© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.. North American Treasury The U.S....

© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC..

North American Treasury The U.S. – Canada connectionNick Orchard

Vice President, Wells Fargo Global Product Management

TEXPO, 4 April 2011

© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. 22

Agenda

Trade and economics

Geography

Canadian banking landscape

Regulatory environment

Clearing systems

Payables and receivables

What does the future hold?


Trade and economics


Trade and economics

Trade with Canada supports over 8 million U.S. jobs* U.S. and Canada are world’s largest trade partners - $596bn

Accounts for 4.4% of total U.S. employment; 1 in 23 U.S. jobs

Canada is one of the few developed countries that is a net exporter of energy* U.S. imports 2X as much oil from Canada as from Saudi Arabia

U.S. is largest market for Canada agriculture produce*

Less than 1% of U.S. companies export – significantly lower than all other developed countries** 58% export to only one country

*Government of Canada

**U.S. Commerce Department


Trade and economics

Canada leads all G7 countries in ease of doing business

2009 World Competitiveness Yearbook

Canada forecasted to be the #1 place to do business in the G7 for the next five years

Economic Intelligence Unit

Canada ranks in the top 3 for investment and trade opportunities

World Trade Magazine


Trade and economics

Canada U.S.

GrowthRelatively strong economic growth; managed to avoid worst effects of global recession

Uneven economic recovery; trends are increasingly positive, but some sectors continue to struggle

Interest ratesRates moving higher; three 25bp increases in 2010

Low interest rates expected to continue

JobsStrong job creation; employment back to pre-recession levels

Unemployment remains high; recovery is sporadic

HousingLittle impact from recession; strong sales activity and price stability; banks very conservative

Construction of new homes and sales of existing homes still depressed

IncomeHousehold debt to disposable income ratio close to all-time high; low savings rates

Income growth remains slow; spending recovering; high household debt

Federal debtFederal debt to GDP ratio is half of G7 average

Government debt is high and increasing as a consequence of stimulus


Geography


Geography

Canada is the world’s 2nd largest country Slightly more area than the U.S.

Only one tenth of the U.S. population

GDP running at around 10% of U.S.

80%+ of Canadians live within 100 miles of the U.S. border A similar proportion of those people lives in the main urban

areas of Montreal, Toronto, Calgary, Edmonton and Vancouver

Source: Government of Canada and U.S. Census Bureau

Canada U.S.

Area (sq. miles) 9,984,670 9,161,966

Population 33,487,000 (80% urban) 307,212,123 (82% urban)

Population growth 0.817% 0.975%

GDP (US$) $1.3 trillion $14.3 trillion



Highly efficient – same day clearing of paper and electronic payments

Progressive – world leader in ATMs, debit cards and internet banking

Electronic – 75% of payment transactions in Canada are processed electronically; dominated by debit cards, credit cards, and ACH (EFT)

Nationwide – operates across Canada in 6 time zones

Stable – one of world’s soundest banking systems

Scale – all major Canadian banks have 1,000+ branches


Canadian banking landscapeU.S. and Canada comparison

Canada U.S.

Over 150 deposit taking institutions; over $2 trillion in assets

Over 9,000 financial institutions; $12.6 trillion in assets

Top 5 banks control 80% of the assets Top 5 banks control 30% of the assets

Centrally regulated by OSFI; 12 direct clearers with direct exchange

Federal Reserve Board, OCC, the Office of Thrift Supervision, 50 state regulatory bodies

Highly regulated: strict privacy, KYC, AML Highly regulated: strict privacy, KYC, AML

Check volumes decreasing, 85% of retail transactions are electronic. World’s largest ATM and debit card users.

Consumers still issue significant volume of checks, but usage is now decreasing at faster rate than in Canada

Cross country network; no processing float Limited interstate banking; processing float

6 Clearing Centers. Consolidated check processing through 2 processors

Federal Reserve has single check clearing center

Clearing and settlement of checks and low-value payments occurs overnight

Specified intra-day clearing times

No national image exchange Check 21 image capture and exchange

Same day value for CAD deposited items Multiple days for clearing; generally 1–3 days



Canada U.S.

GovernanceBills of Exchange Act and Canadian Payments Association

Treasury Department; Federal, State and Case Law

Governance: electronic items

Canadian Payments Association NACHA

Central bank Bank of Canada Federal Reserve

Market supervision

Office of the Superintendent of Financial Institutions (OSFI)

Treasury Department; regulatory and supervisory areas of the Federal Reserve

Deposit insuranceCanadian Deposit Insurance Corporation (CDIC)

Federal Deposit Insurance Corporation (FDIC)

Anti-money laundering

Financial Intelligence Unit (FIU) and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)

Office of Foreign Assets Control (OFAC)


Anti-money laundering policy in Canada

Policy controlled and enforced by Canada’s FIU and FINTRAC

Account Opening – Formal identification required for: Account holder Corporate customers and directors Beneficial ownership of companies, and percentage thereof

Reporting – FINTRAC reporting required in respect of: Deposits of $10,000 or more in any 24 hour period (15 days) Suspicious activity reporting (30 days from initial detection) Customers making cross-border wire transfers, buying life

insurance or money orders over $3,000

Formal policies on transactions for non-clientsSource: FINTRAC – Financial Transactions Reports Analysis Centre of Canada


Clearing systems


Canadian clearing systems

Canadian clearing and settlement systems are operated by the Canadian Payments Association (CPA)

Automated Clearing Settlement System (ACSS) Low value payments (Checks, ACH (EFT))

Batch processing

Large Value Transfer System (LVTS) Collateralized Real-Time Gross Settlement System

Wire payments and interbank settlements

US Bulk Exchange Next day (ACH Style) settlement of USD items between

Canadian banks; positions settled via U.S. correspondents


Large Value Transfer System (LVTS)

RTGS introduced by CPA in February 1999

Facilitates the simultaneous transfer of irrevocable payments in Canadian dollars between participants 15 direct participants

Other CPA members connect via a direct participant

All payments are final and irrevocable

LVTS is a hybrid RTGS Combines real-time payment finality with lower collateral costs

of a netting system

End of day settlement on books of Bank of Canada


Automated Clearing Settlement System (ACSS) ACSS is the retail clearing system through which most

Canadian payments are cleared (by volume)

ACSS is a deferred net settlement system

Clears paper items (checks) and electronic items (EFT) Maximum dollar value limit on checks of $25 million

End of day batch process determines the net positions of the direct clearers The 11 direct clearers maintain settlement accounts at the

Bank of Canada

Posting to direct clearers’ customer accounts occurs overnight; value date given is the transaction date


Canadian clearing and settlement statistics 2010

LVTS ACSS

Value (Average $ per day) $149,000,000,000 $20,000,000,000

Value (%) 88% 12%

Transactions

(Average per day)

24,000 24,000,000

Transactions (%) 1% 99%

Transaction Value

(Average $)

$6,200,000 $825

Source: Canadian Payments Association


Payables and receivables


PayablesCanada U.S.

Controlled disbursementsNot available – overnight check clearing

Available

Wire payments Available Available

Checks$25 million limit;

No conversion to ACH

Unlimited $ value;

Check conversion to ARC

Positive pay Available Available

Payee match Emerging Available

ACH/EFT

Electronic Funds Transfer (EFT)

CAD and USD

Remittance information not exchanged

Automated Clearing House (ACH)

USD only

Remittance information available

Debit block Emerging (ACH) Available

Account balancingOvernight check clearing; no advance knowledge of clearing amounts

Available


Canadian check clearing process

Day 1:

Encashing Branch – Bank A Data Centre Bank A – (Symcor or Intria)

Day 1: Evening

Data Centre Bank A

Data Centre Bank B

Bank A receives value for the cleared item when it is delivered from the local Data Centre of Bank A to local Data Centre of Bank B

Day 2:

Data Centre Bank B

Drawee Branch Bank B

Bank B receives check and forwards to drawee bank branch

Overnight Processing (Toronto)

Vancouver

Date of Deposit


Receivables

Canada U.S.

Branch network Nationwide State or regional

Lockbox

Nationwide lockbox sites:

Vancouver, Calgary, Winnipeg, Toronto (primary), Montreal, Halifax

Accepts and processes Canadian and US dollar items

Mail is delivered to the lockbox once per business day; no weekend activity

Imaging available

Nationwide lockbox service available

Limited availability of foreign currency items

Mail is delivered throughout the day, including Saturday

Imaging available

Remote capture

Truncation and Electronic Cheque Presentment (TECP) initiative cancelled in 2008;

No remote capture available

Check 21; remote deposit solutions


Accounts, liquidity and fraud considerations Canada U.S.

Canadian dollar accounts Available Limited availability

U.S. Dollar accounts Available Available

Foreign currency accounts Available Limited availability

Overdrafts Permitted (as approved)

Debit interest charged

Not permitted

Overdraft fees apply

Credit interestCredit interest earned

Earnings credits not available

Credit Interest not available

Earnings credits

Cash concentrationNotional pooling

Zero balancing

Sweep accounts

Zero balancing

Electronic return time

Unauthorized B2B PAD with agreement: 10 days

Without agreement: 90 days

Unauthorized B2C PAD: 90 days

Unauthorized B2B PAD: 24hrs

Unauthorized B2C PAD: 60 days

Check return time

Altered item: 90 days

Counterfeit item: 24 hours

Forged endorsement: 6 years

Altered Item, counterfeit Items, forged endorsement: 24 hours*

* Note UCC varies from state-to-state so this timeline varies.


What does the future hold?


CPA payment strategy: Vision 2020

Vision 2020 is the CPA’s strategic plan for the development of the Canadian payments market

The plan anticipates that automation and increasing national and international regulations will shape market

Focus will be on five key areas Supporting electronic payments

Driving payments efficiencies

Modernizing the legal framework

Enhancing exchange, clearing and settlement technology

Expanding value-added services


Payment System Task Force

June 2010 – Canadian Minister of Finance announced launch of the Payments Systems Review Task Force

Mandate of task force is to review: The safety, soundness and efficiency of the payments system

Whether there is sufficient innovation in the payments system

The competitive landscape

Whether businesses and consumers are being well served by the payments system, and

Whether the current payments system oversight remains appropriate

Task force recommendations expected by end of 2011


Check imaging developments

Truncation and Electronic Cheque Presentment (TECP) initiative cancelled in 2008

TECP was intended to deliver an image-based nationwide clearing capability in Canada

Duration, complexity and continuing emergence of electronic payment options in Canada led to cancellation

TECP did deliver consistent cheque formats and standard image capabilities for customer reporting

No plans to resurrect the TECP initiative Banks are exploring bi-lateral agreements for exchange and are

continuing to introduce image enabled services

June 2010: images recognized as legal equivalent of cheques

Established legality of images supplied to customers with statements, online, etc.


Bill payments

Electronic bill payment is an 18-year old industry in Canada with extremely high adoption rate

Canada has no online, real-time, end-to-end process to support electronic bill payments

Government expressed concerns regarding the efficiency of the electronic bill payment system

Bill Payment Task Force created to focus on credit transfers (cleared through the CPAs systems) between two financial institutions resulting from a customer-initiated bill payment to a biller


Expectations for the future

Continuing migration away from cash and paper Check usage in Canada is very low compared to U.S.

Pace of check decline in U.S. is now faster than in Canada

Convergence of consumer and business payments B2B payment alternatives, T&E, purchasing cards

Online payments for businesses and consumers Online bill payments

Online tax payments

Increased e-presentment of bills

Real-time payments

Chip technology for cards

Mobile payments


Questions?

© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.. North American Treasury The U.S....

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Transcript of © 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.. North American Treasury The U.S....