1

Bank Of America Merchant Services

Electronic Check Processing
May 18, 2006
Merchant Services Sales Officer: Arthur Chamberlain
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!ayments Landscape
Personal Consumption Expenditures
13.77 13.77
12.17 12.17
4.77 4.77
0ther*
7.77
0ther*
7.77
6ash
15.7
6ash
15.7
V|sa
0ther
6ards
TriIIion
2003
6hecks
4.27
According to visa visa, people
still use Checks more often
than anything else to pay
for things
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!ayments Landscape
Nerchants in the U.S. spend more than $23 billion per
year to process paper checks or about $1.22 for every
check written at the point of sale
&ource: visa U.&.A.
Annual Nerchant Check
Costs at POS = $23.2 Billion
Average Cost
Per Check = $1.22
Losses
2 BiIIion
(55%)
HandIing &
Other
BiIIion
(36%)
Bank Fees
$2.1 Billion
(3)
Losses
06
HandIing
and Other
0
Bank Fees $0.11
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Merchant Check Experience
!aper Check !rocess
Clerk requests
2
nd
form of !D
DL or Credit
Card
Customer presents
check to clerk
Check stored in
drawer. EOD
merchant enters
check amount into
ledger. Endorses
check back with
stamp. !temizes
checks on deposit
ticket
Nerchant may call customer
to write fresh bank check OR
go back to bank/ATN to re
present check OR give check
for Collection surrendering a
of face value
Nerchant
Account
provisionally
credited in 24
hours after
deposit
Nerchant (sole
prop) or paid
help goes to
ATN/Bank
branch/night
drop to deposit
[Link]/
credit is time
sensitive to
bank cut off
times
!f check bounces,
bank debits merchant
account, mails note
and returned check to
merchant.
Paper check cleared
through Federal
Reserve &ystem, locally
or across the country
depending on drawee
bank.
'NE S NONEY. HANDLNC
COS'S. PO'EN'AL FOR ERROR.
FUNDNC COULD
BE DELAYED
NERCHAN' NAY
HAvE SSUED
CHECKS ACANS'
CRED'
RE'URNED
CHECK COS'S
ACCEP'S ONLY
LOCAL CHECKS
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Check !rotection Options Today
Verification Services negative databases and risk parameters all
designed to reduce the number of uncollectible returns.
Merchant self-insures using a service provider's information.
Collections are responsibility of merchant or their collection agency.
Guarantee Services merchant pays a percentage of all checks
waranteed by the service provider.
Guarantee provider is "insuring these checks.
Guarantee provider is in complete control of check approval process
Historical Merchant Pain Points
Percentage of checks declined = potentially lost sales
Quantity of items determined to be "non-compliant - not covered
Extra Fees, Unexpected Fees associated with minimums, statements,
duplicate transactions, collections on items not under warrantee
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Check !rotection Options Today
Electronic Check Conversion with Guarantee
Traditional national players (Telecheck, Certegy) using their historical databases
for the approval process, then debiting the check writer through the ACH or
recreating check as paper draft
nitially high administrative returns, reliance on paper drafts, historical databases
were not formatted with raw MCR data
Check Truncation
Check 21 - Remote Deposit, few banks currently capable

The Opportunity
For the agency/organization
Significantly reduce net check expense
Faster funds movement
Better loss prevention
Faster, higher percentage of bounced check collections @ lower cost
Streamline handling/ reporting for debit, credit & check in single
operation
Single source of reports
Settle with other payment types
Single source of tech support
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'SA !OS Check !rocess
Overview
Converts paper checks into electronic payments at the point of sale
Built on existing VisaNet Single Message System like offline debit
Ability to route and process POS Check Service transactions similarly to
debit and credit transactions
Provides integrated payment and online reporting
Key Differentiators
Utilizes the world's largest payment transaction processing system -
VisaNet
Potential connectivity to 90% of the DDAs in the U.S. and millions of
U.S. merchant locations (20% of current transactions are with
participating financial institutions (Fs)
Real-time authorization of check transaction against consumer's DDA
(for participating Fs)
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Third !arty
!rocessor
Drawee Bank
Merchant
Acquirer/
!rocessor
Presents check
Gets check
back
Signs sales
draft
Swipes check
through MCR
reader
Voids check
and hands
check and
copy of sales
draft back to
consumer
Formats
transaction
into an
authorization
message and
forwards to
VisaNet
Customer
Edits/validates
transaction
Forwards participating
conversion, verification
and guarantee
transactions to a
drawee bank
Forwards non-
participating conversion,
verifications and
guarantees to a third
party
MERCHANT

Performs standard
authorization
processing
"Participating tems
'SA !OS Check FIow
Performs verification
"Non Participating
tems
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Authorization - Third !arty vs "!articipating Bank"
!articipating Transactions - The Drawee Bank
Check authorization message routed to check writer's account if drawee
bank is a participating in the Visa POS Check system
Real time online authorization direct to writer's DDA
Transaction processed through Visa's processing host and settled
through Visa's backend
Non-!articipating Transactions - Third !arty
Authorizer
We utilize Echo, a third party provider, as "stand-in processor for non
participating transactions (writer's drawee bank is not a participating bank).
Echo utilizes historical databases and risk logic to approve/decline the
transaction
Echo debits the check writer's account through the Federal Reserve
System (Automated Clearing House (ACH)).
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'SA !OS Check Drawee FinanciaI nstitutions
Source: POS Check Service Production Data June 2005
This information is Confidential and may not be distributed without the written consent of Visa.
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'SA !OS Check Service Options
Conversion OnIy
Conversion
with 'erification
Conversion
with Guarantee
The check is converted at the point of sale
Transactions are authorized by a drawee financial
institution or third party
Merchant retains risk of loss
Provide access to DDA accounts and/or third party
risk management databases to determine
probability that check will be paid
The check is converted at the point of sale
Merchant retains risk of loss
Guarantor effectively buys check from merchant
Guarantor makes online accept / decline decision
based on access to DDA account and/or third party
risk management negative database
The check is converted at the point of sale
Guarantor bears risk of loss
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'SA !OS Check Service Options
Conversion with 'erification
The check authorization message is routed to VisaNet and then to either
the customer's Participating Bank
Check paid based on current information at participating drawee - acct. status & balance
Check paid based on checking account's eligibility for electronic check conversion
Some drawee banks place a post hold on funds
OR
the third-party authorizer
Check will be authorized/ verified against their available databases, historical activity of the
account and risk logic
Check will be authorized based on known eligibility for conversion to an electronic item
The third-party authorizer returns the accept or decline decision to point of sale
The merchant retains the risk if the transaction does not cIear the check
writer's account
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'SA !OS Check Service Options
Conversion with Guarantee
n addition to the steps taken for Conversion with Verification, the customer's
bank or a third-party authorizer determines whether the check can be
guaranteed for payment based on available funds or other information.
The rate the merchant pays for guaranteed transactions is a percentage of
the face value of the check plus per transaction fee.
The check guarantor accepts the risk if the transaction does not cIear the
check writer's account
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!articipating Drawee DDA Market Share - August 2005
MT
WY
D
WA
OR
N'
&T
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
A
MN
W
L
N
KY
TN
MS
AL
GA
FL
SC
NC
'A
W'
OH
M
NY
MD
DE
NJ
CT
MA
ME
'T
NH
AK
H
!articipating DDAs: Up to 10% 0% to % 20% to 2% 2 30%
DC
!A
R
Source: Visa Member DDA Market Share Data
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Business Case for 'SA !OS Check
Benefits to Government Agencies
Significantly reduce net check expense
Better loss prevention reduce risk of accepting checks access to DDA's
Faster, higher percentage of bounced check collections @ lower cost
Government Agencies collect returned check service fees at little cost
Reduced cost on a per item basis
Minimize or remove bank fees deposit, encoding, return fees
Streamline handling/ reporting for debit, credit & check
Faster check out experience for customer
Fewer paper checks in the your environment
Faster funds movement same schedule as credit items
Settle with other payment types
Government Agencies "stay whole until fatal returns
Single source of reconciliation & reports
Single source of tech support
Consumer acceptance is long since proven by Walmart, GAP, Burlington Coat
Factory and other major retailers.
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Guarantee vs 'erification
Knowing which option is right for your department
Example: Building Permits vs. Motor Vehicle Administration
Can your agency easily rescind what it has granted to enforce collection on
returned checks?
Could your agency or department be out a significant amount of money if
numerous persons abuse the system?
Do you have the staff and time to track down those whose transactions are
declined?
Would using your staff in this way be a productive use of time, or would it be
better to pay a percentage and let the bank take the risk?
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!ossibIe Drawbacks/CompIications
Consequences to Government Agencies
Example: Parking Tickets
How will the city/county handle declines on checks offered as payment?
Are they willing to require a different form of payment if the Third Party
database declines a citizen's check?
What will they do if the citizen doesn't have a credit or debit card?
Will the citizen have any legal recourse if the city refuses his/her check?