The Balancing Act of Cash Management: Optimizing the Financial Value Chain TEXPO Conference April 3-5, 2011 Gail Angel, FIS Commercial Treasury Solutions SVP and Business Line Executive Nanette Crocker, BBVA Compass Senior Vice President, Corporate Treasury Management

Session Description The Balancing Act of Cash Management: Optimizing the Financial Value Chain The events of the global financial credit crisis have had a ripple effect on the economy and thrust cash management - and the need to gain greater visibility and control over cash and liquidity - to the forefront of corporate strategy. A recent survey from Aberdeen Research found that 82% of companies have increased their focus on cash management over the past 12 months. 2 The purpose of this session is to highlight best-in-class company strategies for streamlining and accelerating finance business processes reducing operating costs managing risk ensuring compliance improving visibility, control, and efficiency Includes Industry trends, study data, reference sources and practical suggestions for taking action

Setting the Stage Financial Supply Chain Definition Integral components of a supply chain, connecting trading partners from order placement to receipt of payment. It carries the flow of financial information and money in the direction opposite to the flow of goods and services. BusinessDictionary.com 3

Setting the Stage “balancing act” noun n [usually singular] Definition a situation in which a person tries to give care and attention to two or more activities at the same time dictionary.cambridge.org/dictionary/british/balancing-act 4 Economic downturns Shifting priorities Multiple responsibilities Changing business climate Unpredictable market conditions

Streamline and Accelerate Finance Business Processes

Best Practices: Streamline Business Process Processes Migration to electronic payments/processes – Check conversion – Remote deposit capture Moving to straight-through processing – Integrated Receivables and Payables – Generate CCD+ or batch wires from ERP System – Eliminate download or “fetch” Bank consolidation/rationalization – Technology capabilities – smart safes – Based on credit participation Going Green… – Electronic billing, payments and statements… 6 Founded by Financial Institutions Accessible through NACHA site

Best Practices: Streamline Business Processes Pitfalls and Constraints Executive Buy-In Budget Resources – Aging North American (and European) work forces – Smaller financial teams – 17% fewer COO’s in S&P 500 firms than in 1999 (*) – CFO’s assuming broader range of responsibilities 33% play active role in developing and defining strategy Supplier/Vendor Buy-In Other Pressures 7 (*) Source: Crist Associates

Trends: Streamline Business Processes Increased Pressure 8 % Source: Aberdeen Group, Optimizing Financial Supply Chain

Trends: Streamline Business Processes Cash Management Strategies 9 % Best in Class Companies – Top 20% 21 Days Sales Outstanding 84% accuracy of cash flow forecast 34 Days Payable Outstanding Laggards – Bottom 30% 72 Days Sales Outstanding 52% accuracy of cash flow forecast 56 Days Payable Outstanding Source: Aberdeen Group, Optimizing Financial Supply Chain

Reduce Operating Costs

Best Practices: Reduce Operating Costs Efficiency Increase staff productivity through better tools, processes & training – Explore business process optimization (Six Sigma) – Eliminate non-value added functions and expenses – Web and SAAS/Cloud-based systems Move from paper to electronic – Work flow – Record keeping – Transactions – Payments Consider outsourcing non-core competencies Reassess treasury costs – Bank fees – Working capital carrying costs – Take advantage of existing options – Perform internal TM Review 11

Best Practice: Reduce Operating Costs Constraints and Pitfalls Staff Resistance to Change – Purchase Card Processing – Posting from Images vs. paper records – Automating GL updates using STP – “Letting Go” Negative impact to customers and/or service – Determining when enough is enough – Professionally compromised – Learning Curves Impaired agility/innovation – Penny wise and pound foolish – Tunnel vision 12

Trends - Reduce Operating Costs Ongoing Focus 13 Reducing costs constant focus for last 2 years – Only 19% of companies not trying to reduce cost … status quo? Best in Class – Investing in processes, tools and training to achieve greater productivity – Focusing marketing efforts on better serving most profitable customer segments – Seeking better commercial terms from partners % Source: Competing for Growth: Winning in the new economy – Cost competitivenesshttp://

Manage Risk

Best Practices: Manage Risk Internal Process Establish clearly defined role and responsibilities Document and adopt methodology – Identify, characterize, and assess threats Financial Technical – Assess exposure and vulnerability of assets – Determine the level of risk associated with threats – Identify how to handle/manage risk Avoidance Reduction Sharing Acceptance/Retention – Prioritize risk reduction measures based on a strategy Monitor and confirm adding value Perform Compliance Reviews (Audit Enforcement) 15

Trends: Manage Risk Top 10 Global Risks (*) 1.Regulation & compliance 2.Access to credit 3.Managing talent 4.Slow recover or double-dip recession 5.Emerging markets 6.Cost cutting 7.Non-traditional entrants 8.Radical greening 9.Social acceptance and responsibilities 10.Alliances and transactions (*) – Risk management: The essential guide for fast-growth companies (*) What about FRAUD?

Best Practices: Manage Risk Financial Risk Take advantage of bank offered fraud controls – Positive Pay/Reverse Positive Pay (83%) (*) – ACH Debit Block (77%) – ACH Debit Filters (58%) – Payee Positive Pay (52%) – Post No Checks Restriction (37%) – Security administration and audit reporting Leverage Marketplace Solutions – Out of Band Authentication – Mobile verification – Alternative notification – Locked-down Browser – Secure desktop – Transaction Monitoring – Low cost/no cost business changes (*) AFP 2010 Fraud Study – usage statistics 17

Best Practices: Manage Risk Technical Risk FS-ISAC, NACHA & FBI Risk Mitigation Recommendations (2010) Business Users Initiate ACH and wire transfer payments under dual control Execute all online banking activities from a dedicated, stand-alone, and completely locked down computer system – no or web-browsing. Limit administrative rights on users’ workstations to prevent downloading malware. Reconcile all banking transactions on a daily basis. Financial Institutions Implement awareness communication programs to advise customers of current threats and fraud activities. Implement appropriate fraud detection and mitigation best practices. Consider using manual or automated Out-Of-Band authentication systems … Plus 14 additional in-depth defenses, ranging from : 1. Perimeter router blocking of all unnecessary ports to 14. Develop relationship with your local FBI and USSS Field Offices 18

Trends: Manage Risk Technical & Financial Risk Cybercrime – March, 2009 – MacAfee reported analyzing 20 millionth piece of malicious software – 2010 Discussions with FS-ISAC, FBI and high end incident response vendors indicated anti- virus software less than 60% effective – March, 2011 – EMC disclosed a recent cyber attack that exposed non-public information related to RSA SecureID system 2010 AFP Fraud Study – 73% of organizations experienced attempted or actual payment fraud in % for organizations with annual revenues over $1 billion 63% for organizations with annual revenue under $1 billion – 90% of the organizations that experienced attempted or actual payment fraud in 2009 were victims of check fraud – Electronic Transaction Fraud Chart – Typical loss was $17,100

Best Practices: Manage Risk Constraints and Pitfalls 20 Organizational – Lack of ownership – Insufficient processes Attitudinal – Not enough time – Too expensive – It won’t happen to us Insufficient resources – Training – Tools – Personnel

Ensure Compliance

Best Practices: Ensure Compliance Best in Class Practice Focus on Trends – Regulatory compliance one of top 10 Global Risks – Rapidly changing and increasingly complex – Internal compliance key to success of enterprise programs like Supply Chain Management Suggestions – Work with your Financial Institutions – Take advantage of training and educational opportunities – Establish a Vendor Management Program with Key Management Oversight – Document and communicate Vendor Risk Management Program – Monitor and make adjustments as necessary 22 Let’s look at an example…

Best Practices: Ensure Compliance Vendor Management Program FIS Approach Provide enterprise-wide governance of vendors to protect client-provided consumer information and prevent a negative performance impact due to vendor provided products or services Establish consistent vendor acquisition, assessment of controls, on-going monitoring and reporting requirements Validate vendors have deployed adequate controls and processes for the protection of client data and NPI from unauthorized access, misuse or inappropriate disclosure Monitor financial health for financial stability and continued viability 23 Vendor Selection Due Diligence Contract Management Continuous Monitoring Vendor Management Life Cycle Program structure and activities based on key objectives within regulatory and industry standards: – Gramm-Leach-Bliley Act (GLBA) 501.b – FFIEC examination handbooks – Federal Trade Commission (FTC) – Health Insurance Portability and Accountability Act

Best Practices: Ensure Compliance Vendor Management Policy FIS Example Ensure FIS consistently employs effective processes for procurement, risk management, vendor assessment and ongoing monitoring enterprise wide 24 Ensure vendors meet required minimum standards related to: – Technical competence – Product quality – Reliability – Delivery performance – Cost – Financial soundness Ensure vendors selected align with FIS business objectives and maintain compliance with industry and regulatory requirements. Policy re-evaluated on an annual basis to validate relevance and effectiveness.

Best Practices: Ensure Compliance Sample Vendor Risk Management Governance

Best Practices: Ensure Compliance Sample Program Roles and Responsibilities 26 Vendor Risk Management Day to day operational responsibility of Vendor Risk Management Program Ensuring consistent processes are in place to manage vendors throughout the relationship life cycle Ensuring the appropriate level of vendor due diligence is performed Performing an annual control environment review on managed vendors Corporate Legal Understanding the legal and regulatory requirements for contractual requirements Monitoring for regulatory change and communicating any updated requirements Ensuring contracts contain all necessary components to define the terms and conditions of third party service(s) provided

27 Business Unit Ensure that the provisions as set forth in the Vendor Management Program are understood, implemented and monitored Information Security Ensuring that technical, physical and administrative safeguards are instituted for protecting FIS and NPI Physical Security Deploying controls and processes to help ensure that third party physical access to facilities and resources that store, process or transmit NPI are restricted to only appropriate authorized individuals Procurement Ensuring all activities requiring the use of a third party providers follow the established FIS policies and procedures Ensuring the procurement process contains adequate controls to manage vendor relationships and support regulatory requirements Best Practices: Ensure Compliance Sample Program Roles and Responsibilities

Best Practices: Ensure Compliance Constraints and Pitfalls PITFALLCAUSECURE Ownership/infrastructure Unclear authority and accountability Gate keeping/ineffective management of relationship Number and complexity of relationships Fragmented or siloed departments Document structure/process Miscommunication Lack of communication Reactive communication Lack of process or discipline TPIIOTTCO (*) (*) The proof is inherently obvious to the casual observer. Uneven commitment levels Lack of trust Conflicting priorities/values Sales cycle failure Change in direction/strategy Come together Step back, reassess Secure executive commitment People issues Resource constraints Inexperience / change-averse Unresponsive contacts Turnover and handoffs Unable, unwilling or untrained Reinforce executive support Deploy stick or carrot … or both Monitor, measure, follow through Familiarity and Assumptions Age/stage of relationship Start anew 28   

Improve Visibility, Control, and Efficiency

Best Practices: Improve Visibility Transparency Automate wherever possible Bank information – Multi-Bank reporting – Treasury workstations – SWIFT Internal interfaces – Customized or standard utilities – Electronic vs. paper Routinely explore additional technology/new services – Implement new Web-based solutions to link AP/AR and Payment systems – Apply Internet technology to overlay remittance detail onto EFT transactions – Leverage connectivity and data to improve trade terms 30

Best Practices: Improve Visibility Transparency 31 New Technologies SAAS/Cloud-based applications – Trade networks – Treasury workstations Bank portals Commercial card services XML EDI Formats Align Treasury as a strategic partner Present cash management as a holistic process

Trends: Improve Visibility Knowledge = Power 32 Source: AITE Trends in Bank-supported, Business-Initiated Payments, February 2011 “The organizations that most effectively weathered the economic crisis were those with access to timely, accurate and usable information.”

Trends: Improve Visibility Significant Business Drivers 33 Source: Treasury Strategies, 2010 How do you compare? Number of banks Business needs Risk mitigation – counterparty and FI-based Wallet sharing Operational cost reduction Limiting exposure to any 1 bank

Trends: Improve Visibility Leveraging Technology Technology Solution Treasury management system57%47% Bank account management58%50% Netting26%21% Investment portal39%13% FX portal36%8% 34 IDC Financial Insights Preliminary Findings from Technology Trends Surveys, March, 1022

Best Practices: Improve Visibility Constraints and Pitfalls 35 Lack of inter-departmental communication/executive support Complexity – The bigger you get, the more complex the challenge Insufficient resources ROI – The longer you wait, the harder it is to get done Cause and Effect Delays…

Trends: Improve Visibility Constraints and Pitfalls 36 AITE Supply Chain Finance: A Taxonomy, November 2010

37 “ the difference between chess masters and ordinary players is not intelligence, analytical ability or creativity …it is ‘structured knowledge.’ ” Gtnews.com - “Becoming a Grand Master in Cash Management” by Chris Nicols, 11/8/07 “An ounce of action is worth a ton of theory.” Fredrich Engels ( ) “You may delay; but time will not.” Benjamin Franklin Knowledgeable Focused Disciplined Practiced Confident

Q&A

Thank You! Gail Angel Nanette Crocker