© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 1 © Copyright 2012 Online Resources Corporation – Proprietary & Confidential

© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 1© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 1

The Golden Age of Card Payments

Jan Jacobs, Online Resources, Principal Market Manager

Juli Comstock, Omaha Public Power District, Division Manager – Customer Services

September 25, 2012

Utility Payment Conference

© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 2© Copyright 2012 Online Resources Corporation – Proprietary & Confidential

Agenda

Historical Perspective on Card Acceptance for Bill Payment

Durbin Amendment Ushers in the Golden Age

Cards and Consumer Behavior

How OPPD is Leveraging the Card Payments

Strategic Review

Questions

2


1st bank card introduced

1946 1990s 2000s 2005 2010 2011 2012

Billers began accepting cards

Billers offer web for card payments

Visa introduces flat rate interchange for specific billing industries

Mobile introduced for card payments

Durbin amendment lowers cost of debit cards

Golden Age Arrives

Customer Convenience

Cost Savings

Add debit cards to auto-pay

Paperless billing & recurring payments incented with cardsRates reflect post- Durbin costs

Payment system ready for uncertain future

Corporate card programs

Golden Age of Card Payments:

Unprecedented levels of customer convenience and cost savings are now possible!

Source: Federal Reserve, UPC, Payments and Interchange Management Consulting


Historical Perspective

Why the Golden Age?

1990’s

Limited Card Acceptance Limited Demand

High Cost

Variable Cost Structure

High Average Payment

Early 2000’s Convenience Fees

Internet Card Acceptance

Competitive Biller Categories Begin Widespread Card Acceptance

Mid 2000’s Card Associations Recognize Bill Payment as Growth Opportunity

2011 Card Growth for Bill Payment – 15%

A post-Durbin Golden Age Arrives

4

Charge a Convenience Fee

No Fee0%

20%

40%

60%

80%

100%

90%

10%

45%55%

Utility Card AcceptanceSource: Chartwell

Investor Owned

Municpal


Durbin’s Impact on Card Acceptance Cost

Savings are significant for some billers in some verticals

Card processing cost down as much as 40%

5

*Assumes an average bill payment amount of $150, a 60/40 split between large and small issuers and assessments charged by the card association of 0.11% of the payment amount


2004 2005 2006 2007 2008 2009 2010 20110%

10%

20%

30%

40%

50%

60%

70%

80%

Majority of Payments in Retail Stores Made with a Card, While Costs Stymie Growth for Bill Pay

Bill Pay

Retail Stores

% o

f P

aym

ents

Mad

e w

ith

Car

d

Source: Aite Group, Hatachi Consulting, ORCC analysis


Billers expect card growth

Will grow Will start to offer Will stay flat or decline Will discontinue Do not offer

Recurring debit card payments

Recurring credit card payments

PINless debit payments

One-time credit card payments

One-time debit card payments

Q. What does your organization expect for the transaction volume growth rate for the following payment methods in 2012?

Source: Aite Group

36%

38%

45%

71%

76%

10%

10%

2%

2%

2%

17%

17%

2%

2%

52%

50%

36%

10%

7%15%


The cost of card acceptance is painful

10%

13%

15%

17%

23%

23%

23%

31%

24%

65%

23%

54%

68%

51%

51%

33%

67%

21%

62%

29%

9%

26%

26%

35%

PCI compliance

Late/delinquent payments

Cost of walk-in payments

Cost of call center support

Cost of paper bills

Integrating technology

Slow consumer adoption of eBills

Cost of accepting cards

Q. How would you rate your firm's pain level in the following?

A lot of pain Some pain No or little pain

Source: Aite Group


Consumers increasingly prefer cards for other types of payments

Source: Aite Group, ACI

57%

3%

41%

11% 8%

80%

50%

2%

48%

6% 4%

90%

Cash Check Card Cash Check Card

Small-ticket items High-value goods

Payment Method Preferences

2009 2012


Are you a Smartphonatic?

Source: Aite Group


Smartphonatics on bill pay methods

63%

68%

69%

77%

78%

Was able to save on postage costs

Biller started accepting credit or debit cards

Biller waived the fee for paying with a card

Got cash/other incentive

Received rewards for paying with a card

Percentage of Smartphonatics “very likely” to change bill pay method for following reasons

Source: Aite Group


Cards play an important role in changing bill pay behavior

24%

25%

30%

31%

36%

38%

41%

41%

38%

33%

37%

32%

36%

33%

35%

37%

37%

32%

33%

26%

26%

Want an environmentally responsible way to pay

Biller moved to paperless bills

Biller started accepting credit or debit cards

Were able to save on postage costs

Biller waived the fee for paying with a card

Got cash/other incentive

Received rewards for paying with a card

Likelihood of changing bill pay method for following reasons

Very likely Somewhat likely Not likelySource: Aite Group, ACI


Debanked starting to avoid checking accounts

Don’t agree at all41%

Don’t know about this

40%

Agree some12%

Agree a lot7%

Q. To what extent do you agree with the following statement: "I have a checking account but am thinking

about switching entirely to just using a prepaid debit card."

Source: Aite Group


Exploiting Opportunities in the Golden Age of Card Payments

Omaha Public Power District


Agenda

About OPPD

Customer satisfaction leader

Current Challenges

Payment Trends

The Case for Recurring Payments

Future Payment Channels


Omaha Public Power District

• Publicly owned electric utility• 5,000-square-mile service area• Serve a population of 784,500• Total Revenues of $1.1 billion• 12th-largest public power utility in U.S. in # of customers served

Customer Class

Count

Residential 308,412

Commercial 43,564

Industrial 206

Total Retail 352,182


The Public Power Advantage

Local control

Elected Board of Directors

Lower rates

Customer-owners – not stockholders – are at the forefront of decisions


Customer Satisfaction Leader

Consistently rated top electric utility in Midwest/Midsize Residential Customer Satisfaction survey

Typically score 10% higher than other utilities regarding “usefulness of options to pay bill”


OPPD Bankcard Payment History

1992-1993 1999 2002 2003 2007 2012

Offi

ce

Walk-in Offices

“Black box”

Terminals Pilot

Phone Reps

IVR

MyAccount

One-Time Pay

Timeline

Payment Channel

Phon

eop

pd.c

om

Online Payments thru Client Console

Automated Self-Service Phone Payments

Self-service bill payment through log-in with stored funding information

Self-service online one-time bill payment

“Black box” Terminals

Notes: 1) None of the above channels currently offer recurring payments.2) All online payments are processed thru ORCC since 2007.


Current Challenges

Fort Calhoun Outage

2011 Flood Mitigation

EPA Regulations

Rising Employee Benefit Costs

General economy impact on customers


Maintaining Customer Service Margin

• Minimize rate increases

• Provide safe, reliable power

• Support energy efficiency

• Provide low effort options

Customer Service

Billing

Payment


Payment Trends at OPPD

Mail-in32%

ABP & EDI24%

oppd.com14%

Web – Cus-tomer Bank 13%

Phone-IVR4%

Phone-Rep5%

Branch9%

Observations:• Mail-in payments have dropped an

average of 10% each year for the past 3 years.

• Web payments made from the customers’ home bank increased an average of 29% over the past 3 years.

• Phone payments increased 24% with the closing of branch offices in 2010.

• Branch payments increased slightly due to local bank charging fees for paying OPPD bill at their locations.

• Increases in postage costs as well as charges to customers for paying at banks will continue to increase electronic payments.


• Customer Convenience …low effort

• Call Center Processing Cost

• Call Center PCI Compliancy

Increased operating costs

Increased operating challenges

• Combine with Paperless Billing

If all MyAccount customers went paperless = $450,000 savings

The Case for Recurring Payments


Managing Payment Card Costs

• Steer customers to low cost channels

• Monitor fees and consider charging payment fee

• Participate in flat industry biller rates when applicable

• Channel business customers to low cost payment methods


Future Payment Channels/Promotions

• Mobile Payments• Third-Party Payment Channels

• Retail Establishments• Home Banking


Conclusion

• No turning back …customers expect bankcard options

• Current regulations allow cost management of fees• Billers need to find their balance

Costs

Customer Satisfaction


Design Strategy with the End Game in Mind

27

Cater to Preferred Card Types

Give Your Customers What They Want

Incent Low Cost Customer Behavior

Ensure Processing Cost or Consumer Fees Reflect Durbin Rates

Prepare for the Unexpected by Deploying a Flexible Solution

Corporate Card Costs

Customer Satisfaction

Retention Delinquency Postage & Printing

Call Center Calls

Interchange Adaptability


Catering to Preferred Card Types

Commercial, small business, purchasing, and rewards cards come with a higher rate -- interchange rates can be more than 2.5% of the bill payment amount.

The biller’s pain is the issuers gain – was this the intended purpose of corporate card programs.

In response, some billers only offer card payments to their residential or consumer based clients. Payment interface changed to offer card-based payment options for residential or non-

commercial based accounts.

28

“We pay $1,000 to accept a $30,000 corporate payment”


Give Customers What They Want - Adding Debit Cards to ACH - AutoPay Most billers only accept ACH

in their auto-pay direct debit programs

76% of all utilities offer a recurring ACH program, while only 35% offer a recurring credit card program

Now that the cost of accepting cards has decreased, it’s more affordable for billers to raise customer satisfaction

Debit cards are the most preferred form of payment by customers

Billers should explore adding debit cards to their recurring payment options

29

Source: Phoenix Marketing International, Mercator Advisory Group, Chartwell


Use Card Acceptance to Incent Low Cost Customer Behavior

Offer card payments to customers that sign up for recurring payments. Customers that sign up for recurring are:

18% less likely to leave

Have a 70% lower delinquency rate

Offer card payments to customers that agree to go paperless

Billers that tie card acceptance to paperless billing can reduce their delivery cost by $0.40-$0.50 per bill

Offer card payments to customers that enroll in online services

Customers that receive electronic bills at the billers website are 39% less likely to call a customer service representative at the biller than customers who receive a paper bill

30

Source: ORCC survey of 1,000 households, Blueflame Consulting, Aspen Analytics, American Banker


Ensure Processing Cost or Consumer Fees Reflect Durbin Rates For billers that choose not to charge a consumer fee, make sure your

arrangement with your card processor allows you to take advantage of the Durbin rate

For billers that have a consumer fee program for card acceptance, make sure the fee is reasonable given the new cost structure

31

Cost savings due to Durbin experienced by Large Utility


Prepare for the Unexpected with a Flexible Payment System

32

The future may bring changes to Legislation

Consumer payment preferences

Bank fees

Interchange rates and fees

Select a flexible payment system Have your end game in mind of maximizing customer convenience

and minimizing the cost of your program

Technology can leverage new routing capabilities provided by Durbin Amendment

Large number of standard configuration options to make it easy to adapt to the unexpected


Will Your Organization Enter the Golden Age?

33

Key Questions Yes or No?In the past 6 months, have leaders from across the organization come to agreement on an updated strategy for accepting cards?

Is your organization using card payments to cater to preferred customers? (e.g. corporate card cost savings)

Do card payment options incent desired consumer behavior? (e.g. paperless billing, recurring payments, web self-service enrollment)

Are post-Durbin rates are reflected in your cost structure?

Has your organization deployed a payment system that is easy to change to keep up with new opportunities? (e.g. long list of standard configuration options, easy to do work with)

Total # of Yes 0: Time to evaluate your plan1 – 3: You’re on the right track4 – 5: You’re reaping the rewards


Questions?

Thank-you for attending our session!

Jan Jacobs Juli ComstockOnline Resources OPPD(609) 61061134 (402) 636-3704 [email protected] [email protected]

Documents

© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 1 © Copyright 2012 Online Resources Corporation – Proprietary & Confidential