ultimately about protecting the reputation of Fifth Third and its employees, both in the eyes of the regulators and the public whom we serve. I describe it as “doing the right things the right way.”
We need to encourage courage at every level of the Company. Courage to speak out and raise concerns. Courage to act in the best interests of our customers and our Bank. Courage to THINK before acting. And all of this must be part of the fabric of who we are as individuals and as an organization.
Strengthening our risk culture is as much about people as process. It’s a matter of culture. It isn’t enough for us to successfully check the box when it comes to regulation. We need to have a culture where risk controls are ever on our minds and where all of us feel not only free to speak up, but also feel compelled to do so when it comes to doing the right thing.
LOW
MODERATE

5. 1 2 3 4 5 6 7 Payments Industry Overall Attractiveness
7 Retailers Changing the Payments Industry
Target = Starbucks, Amex, Shopkicks Mobile Apps 1
Home Depot = Ebay’s New Point of Sale System 2
Girl Scouts = Intuit’s GoPayment 3
Walgreen’s = Selling Square’s Mobile Reader 4
Hopefully, this slide also is familiar to you, or at least the language on it should be. These three items highlight the Bank’s focus as together, we work to build the Future Fifth Third.
The items are: Make proactive risk management an enduring part of our DNA, achieve the right business mix and simplify the business. These are all part of how we deliver the Vision, Purpose and Outcome of achieving Growth Company Performance.
Today, we will spend our time on No. 1 on this list: Make proactive risk management an enduring part of our DNA. This is our movement to transform Fifth Third. It goes to the heart of the cultural transformation we need to accomplish the goal of Transforming Fifth Third. Key words in this strategy are Proactive and DNA.
We need to understand and work on what will enable us to best meet the letter and the spirit of the new regulatory environment while also growing the business and meeting the needs of our customers. We must succeed on both the regulatory and the financial performance fronts, and we must achieve that success through an all-in, enterprise-wide commitment. A strong risk culture is all about getting things right and ultimately about protecting the reputation of Fifth Third and its employees, both in the eyes of the regulators and the public whom we serve. I describe it as “doing the right things the right way.”
We need to encourage courage at every level of the Company. Courage to speak out and raise concerns. Courage to act in the best interests of our customers and our Bank. Courage to THINK before acting. And all of this must be part of the fabric of who we are as individuals and as an organization.
Strengthening our risk culture is as much about people as process. It’s a matter of culture. It isn’t enough for us to successfully check the box when it comes to regulation. We need to have a culture where risk controls are ever on our minds and where all of us feel not only free to speak up, but also feel compelled to do so when it comes to doing the right thing.
UPS = USAA Partnership with Remote Capture 5
Walmart = GreenDot 6
Apple = VeriFone and Square 7

6. SOURCE : American Banker, March 30, 2014 / The Road to Faster Payments
Faster Payments - Initiatives
Hopefully, this slide also is familiar to you, or at least the language on it should be. These three items highlight the Bank’s focus as together, we work to build the Future Fifth Third.
The items are: Make proactive risk management an enduring part of our DNA, achieve the right business mix and simplify the business. These are all part of how we deliver the Vision, Purpose and Outcome of achieving Growth Company Performance.
Today, we will spend our time on No. 1 on this list: Make proactive risk management an enduring part of our DNA. This is our movement to transform Fifth Third. It goes to the heart of the cultural transformation we need to accomplish the goal of Transforming Fifth Third. Key words in this strategy are Proactive and DNA.
We need to understand and work on what will enable us to best meet the letter and the spirit of the new regulatory environment while also growing the business and meeting the needs of our customers. We must succeed on both the regulatory and the financial performance fronts, and we must achieve that success through an all-in, enterprise-wide commitment. A strong risk culture is all about getting things right and ultimately about protecting the reputation of Fifth Third and its employees, both in the eyes of the regulators and the public whom we serve. I describe it as “doing the right things the right way.”
We need to encourage courage at every level of the Company. Courage to speak out and raise concerns. Courage to act in the best interests of our customers and our Bank. Courage to THINK before acting. And all of this must be part of the fabric of who we are as individuals and as an organization.
Strengthening our risk culture is as much about people as process. It’s a matter of culture. It isn’t enough for us to successfully check the box when it comes to regulation. We need to have a culture where risk controls are ever on our minds and where all of us feel not only free to speak up, but also feel compelled to do so when it comes to doing the right thing.
SOURCE : American Banker, March 30, 2014 / The Road to Faster Payments

7. Same Day ACH

8. Why Same Day ACH? Strategically:
Same Day ACH is an immediate step we can take to enhance the payment system, demonstrating that financial institutions can work together to advance payments.
Same Day ACH creates a foundation on which to build other services.

9. Responding to Market Needs:
Why Same Day ACH?
Responding to Market Needs:
71 million ACH payments are made every day
Same Day ACH creates an “option”
The choice of a premium service to make a payment faster.
Support desires of your bank customers or credit union members
Payroll
Hourly and temporary workers
Emergency payments, missed deadlines
Bill payment
Payments on due dates
Late and emergency payments
Business-to-business payments
Late payments
Person-to-person / account-to-account
Faster transfers

10. Complimentary – Same Day & Real-time Payments
Same Day ACH
Improved online billpay
Hourly payroll and Emergency Payroll
Expedited B2C (e.g. insurance payouts)
Cash management
Faster B2B
Accelerated card merchant settlement
Real-Time Payment
P2P
Urgent A2A
Immediate billpay with acknowledgment
Temporary payroll
Emergency B2C (e.g. disaster)
Just-in-time B2B
Type of Payment
Credit or Debit
Credit Only
Notification to Receiver
Same-day (receipt of transaction)
Immediate
Other Messaging
Extensive remittance data can be included with payment
Receiver acknowledgment, request for payment, remittance data, others TBD
Payment Finality
Reversals and Returns Allowed
Payment Certainty for Receiver
Receiver Availability
Same-day
“Immediate”

11. What is Same Day ACH?
The ACH Operators will offer two new same-day ACH processing windows1
A morning window at 10:30 a.m. ET, with settlement occurring at 1:00 p.m.
An afternoon window at 3:00 p.m. ET, with settlement occurring at 5:00 p.m.
ODFIs will be able to submit files of same-day ACH payments through two new clearing windows that can reach all RDFIs in the ACH Network.
All RDFIs will receive Same Day ACH payments
RDFIs will make funds available from ACH credits (such as payroll Direct Deposits) to depositors by 5:00 p.m. local time.
A “Same Day” fee paid from the ODFI to the RDFI would provide, on average, recovery of implementation and operating costs, plus a reasonable rate of return, for RDFIs to enable Same Day ACH.
Existing one-day and two-day ACH processing and settlement capabilities will not be impacted
1Times are estimates; exact schedules and timing will be determined by each ACH Oerator

12. What Is Same Day ACH?
What Transactions Will Be Eligible for Same Day ACH?
Virtually all ACH transactions, including credits and debits, will be eligible for same-day processing
Non-monetary transactions – prenotifications, notifications of changes, zero-dollar remittance information transactions, etc. – will also be eligible for same-day processing
International transactions (IATs) and large-dollar transactions over $25,000 will not be eligible for same-day processing
Dollar limit is per-transaction, not per-batch

13. How Will Same Day ACH Be Implemented?
Same Day ACH will be implemented in phased approach to allow the industry to acclimate to a faster processing environment, as well as to ease the industry’s implementation effort
Functionality
Phase 1
Sept. 23, 2016
Phase 2
Sept. 15, 2017
Phase 3
March 16, 2018
Transaction Eligibility ($25,000 limit; IAT not eligible)
Credits only
Credits and debits
New Same Day ACH Processing Windows
10:30 am ET and
3:00 pm ET
New Settlement Time(s)
1:00 pm ET and 5:00 pm ET
1:00 pm ET and 5:00 pm ET
1:00 pm ET and
5:00 pm ET
ACH Credit Funds Availability
End of RDFI’s processing day
5:00 pm RDFI local time 1 1
1Times are estimates; exact schedules and timing will be determined by each Operator

14. Risk Management Considerations
Faster movement of money
More frequent interbank settlement reduces counterparty risk
Per-transaction dollar limit is a balancing act between mitigating risk and impacting use cases
Financial institution origination of Same Day ACH
Which clients can send same-day ACH transactions?
Credit limits
How good is your authentication?
Receiving returns faster
Recovery for missed deadlines
Faster reversals of erroneous transactions (i.e., duplicate file)
Financial institution receipt of Same Day ACH
Risk review before posting ACH credits
Late day receipt of ACH debits – NSF or bad account information
Sending returns same-day

15. NACHA Web site - https://www.nacha.org/content/same-day-ach
Resources
NACHA Web site -
Implementation Checklists for
ODFIs
RDFIs
Originators and Third-Party Senders
Available for download: