Michigan Community College Business Officers Association Turning AP

Michigan Community College Business Officers Association Turning A/P From a Cost to a Profit Center November 08, 2012 Presented by:

Agenda I. Payment Industry Trends II. Card Program Fundamentals III. Primary Value Proposition IV. Payment Optimization Strategies V. Industry Best Practice Highlights VI. PNC Card Services Overview VII. Questions 2

Payment Industry Trends 3

Payment Industry Trends Migration From Checks to Electronic Payments *Pay. Stream Advisors: Value of Purchasing Cards 2012 4

Payment Industry Trends North American Purchasing Card Spending ($B) PROJECTED *2012 RPMG Purchasing Card Survey 5

Payment Industry Trends Purchasing Behavior and Performance (2012 RPMG) § On average, 52% of transactions under $2, 500 were paid with a purchasing card § On average, 31% of transactions between $2, 500 and $10, 000 were paid with a purchasing card § Average organizational purchasing card spend is expected to increase over the 2011 base year by 8% in 2012, by 26% by 2014 and by 48% by 2016 § The most common use of purchasing cards is for office supplies, MRO, computer hardware and software and peripherals § Electronic Accounts Payable (EAP) spend grew by 67% in the two year period from 20092011 – increasing use of cards as an alternate means of supplier payment! 6

Card Program Fundamentals 7

Card Program Fundamentals Deployment Across the Procure to Pay Cycle Organizations capturing the greatest percentages of transactions and spend have multiple card programs Non-Distributed Cards Card Building Blocks Distributed Cards Employee Purchasing cards § For smaller dollar decentralized purchasing § Reduces time for receipt and payment of goods § A lot of value for both buyer and vendors Employee Travel cards § For travel & entertainment expenses § Preferred method of payment for these vendors § Improves financial controls (SOX compliance) § For one time payment vendors § XML capabilities through Web Services § Improves payment cycle time Single Use Card Accounts § For preferred (contract) vendor ordering § Facilitates online ordering and payment § A lot of value for both buyer and vendors Ghosted Purchasing cards § Payments requiring backend approval § Enables card settlement on PO’s § Automated solution for both push & pull approaches Electronic AP cards 8

Card Program Fundamentals Deployment Across the Procure to Pay Cycle Distributed Cards Ghost Cards Electronic AP Cards Account Issuance Physical cards held by employees 16 digit account # housed by vendor 16 digit account # Spending Limit Monthly discretionary maximum $0 – incremented by approved amounts only Other Controls MCC, transaction size, frequency Card Presentment Point of Purchase Charged upon Fulfillment/Service Delivery Upon receipt, approval and payment decisioning – push and pull options Transactions Served Non P. O. indirect spend, travel & entertainment Selected centralized vendor relationships – air travel, overnight courier, supplies, temp’s Strategic spend requiring continued procurement, receiving and approval processes Mixture of default mapping, cardholder reconciliation and export Centralized reconciliation assisted with cost center or department ID passed with transaction record Existing approval and accrual process unchanged – payable relieved when approved and file sent to PNC Accounting 9

Card Program Fundamentals Risk Mitigation/Compliance Considerations Traditional Point of Sale Controls § Merchant category controls (MCC) § Per transaction spend limits § Daily, monthly, & annual spend limits § Velocity limits Management Visibility into Spend § Real time visibility into recent authorizations § Next day visibility into processed transactions § Reporting of potential exception activities Fraud Monitoring § PNC provides proactive fraud monitoring 24 x 7 through the analysis of suspect spending patterns § Utilizing an intelligent neural network that risk-rates the probability of fraudulent transactions based on a card’s past spending history and PNC determined fraud criteria queues Liability Waiver Coverage § Provides insurance coverage addressing cardholder misuse up to $100, 000 § Covers posted transactions surrounding notification of termination § Covers 75 prior to, and 15 days from, notification of termination 10

Card Program Fundamentals Electronic AP Card Solutions - Overview § Assists clients with the conversion of their accounts payable payments from check to electronic card payments § Payor-initiated solution which allows clients to produce a “card run” from their Accounts Payable System … with subsequent settlement execution through the card payment network § Systemic funding of vendor for approved payments § Combined with delivery of electronic remittance information § Variety of Supplier settlement solutions § Opportunity to penetrate more strategic spend 11

Active. Pay for Accounts Payable Card-based Payment Mechanism Push Settlement § Current Process Remains the Same § Invoice § Funds directed to suppliers established merchant service account Electronic remittance advice directed to supplier Supplier funded in 24 - 48 hours Pull - Single Use Settlement § Active. Pay Sourcing Receiving Voucher Payment Decision § § Approved funds added to single use card account E-mail directed to supplier Supplier will obtain single use card account number, expiration date, CVV Supplier funded in 24 -48 hours Company manages approved payments which remain outstanding AP Card Benefits § Retention of current sourcing, approval, and payment decisioning § Significant increase of card penetration into overall spend…resulting interchange revenue sharing potential Pull – Dedicated Settlement § § Natural extension in payment terms § § Elimination of check-based execution costs: postage, banking fees, etc. § 12 Approved funds added to dedicated supplier card account Electronic remittance advice directed to supplier Supplier processes along with other card transactions Supplier funded in 24 – 48 hours Company manages approved payments which remain outstanding

Card Program Fundamentals Electronic AP Card Solutions – Key Control Considerations § Current sourcing, approval and AP processing activities are unaffected § Accounts are only funded for amounts approved and authorized § No card account details are housed within Accounts Payable environment or are transmitted to PNC § Automated transmission of payment authorization file to PNC § No physical card issuance § PNC solutions fully PCI-DSS compliant – protecting payment details § Fraud monitoring and reporting § PNC has experienced $0 fraud across our epayables programs sinception in 2004 13

Value Proposition Efficiency, Revenue Share, Float, and Other Technology Benefits 14

Value Proposition Benefits of Card Programs Convenience ranks as the number one benefit of p-card programs, followed by the receipt of rebates *2012 Pay. Stream Advisors 15

Efficiency Traditional Procure to Pay Model Characteristics § Integration and confirmation of receiving function prior to payment decisioning § Forces approval and compliance of company business rules prior to payment § Complete vendor file – timeliness and accessibility to this vendor data varies by system (more problematic in older legacy deployments) § Complex requisition rules/interface can promote maverick spending with associated exception request for disbursement workflow – degrading A/P processing efficiencies § Expense and complexity of maintaining vendor file – particularly for one-time vendors or other small dollar items § Generally characterized by a relative high cost to process 16

Efficiency Charge Coding Card Transactions GL Coding and Transaction Splitting Enhanced Data, Level I, II, & III Approval Rules and History § Review, validate and enhance transaction details § Custom Charge Coding access, transaction splitting, complex tax estimation § Receipt integration § Reviewed transactions will be automatically available for Approval or Extract 17

Interchange Revenue Sharing § Accepting merchants are assessed interchange fees for access to the card processing network (Visa, MC, AMEX, etc. ) § PNC, as a Card Issuer receives a portion of the interchange and can share a portion of the interchange they receive § Rebates paid on qualified spend – use of tiers to determine appropriate rebate (top tier applied to all spend) § PNC can either rebates or reward models through Visa Extras § Financial proposal impacted by billing cycle length, payment terms, number/size of expected transactions 18

Payment Float Working Capital and Payment Float Impacts – Electronic AP Cards Billing Cycle: Your company is able to choose any date between the 4 th and the 25 th of the month, or the 27 th of the month, for the end of its billing cycle. PNC Bank’s standard billing cycle period is 30 calendar days. Date 6/7 6/10 6/13 6/16 6/19 6/22 6/25 6/28 7/1 7/4 7/7 7/10 7/13 7/16 Days 0 3 6 12 15 18 24 27 30 33 36 39 9 Vendor Purchase Traditional Check. Based Settlement Card-Based Settlement 21 Vendor Payment Terms n/30 Traditional Check Payment Terms: 7 Days Check to Vendor Check Payment to Vendor 7/19 7/22 42 45 7/28 7/31 8/3 8/6 48 51 54 57 60 Payments to vendors can be made on any day throughout the PNC Billing Cycle, we are assuming that on average, you company will pick up 15 days of Payment Float based on the 30 day PNC Billing Cycle. Additional payment float days can be gained based on 7 payment terms. ACH to PNC 22 Day Average Float Extension Payments made to Vendors throughout Billing Cycle PNC Billing Cycle Start Date PNC Billing Cycle End Date 19

Other Technology Benefits Intelli. Link Spend Management § Intellilink offers a suite of tools and services that includes everything from reporting… to expense management… straight through to data integration. § It is a comprehensive, data-rich solution that gives you unparalleled access to the information you need – whenever you need it. § Gain greater visibility into company spend – locally and globally. § Manage transactions, services and permissions quickly and easily. § Set up custom email alerts to signal key events and stay informed, including things like approvals, availability of reports or statements, and specific program thresholds. § Key features are always available with a minimal amount of clicks, and contextsensitive help provides immediate information relevant to whatever feature you’re currently using. 20

Other Technology Benefits Online Expense Management and Reporting Stre amli Codi ne Char Defa ng wit ge h ult M appi ng § Intelli. Link can be accessed via smart phone § Captured receipts can be uploaded in the following formats (GIF, TIF, JPG, JPEG, PDF, XLS or XLSX file) 21 Advanced Expense Management Features: § Custom Approval Flows – Parallel – MCC Based – Transaction $ § Out of Pocket Transactions – Mileage – Custom Rate Tables – Cash Payment Extracts § Delinquency Management § Complex Tax Estimation § Complex Policy Integration – If/Then – Policy Reminders – Mandatory Rules – Question Based – Violation Monitoring § Receipt Management – Scanning

Other Technology Benefits Interactive Program Reporting/Business Intelligence § User Friendly Interface § Wide array of interactive report templates § Customizable report parameters – user defined filters and output formats § Multiple report formats – including Excel and PDF § One-click statements § Schedule reports for delivery directly to your homepage § On-Demand Access § Role and Hierarchy based access § Robust Reporting enables Strong Program Management – Expenditure Analysis • Know what, where, and how your cardholders are spending – Company Administration • Stay on top of month end reconciliation and approvals – Usage and Monitoring • Identify and correct out-of-compliance spending 22

Payment Optimization Strategies 23

Payment Optimization Strategies Understanding Payment Economics *Revenue Share based on rebate of 100 bps. Float based on 3% Cost of Capital. 24

Payment Optimization Strategies Creating an Optimal Payment Mix While it is not feasible to pay all suppliers with card, by deploying a payment protocol model of card first, ACH second, and check last, Company’s can migrate toward an optimum payment mix. Misc. Expense, Local Procurement and Individual Travel Centralized/Recurring Expenses (Temp Help, Office Suppliers, Courier, Large Ticket Travel) Smaller Dollar – Recurring & Non-Recurring Vendor Ghost Card – E-Commerce with Card Based Settlement, ACH and Check Remaining Direct & Indirect Spend Capital Markets, Fiduciary, Tax, Cap Ex Distributed – P-Card & T&E Card Based Settlement, ACH and Check Wire Transfer, ACH and Check 25

Payment Optimization Strategies Creating an Optimal Payment Mix – Vendor Identification/Engagement PNC Vendor Analysis § Analysis of vendor base to determine which vendors are likely to take cards § Focus on suppliers accepting currently card payments Vendor Engagement § Communication with potential suppliers § Length and scope of calling campaign § Procedural, scripted discussion § Do not negotiate alternate terms Other § Modify future bid language to reserve right to pay via card § Optional merchant service enablement 26

Industry Best Practice Highlights 27

Card Usage Best Practices Measured Performance and Improvement Strategy Best In Class Average Laggards § § § 22% of spend captured through card 29% of vendors paid via card 28% of transactions via card § § § 11% of spend captured through card 19% of vendors paid via card 14% of transactions via card § § § 6% of spend captured through card 11% of vendors paid via card 8% of transactions via card Best in Class reflects top 20% of respondents, Average reflects middle 50% and laggards reflect bottom 30% of respondents Aberdeen P-Card Benchmark Report 28 § Designate dedicated p-card administrator and empower the position § Energize program with development of new policy and limit channels to by-pass card usage § Educate internal stakeholders and suppliers through formal expansion program § Seek greater transaction detail § Involve p-card administrators in strategic sourcing initiatives § Integrate p-cards with primary transaction systems – value of electronic AP cards

Card Usage Best Practices High Performing Program Commonalities Distribution and Access § Distribute on average twice as many cards than low performance programs § Allow departments or business units to decide on how many cards should be distributed § Less likely to restrict card use to only supervisors, managers, or purchasing personnel Control § Have per transaction limits that are, on average, twice as high than low performance programs § Customize monthly card spend limits depending upon individual spending responsibility or position § Have a wider “allowable span of spend” for any given category of goods or services Sourcing RPMG P-Card Benchmark Survey Report § Conduct data mining of card transactions to ensure policy compliance § Restrict some or all of their card activity to “preferred vendors” § Use card spending data as basis to request higher discounts from vendors 29

Card Usage Best Practices High Performing Program Commonalities Other RPMG P-Card Benchmark Survey Report § Have a higher level of top management support than low performance programs § Twice as likely than low performance programs to require purchasing department to refuse to process requisitions that could be bought on card § Increase use of ‘ghost” or “other” card accounts § Allow automatic debits (charges) to card for recurring payments § Have an ongoing method of communicating card information to cardholders and managers § Evaluate spending patterns of cardholders with high number of disputed transactions and deactivate unused cards § Formally audit and review card spending approval § Reduce number of vendors in AP master file because of card use 30

Industry Best Practice Highlights Controls to Prevent Misuse Defining card spending limits is the number one mechanism companies implement to prevent card misuse *2012 Pay. Stream Advisors 31

Industry Best Practice Highlights Steps to Increase use of P-Cards Companies are looking to provide more and better internal education to increase p-card usage among employees *2012 Pay. Stream Advisors 32

PNC Card Services Overview 33

PNC Card Services – Overview PNC Market Presence PNC Experience § Strategic, growth business § 7 th largest Commercial Card provider § 3, 800 + customer programs - covering procurement, travel and combined card uses § Continued investment in operations staffing and capabilities § Pioneer in Commercial Card market § One of the fastest growing issuers in the country, sinception in 1995 § Double-digit, YOY growth through distributed card and leading-edge payables solutions § Annual spend in 2011 over $6. 9 B PNC’s Integration and Support PNC’s Multinational Capabilities § Experienced, dedicated team support from implementation through the life of program § Every client relationship is viewed as a partnership § PNC has proven experience in interfacing with all major ERP systems including SAP, Oracle and People. Soft § Commercial cards available in 34 countries § Multiple currencies supported including CAD, GBP, and Euro § Support available in 15 languages § Integrated Transaction Management and Reporting 34