Citi Virtual Card: Enabling Successful Payables

Treasury and Trade Solutions Citi Commercial Cards 2015 Commercial Cards Conference May 18-20, 2015 Citi Virtual Card: Enabling Successful Payables Presentation Programs - Breaking Title Down the Barriers Presented by: Rodrigo Sanchez, North America Commercial Cards B2B Product Manager

Table of Contents 1. Presentation Objectives 2. Market Overview 3. Existing Challenges and Barriers 4. 5. Virtual Card for Accounts Payables Best Practices 2

Presentation Objectives Key Takeaways

Presentation Objectives To identify existing challenges and barriers facing buying organization and adapt best practices in order to expand working capital, rebate opportunities and reduce operational cost. The Main Takeaways from this Presentation 1. Discover market trends and current growth of virtual cards 2. Identify existing challenges and barriers organizations face when considering a virtual card program 3. Learn about the use of virtual cards as a form of payment within accounts payable 4. Discover the time and resources required to implement a payables program 5. Learn tactics and best practices to optimize spend through supplier incentives and successfully roll out a virtual card program 4

Market Overview Market Trends, Organizational Drivers

B2B Check Payments are Falling Check use for B2B payments is declining rapidly in the US and across the world Use of Checks for B2B Payments* Top Reasons For Using Virtual Card * 81% 74% 57% 50% Lower Processing cost Reduction in P2P cycle times Increase in on-time payments 49% 45% 80% 2004 2007 2010 2013 Increased Vendor Satisfaction Increase ability to capture early payment discounts Reduction in duplicate payments Reduction in Fraudulent checks 30% 29% 25% 20% * Source: 2013 Association of Financial (AFP) Professional Electronic Payments Survey 6

Virtual Accounts emerge as strong alternative to checks and ACH Cards are quickly replacing checks as a form of payment B2B Payments by Volume of Payments 1 Trends in Virtual Account Adoption, 2007-2014 2 2% 2% 2% 43.9% 55.6% 21% 23% 25% 34.9% 72% 67% 61% 14.5% 16.1% 5% 8% 13% 2010 2015 2020 2007 2009 2011 2012 2014 Card Checks ACH Wires 1- Source: PayStream Advisors, 2015 US epayment Forecast for all us businesses. Large Enterprises (> $1 Bn Revenue) (1) 2012 RPMG Purchasing Card Benchmark Survey Results (2) August 2014 RPMG Survey respondents using EAP 7

Existing Challenges and Barriers Exploring current challenges and barriers to adoption

Financial Supply Chain: Broad Organizational Pressures Organizations face ongoing pressure to maximize efficiency from their financial supply chains by reducing costs, improving productivity and driving compliance to organizational policies Key Challenges Complexity of increasingly global supply chains Credit constraints, supply chain risk Visibility to maximize cash efficiency, liquidity management Working capital management across complex supply chain Effective day-to-day supplier management Push to maximize operational and headcount efficiencies Pressure to reduce expense, increase automation Balancing pressures with need to minimize supplier impact Focus on compliance, regulatory environment Reputational risk of lax oversight Reduced IT spend available for discretionary items Better visibility into internal practices needed Dispersed decision making Challenges ensuring alignment across key stakeholders Impacted Stakeholders Treasury & Finance Accounts Payable Strategic Sourcing & Procurement Audit & Compliance Technology 9

Overcoming Challenges to Adoption Despite the large opportunity, a number of challenges still exist for large corporations to adopt a solution. Inability to exchange electronic payment information 26% Loss of Check Float 26% Lack of integration between AP systems 33% Shortage of IT Resources 35% Suppliers not willing to adopt 40% Source: Paystream Advisors Report: Electronic Supplier Payments Innovation Drivers for Corporate epayments epayments Explosion! 10

Citi VCA for Accounts Payable Solution Overview

Citi Virtual Card Accounts - Overview Clients can gain financial benefits, process improvements, and greater security & control by leveraging Virtual Card Accounts for payments Virtual Card Numbers (VCNs) Unique, non-plastic account numbers used for secure purchasing Local-currency issuance in 40+ countries and 25+ currencies Increased Transaction-Level Controls Number of transactions (single- or multi- use) Transaction amount limit (exact, maximum, or range) Validity Period Suppliers and Merchant Category Codes Flexible VCN Generation. Web API Simple web-based user interface for generating VCN s Systemically generate VCN s in real time from internal application or ERP Enhanced Client-Supplied Data Client-specified data elements per VCN for enriched analysis, reconciliation and allocation Secure VCN delivery via encrypted email to suppliers Batch A file transfer method to request VCNs in bulk 12

VCA for Accounts Payable: Solution Overview Citi has combined a wealth of capabilities to develop an integrated virtual card file-based solution focused on successful execution and program optimization Working Capital Analytics Proprietary analytics platform to identify financial opportunities and optimize payment strategies in your accounts payable Supplier segmentation methodology to ramp up conversion and card spend Working Capital Analytics File-Based Connectivity Process card based payment method leveraging existing file processes Solution flexibility to adapt to our clients existing systems and business processes File Based- Connectivity Virtual Card Accounts Payable Supplier Portal and Support Supplier Enablement Dedicated team to manage supplier outreach Ability to leverage multiple financial and operational levers to help increase adoption Supplier Enablement Supplier Portal and Support Supplier support and self-servicing solutions to provide ongoing operational support 13

Segmentation Analysis and Strategy Citi s leading-edge analytical capabilities and working capital solutions help clients optimize their payment strategies, improve processes and ensure stability across the supply chains. 1. Strategic Suppliers Supply Chain Finance 2. Multi-sourced suppliers with significant spend Traditional Payment Methods 3. Smaller suppliers 4. Non-system spend Card-based Payments Supplier Credit Rating 14

Building the Business Case An analysis of your supplier data can help quantify multiple hard-dollar benefits to help build the business case for implementing virtual card solution. Example for Illustrative purposes only, Assumes In-Scope Spend of $135 million Increased Rebate Working Capital Operational Efficiencies Potential Investment Driver = Incremental Spend Driver = Payment Terms Driver = Check Reduction Driver = Resource Prioritization Total Volume: $135MM Rebate share: 125bps 125bps Cost of Funds: 4% Total Volume: $135 million DPO = 40 days Savings per Trxn: $2* No. of checks converted= 150,000 150,000*$2 Actual costs and commitment assessed on a client by client basis $135MM*4%*(40/360) Recurring Recurring Recurring One-Time $1.6MM $0.6MM $0.3MM $0.1MM Total Client Net Benefit = $2.5 million. * Actual costs varies based on client s existing processes 15

Virtual Card File-based Payments Virtual Cards can help lower administrative costs by reducing operational complexity around your Payables process. 1 3 Client Payment Instructions VCA for AP 2 VCA Suppliers 4 Reconciliation File Increased Efficiency Simplified Reconcilation Flexible Remittance Comprehensive Service Send standard file for virtual card payments along with traditional payment methods Receive corresponding file for reconciliation Deliver remittance and payment information to suppliers End-to-end servicing and support Reduce administrative overhead and transactional costs 16

Virtual Cards as a New Payment Method Virtual Card presents an opportunity to generate revenue for making payments while having other similar characteristics to other payment methods Costs/Process Cutoff/Receipt Remittance Detail Final Settlement Virtual Card Profit from making payment due to card rebate model Virtual account number sent to supplier e-mail Payment received in 2-3 hours Funds settled within 48hrs of authorization Standard option provides enhanced remittance data Customization to allow unlimited remittance All payments subject to 60 day dispute window No liability for fraudulent transactions Ability to recover misuse Check High costs to process/ administer $1-$5/check Same day/next day option Mailing time subject to disbursement location Clearing subject to supplier deposit No limitation Within 48hours of clearing Potential for late return if funds still exist in the account Fraud/counterfeit transactions up to 1 year ACH Low costs for electronic payment ~$0.07/transaction Typically next day settlement to major financial institutions Limited in some formats with option for unlimited Settled upon execution Limited ability to reverse transaction Wire High costs ~$10/wire transfer Late day cutoffs for same day receipt Limited Settled upon execution Limited ability to reverse transaction Best efforts basis that diminishes rapidly with time 17

Citi Supplier Enablement and Support: Overview Citi s experienced supplier enablement team designs and executes customized outreach campaigns to maximize the growth of your card programs while supporting your suppliers. Cleanse, mine and enrich client data for tailored supplier targeting via Citi Working Capital Analytics Holistic campaign to support significant supplier adoption with faster card spend ramp Co-branded marketing materials for customized communication and message delivery to suppliers High-touch engagement model for strategic vendors Utilize robust campaign reporting on an ongoing basis Market research and intelligence to drive informed decision making around supplier adoption leveraging best practices Onboard vendors not yet accepting card payments through specialized B2B merchant-acquiring partners to maximize adoption of your cards program Dedicated Supplier Support Team post-enablement to resolve your suppliers card inquiries 18

Supplier Self-Service and Support: Payment Exchange Suppliers can maintain their own profiles and bank account information, access real-time payment details, and connect with a dedicated support team. Suppliers Suppliers Self-servicing Portal: Update and maintain payment preferences and associated information (bank account details, email addresses) View payment status Reconcile payment information with remittance advices Download payment records and remittance advices for use with Accounts Receivables or other purposes Supplier Support Dedicated supplier support team via phone Access to online chat for virtual support Optional Self-Servicing and Help Desk Capabilities to Support Suppliers 19

Overcoming Challenges: Best Practices Successfully Roll-out VCA Programs

Best Practices for a Successful Virtual Card Program Citi will support your organization along the way to implement best practices for developing a best-in-class Virtual Card program. Identify Strategy & Build Business Case Develop payment strategy Analyze AP spend to quantify benefits and determine ROI Measure and report on payment metrics pre- and post-implementation Align the Organization Identify senior executive to champion solution Solidify goals and align Card team with cross organizational resources Establish Supplier Outreach Plan Develop plan for supplier segmentation and adoption Contact suppliers for enrollment in card solution Develop Requirements Create detailed project plan, identify required resources, set target dates Provide information and training to key resources involved with solution Continued Monitoring & Optimization Monitor and refine program goals Benchmark against the original business case on a periodic basis 21

Payment Strategy Implications Depending on your company s goals and supplier strategy, Citi s Virtual Card payment can be leveraged to use in a variety of fashions. Process Efficiencies Working Capital Rebate Realization Convert Your Checks to Card Benefits for the Buyer Benefits for Suppliers Generate Revenue Reduce costs by converting expensive check process with card payments Use card float to gain additional working capital Maintain DPO while offering suppliers early payment Get paid for making card based payments payments Allow term extension terms without damaging relationships Implications on Payment Strategy Payment Strategy: Campaign Approach Buyer DPO Benefits Transaction Cost Benefits Offer Current Terms Card Benefit New DPO DPO Effect Transaction Savings Payment Method Targets Rebate Potential Payment Digitisation Default VCA 30 30 60 Medium Check Med Payment Term Extension Early Payment VCA 60* 0 30 - High Check, EFT High Expedite Payments Early Payment VCA 30 0 35 - High Check, EFT High 22

Citi Supplier Enablement Services: Proven Success To date, Citi has enrolled more than 40% of targeted suppliers which has resulted in converting over 30% of spend across both check and electronic payments to a B2B Cards solution Traditional Target Zone Check Annual Volume Spend Adoption Merchant Adoption <$500K 37% 40% <$1MM 35% 39% <$2MM 28% 39% Total 28% 39% <$5MM 24% 38% $5MM+ 14% 13% Adoption by Payment Method Traditional Target Zone ACH Annual Volume Spend Adoption Merchant Adoption <$500K 38% 51% <$1MM 33% 49% <$2MM 27% 47% Total 27% 47% <$5MM 22% 46% $5MM+ 11% 8% Success By Incentive $136K $82K 16% 16% $155K 33% $178K 23% $227K 29% $209K 20% Incentives offered have a material impact on card conversion rates Spend adoption impacted by proposed cash flow benefit The stronger the incentive the more successful a campaign will be in enrolling higher spend merchants 0 10 20 43 60 65 Cash Flow Benefit to Supplier (No. of Days) Avg. Annual Spend Enrolled % Suppliers Enrolled 23

Implementation Support Model A dedicated and experienced Citi implementation team works closely with our clients corresponding team to ensure program requirements are met. Implementation Manager Project Manager Central Point of Contact for coordinating implementations One-stop contact for best practices and client questions Project Management Documentation Citi s Experience with Complex Implementations Experience working with various ERP systems Clients represent some of the most complex card implementations in the industry Citi brings a track record of integrating at every level of requirement for its implementation services based on best practices in project management Technical Specialists Supplier Enablement Manager Technical Expertise Specialists providing deep expertise on system integration, file delivery, data and reporting needs Manage supplier enablement activities end-to-end Report campaign success and opportunities for expansion ERP Integration Support Additional Support on ERP integration Support in development of VCA files Custom ERP coding and reporting Expertise in SA, Oracle and Microsoft ERP systems Consulting service offered on an ad-hoc, as needed basis Acceleration of Virtual Card implement 24

Sample Implementation Timeline Citi will customize a project plan tailored to each client s specific needs Task Month 1 Month 2 Month 3 Month 4 Month 5 Product kickoff Complete all documentation Supplier enrollment campaign Open accounts Client setup Validation, testing Client training Production ready/go Live 25

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