1. United States payments update Howard N. Forman, AAP Senior Vice President Electronic Payments Consultant © 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. Utility Payment Conference September 21, 2011

2. 1 2010 Federal Reserve Payments Study – headlines  Volume of noncash payments grew at a 4.6% CAGR between 2006 and 2009; however, the total value of noncash payments declined  Nearly 80% of all noncash payments are now made electronically  Check volume continues to decline and at an increasing rate –The volume of checks written by consumers to businesses (C2B) is declining dramatically –Check clearing is almost fully electronic  Debit cards are now the most widely used noncash payment instrument  Credit cards showed slightly negative growth Data Source: Federal Reserve Payments Studies (2001 – 2010).

3. Distribution of noncash payments volume 2 Data Source: Federal Reserve Payments Studies (2001 – 2010). 95 Billion Transactions 109 Billion Transactions

4. 3 What a difference a decade makes Data Source: Federal Reserve Payments Studies (2001 – 2010). 73 Billion Transactions 109 Billion Transactions

5. 4 Check and ACH account for 95% of noncash payments value Data Source: Federal Reserve Payments Studies (2001 – 2010). 109 Billion Transactions$72 Trillion Value

6. 5 Check writing continues to decline Number of checks written, paid, or converted to ACH (billions) Paid as Checks Converted to ACH 27.5 33.1 37.6 Checks Written CAGR (‘03-’06) CAGR (‘06-’09) -4.1%-6.1% 98.7%5.4% -6.5%-7.2%  74% of checks paid are interbank checks  96% of interbank checks are cleared electronically at some point Data Source: Federal Reserve Payments Studies (2001 – 2010).

7. 6 Consumer to business checks are declining dramatically Number of checks written by counterparty (billions) CAGR (‘06-’09) 3% -3% -2% -11% 7.8 12.2 Data Source: Federal Reserve Payments Studies (2001 – 2010).

8. 7 ACH growth slowed, driven primarily by a slowdown in check conversion Number of ACH transactions (billions) All Other ACH Check Conversion 19.1 14.6 8.8 Total ACH CAGR (‘03-’06) CAGR (‘06-’09) 18.7%9.3% 98.7%5.4% 12.6%10.1% Data Source: Federal Reserve Payments Studies (2001 – 2010).

9. On-us ACH share is increasing, driven by bank consolidation Number of ACH transactions by clearing channel (billions) Network On-Us * 19.1 14.6 8.8 Total ACH CAGR (‘03-’06) CAGR (‘06-’09) 18.7%9.3% 21.8%15.5% 18.2%7.8% * On-us volume includes direct exchanges Data Source: Federal Reserve Payments Studies (2001 – 2010). 8

10. After years of strong growth, ACH growth slowed markedly in 2009 and 2010 9 ACH Volume 2005 – 2010 Billions of Transactions. Includes commercial and government payments Total Volume includes interbank, direct send, and on-us transactions Network Volume excludes on-us transactions Data Source: Wells Fargo and NACHA  “Headline” Network growth rate of approximately 2.5% in 2010  ARC volume declined 8%  WEB transactions grew at 7%. There are now more WEB trans- actions than ARC transactions  “Native” electronic transactions (non-check conversion entries) increased by over 4%  CTX transactions – a key indicator of B2B activity – grew by over 11% 2010 Highlights Data Source: Federal Reserve Payments Studies (2001 – 2010).

11. Selected SEC Code detail 2008 Volume 2009 Volume 2010 Volume 2010 Growth Accounts Receivable Conversion (ARC) 2,679MM2,410MM2,206MM(8.5%) Point of Purchase Conversion (POP)479MM481MM513MM6.8% Back Office Conversion (BOC)78MM161MM181MM12.9% Internet Payments (WEB)2,078MM2,280MM2,449MM7.4% Telephone Payments (TEL)347MM344MM354MM3.1% Direct Deposit (PPD Credits)4,333MM4,545MM4,710MM3.6% Direct Payment (PPD Debits)2,742MM2,770MM2,833MM2.3% Corporate Credit or Debit (CCD)1,937MM1,996MM2,064MM3.4% Corporate Trade Exchange (CTX)55MM60MM67MM11.1% 10 Millions of Transactions. Network volume only – does not include on-us transactions Data Source: Wells Fargo and NACHA Data Source: Federal Reserve Payments Studies (2001 – 2010).

12. 11 Credit cards lose ground; and the card industry, overall, is changing Number of card payments by type (billions) Debit Prepaid 65.5 50.0 34.6 Total Card CAGR (‘03-’06) CAGR (‘06-’09) 13.1%9.4% N/A 21.5% 4.6%-0.2% 17.1%14.8% Credit Data Source: Federal Reserve Payments Studies (2001 – 2010).

13. Prepaid cards are growing faster than other payment types; open-loop cards are growing rapidly Number of prepaid debit card payments (billions) Closed Loop * General Purpose (open loop) 6.0 3.3 Prepaid Debit CAGR (‘06-’09) 21.5% 63.4% 11.8% 21.4% EBT * Closed loop does not include transit systems, toll systems, and phone cards Data Source: Federal Reserve Payments Studies (2001 – 2010). 12

14. 13 And the winner is… Number of debit card payments (billions) Signature PIN 37.9 25.0 15.6 Total Debit CAGR (‘03-’06) CAGR (‘06-’09) 17.1%14.8% 20.6%15.6% 15.1%14.3% Data Source: Federal Reserve Payments Studies (2001 – 2010).

15. Bank consolidation is concentrating payments with the largest financial institutions Credit card dollar volume Debit card dollar volume ACH origination volume 14 Data Source: The Nilson Report (for credit and debit share) and Wells Fargo analysis (for ACH share) Share of top 5 institutions

16. U.S. treasury management industry trends 2009 revenue growth rates (domestic cash management products) 15 2009 revenue share (domestic cash management products) Vs. 2000 Data Source: Ernst & Young Annual Cash Management Services Survey (2001 and 2010).

17.  The road ahead for checks –Addressing the last of the paper –Retuned items via image –Optimized payment routing “Image and ACH” or “Image vs. ACH”  What can help propel ACH growth in the future? –“Same-Day ACH” solution –Electronic Billing Information Delivery Service –B2B Payments Directory –E-Check applications Rule changes 16 Future drivers for payments in the U.S.

18.  Mobile, mobile, mobile –Mobile banking (e.g., bill payment) and e-commerce –NFC-enabled smartphones –Bar code displays –Mobile Remote Deposit  EMV Standard (“chip and PIN”) –$10+ billion projected implementation cost –Already in place in Europe… and the rest of the industrialized world

19. Future drivers for payments in the U.S.  Significant regulatory action impacting the card businesses –Credit CARD Act of 2009 (implemented in phases between 2009 and 2010) –Overdraft Rule for one-time debit card purchases and ATM Withdrawals (implemented in 2010) –“Durbin Amendment” to the Dodd-Frank Wall Street Reform and Consumer Protection Act (implementation in 2011)  Continued emphasis on prepaid cards –e.g., US Treasury DirectExpress card, WalMart MoneyCard, Green Dot 18

20. Closing comments  Check usage continues to decline in the U.S. – but checks still represent a significant payment method –Consumer use declining more rapidly than business use –Opportunities to increase share of checks “electronified” before reaching the bank  Card-based payments will continue to dominate the US payments business –Regulatory actions and technology changes will meaningfully alter the card landscape –General purpose prepaid card usage will continue to increase dramatically  The mobile channel will play an increasingly important role in the US payment system over the next several years 19