BUILDING TOMORROW Innovation in Banking Tony Clegg

BUILDING TOMORROW™ Innovation in Banking Tony Clegg & Tom Macdonald 24 th February 2012 rbs. com/gts

Cards in Public Sector Tony Clegg - Business Development Manager RBS 00000 1

GPC III ØRBS only dual scheme issuer in GPCIII i. e. Master. Card and Visa ØMaster. Card One. Card preferred solution with Integrated MI package ØComprehensive reporting system – Smart Data Online ØSolutions encompass both Travel & Entertainment and Purchasing style spend ØTiered rebate structure available, based on annual spend and settlement period RBS 00000 2

Rebate matrix RBS 00000 3

Comprehensive Controls Ø Individual transaction limit Ø Cardholder monthly limit Ø Corporate monthly limit Ø Merchant Category Group Blocking (inc option to prohibit cash withdrawals) Ø Preferred Vendor Ø ‘Approved’ Supplier lists Ø ‘Hosted’/Virtual cards Ø Smart Data On-Line (SDOL) Ø Corporate Liability Waiver/ Lost or Stolen Card Liability Ø £ 50 k per c/holder Ø £ 1. 5 Million per programme RBS 00000 4

Declining Balance Cards - Uses and Benefits Declining balance cards are an ideal solution for any programme where there is a need for a set budget or a fixed spending amount. Examples of Declining Balance usage would be… Travel and Expense - Incentives and Per Diem Projects - Consulting Projects Meetings & Events - Board Meeting Arrangements - Recruiting and Relocation - Disaster Recovery Projects - Conferences & Conventions - Rewards and Recognition - Educational Grants - Parties - Temporary Workers Expenses - Government Grants - Sales / Team Meetings - Training Budgets - Pilot / Test Programmes - Trade Shows & Events - Allowances - Short-Term Projects - Product Launches RBS 00000 5

Virtual Cards Ø A rapidly growing area for cards use Ø No Cards issued Ø Virtual cards can be set up in any name as not constrained by Chip & Pin regs Ø Usually set up in name of Department or key supplier Ø If with key supplier, card number is lodged with supplier Ø Purchases made and charged to card Ø Data supplied is usually level 3 compliant removing requirement for VAT receipts Ø Card details held securely Ø Coding can be added as part of transactions to assist cost allocation RBS 00000 6

Reporting options Functionality Includes : Ø Integrated MI systems or 3 rd Party solutions available Ø Large variety of reporting options, allowing you to compile, track and manage transactions. Ø VAT reports accredited by Customs and Excise as evidence for VAT reclaim. Ø Manipulate raw data to produce your own bespoke reports. Ø Web based services that enable you to access management information reports, helps analyse your cardholder’s spending, ensure internal policies are being adhered to. Ø Create your hierarchy for reporting purposes. Ø Cardholder logon Ø Assignment of GL Codes Ø Download data to your General Ledger/Account software systems RBS 00000 7

Summary benefits RBS Commercial Cards through GPC, can offer increased value to both internal and end user customers through ; Ø Reducing the need for cash - Global Acceptance Ø Cash flow management – Free up cash flow of upto 45 days from date of purchases Ø Process efficiency – Reduce cost of invoice processing by approximately £ 33 (manual versus electronic) Ø Cost control - Card transaction limits and monthly card limits – Tight Control on Spending Ø On line Management Information – 24/7 visibility of Purchases RBS 00000 8

Innovation in Banking Tom Macdonald - Cash Management RBS 00000 9

Banking Innovation Backdrop ØBanking landscape more regulated to ensure greater future stability ØLiquidity and cash flow management increasingly important ØEuropean initiatives driving efficient business interaction across the single market ØTechnology continues to transform how we pay and interact ØGrowing expectations for mobility, speed and interoperability ØOnline is moving to Mobile as smart phone and tablet use increases ØConsumers are changing faster than businesses but what does this mean in the way they pay businesses? RBS 00000 10

Regulation – Stability and Compliance The New Landscape Europe Basel III 1) International Agreement on the amount of capital held by banks – Goes live from 2013 Prudential Regulatory Authority US Dodd Frank Act 1) Promotes the stability of the US financial system – Improves accountability and transparency – Protects American taxpayer by ending bailouts – Protects consumers from abusive financial services practices 3) FCA supervises the individual organisations 1) New entity that will sit alongside the Financial Conduct Authority 2) PRA works with Bank of England to ensure market stability Payment Services Oversight 1) Banking Act 2009 gives the Bo. E responsibility in the UK for ensuring that critical payment schemes operate prudently – More banks will join schemes in their own right UK independent Commission on Banking 1) Ring fences UK retail operations 2) Improves loss absorbency, e. g. equity/leverage 3) Sets higher UK capital requirements for systemically important FIs – Bacs payments will move to a £ 20 m value cap from May 2012 2) UK Payments Council tasked to oversee and drive these changes RBS 00000 11

UK Payments Council Key Objectives Innovation – research, enhance, facilitate Inclusion – improve access & inclusion Integrity – robust and secure systems RBS 00000 12

Payments Council – National Payments Plan Activity Innovation § § § Mobile Payments Service development of a ‘proxy’ database to route payments to a bank account using a linked mobile phone number Multiple Authorisation for all business online channels to support small business demand for online banking services Investigating solutions to ensure electronic payments are made to the right payee Inclusion Integrity § Linked closely to innovation • § Working closely with the Charities & Voluntary sectors to ensure that payment services meet the needs Frameworks/concepts easy to recycle Payment system resilience e. g. Bacs transaction value cap of £ 20 m from end May 2012 • Develop minimum standards for customer authentication on internet and telephone banking • New best practice guidance on Payment Referencing for Billers and Payers in late 2010 § Recent research on how older people interact with the service sector for payments RBS 00000 13

UK Payments Trends 2010 - 2020 Winners and Losers 100% 41% 24% 22% 17% All Payments (Non Cash) Debit Cards Credit Cards Direct Debits Auto Credits Standing Orders ATM 3% CHAPS Cash Cheques 9% 35% 100% Source: Payments Council UK Payment Markets 2011 RBS 00000 14

Wider Innovation Business Efficiency ØWorldwide Government initiatives driving business and citizen e-enablement and activity ØAcross Europe, mandatory B 2 Gov e-invoicing is spreading - Denmark, Finland, Italy, Spain and Sweden have done and other countries are expected to follow Øe-invoicing generally is experiencing 30 -40% annual market growth ØIn turn it supports better cash flow management and accounts payable/ receivable process efficiency, ØThe SEPA project aims by end 2014 to deliver across participant countries mandated use of SEPA credits and direct debits ØFor consumers UK drive to get more people on line and extend broadband reach/ speed So what might the future look like? RBS 00000 15

Fast growing expectations – consumers and businesses Customers today demand payment methods that : Conform to the highest standards Don’t have onerous identification methods Are completed within hours Use devices that exist for other reasons Are 100% accurate and reliable Are widely accepted by businesses Are globally usable Are value for money Use data to enhance the bank’s offer, but not intrude Do you agree? 16 RBS 00000 16

And what might this mean? Mobile, globally accepted and secure Cash is dead Possible Consumer Scenario x Efficient* Replaced by mobile phones and contactless cards Or by biometric identification and verification which brings up a list of cards/accounts to choose from stored on ‘the cloud’ Networked* Paper is dead: all payments are initiated electronically Possible Corporate Scenario Networked* Flexible* Insightful* Most are straight-through, enabled by. . Efficient* Freeing people to provide insights and build relationships With transparent pricing 17 17 RBS 00000 *Source: characteristics of a Bank of the Future And data is used to improve tailoring and support Insightful* And approval on the go . . . E-invoicing Flexible*

Innovation Activity Pay. Away-IP Direct Mobile App Intelligent Deposit Safes • Service piloted in live customer premises • Proposition under assessment for potential full delivery • Mobile app for i. Phone & i. Pad • View BACS reports and file submissions ‘on the move’ • Mobile app for i. Phone and i. Pad - File • Secure solution for cash takings • Technology counts cash reducing errors authorisation • Combats fraud from employees and • Evaluating enhancements based on customer feedback: • Sage integration (50 and 200) • Direct Debit Manager • Bureau module and saving time counterfeit notes Mini Cash in Transit Pick Up Pay. Away-IP Direct – new features • Regional customer pilot conducted of Bank Branch alternative Mobile Channel • Proposition under assessment for potential full delivery • Assessing Mobile Channel opportunities • Bank provides small CIT vans collect notes/coin from customer • Potential prototypes being worked on: premises (£ 3 k - £ 10 k) • SME E-invoicing prototype on handheld • Order coin to be delivered with collections and i. PAD • Business cheques also collected • Quick apps - “bookshelf” and “expenses” • Mobile app for i. Phone and Blackberry users linked to Bankline • Mobile wallets/Payment options RBS 00000 18

Summary Definition of ‘Innovation’ ØThe act of starting something for the first time ØIntroducing something new ØA new method of doing something “If at first the idea is not absurd, then there will be no hope for it. ” (A. Einstein). RBS 00000 19

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