10 UP® RETAIL PAYMENTS™ USE CASES FOR THE #NEWPAYMENTS ECOSYSTEM

2

TABLE OF CONTENTS

INTRODUCTION .................................................................................................................................................................... 3

WHY READ THIS? ....................................................................................................................................................... 3

WHAT IS TRANSFORM? ........................................................................................................................................... 3

10 WAYS YOUR PEERS ARE PREPARING FOR THE #NEWPAYMENTS ECOSYSTEM WITH UP® RETAIL PAYMENTS™ ...................................................................... 4

1. THEY DON’T LOSE SLEEP OVER TRANSFORMATION ........................................................................... 4

2. THEY LEAD THE RACE FOR OPERATIONAL EFFICIENCY ................................................................... 4

3. THEY DON’T DISCOUNT THEIR ATM NETWORK JUST BECAUSE IT IS MIDDLE-AGED ........... 5

4. THEY SECURE THE FUTURE ............................................................................................................................. 5

5. THEY STRIVE TO MINIMIZE FRICTION TO CREATE SEAMLESS CUSTOMER EXPERIENCES . 6

6. THEY CONNECT TO MORE PAYMENTS WITH A SINGLE AND SMART PAYMENTS ENGINE .. 7

7. THEY KNOW THAT THE WORLD COULD BE CARDLESS BEFORE IT IS CASHLESS .................. 7

8. THEY DELIVER OPEN, DIGITAL BANK EXPERIENCES THROUGH CO-INNOVATION WITH THE FINTECH ECOSYSTEM ............................................................................... 8

9. THEY CAN FAST FORWARD PAYMENTS INNOVATION AND SUPPORT AGILE ........................... 9

10. THEY ARE “DIGITAL-NATIVE” ......................................................................................................................... 10

10 UP® Retail Payments™ Use Cases for the #Newpayments Ecosystem

3

WHY READ THIS? Because...

• You are a BANK.

• You process MILLIONS of payment

transactions per day.

• You run a large-to-medium ATM and POS

network.

• Payments are CORE to your business.

• You deal with fast changing REGULATIONS.

• You are being DISRUPTED at the margins

of your business by “young and cool”

FinTechs.

• You have COMPLEX IT systems and architecture.

• You need to TRANSFORM.

• Your strength is the TRUST of your customers.

• Your weakness is your ability to be AGILE.

WHAT IS TRANSFORM?Change in the payments industry used to be a gentle stroll along a country road, punctuated

by a few important landmarks. The frenzy of news around #newpayments seems to suggest

that you now run marathons, counterflow to a main highway. The voices are unanimous, you

need to transform. The path AND the end state of this transformation are unclear.

You need to become a digital bank to compete, to survive, despite the fact that you have

been MOSTLY digital since the 1960s with your systems, devices, transactions, networks and

channels. So what does a “Bank of the Future” look like and how do you prioritize your many

strategic imperatives?

You need to CHALLENGE your traditional business and technology models.

You need to keep an OPEN mind to new entrants and challengers in the industry.

You need to LEARN from your peers, beyond your traditional markets.

You need to MAXIMIZE the investment in your UP® Retail Payments™ solution.

INTRODUCTION

4

Across the globe, regional acquiring banks have grown

through many acquisitions resulting in complexity, but

also a heavy price to pay for running these multiple

systems. Often a mix of homegrown and purchased,

sometimes on older technology stacks and software

versions, these environments can hold back business

growth.

The rate of change in payments in the past 24

months is driving banks to make dramatic process

improvements to support further regional expansion

strategies. ACI customers are using the UP Retail

Payments solution to consolidate disparate

switches into new platforms that increase the ease

of maintenance and extensibility of their systems.

2 THEY LEAD THE RACE FOR OPERATIONAL EFFICIENCY

For large tier 1 retail banks, the world has become

a challenging place, a balancing act of innovation

and regulation. They need to aggressively respond

to changing customer demands, but also to new

regulatory requirements that consume vast parts of

their business and technology resources.

Their retail payment systems are often complex, mostly

homegrown or highly customized, and specific to the

card environment. These are nevertheless reliable and

scaleable infrastructures, workhorses that underpin

large ATM and POS networks, processing billions of

transactions every year. Despite their resiliency, they

often impede or slow down the innovation process,

which itself adds complexity. Many banks want to

ruthlessly simplify their payments environment and

rapidly build new networks, schemes and channels.

However, they need to maintain reliability, availability

and security of their systems. They also want to reduce

their reliance on heavily customized applications. With

the UP Retail Payments solution, banks isolate their

1 THEY DON’T LOSE SLEEP OVER TRANSFORMATION

10 WAYS YOUR PEERS ARE PREPARING FOR THE #NEWPAYMENTS ECOSYSTEM WITH UP® RETAIL PAYMENTS™

BANKS THAT HAVE

EXPERIENCED THE

GREATEST REDUCTION IN

OPERATING COSTS IN THEIR

PAYMENTS BUSINESS MAKE THE GREATEST USE OF COMMERCIAL OFF-THE-SHELF SOLUTIONS.2

believe that the ability to more easily partner with third parties would benefit their proposition1

Loss of revenue and brand

recognition1

Unclear business case1

BUT change brings possible disruption and disintermediation

65%

24%19%

existing payment infrastructures from disruption by

using a co-existence strategy to avoid time-critical

migration programs. Leveraging the UP Framework™

at the heart of UP Retail Payments, they orchestrate in

real-time, any-to-any payments across legacy and new

payment engines. They use the rich functionality of the

UP Retail Payments solution to simplify and accelerate

the launch of new services through vanilla deployments

and are ready to accept new payment flows.

5

Payments are your customers’ money. Your trust

and reputation depends on safeguarding these

transactions. However, the focus on “customer

obsession” means that secure must coincide with

flexible and user-friendly authentication processes.

Retail banks are also faced with a growing number

of methods of payment, slowly migrating away from

physical card formats towards more account-to-

account and real-time schemes. As the number of

endpoints grow, so do the opportunities for fraud.

Today, the shift is towards contactless and mobile

wallets, but with the advent of the Internet of Things,

we are likely too see a boom in machine-to-machine

micro-transactions. Provisioning and authorization

to a wide range of devices will add complexity and

potentially impact the availability of payment systems.

Banks using UP Retail Payments can support customer

demand for self-service tools that will assist in

preventing fraud. They protect their reputation by

exploiting all avenues for fraud prevention and

secure the future. They can quickly extend

connectivity to new devices and networks, using

toolkits that reduce development time, and modules

in BASE24-eps® that quickly and cost-effectively

The ATM is a workhorse that has survived brute

force theft, skimming, malware, consolidation, multi-

functionality requirements and numerous changes in

card schemes and regulations. Many see the ATM as

a lifeline in more rural communities, while others hail

its demise as we move toward a more cashless and

mobile-first society.

The competition from start-ups and alternative

payment providers is forcing banks and processors to

focus on the ability to connect ATMs seamlessly across

different endpoints, including the broader customer

ecosystem. Open API-enabled ATMs, and partnerships

between banks and FinTechs to bring new value-based

services, is certainly not a distant future. The focus has

leapt beyond initial “ATM geolocation” APIs to expand

to a series of self-service banking APIs creating a

value-based ecosystem where financial institutions and

their partners collaborate to provide a better customer

experience and service.

With UP Retail Payments, ACI customers are

maximizing the investment in their ATM network by

adding new services to leverage the whole customer

lifecycle and the range of touchpoints. Adapting to

digitalization and cardless transactions, banks are

launching “mobile-enabled” or cardless ATMs as one

of the many new features that can be introduced. They

are also streamlining their ATM operations to improve

security updates and eliminate infrastructure costs

with the help of the UP Framework’s fast configuration

capabilities.

4 THEY SECURE THE FUTURE

3

THEY DON’T DISCOUNT THEIR ATM NETWORK JUST BECAUSE IT IS MIDDLE-AGED

Consumers want easier, more

intuitive and secure ways of

accessing their bank accounts3:

29% OF U.K. CONSUMERS,

31% IN FRANCE,

38% IN SPAIN AND

43% IN ITALY

WOULD LIKE TO SEE ATMs OFFER BETTER AND MORE SECURE WAYS OF AUTHENTICATION.

Because they have high transaction volumes, across

many country jurisdictions, they need a phased

approach to consolidation.

These customers have not only reduced operational

complexity, but also simplified maintenance, mandate

updates and software enhancement rollouts. The

payments engine consolidation also leads to increased

system resilience and more streamlined operational

workflows. Ultimately this is attached to growth,

allowing these customers to accelerate time to market

for new services, such as mobile wallets and other

types of non-card payments.

6

The annual Ovum Global Insights Survey finds that

87% of banks see delivering an enhanced end-

user payments experience, specifically in reducing

payments friction, as the most important product-

level priority in 2017. In Asia Pacific, banks place an

even greater emphasis on customer6 experience,

with 90% focusing on this objective. Enhancements

to authentication and fraud detection are integral to

delivering new payment services, and will be a priority

for those banks working on projects around the second

Payment Services Directive (PSD2). However, security

should not have a negative impact on the customer

experience when making payment transactions. In

fact, consumers see connected devices as ways to

remove friction from both online and offline purchases.

Consumers also value the privacy of their data and

often see banks as the most trusted provider to

safeguard their personal identity and credentials.

5

THEY STRIVE TO MINIMIZE FRICTION TO CREATE SEAMLESS CUSTOMER EXPERIENCES

enhance their authorization rules. They retain market

share by empowering their customers to enable and

disable their cards, to their own parameters, via mobile

applications. Achieving security is an ongoing process,

requiring continuous enhancements, so focusing on

today’s transactions is also important. You could,

for example, improve card fraud by 85%5 with geo-

blocking features.

THERE IS NO DOUBT THAT TOKENIZATION

WILL PLAY A HUGELY IMPORTANT ROLE IN IoT PAYMENTS.4

Historically, non-card customer identification methods

were limited to locations where the customer was

identified in person. However, this is no longer the

case. With the global expansion of internet and mobile

phones, customers want other options to transact

business with their institution. These delivery channels,

such as mobile, lend themselves to non-card-based

methods of customer identification. Managing this

across a card and non-card payments environment,

while responding to the need to provide a seamless

experience, can be challenging.

With UP Retail Payments, banks are innovating

with virtually any payments instrument type and

optimizing their business by consolidating card and

non-card, real-time transaction processing. Our

customers have the ability to define new, non-card-

based payment instrument types (e.g., user ID, mobile

phone number, customer ID and email address)

and remove the requirement of a card number to

authorize transactions. Not only does this provide a

more seamless transaction, but also has potential for

delivering new revenue streams. A seamless customer

experience, along with a single view of the customer, is

viewed as a key strategy for merchants.

87%

87% of banks see delivering an enhanced end-user payments experience as the most important product-level priority.6

83%

83% of U.S. consumers view using connected devices as a way to eliminate friction from how they buy and pay for things.6

7

Although cards remain the main non-cash payments

format, consumer habits are changing, especially

in emerging markets where card adoption is lower.

In addition, the growing shift towards account-to-

account, real-time payments creates even more

opportunities for offering diverse payment methods.

Much like the early days of the branch and the internet

as a channel, co-existense and a complex range of

usage are likely to add complexity to banks’ payment

systems.

The boom in cross-border eCommerce, especially on

mobile devices, is also driving the growth of “smaller”

international transactions. Even on SWIFT, typically

more used for higher value corporate payments, cross-

border payments under $500 have grown by 20%

since 2014.7 Convergence of the retail and corporate

payments business is a reality rather than a trend.

Many banks need to “break” their existing channels

into services that can be used across their entire

service portfolio. They want a flexible, single payments

platform across their retail, wholesale and merchant

business that caters to change and innovation, cost

effectively.

The UP Retail Payments solution has helped these

banks deliver a flexible platform, ready for change and

innovation. They can deliver a payments framework

that seamlessly integrates with their existing corporate

and retail banking systems. The smart payments

engine allows some services to be exposed, as well as

leverages standardized common processes across real-

time and batch transactions. It makes fast, simple and

secure payments possible, connecting more ways to

pay, with more payment capabilities.

Cash is still the main payments format used globally,

and in many countries, volumes are still growing.

It seems that the reliance on cash “when I want

it” remains, and will do so for a while, at least.

Many governments are moving towards greater

digitalization of payments. India’s demonetization of

high denomination banknotes is only one of the many

policies introduced to move towards real-time, cashless

payments, even if the unintended consequences are

sometimes surprising. However, the question is not “will

it be cash or card?”

Payment cards are increasingly under threat from

alternative payments, and nowhere more so than

in Asia Pacific, but perhaps Europe, too, when

PSD2 comes into force. In 2014, the top three debit

card brands generated 105.63 billion transactions

at merchants worldwide. Although 2015 showed a

healthy growth in the total number of transactions,

up 16.1 percent to 227.08 billion9, much of this was

generated by China Union Pay (CUP), with a growth

of 47 percent. Increasingly, the challenge is that it

is not all about cash or cards, but potentially about

account-to-account transactions, whether in real-time

with immediate payments infrastructures (e.g., U.K.

Faster Payments, SEPA Inst or Singapore FAST, the

U.S.), through open collaboration (e.g., PSD2 in Europe

or Government-led initiatives such as in the U.K. or

Singapore) or simply through alternative business

6

THEY CONNECT TO MORE PAYMENTS WITH A SINGLE AND SMART PAYMENTS ENGINE

7

THEY KNOW THAT THE WORLD COULD BE CARDLESS BEFORE IT IS CASHLESS

PAYMENT CARDS ARE

UNDER CONSIDERABLE

THREAT FROM ALTERNATIVE

PAYMENT TYPES AND PSD2 IN

EUROPE WILL EXACERBATE

THIS THREAT.8

NEW AND ALTERNATIVE

PAYMENT TOOLS NOW

ACCOUNT FOR 10% OF GLOBAL

MERCHANT TRANSACTIONS.

8

Whether you are bound by new regulations leveling

the playing field or expect FinTechs to generally

compete more aggressively in your market using

open-API technologies, customers demand new

digital experiences and are increasingly investigating

the broader payment services landscape. The speed

of innovation is accelerating and “doing it alone” is

not always a viable solution today. Increasingly we

are seeing greater collaboration between FinTechs

and traditional banks, moving from competition to

co-operation. This is not just a reality for banks, but

FinTechs, too, as they realize that bypassing the

existing payment rails limits growth and scale.

Many standard bank services can be enhanced through

co-innovation with FinTech partners; using an open

banking philosophy. The use case possibilities are

endless within an open ecosystem. It forces us to

challenge every process and workflow. It also simplifies

activities that are possible to do today, but are complex

to implement. Banks can build greater trust in the

new ecosystem by improving confirmation of payee,

reducing misdirected payments with account validation

and removing friction in the Know Your Customer

(KYC) process by offering single sign-on services

across the payments workflow.

The UP Retail Payments solution provides seamless

payments integration to innovative FinTech

services. The UP Framework connects with the API

management gateway of your choice, but also allows

you to introduce new payment offerings faster.

Leveraging your ACI payments solution and your open

partnerships, you can accelerate the delivery of new

digital user experiences to your customers and offer

real-time, any-to-any, digital-native services that will

outperform your competition.

8

THEY DELIVER OPEN, DIGITAL BANK EXPERIENCES THROUGH CO-INNOVATION WITH THE FINTECH ECOSYSTEM

models and network effects (AliPay, Tencent).

Banks need to be able to handle all message formats

and incorporate new development methodologies

to improve availability lead times. They must ensure

business as usual on their current systems while

implementing new services and preparing for future

advancements. Using UP Retail Payments, banks are

ready for future payment advancements and can

support innovation in traditional and new payment

systems. They ensure business as usual on their current

systems while implementing new services.

UP® FRAMEWORK™ HAS

CHANGED OUR WAY OF

THINKING ABOUT HOW WE

DO BUSINESS, NOW OUR

CHALLENGES COME FROM THE

BUSINESS ITSELF, NOT FROM

TECHNICAL LIMITATIONS.”

Latin American financial services institution

24% same

74% higher

2% lower

Collaboration between startups and established players versus three years ago

Global Jury view on level of collaboration today versus 201410

9

EXAMPLE OF A BANK THAT HAS

STARTED DEVELOPING API ECOSYSTEMS

FOR ITS CLIENTS11

ACQUISITIONSSTRATEGIC PARTNERSHIPS

“…It used to take us 5 to 10 weeks to deliver a single

VM environment, but with UP Retail Payments, the

team was able to build an entire production stack in all

environments in 2h30…” WestPac New Zealand

The #newpayments ecosystem is bringing new

competitors to the market who benefit from flexible

production environments. These FinTech companies

are driven by the idea of displacing incumbents by

responding to market needs more quickly. They are

generally built for agility. They adopt flexible teams and

working practices and flatten hierarchies. They also fail

fast and pivot more easily than bigger companies. This

culture is supported by agile IT operations which are:

9

THEY CAN FAST FORWARD PAYMENTS INNOVATION AND SUPPORT AGILE

• Modular – Configurable and open, delivering more

personalized payment types and channels

• Lower cost – Based on less expensive platforms or on

a cloud-based delivery model

• Scalable – Driving higher transactions on lower-cost

platforms and reduced cost per item

This IT environment is supported by a culture that is

adaptive to change (as employees are a major part of

this journey).

With UP Retail Payments, banks have deployed

BASE24-eps on Linux, substantially reducing their

production costs. It allows them to process batch-

based, low-value payments, as well as consumer

internet banking transactions with the UP Framework.

In a world that is moving ever faster, they are able to

introduce new business capabilities using BASE24-eps

and the UP Framework. Using a minimum viable

product (MVP) approach, they can operate multiple

DevOp squads in parallel. To compete, banks must

ensure they can innovate at scale, delivering on the

digital experiences customers now expect in their

everyday life.

DEVELOPMENT METHODOLOGIES

AGILE

WATERFALL

DISCOVERBUSINESS REQUIREMENTS

TESTCODING & TESTING

DEVELOPCLIENT OK & LAUNCH

DESIGNTECHNICAL DESIGN

SPRINT

1SPRINT

2

DISCOVERDISCOVER DISCOVER

SPRINT

3TE

ST

D

EVELOP DES

IGN

TE

ST

D

EVELOP DES

IGN

TE

ST

D

EVELOP DES

IGN

10

Digital self-service is on average “one-tenth of the

cost of a teller visit or live phone call”.12 Despite the

clear operational advantage of deploying digital

delivery channels, whether it is for payments of other

financial products and services, banks need to cater to

a complex customer, who regardless of age, expects

choice. On the other hand, FinTechs generally focus

on digital-first strategies, looking to differentiate by

addressing gaps in the market and providing a more

seamless experience.

The new competition and regulatory changes have

not yet displaced the role or function of the traditional

banking industry, but it has disrupted the status quo.

Retail banks are increasingly introducing transformative

strategies, based on multi-year plans, towards a digital

and open banking vision. Going full “digital-native”

is perhaps not a journey that all should undertake

and largely depends on your core value proposition.

Regardless of the intensity of your transformation

journey, focusing on delivering front-end innovation

and change is no longer a sustainable path.

10 THEY ARE “DIGITAL-NATIVE”

Core processing

Old architecture New architecture

Integration

Front end

1FRONT END

ONLY

2WRAP AND

DIGITIZE

3GO DIGITAL-

NATIVE

BANKS ARE RESPONDING IN THREE DIFFERENT WAYS — WHICH ONE(S) ARE YOU ADOPTING?13

Low High

Levels of transformation

The foundation of your payments infrastructure or, in

other words, delivering on high availability, transaction

throughput, scalability and security are likely to be

increasingly impacted or supported at a growing cost

of resources.

HIERARCHY OF PAYMENT NEEDS

SECURE

Join your peers and unlock the value of your UP Retail

Payments solution today.

UP Retail Payments isolates and protects your core

payment processing and allows you to wrap new

digital-native payment services with your existing

portfolio. In parallel, it provides you the tools to build

a truly digital-native payments environment, allowing

you to compete in the #newpayments ecosystem.

11

10 WAYS YOUR PEERS ARE PREPARING FOR THE #NEWPAYMENTS ECOSYSTEM WITH UP® RETAIL PAYMENTS™

1

10

5

4

2

8

6

3

9

7

They don’t lose sleep over transformation

They are “digital-native”

They strive to minimize friction to create seamless customer experiences

They secure the future

They lead the race for operational efficiency

They deliver open, digital bank experiences through co-innovation with the FinTech ecosystem

They connect to more payments with a single and smart payment engine

They don’t discount their ATM network just because it is middle-aged

They can fast forward payments innovation and support agile

They know that the world could be cardless before it is cashless

1 https://innovationjury.com/wp-content/uploads/2017/06/InnovationsJury_Report_2017_A4_WEB.pdf

2 OVUM 2017 Global Payments Insight Survey, https://www.aciworldwide.com/-/media/files/collateral/trends/2017-global-payments-insight-survery-retail-banking.pdf

3 YouGov Survey, https://www.aciworldwide.com/news-and-events/press-releases/2017/june/atm-turns-50-consumers-demand-innovative-user-friendly-atm-ser-vices-more-secure-authentication

4 Celent: Payments and the Internet of Things 2017

5 http://webwereld.nl/security/57465-rabo-85-procent-minder-skimschade-door-geoblock

6 https://www.pymnts.com/internet-of-things/2017/visa-and-pymnts-research-the-future-of-online-payments-and-iot-connected-devices-for-consumers/

7 https://www.swift.com/news-events/press-releases/banks-must-change-their-business-model

8 Innovation Jury Report 2017, https://innovationjury.com/

9 https://www.nilsonreport.com/publication_newsletter_archive_issue.php?issue=1085

10 Innovation Jury Report 2017

11 BBVA Q32016 corporate presentation, https://shareholdersandinvestors.bbva.com/TLBB/fbinir/mult/CorporatePresentation3Q16_tcm927-621663.pdf

12 https://globenewswire.com/news-release/2016/12/01/1010553/0/en/Who-s-the-Digital-Native-In-Banking-It-s-Not-Millennials-Who-Call-Their-Bank-More-Than-Twice-as-Often-as-Boomers.html

13 https://www.pwc.com/us/en/financial-services/publications/assets/pwc-fsi-whitepaper-digital-bank-transformation.pdf

¥

12

ACI Worldwide, the Universal Payments®

(UP®) company, powers electronic

payments for more than 5,100 organizations

around the world. More than 1,000 of

the largest financial institutions and

intermediaries, as well as thousands of

global merchants, rely on ACI to execute

$14 trillion each day in payments and

securities. In addition, myriad organizations

utilize our electronic bill presentment

and payment services. Through our

comprehensive suite of software solutions

delivered on customers’ premises or

through ACI’s private cloud, we provide

real-time, immediate payments capabilities

and enable the industry’s most complete

omni-channel payments experience.

Americas +1 402 390 7600 Asia Pacific +65 6334 4843 Europe, Middle East, Africa +44 (0) 1923 816393

© Copyright ACI Worldwide, Inc. 2017 ACI, ACI Worldwide, ACI Payment Systems, the ACI logo, ACI Universal Payments, UP, the UP logo, ReD, PAY.ON and all ACI product names are trademarks or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other countries or both. Other parties’ trademarks referenced are the property of their respective owners.

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