REACHING MINORITY HOUSEHOLDS
WITH
PAYDAY PAYOFF INSTALLMENT LOANS
Filene Incubator
Call for Credit Union Testers
2016
MEET THE FILENE AND KINECTA FCU/NIX TEAMS
Andrew Downin
Managing Director, Innovation
Filene Research Institute
Corlinda Wooden
Project Manager
Filene Research Institute
Luis Peralta
President
Nix Neighborhood Lending
AVA I L A B L E
O N
F I L E N E . O R G THE RESEARCH
R E A C H I N G
M I N O R I T Y
H O U S E H O L D S T H E N E E D I S G R E AT R E A C H I N G
M I N O R I T Y
H O U S E H O L D S WE CAN LEARN FROM CREDIT UNIONS
R E A C H I N G
M I N O R I T Y
H O U S E H O L D S S U S TA I N A B I L I T Y I S P O S S I B L E T E S T I N G
T H E
S O L U T I O N S FIVE PRODUCTS SELECTED
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15 products and programs were submitted in late 2015
Five were selected with input from our Advisory Panel
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Data Mined Auto Loans
Community Microfinance
Non-Citizen Lending
Payday Payoff
QCash
Credit unions like yours will now be the proving ground for
these in-market products which have already had success at
the local level
Our goal is to understand desirability, feasibility, viability,
and potential for greater market impact
A C C E S S
T O
F I N A N C I A L
S E RV I C E S PAY D AY PAY O F F Alterna(veFinancial
Services
SavingsandCredit
Building
Unbanked
Underbanked
Underbanked
AFS
Transac(ons
NoCredit
AFSCredit
PoorCredit
MainstreamFinancial
Services
Banked
GoodCredit
N C U A
R E G U L AT I O N S PAY D AY PAY O F F Federally chartered
credit union
→  18% APR maximum
→  PALs exception: 28%
APR for loans up to
$1,000 (with multiple
restrictions)
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C U R R E N T
M A R K E T
O P P O RT U N I T Y PAY D AY PAY O F F Singlepayment
notaffordable
•  Lengthof
loanresults
incycleof
debt
Timingof
payments
•  Income
stabilityor
vola(lity
•  Expense
vola(lity
Customershave
mul(plepayday
loans
Nocreditprofile Lackofsmall
improvement
dollarcredit
alterna(ves
W H AT
A R E
T H E
I S S U E S
W I T H
PAY D AY ? PAY D AY PAY O F F Typical Payday
Loan in California
$225
30 day term
SmallDollarCredit
ProductGap
$225to$2,500
&
2to24monthterm
AutoTitleLoan
$2,510
24monthterm
PAY D AY
A LT E R N AT I V E
L O A N
( PA L )
T E S T
2 0 1 3 PAY D AY PAY O F F Loans$200to$1,000
CashOut
Payments
Monthly,fullyamor2zed
Term
3-6months
InterestRate
28%APR
Applica(onFee
$20
MinimumUW,mostlybasedonrela(onshipwithCU
PA L
T E S T
R E S U LT S PAY D AY PAY O F F → 
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Time consuming to educate the
members about the product
Offer acceptance rate: 44%
ACH payment was not offered, resulted
in servicing and collections calls higher
than expected
High delinquency and charge offs
Most didn’t realized credit building was
happening
Financial education not appealing
No margin, not sustainable
Posi2ve
90%
90%ofcustomers
brokethecycleofdebt
N E W
T E S T
2 0 1 4 :
PAY D AY
PAY O F F
L O A N PAY D AY PAY O F F 1
Could an installment term loan with affordable
payments break the cycle of debt, improve their
financial health and be profitable?
2
Can RiskViewTM score (alternative data scoring model)
and the new UW model help us control delinquency
and loan losses?
3
Can we have reliable and efficient acquisition,
origination and servicing processes to keep
operational costs low, enabling margin,
sustainability and scalability?
PAY D AY
PAY O F F
L O A N S
-
T E S T PAY D AY PAY O F F 1. 
2. 
3. 
Payoffmul(plepaydayloanswitheasy,affordablepayments
Buildorrepairtheircredit
Savehundredsofdollarsinfees
ExamplesofthelowcostofborrowingfromNix:
$200-$1,000
From3-6months
$1,001-$2,500
From18-24months
Ifyouborrow…
$500
$1,000
$1,500
$2,500
Bi-WeeklyAmountPaid
$40.35a
$80.70a
$34.44b
$57.39b
TotalInterestandFeesPaid
$74.43a
$98.91a
$340.30b
$534.01b
TotalPaid
$574.43a
$1,098.91a
$1,840.30b
$3,034.01b
Assump(ons:aAssuming13payments,includesapplica(onfeeof$49.95+18%APR(AnnualPercentageRate).
bAssuming52payments,includesapplica(onfeeof$49.95+18%APR(AnnualPercentageRate).
hbp://nixlending.com/en/personal-loans/detail/payday-payoff-loan
PAY D AY
C O N S O L I D AT I O N
L O A N S
–
L A U N C H E D
6 . 9 . 1 4 PAY D AY PAY O F F Oursimple3step
PersonalLoan
process
Filloutthequick
formonthewebsite
oratabranchto
findoutifyouare
eligible
Bringyour
paperworktoyour
localbranch,fillout
anapplica(onand
paythe$49.95
applica(onfee
hbp://nixlending.com/en/personal-loans/detail/payday-payoff-loan
Getyour
money
N E W
C O N S U M E R
U N D E RW R I T I N G PAY D AY PAY O F F Designedfollowing
CFSI’sCompassGuide
(Standardsofqualityforsmall-dollarcreditproducts)
Ensureabilitytorepay(PEW5%rule)
Evaluatealterna(vedata(LexisNexis®RiskViewTMscore)
andtradi(onaldatatobeberunderstandriskprofile
Fullyamor(zedpayments
Noprepaymentpenal(es
Loanduedatesmatchingpayrolldates
Creditbuilding
Pricedforwin-win(borrower-lender)
PAY D AY
PAY O F F
L O A N S
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B E S T
P R A C T I C E S PAY D AY PAY O F F Quickandeasyeligibility(3minutes)andloanprocess
ACHpaymentsencouraged,butnotmandatory
$5conveniencefeeforin-branchpayments
Stafftrainingonproductknowledge
Customerawarenessofcreditrepor(ngtocreditbureaus
FreeSavvymoney®creditscoremonitoringasanincen(ve
forFinancialEduca(on
H O W D O T H E PAY D AY
K I N E C TA ® / N I X ™ ? PAY O F F
L O A N S
P R O V I D E
VA L U E
T O
PAY D AY PAY O F F Enableustohelpborrowers,givingthemroomtobreath
andselngthemforfinancialsuccess
Buildtheircreditandsavings
Customerloyalty
Increasecrosssellingandupsellingopportuni(es
Naturalmigra(onforpaydayborrowers
Loworigina(onandservicingcosts
Lowchargeoffs
Increasestaffmorale
Pricedforwin-win(borrower-lender)
R E S U LT S
S O
FA R … PAY D AY PAY O F F • 
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Chargeoffslowerthan6%
Delinquency/servicingcosts
lowerthanexpectedwith
ACHpayments
Someindicators:
OnlineDemand
9,500Small
DollarLoansas
of2/29/16
Over$12.5
Loan
Millionpormolio performance
beberthan
expected
Monthly
#Onlineinquiries
1100
%Inquiriesthatareapproved
52%
%InquiriesthatareDeclined
48%
Chargeoffs
5%
InstallmentLoans
Avg.LoanAmount
Avg.Payment
Term
$1800
$41
24months,18%APR
C U R R E N T
C H A L L E N G E S PAY D AY PAY O F F UWmodelexpansiontoITINandimmigrants
TuneupUWmodel(increasedapprovals,upsell)
Beberanaly(caltools
Massadver(singandproductawareness
Engagecommunityorganiza(onsforproductawareness/marke(ng
SocialMediaengagement/wordofmouth
DevelopOnlineandMobileautomatedorigina(ons
Y O U R
PA RT I C I PAT I O N
I S
C R I T I C A L CALL FOR CREDIT UNIONS
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Filene will select a group of credit unions to pilot test the products
refined in the incubator. We’re asking credit unions to:
→  Demonstrate the ability to incorporate emerging products into its
operations and systematically pilot their features over a period of
18 months
→  Offer the product on a pilot basis to at least 200 of your members
→  Document pilot-test results in accordance with the research
protocol and guidelines
→  Provide insightful commentary on the strengths, weaknesses,
opportunities, and threats (SWOT)—along with recommendations
at the granular, operational level—around pilot products
W H AT ’ S
I N
I T
F O R
Y O U ? BENEFITS OF TESTING
For your credit union
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Early-stage participation in products that may benefit minority households
Access to experienced Filene staff and development/marketing resources
Implementation and testing experience that can be applied to future initiatives
Strengthened relationships with your members
For the industry
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Collaborative product testing at scale for a broad impact on underserved households
Sharing of best practices between locally successful credit unions and other
institutions nationwide
For your members
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New access to fairly priced products and services
Greater likelihood of long-term financial security
Potential for a more positive impression of your credit union
TA K E
A C T I O N READY TO TEST?
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Let us know you are interested in testing by filling out a
brief application
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The application link will be e-mailed to you
If you have questions please let us know
Please submit interest by May 13
We look forward to you being a part of this important work!
QUESTIONS
THANK YOU!
AndrewDownin
andrewd@filene.org608.661.3746
CorlindaWooden
corlindaw@filene.org503.998.6213
LuisPeralta
[email protected]
310.643.1345