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STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 0
Agenda
Industry Update
Questions
STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 1
Consumer to Business Payments:
New clearing options
ARC (Accounts Receivable Entry)
― Single-entry debit initiated by an originator for the conversion of a consumer check, which is
received via the U.S. mail or placed in a dropbox for the payment of goods or services. The
consumer’s check, known as the source document, is used to collect the routing number, account
number, check serial number, and dollar amount of the transaction.
BOC (Back Office Conversion)
― Effective March 16, 2007, BOC enables the conversion of checks received at the point of sale from
a location other than the point of purchase
Check 21
― The Check Clearing for the 21st Century Act, was signed into law on 10/28/2003, and took effect
on October 28,2004. The purpose of the Act was to: Facilitate check truncation, foster innovation
in the check payment system, and improve the payment system overall
Image Cash Letter
― Presentment of a ANSI x9.37 formatted electronic cash letter
Image Exchange
― The process where banks use images of checks for clearing and require no movement of physical
items
Image Replacement Document (IRD or Substitute Check)
― A paper reproduction of the original check that meets Check 21 rules
STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 2
Changing Payments Landscape
Although electronic payments have made in-roads in bill payment, it remains checks’ last stronghold.
Consumers are expected to write checks for 35% of their recurring bill payments by 2010.
By 2010 we expect automatic and on-line bill payments to account for 42% of consumer bill payments.
Electronic
Electronic Electronic
22% Online Bill 35% Online Bill 65%
Payment Payment Online Bill
Debit Card Automatic 8% 12% Payment
1% Payment 22%
Credit Card 9% Automatic Checks
3% Payment 35%
Cash 17%
Check
6% 60% Automatic
Check
Payment
72% Debit Card
3% 20%
Cash Credit
Credit Card 5% Debit Card
3%
Card 8% Cash
12% 3%
Paper Paper Paper
78% 65% 35%
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The Changing Payments Landscape
Conversion
Image Exchange
Truncation Substitute Checks
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Drivers of Change
The continuous decline of check volumes
The number of checks written will decline from 40 billion items in 2003 to
approximately 30 billion items in 2010 representing a decline of approximately
3 -5% per annum.
Paper check processing costs are also increasing and are twice that of
electronic payments
New ACH regulations have made electronic payments even more utilizable
More than 50% of all checks may now be converted; regulations already
enacted enable conversion of consumer check payments, including
remittances and point-of-sale payments
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Drivers of Change: Check Transactions
Check 21
On October 28, 2004, the Check Clearing for the 21st Century Act, more commonly
known as Check 21, became law
Check 21 creates the legal equivalence of the original check and a substitute check.
Substitute checks are likely to be transitory given the more favorable economics
associated with image exchange.
Image Exchange
The process where banks use images of checks for clearing and require no movement
of physical items (either original or substitute checks).
Image exchange will emerge as another method for processing checks in the end
state, and ACH conversion will coexist as an attractive alternative.
STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 6
Industry Update: Acceptance of Image
Exchange
Key messages
Paper checks are being transitioned to electronic images of checks at an
unprecedented pace.
JPMorgan Chase’s Image exchange endpoints increased 118% in 2007.
We update our ICL availability quarterly.
IRD volume continues to erode.
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Industry Update-Image Exchange
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Industry Update-Image Exchange
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The Future of Check Clearing
Billions
40
35
ARC volume will continue to increase along with image
exchange growth. As the numbers of checks written
30 declines, ARC volumes may flatten out. ARC continues
to be an attractive alternative to Check 21 clearing.
20
Large banks are taking action to adopt image
technology to capture financial benefits. The number
15 IRD Image of image-enabled banks will grow over time as more
exchange Image large banks implement image and more small/midsized
exchange banks decide to outsource.
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Solutions for a Changing Landscape: Image Cash
Letter with ACH
Solutions for a Changing Landscape: Image Cash
Letter with ACH
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Benefits of Image Cash Letter with ACH
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Benefits of Image Cash Letter with ACH
Optimize Availability
Image Cash Letter with ACH allows for later deposit deadlines,
providing an extended internal processing deadline
Reduction/Elimination of holdover volumes
Provides for weekend processing of ARC and check volumes
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How does it work?
Bank provided system and tasks
ACH
4) Transmit items 7a) ARC eligible
and OptOut to the items are cleared
bank via X9.37 via ACH.
image
transmission.
2) Capture items and associate each item
with either an ARC or BOC standard entry
class code depending on the items’ point
of origin within your organization. Identify 7b) Non-convertible
Opt-out items using the X9.37 file format items are cleared as
indicator. 7c) Non-convertible substitute checks.
items are cleared
3) Retain and then destroy items via image exchange.
according to ACH, Check 21or company
guidelines.
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Image Cash Letter with ACH - Features
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Tarrant County Tax Office: Back Office Project
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Tarrant County Tax Office
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Tarrant County eGovernment
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Tarrant County eGovernment
eGov Transactions
30,000
25,000
20,000
e-check
15,000
credit card
10,000
5,000
-
2003 2004 2005 2006 2007
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Implementing the changes
Full roll out was inclusive of property and motor vehicle taxes as
well as beer and wine licensing fees
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Back Office Project Results
Financial Benefits
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Back Office Project Results
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Back Office Project Results
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Back Office Project Results
$16 0 ,0 0 0 ,0 0 0
$14 0 ,0 0 0 ,0 0 0
$12 0 ,0 0 0 ,0 0 0
$10 0 ,0 0 0 ,0 0 0
Prio r Y ear
$8 0 ,0 0 0 ,0 0 0
C urrent Y ear
$6 0 ,0 0 0 ,0 0 0
$4 0 ,0 0 0 ,0 0 0
$2 0 ,0 0 0 ,0 0 0
$-
N o vemb er D ecemb er January
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Project Results
Operational Benefits
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Future Projects
Other Initiatives.
Credit Card acceptance at point of sale for all Tax Office
Payments at all locations.
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Questions?
This document contains information that is the property of JPMorgan Chase & Co. It may not be copied, published, or
used in whole or in part for any purpose other than as expressly authorized by JPMorgan Chase & Co.
This presentation contains projections and certain of the statements and data contained in this presentation are, by their
nature, forward-looking. Past performance is not a guarantee of future results and the actual results for your
organization may differ materially. Additionally, this presentation contains projections, statements and data provided by
third parties, including the Federal Reserve. JPMorgan Chase does not warrant or guarantee the accuracy or
completeness of such projections, statements or data. If you have any questions, please contact your customer
representative.
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Contacts
Jim Nave John MacCallum
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