Special announcement regarding 2022 PPJV Pricing Model Announcement
One of the key tenets of the Prairie Payments Initiative (PPI) is to provide benefits to the Prairie credit unions by optimizing payments infrastructure, leveraging economies of scale and improving cost efficiency through the aggregation of volumes. Over the past several months, the PPJV Leadership Team has been focused on creating a pricing strategy that reflects this commitment and the realities of the program. As a result of increased program costs and delays in the migration of payment volumes, the PPJV explored opportunities to reduce program costs and ultimately the per transaction fees, which included a possible extension to the IBM contract.
After a comprehensive analysis and review, the board has approved a tiered pricing approach and is pleased to announce that the 2022 pricing has been finalized. The tiered pricing model, using a Fill-a-Tier approach, delivers attractive and competitive market pricing, that is equitable to all credit unions. In this model, credit unions pay the same price for the same number of transactions, with transactions at higher volume thresholds being assessed a different fee. Additionally, the 2022 pricing has been broken into two options, one aligns with the existing credit union Master Participation Agreement (MPA) and the second option provides a lower per transaction fee with a longer contractual commitment reflected as follows:
- Current Credit Union MPA (2027 expiry): average of 23.5¢ per transaction for 2022
- MPA Extension (2030 expiry): average of 19.9¢ per transaction for 2022
The pricing model is simple and transparent to ensure payment processing costs are understood and can be budgeted for in a straightforward manner. Each of the five transaction types will have a single, all-inclusive payment transaction fee which includes all ancillary services and administrative charges (including clearing and settlement) currently seen in the CUPS/CUCM price schedules. The above pricing is not inclusive of any integration or connectivity costs to the PaaS platform or any 3rd party fees that may be applicable to specific payment types, including Wires, Cheques, e-Transfer and Bill Payments.
This update covers the pricing model and 2022 fees and provides information on the extension of the IBM contract and the resulting influence on pricing.
1. Pricing Model and 2022 Fees
PPJV “Fill-A-Tier” Pricing Approach
The tiered pricing model, Fill-A-Tier, delivers attractive and competitive market pricing equitable to all credit unions. By offering a stepped approach, credit unions will pay the same price for the same number of transactions, with transactions at higher volume thresholds being assessed a different fee. There are three tiers:
- Tier 3: All credit unions transactions below the 1st threshold (2.2 million transactions) pay the Tier 3 price
- Tier 2: Credit union transactions above the 1st threshold but below the 2nd threshold (between 2.2 million and 10.2 million transactions) will be charged at the Tier 2 price
- Tier 1: Any transactions that are above the 2nd threshold (over 10.2 million transactions) will be charged at the Tier 1 price.
In addition to tiered pricing, one of the core elements in the PPJV business case is that the PPJV will ensure all development and ongoing operational costs are covered over the life of the platform on a user-pay basis, or in other words, to break-even. This approach for translating the development and ongoing costs into a per transaction cost, also provides credit unions access to a fully modernized payments platform without an initial upfront capital investment. Pricing will be reviewed annually and fees for each year will be communicated in advance to all credit unions.
2. IBM Contract Extension Brings Benefits to Credit Unions
To reduce the impacts of changing program scope, delayed onboarding and increased pricing, the potential to extend our contract with IBM and the merits of renegotiating it were evaluated. We are pleased to announce a 3-year extension to our current agreement with IBM, which includes the following benefits:
- Offers lower per transaction pricing for credit unions through an MPA extension: Understanding current MPAs that credit unions have signed expire in 2027, this extension with IBM does not require credit unions to extend their contract. However, different pricing options are now available based on the different contract lengths credit unions choose to commit to with PPJV. All pricing is based on PPJV breaking even over the period of the agreement with IBM.
- No additional investments or upgrades to the platform required for 6 primary payment types: With the contract extension, the platform we are investing in will be fully modernized and able to support current needs as well as future payment processing, including real time payments. There will also be no additional hardware or system development costs to maintain the functionality of the platform.
- Investment timeframe extension: PPJV will be able to spread the initial platform development investment over a longer timeframe allowing for more cost control and reduced per transaction fees.
- Continues the Partnership with IBM: As a partner, this extension shows their belief in the platform and payments modernization and commitment to PPJV’s and the credit union system’s success.
3. Signed MPAs and Contract Extensions – Credit Union Options
Understanding that credit unions have signed MPAs that expire August 30, 2027, the IBM contract extension allows the PPJV to offer lower per transaction costs over the longer contract period. To maintain break-even, different pricing options are being offered to credit unions depending on the length of their commitment to PPJV with a contract expiry of 2027 (current MPA) or 2030 (extended MPA).
If credit unions wish to access these lower transaction costs, an extension can be signed, extending the term of the credit union MPA to expire on August 30th, 2030. As reference, the P8 credit unions have signaled commitment to signing a MPA extension. Communication will be shared with all credit unions in the near future to outline the approach to complete an MPA extension.
4. 2022 Fee Schedule
As noted above, the per transaction pricing for 2022 has been established and credit unions have a choice of two different pricing levels, dependent on the MPA commitment length, as follows.
However, as noted, these per transaction fees are not inclusive of any applicable 3rd party fees, which are pass through fees and are applicable to Wires (domestic and international), Cheques, Interac e-Transfer® and Bill Payments. The known 3rd party fees that are applicable and will be added to the PPJV per transaction fee include the following:
- Interac e-Transfer® fee: $0.0437 per transaction
- Domestic: $3.8183 per domestic wire
- International: $6.4609 per international wire
As the final solutions for Cheque Processing/Remote Deposit Capture and Bill Payment Processing are confirmed, any 3rd party pass through fees for these solutions are yet to be confirmed. As soon as updates are available they will be shared.
The full 2022 fee schedule will be published in late September/early October, which will include the specific fees for each payment type and any applicable 3rd party pass through fees. Any applicable taxes for any of the services will be added as appropriate as part of the billing process.
In addition to the contract extension with IBM, what other opportunities to lower transaction pricing did PPJV explore?
The opportunities to lower transaction pricing that the PPJV is exploring or has undertaken include:
- Adding non-prairie credit union transaction volumes through ongoing business development activities
- Discussions continue with credit unions and partners outside of the prairie credit union system
- Lowering operating costs
- Extensive efforts have been undertaken to explore operating costs to ensure the program and ongoing operations are efficient and cost mitigation is pursued where possible. These efforts will continue over the course of the program.
What impact does the IBM contract extension have on credit unions who have signed an MPA with a 2027 expiry?
Understanding current MPAs that credit unions have signed expire in 2027, this extension with IBM does not require credit unions to extend their contract. However, different pricing options are now available based on the different contract lengths credit unions choose to commit to with PPJV.
Those wishing to maintain their current agreement with PPJV, will see higher per transaction fees as the program operates on a break-even basis and costs need to be recovered over the period of the commitments, either a 2027 or 2030 expiry.
Since the extension allows a longer time frame to amortize development, those credit unions wishing to extend their contract to expire in 2030 will be able to access lower per transaction fees.
What can a credit union do to help lower pricing?
One of the biggest opportunities to manage costs is to support your timely transition onto the new payment types as the onboarding opportunities are identified for your credit union. Specific onboarding approaches will be clarified for each payment type based on the program roadmap shared in May with credit unions. Through the Bi-Weekly Broadcasts and Credit Union Engagement Forums, credit unions will receive updates on the program and specific workstreams, including onboarding timing and business readiness information.
Why has the pricing changed from what was originally contemplated in the business case?
Since the completion of the original business case, a number of challenges were encountered, including scope changes and delays to transitioning and launching the modernized payments platform. Changes have also been introduced to support implementation and credit union onboarding. These changes have resulted in higher than expected costs while revenues have not been realized as early as anticipated. In addition to this, delayed onboarding of payments has resulted in postponing the wind-down of legacy systems while the new platform ramps up.
Do the transaction costs include my integration costs to the PPJV platform?
The per transaction fees for payment transactions do not include connectivity/integration for digital or core banking platforms to the platform. Some providers have included these costs for the initial connectivity into their platform costs, however, each credit union will need to work with their digital banking provider (e.g. Xpress, Forge) and core banking provider to determine the costs related to integrating to the platform. Work is underway to develop a single integration layer for all credit unions to leverage allowing for easier and faster onboarding to the platform in addition to a number of other benefits. Additional details on this Integration Layer will be shared in the near future.
How are the program costs funded? Is the program within budget?
The three prairie Centrals, as joint venture participants, are funding the program on behalf of the credit unions. During this phase of the build, the Centrals are financing the costs of the project and the goal is to transition our payment volumes as quickly as we can so that we can start winding down the legacy operations and, as transaction costs are brought in, cover the upfront investment and operating costs going forward.
As mentioned, the project has seen increases in scope and delays in launching some key payment workstreams as shared in the re-baselined program roadmap and as part of this re-baselining reassessment of costs and pricing. As PPJV operates on a cost-recovery model, the pricing presented to credit unions represents these changes to the project timeline and costs.
How do we mitigate the risk of future price increases?
PPJV is aware how important it is to provide competitive payment pricing and to have certainty around the pricing, especially as our credit union partners enter planning and budgeting cycles. One of the biggest opportunities to manage cost risk is to transition off the old platform, wind down the existing platforms and the costs associated with them. The PPJV board is working to ensure there is enhanced oversight and rigour inside the program including reviews by Deloitte. Additionally, PPJV continues to engage with non-prairie credit union and financial services organizations who are interested in partnering with PPJV and bringing their volumes to PPJV to reduce ongoing transaction costs.
How is pricing set moving forward?
Pricing is reviewed and set annually to ensure PPJV continues to operate on a cost-recovery basis. There may be some adjustments related to things like Consumer Price Index (CPI)/inflation, however we hope there will be downward adjustments as more volume is brought onto the platform and operating costs are reduced. The focus is on the prairie credit unions and their partners through this process to ensure proper controls around pricing required so that when rolled out it is fair, equitable and competitive.
What will be the impact of these fees on my credit union?
Credit unions will need to assess the impact of the PPJV fees on their individual credit union based on their current payment processing arrangement (e.g. CUPS, CUCM). It’s hard to compare current fees with future fees on the modernized platform. Current fees do not include the costs of payments modernization that all financial services organizations are undertaking.
If somebody is trying to think about a pricing model that they might have been offered or are hearing about elsewhere, what is your direction for credit unions as they are trying to figure that out?
Ultimately, it’s the decision of the credit union to sign the MPA. We hope there will be alignment across the prairies given the fact that credit unions own and control PPJV, but if you are receiving offers or calls from other payment providers, it is incumbent upon you to do the due diligence required to make the right decision for your credit union.
This includes doing an apples-to-apples comparison; looking at integration costs and settlement costs. The settlement processing element is very complex and any changes to your existing arrangements should be considered carefully. We encourage you to reach out to your Central or PPJV to ensure you have the information you need to help inform your decision. Further, when looking at the pricing model, the approach pursued by PPJV is an all-inclusive model that includes:
- All settlement and clearing fees
- Access to a modernized payments infrastructure, including real-time payments in infrastructure build
- All clearing and settlement fees (no changes to existing statutory deposits/collateral requirements)
- Potential for reduction of transaction fees for prairie credit unions through additional volumes added to PaaS and synergy credits
Credit unions must also ensure the platform functionality includes future payment capabilities, accounts for clearing and settlement and the model provides you influence and involvement in the program. Some of the key considerations that should be assessed are captured here.
Is the per transaction fee inclusive of all charges for each payment type?
The all-inclusive payment strategy includes all ancillary services and administrative charges (including settlement and clearing). Third-party fees, where applicable, are added to the per transaction fee and are a direct pass through (e.g. Wires, e-Transfer, Bill Payment). This per transaction fee does not include integration/connectivity to the IPCC platform.
Is this schedule of fees on a calendar year? I.e. are these new fees effective Jan 1, 2022?
All fees are effective January 1st of each calendar year. The fees for upcoming years will be communicated as early as possible, to ensure credit unions can effectively include any fee updates in their planning activities.
Is the pricing presented competitive? Will the platform and pricing encourage additional partners to join?
PPJV is the first credit union payments organization to modernize our payments platform in the credit union system and modernization of legacy and outdated platforms are investments in our future. PPJV is providing prairie credit unions with a modernized payments platform that enables the prairie credit unions to be competitive in the payment space, but this complex undertaking requires substantial investment. While the PPJV business case suggested modernization could be accomplished at a lower overall cost, the work has shown that the build is technically more complicated than originally believed.
Additionally, the simplified, tiered, pricing strategy provides a competitive and simplified approach which will entice other credit unions and financial services organizations with large volumes to join, ultimately lowering ongoing per transactions fees for
all participating credit unions.
How is this “break-even” pricing?
PPJV pricing is built around a cost-recovery model which will ensure that PPJV recovers all development and operating costs during the course of the program (through Aug. 31, 2030). There are additional opportunities during the term of agreement where pricing may be reduced as a result of additional volumes brought onto the platform, efficiencies in operations and synergy credits from IBM.
Do all credit unions have the same MPA and same pricing schedule, regardless of location or size?
All prairie credit unions, including the P8, received and have executed the exact same MPA package and Service Schedule.
To download a PDF copy of the 2022 PPJV Pricing Model Announcement please click here.