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Solutions for a Changing Landscape: Image

Cash Letter with ACH


How Tarrant County used Check 21 Technology to
Their Advantage

STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 0
Agenda

 Consumer to Business Payments

 Changing Payments Landscape

 Industry Update

 Solutions for the Changing Landscape

 Tarrant County Tax Office-Background

 Tarrant County Tax Office-Back Office Project

 Tarrant County Tax Office-What’s next?

 Questions

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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

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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.

2001 2003 2010*

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%

Source – Dove Consulting Group, Inc., * - JPMC Projections for 2010

STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 3
The Changing Payments Landscape

Check payment transformation


Check conversion and check truncation — partners for the future
ACH: ARC/POP/RCK

Conversion
Image Exchange
Truncation Substitute Checks

• Check conversion transforms a check to


electronic settlement
• Check truncation transforms a check to
an image-enabled electronic transaction
for settlement

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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.

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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.

Back-office conversion (BOC) is introduced and emerges as


25  ACH an attractive alternative to Check 21 clearing, as Point of
Purchase (POP) volumes continue to grow

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.

10 Image replacement documents diminish over time as


 IR
 Paper D financial institutions move to image exchange.

5 clearing Fewer than 20% of checks will be cleared through


Paper conventional paper processing by the end of 2012
clearing
(down from approximately 80% today).
0
 20  20  20  20  20  20  20
06 07 08 09 10 11 12
Source: NACHA, Federal Reserve Bank, JPMorgan Chase

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Solutions for a Changing Landscape: Image Cash
Letter with ACH
Solutions for a Changing Landscape: Image Cash
Letter with ACH

STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 11
Benefits of Image Cash Letter with ACH

 Cost Savings and Efficiencies –


 Elimination of courier costs associated with transporting checks to the
bank.
 Elimination of risk associated with transporting original items and
consumer fraud
 Increasing emphasis is on Straight-through-processing (STP)
 Eliminate pass two in processing, no check encoding
 Eliminates the need for ARC decision engine, MICR verification and ACH
override/repair algorithms residing in house
 Substantially reduces file management
 Eliminates the need for your monitoring and managing adjustments as
the NACHA and Check 21 rules change
 Reduction of deposit preparation costs
 Supports a simplified disaster recovery process

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Benefits of Image Cash Letter with ACH

 Reduction in Bank Fees


 Exchange paper fees (that continue to increase as ICL erodes the paper
scale) for lower image fees
 Reduction in MICR reject and deposit adjustment fees
 Eliminate the need to maintain local deposit or check clearing
arrangements
 Aggregate your volumes for discount opportunities

 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

1) Receive checks at your


5) We perform
in-house processing sites via
OCR/MICR read on the 6) Our ACH-eligibility engine
mail, drop boxes, and/or
items and flag suspect optimally routes items based on
walk-in payment centers.
items for additional MICR construction, ACH-eligibility
inspection prior to tables, ARC opt-out, and
ACH clearing, printing historical clearing information.
substitute checks or
exchanging images.

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.

Client’s system and tasks

STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 14
Image Cash Letter with ACH - Features

 Reduce processing steps- eliminate need for pass two in processing


 Reduce Programming- no in house decision process required
 Less Expensive – ACH clearing is more economical than traditional check
processes
 Lower return rates - Clients who have adopted ACH conversion processes
(Accounts Receivable Conversion) have experienced reductions in returned
item rates by as much as 30 - 40% because electronic items are typically
presented prior to paper items, and ACH rules allow an additional re-
presentment of the item
 Faster returns’ notification – ACH returns notifications are typically
received within 2 business days’ from their submission, which can be faster
than a similar check’s return timeframe
 More electronic endpoints - ACH has over 14,000 electronic endpoints with
the addition of over 13,000 Image Exchange points Check 21 the combined
process reduces your cost for clearing items
 Potentially reduced transportation costs – Conversion and clearing of your
items electronically may allow you to reduce deposit-related transportation
costs

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 Tarrant County Tax Office: Back Office Project

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Tarrant County Tax Office

Tarrant County is an urban county


located in the north central part of
Texas.
Fort Worth serves as the county seat
to a county population of
approximately 1.7 million citizens.

The Tarrant County Tax Office


assesses and collects 2.2 billion
dollars, processes 1.4 million motor
vehicle transactions, issues 4,000
liquor, beer and wine licenses and
answers 2000 phone calls a day. The
office has proven their commitment to
providing the best in customer service
through the use of best business
practices and the latest technology.

STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 17
Tarrant County eGovernment

o In July of 2001, Tarrant County initiated a Web Portal project


called eGovernment. One of the advertised benefits of the new
portal was the ability to pay taxes over the internet.
o eGovernment initiative was broadened to include other initiatives
that improved the tax collection process by electronifying the
payment process.
o Tarrant County Tax Assessor’s office was among the first to
implement ARC.
o eGov has delivered tremendous results, allowing the municipality
to electronically process over 35,000 property tax payments and
100,000 motor vehicle renewals during the past fiscal year.
Credit card and eCheck payments for property tax made over the
Web grew by 20 and 30 percent respectively last year.
o Implemented ACH Debit for auto dealerships
o In 2007, the Tax Office launched the Back Office Project and
updated the Rapid Payment System (RPS) with new hardware and
software to process payment for property and other taxes and
fees.

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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

STRICTLY PRIVATE AND CONFIDENTIAL © 2005 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC 19
Implementing the changes

 The updated platform was designed to take advantage JPMorgan


Chase’s ICL with ACH product’s ability to take one file for all
check transactions.

 Creating one file of all check transactions for transmission to the


bank was new for everyone.

 Successful implementation required close coordination with


several parties including:
 Multiple hardware and software vendors.
 Internal IT and operational groups.
 JPMorgan Chase.
 Started with pilot to prove process and minimize surprises.

 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

Virtually 100% of 1 million checks are now sent to the bank


electronically including property tax, motor vehicle tax, vehicle
inventory tax, beer wine and liquor fees from 8 county locations

Financial Benefits

 8% increase in collected and paid entities over historical


averages.

 Collected funds balance increase by an average of $37 million


per day.

 Reduced bank fees for clearing transactions.

 Improved funds availability and earnings credit

 Five year net benefit to Tarrant County is $600,000

 Five year net benefit to all entities is over $9mm

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Back Office Project Results

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Back Office Project Results

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Back Office Project Results

Average Net Collected Balance

$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

 Fewer payments processed manually.

 Less overtime required during seasonal peak periods.

 Databases are updated from electronic data obtained from


checks & coupons.

 Better control of checks returned from the bank.

 No waiting on collected funds balances to pay entities.

 Significant process change resulting in faster opening of mailed


payments, as well as quicker posting and routing through
banking systems.

 Not dependent on armored car pick-up schedule

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Future Projects

Back Office Project Phase 2.


 Image and archive correspondence that accompanies mailed
tax payments.
 Install new general ledger system that will allow for real-time
posting of tax payments.

Other Initiatives.
 Credit Card acceptance at point of sale for all Tax Office
Payments at all locations.

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Questions?

© 2008 JPMorgan Chase & Co. All rights reserved.


JPMorgan Chase is licensed under U.S. Patent Numbers 5,910,988 and 6,032,137.

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

Executive Director Vice President

J. P Morgan J.P. Morgan

Oil & Gas/Power Product Solution Specialist

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