Accepting Checks over the Internet

1. Accepting Checks over the Internet Convenient Electronic Check Payments for Merchants and Their Customers eCheck Training for Resellers

2. Discussion Topics In this training session, we will covering the following topics: • Electracash Overview • ACH Summary • eCheck Marketing • Roles between Electracash and its resellers • eCheck Sales • Pricing • Customer Types • Core Points • FAQs • Electracash Operations • Boarding & Underwriting • Merchant Technical Support • Merchant Customer Support • Payor/Consumer Customer Support • eCheck Underwriting • Resellers • Assignment • Tracking/Reporting • Technology Considerations

3. Electracash Overview

4. Brief History Electracash is established, profitable, and growing fast • Founded in 1997 – been in business 8 years • California corporation: headquartered in Signal Hill, near Los Angeles and Long Beach, with technical offices in Memphis, TN • Serves thousands of merchants • Processed nearly two million eChecktransactions in 2003 and 2004 • Growing at more than 60% per year the past several years • Top management personnel average 25 years of experience each in the financial services industry • Maintains an excellent reputation in the electronic payments industry • Active participant in NACHA Internet Operating Council • CTO is AAP-certified

5. Electracash Products eCheck enables customers of merchants to make one-time or recurring payments online from their demand deposit accounts: • eCheck: accessing DDA via the Internet • Both one-time and recurring payments: from checking/savings accounts, from consumers and businesses • Virtual Terminal: enables merchant’s employees to enter checking account transactions on customers for Internet processing – phone, mail, over the counter • Two simple implementation options • Electracash Managed Service: Electracash hosts check payment page • Electracash Gateway Service:: XML-based interface for real-time and/or batch processing (with CSV and HTTP Post options) • Direct Deposit: Ability to send money from a business to its customers, vendors, and employees

6. Risk Management/Fraud Controls • Authorization that customer intended the transaction (“I agree” verbiage prior to final submission by Payor) • Authentication that user is who he/she claims to be • Age Verification available • User Authentication available (additional cost of about $0.35 USD) • Verification that account number is valid (StarChek covers 40% US) • Risk analyses of merchant applicants (underwriting) • Fraud scrubbing • Negative database – 6+ years of data • Positive database – 6+ years of data

7. ACH Summary

8. ACH and NACHA “ACH” = Automated Clearing House. “NACHA” = the National ACH Association – the network that governs ACH eCheck transactions • Rules and regulations • Charge for all transactions, including returns and resubmits • Have return codes (“R codes”), with limits on returns, with potential fines to the bank; banks can require termination of specific merchants • Require Standard Entry Class Codes on a per transaction basis • Business-to-consumer • PBR – Consumer cross-border payment • PPD – Prearranged payment and deposit (written authorization) • RCK – Re-presented check • TEL – Telephone-initiated • WEB – Internet-initiated • Business to business (corporate): CBR – Corporate cross-border payment

9. NACHA Restricted Businesses • Types of business highly prone to fraud, especially from Canada: • Outbound telemarketing • Health benefits packages (not insurance, but supplemental medical benefits) • Gaming • Credit repair services • Anti-telemarketing devices • ID theft prevention packages • Those who sell anything that can be deemed fraudulent, deceptive or promote unfair practices(subjective evaluation by Electracash) • Electracash does have average ticket restrictions, avoiding those > $1500 • Accounts with these practices must be closed three (3) days of the discovery.

10. Specific Transaction Types • We do handle Canadian transactions, as well as US, however Canadian items require special handling • Payor’s signature on form, must be faxed to Electracash before transaction can be released for processing • New Canadian Payments Association rule that works around this requirement, but not supported by enough banks, yet • We do handle business-to-business as well as business-to-consumer transactions • TEL transaction requires a written authorization • Regulation E applies to all sales transactions • Promulgated by the Federal Reserve Board of Governors in order to ensure consumers of a minimum level of protection in disputes arising from electronic funds transfers • Federal Reserve assigns Reg E PIN # to each transaction when processed through the ACH

11. Return Codes • The most common return codes we deal with in ACH are: • R01- Insufficient Funds: NSF’s can be resubmitted up to two times; costs the merchant each time • Administrative Returns – Electracash implementing pre-notes to reduce these: • R02- Account Closed • R03- No Account/ Unable to Locate Account • R04- Invalid Account Number • R05 – Web Entry to Corporate Account • R07 – Authorization Revoked by Customer • R08 – Payment Stopped or Stop Payment on Item • R09 – Uncollected Funds • R10 – Customer Advises Not Authorized All except for R01 and R09 will automatically result in the account being added to the Negative Data Base • = “Unauthorized” categories • Full list available in the Electracash Merchant Administration Manual

12. eCheck Marketing

13. Positioning To reach more consumers, demand more payment options • 10 million households without a credit card are online • 89% of US Adults have a checking account • More than 967 million ACH debit payments were initiated over the Internet in 2004 (worth over $300B, and up 40% versus 2004) • 86% of all business payments are by check • 23% of households do not have a credit card • 45% of all credit card holders are within 5% of their credit limit • 83% of all consumer bills are paid by check • 80% of all non-cash payments are by check • Source: NACHA and the US Federal Reserve • Adding online checks has increased merchants’ site revenues by as much as 20% • (Source: Electracash Merchant Survey 11/2002)

14. Bill Payment Households (millions)(Bank and Non-Bank Registered) CAGR = 25% Consumer Check Use Online Consumers are demanding more electronic bill payment options… • Nearly two-thirds of all households now pay at least one bill with an automatic debit (Source: NACHA) • Online bill payment is the most popular application on the Internet, with a 25% annual growth rate (Source: Jupiter) • Electronic bill payment will grow five times faster at biller web sites than at bank sites (Source: Gartner) The question for most recurring billers is how to provide electronic bill payment – not if or when. Source: Jupiter

15. Consumer Benefits: eChecks • Consumer benefits are tangible and intangible • Convenience … easy, quick, saves time, no paper checks, 24x7 access • Control … know the payment is made, not delayed in the mail • Choice … • Flexible payment date (for bill payment) • Option to credit card, which consumer may not have, may have maxed out, or simply may not wish to use • Financial Benefits … no postage, late fee avoidance, cash flow management

16. Merchant Benefits: eChecks • Lower remittance processing costs (electronic payments are substantially less expensive than paper-based payments) • Improved cash flow by reduced average days outstanding (i.e., accounts receivable) • Low cost option for receiving payments on the Internet • Lower cost of managing past due and delinquent accounts • Reduced number of collection notices sent • Reduced bad debts • Reduced dependency on collection agencies • Improved collection employee effectiveness • Reduced exceptions and return item costs

17. Target Markets: eChecks • Recurring payments, returning users • Utilities (gas, electric, water, waste management), insurance, car payments, rent, mortgage • Entertainment sites • Subscriptions • Travel • Airlines, Hotels, Car rentals, • Travel web sites (Expedia, Travelocity, Priceline, Orbitz, others) • Online ticketing integrators • Rent/mortgage/property management • Business-to-business invoice payments and Internet purchasing • Unless special, low-risk circumstances, avoid large average tickets (even in the B2B space)

18. Benefits when Marketed Customer use of electronic bill payments is driven by several criteria (in priority order)* • Very proactive marketing of the service • Notices on the bill • Bill inserts • Trained CSRs informing users of the service • Mass advertising • Posting on the merchant’s web site • Payment types accepted (check, credit card, debit card) • Availability of recurring and one-time convenience payment options * Source: Edgar, Dunn & Company analysis

19. Marketing Tactics • Electracash has landing pages, sales sheets and PDF files for • eChecks • Direct Deposit • Re-designing web site; will include statements about and links to resellers • Industry-specific/product-specific trade shows • Press releases • Developing an Electracash brochure • Launching a reseller campaign • Merchants may implement promotions to drive usage, especially at introduction of the service

20. Electracash Web Site Re-Design

21. Electracash Web Site Re-design

22. Features for Merchants • Offer flat rate and/or percentage fee structures, depending on type of business: based on • Industry segment • Transaction volume • Average transaction size • No hidden fees – all pricing established up front • NSF notification (usually in 3 or 4 days) • Daily distributions (after first five business days) • Outstanding customer and technical support • 24/7 merchant technical support • LiveChat for merchant and customer support • Toll-free help desk phone numbers

23. Target Markets: Direct Deposit • Direct Deposit is the electronic (ACH) transfer of a payment from a company’s checking account into the checking and/or savings account of an individual or business. • Payroll • Expense reimbursement • Revenue sharing • Allows businesses to pay • Vendors • Partners • Shareholders • Employees Electracash can disburse funds around the globe, and even divide payments among several different accounts and between different financial institutions.

24. Benefits of Direct Deposit • Reduces check preparation & bill payment costs • Lowers time and labor requirements associated with payments administration • Eliminates lost & stolen checks • Diminishes fraud due to lower potential for stolen and counterfeit checks • Decreases processing costs (companies report savings more than 40 cents in processing costs for each paper check converted into direct deposit) • Provides incentive and convenience for your employees with direct deposit of payroll (employees do not have to take time to deposit their checks) • Enhances reliability versus paper checks

25. eCheck Sales Pricing, Core Points, FAQ’s

26. Online Inquiry Form

27. Qualifying the Prospect

28. Pricing Schedule All pricing in US Dollars • Attachment to Application/Agreement • Merchant must initial acceptance

29. Pricing Considerations

30. Hold Backs and Exposure Limits • Deferred Contingencies (aka “Hold Backs”) • Calculated based on estimated ACH activity per merchant • Generally 5% of sales volume held back each month, until total hold back is approximately equivalent to one month of ACH sales volume; can be higher or lower, depending on returns history of merchant • Funding options include Letter of Credit or cash deposit • Contractually required by processing banks (we have risk with window of liability) • Required to ensure all monies paid out ultimately clear without payor contention or merchant financial problems • Released within 180 days of final disbursement (usually after 60 days) • Exposure Limits • Exposure limits are designed to thwart attempts at fraud • Exposure limits are calculated on a per merchant basis: • Highest volume conducted over a four-day period (to account for volume peaks) • A reasonable percentage of estimated uncollected items at any one time • Portfolio monitoring to flag us when merchant approaching limit; our action is to apprise merchant and assess whether increase is required

31. Frequently Asked Questions From the merchant’s perspective: • What is ACH? • When do funds arrive in my account? • How quickly am I notified of NSF’s? • Do you have online reporting? • Why do I have to pay an application fee? Your pricing is too high. • Why do I have to pay basis points rather than a fixed per transaction fee? • What is a hold back, and what does it mean to me?

32. Electracash Operations Boarding, Merchant Technical Support, Merchant Customer Support, Payor/Consumer Help Desk

33. Canadian Item Handling

34. Canadian Item Handling ACH GATEWAY MERCHANTS ACH Gateway Merchants submit batch transaction requests to the Electracash ACH Gateway. Upon receipt of the transaction requests, the ACH Gateway will return to the merchant an approved response pending receipt of the Canadian Authorization Form. The merchant must provide the customer an authorization form that must be completed and faxed to Electracash within 3 days of the transaction. The transaction will be placed on hold status until the completed authorization form is received. Upon receipt of the authorization form, Electracash will immediately issue the transaction to the specified financial institution for debiting. MANAGED ACH MERCHANTS Managed ACH Merchants will receive an authorization receipt after successfully completing the transaction. An authorization form is present on the receipt page which the customer can download and fax to Electracash. Electracash must receive the completed authorization form within 3 days of the transaction. The transaction will be placed on hold status until the completed authorization form is received. Upon receipt of the authorization form, Electracash will immediately issue the transaction to the specified financial institution for debiting. VIRTUAL TERMINAL MERCHANTS Virtual Terminal Merchants submit transaction requests via (for example) a call center to the Electracash Virtual Terminal Interface. Merchants must provide their customers the authorization form to complete and fax to Electracash within 3 days of the transaction. The transaction will be placed on hold status until the completed authorization form is received. Upon receipt of the authorization form, Electracash will immediately issue the transaction to the specified financial institution for debiting.

35. Canadian Customer Auth Form Dear Canadian Consumer: All online check processors are required by the Canadian Payments Association to receive written authorization from any Payor prior to processing an online check transaction completely. This is called a Pre-Authorized Debit (“PAD”) form. Your online check will be not be processed until we receive this completed form with your signature, as well as a blank, VOIDED check. If you have questions about this form, please contact Electracash’s Customer Service Department at 1-800-444-6952.

36. Administrative Areas

37. Account Admininistration Electracash Administration: www.electracash.com/admin Once you have entered in your username and password you will be brought to the main menu

38. Customer Service

39. Help Desk: Search Electracash Help Desk: www.electracash.com/cs “View Open Tickets” Directs you to the Help Desk “Customer Search” Brings you back to Screen 1 Below you see what tickets you have open. If there are none it appears as No Open Tickets You may locate customer’s detailed information using one of the following: 1. Reference number 2. Customer ID # (Reg E- Pin) 3. Bank account number 4. First and Last name 5. E-mail address Click [Search] or hit [Enter] The consumer helpdesk enables merchants to manage their customer’s transactions: cancel subscriptions, void transactions, and refund transactions.

40. Help Desk: Search • Search any customer by: • Reference number (Sale ID) • Customer ID • Last 5 digits of the A/C number • First name • Last name • Email • On the left top frame, you can view the open tickets. • In the left bottom frame, a list of all the tickets opened by you are displayed.

41. Help Desk: Creating a Ticket Select a Ticket by clicking Create Ticket After you search for the customer, the details are displayed. You can view the previous customer service history for a particular customer or else create a new ticket to process a refund. You cannot process anything before you create a ticket on the customer.

42. Help Desk: Creating a Ticket

43. Help Desk: Customer History Customer Service History will allow you to view notes by representatives or those the system has logged previously. Every time someone’s information is accessed, it is logged here. You can also access it from Screen 2 by clicking Customer Service History.

44. Help Desk: Transaction Status The transaction status is displayed. If the transaction has not been batched (still not sent to the bank), then a link is provided to keep the transaction on hold. This voids the transaction and moves it to the incomplete transaction history in the system.

45. Help Desk: Password Lookup • If there is no Password Management link then we do not handle the passwords for the site. • Passwords are CaPs SeNsItIvE. You can also look up the password and user name from the Subscription History Screen. Click Password Management and you will see the following screen. From here you can change or email the password. Be sure to click [Submit]

46. Help Desk: Transaction History Transaction History will show all transactions made through Electracash, and the status of those transactions. The earliest date is when the first charge was made. It will indicate when the service was subscribed to. If there is recurring billing, it will be initiated at midnight. The customer will not see charges right away; it may take a few days. Therefore it will have a different date on their statement.

47. Help Desk: Issuing Refunds When a transaction appears as “uncollected,” we have not yet received the payment from the bank. Even though the customer has seen it clear on their statement, the payment hasn’t made it to us yet. Often times it is necessary to refund a customer when it is still showing as uncollected. To Issue a Refund, select Issue Refund on the specific transaction you would like to refund. You will see this screen. You may click Close to close the ticket out as soon as you submit. At that time Click [Submit] or hit [Enter].

48. Help Desk: Issuing Refunds • Issuing partial and full refunds: • To work on the ticket later, check in the ticket, so that you can check out the ticket again. • When finished working on the ticket, close the ticket. • Once the ticket is closed, you cannot work on it, so you have to create new ticket.

49. Merchant Support

50. Merchant Admin: Reports The Reports link in the main menu will take you to the different reporting options that Electracash offers.