Innovations in Financial Services and Asset Building

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Innovations in Financial Services and Asset
Building

• Asset Funders Network Webinar
• Jennifer Tescher, Director
• December 11, 2008

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Underbanked Market Size
Market snapshot
Approximately 40 million U.S. households 106
million people are financially underserved
Underbanked HH as a of U.S.
Total un- and underbanked 40 million 36
Source CFSI Underbanked Consumer Study, 2008
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Underbanked Credit Scores
Underbanked ? Subprime

• Credit scores were appended for 79 of survey
  respondents
• 25 had a prime credit score
• 42 had thin or no credit file
• These consumers cannot be scored
• 33 were considered subprime

Source CFSI Underbanked Consumer Study, 2008
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Why Do Financial Services Matter?

• Basic financial services are a critical step on
  the path to asset building and financial
  opportunity.
• Consumers are more likely to save and own assets
  if they have access to and participate in
  account-based financial products and services.
• A bank account is a significant factor in
  predicting whether individuals own certificates
  of deposit, car loans and mortgages.
• Low-income households with bank accounts were 43
  percent more likely to own other financial assets
  than households without bank accounts.
• Yet basic financial products are often designed,
  marketed and delivered in ways that fail to meet
  the needs of underbanked consumers.
• When consumers short-term financial needs arent
  well met, their ability to save, access credit
  and build assets in the long run is compromised.

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Industry Evolution Presents Opportunities
Challenges
Environmental Factors
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Closing the Supply Gap
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Products Pathways
Increasing emergency loan options for
lower-income consumers

• Mountain Association for Community Economic
  Development (MACED) has developed an
  employer-based alternative payday loan product
  for residents of Kentucky and Central Appalachia
• Save It! Loan features include
• Loan amounts range from 300-500 depending on
  income
• Funds disbursed directly into checking account or
  on a prepaid card
• 10-month term 18 APR
• Appalachian Federal Credit Union is the lender
• Savings component that results in an additional
  50 percent of the amount borrowed going into a
  savings account at the credit union with an
  optional employer match
• Employer coordinators assist with online
  applications and provide financial education
  information

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Marketing Distribution
Leveraging proximity and trust to turn nonprofits
into distributors of financial products and
services

• Center for Community Change is distributing
  general purpose reloadable prepaid cards through
  its network of worker
• Centers market and sell cards, provide customer
  service and education
• Revenue-sharing arrangement provides additional
  incentive centers collect membership dues from
  card
• Total market potential 3 million
• Fees 5 to open, free with payroll 2.50/mo
  1.00 cash load at worker center
• Free Bill Pay with Credit Builder
• Still exploring card to cash remittances, text
  message interactivity, check loading
• Pilot I (2005-06)nearly 1,000 cards distributed
  across 6 worker centers
• Pilot II (2008)just launched, actively selling
  cards and looking for other interested nonprofits
  to join collaborative

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Risk Management
Helping consumers build credit histories to
improve access to mainstream financial services

• Founded in 2006, Credit Builders Alliance is
  helping low and moderate income individuals
  currently served by non-traditional financial and
  asset building institutions build their credit
  and access conventional financing in order to
  grow their businesses and/or personal assets
• CBA accomplishes its mission through
• CBA Reporterallows community lenders to report
  lending portfolios to major credit bureaus
  (currently Experian and TransUnion)
• Credit education and awareness raising activities
  like the Credit Builders Toolkit
• To date, more than 40 organizations are using CBA
  Reporter to transmit 5,000 tradelines.

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Obstacles to Innovation

• Despite significant innovation, challenges
  remain.
• Understanding the consumer
• Making the business case
• Reaching the consumer
• Finding and managing partners
• Managing regulatory uncertainty

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Recommendations for Funders

• Foundations have an important role to play in
  helping to shift the financial services market to
  provide the kinds of financial products and
  services that lead to longer-term opportunity.
• Invest in research and evaluation.
• Support nonprofit innovation and pilot testing.
• Leverage foundation strengths to incent change.
• Develop strong leaders.
• Promote synergies between financial services and
  other programming

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• Jennifer Tescher, Director
• 312.881.5818
• jtescher_at_cfsinnovation.com
• The Center for Financial Services Innovation
• An Affiliate of ShoreBank Corporation
• 2230 S. Michigan Ave., Suite 200
• Chicago, IL 60616
• www.cfsinnovation.com