How to Best Compete with
Alternative Financial Services
December 2015
Preview
• Snapshot of Alternative Financial Service (AFS) Providers
Industry
• Relevant AFS Alternatives for Hispanic Members
– Remittances
– Prepaid Reloadable Cards
– Small Dollar Loans
• Recommendations on How to Implement AFS Type Services
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SNAPSHOT: ALTERNATIVE
FINANCIAL SERVICES INDUSTRY
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The Alternative Financial Service
Industry at a Glance
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Sources: FDIC, Alternative Financial Services:
A Primer & http://www.fisca.org/
AFS by the Numbers
13,000
More than 13,000 non-banking financial
service companies operate nationwide
$320 Billion
Transaction volume at AFS institutions is
estimated to be $320 billion annually
30 Million
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AFS industry provides an estimated $106
billion in financial services to an estimated
30 million consumers
Source: FDIC, Alternative Financial Services:
A Primer & http://www.fisca.org/
Alternative Financial Services
Often divided into two categories
Transactional
services
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Credit
services
Check cashing
Transactional
services
Money orders
Bill payment
Remittances
Prepaid reloadable cards
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Source: FDIC, Alternative Financial Services:
A Primer & http://www.fisca.org/
Payday loans
Refund anticipation loan (RALS)
Credit
services
Rent-to-own (RTO)
Buy-here-pay-here (BHPH)
Pawn lending
Auto title lending
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Source: FDIC, Alternative Financial Services:
A Primer & http://www.fisca.org/
By the Number Cont’d…
Transactions include
$58 Billion
$17 Billion
$46 Billion
$48 Billion
$39 Billion
$7 Billion
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in check cashing transactions
in money orders
in remittances
in payday advances
in sales of pre-paid store-value cards
rent-to-own transactions
Source: FDIC, Alternative Financial Services:
A Primer & http://www.fisca.org/
Who Utilizes AFS
Males and
females
51% females,
49% males
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People
Single and
never been between
the ages of
married
47%
26 and 55
People
employed
full time
75%
People
with
household
incomes
between
$20k-$50k
The
unbanked
and
underbanked
Source: FDIC, Alternative Financial Services:
A Primer & http://www.fisca.org/
Why do People Utilize AFS?
 Lack of liquidity
 Access (Convenience)
 Customer service
 Guarantee of service (Lender of last resort)
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Source: FDIC, Alternative Financial Services: A Primer,
http://www.fisca.org/, http://www.creditcards.com/
The Future of the AFS Industry
• Expansion of financial services delivered via mobile
• Person-to-person (P2P) lending
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Hispanics and AFS Industry
• 30% do not use any AFS (cash-only)
• 52% of Hispanic unbanked used AFS
within last 30 days compared to 43%
of white or black households
• 22% of Hispanic unbanked used 2 or
more AFS within same period
compared to 14% of white or black
households
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Source: FDIC, 2013 Economic Inclusion Report
Hispanics and the AFS Industry
• Regularly save cash non-traditionally
• Use AFS beyond emergencies
– Remittances
– Check cashing
•
•
•
•
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Citizenship impacts financial usage
Want financial advice, but not getting it
Customer service is of utmost importance: brand loyal
Latinos age 18-25 are highly engaged with mainstream
financial services
Source: NCLR, Latino Financial Access & Inclusion California, 2012
RELEVANT AFS PRODUCTS
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Remittances
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Remittances by the Numbers
$59 Billion
sent to Latin America and Caribbean with
banks and CUs only having 14% of market
$3 Billion
earned in fees from remittance providers
70%
<25%
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(2009)
of Mexicans in the US remit to Mexico,
and of those only 25% have a banking
relationship
are aware of remittance services in
financial institutions
Source: Inter-American Development Bank
Steps to a Successful Remittance Product
1) Conduct a local market scan
2) Explore product/service options and
conduct due diligence
3) Implement product or service
4) Implement marketing/outreach strategy
5) Adapt your personnel, processes, product
and promotion/marketing strategies
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Prepaid Reloadable Cards
The rise of the General Purpose Prepaid Card (GPR)
• In 2014, 69% of adults between ages of 18 and 24 had
bought a prepaid card, up from 59% the previous year.
• Ownership of a GPR card:
– in households that made more than $100,000 per year increased
by 9 percent.
– in households earning between $25,000 and $49,900 dropped 1
percent.
– in households earning less than $25,000 increased by 2 percent.
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Source: Federal Reserve of Kansas City Working
Paper No. 14-01 & credit cards.com
Prepaid Cards and Hispanics
• Between 2011 and 2012, Latinos drove all of the growth
in prepaid card use.
• Latinos make up 15 percent of all consumers using
prepaid debit cards.
• By 2017, the percentage of Latinos using prepaid cards
will increase to 16% and the number of Latinos
depending on prepaid cards will exceed 6 million.
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Products: Small Dollar Loans or Payday
Alternative Loans (PALS)
• Characteristics of payday loans
– Small-dollar loan (i.e., $500 or less)
– High interest rates and fees
• Ex: a typical payday loan has fees ranging from $15-$100 and an APR
of 400%
– Borrower typically promises to repay loan within two weeks
– To repay a payday loan, the borrower typically gives
authorization to the lender to access his/her credit union or
bank account
Source: http://www.mycreditunion.gov/
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Credit Unions and the Case for Small
Dollar Loans
 To steer members away from payday lending’s
predatory rates
 Minimize the possibility of loss of member accounts
due to payday debt
 To improve members’ financial lives
Source: http://www.mycreditunion.gov/
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HOW TO BEST COMPETE
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A Two Pronged Approach
1
2
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Create a culturally inclusive
member experience at all
levels of your organization
The Coopera Approach: 4 Ps
Remittance Product
Create / repackage
relevant products
Prepaid Reloadable Card
Small Dollar Loans
The 4Ps to Success: The Coopera Approach
1. The right organizational mentality
-Philosophy
-Investment
2. Adapt to the market
-Personnel
-Products
-Processes
-Promotion/Marketing
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Next Steps
 Do some competitive research
 Offer relevant AFS services such as remittances, prepaid
reloadable card products and small dollar loans
 Offer convenience
 Offer bilingual/bicultural staff
 Offer an easy product/account opening process
 Offer cultural relevancy
 Offer financial education
 Market these services
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Market Your AFS Services
 Use bilingual messaging
 Offer promotions (i.e. use our remittance service 4
times and get a 5th free with a punch card)
 Include these services in brochures & marketing
collateral
 Combine these services with financial education
information
 Publish testimonials
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QUESTIONS?
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RESOURCES
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Hispanic Growth Resources
• Coopera Resource Library
• White Papers
http://www.cooperaconsulting.com/hispanic-expertise.cfm
• Hispanic Outreach Insights Monthly E-newsletter
http://www.cooperaconsulting.com/
• Hispanic Outreach Connection LinkedIn Group (CCHOC)
http://www.linkedin.com/groupInvitation?groupID=2148195&
sharedKey=5F7335401508
• Coopera Blog http://blog.cooperaconsulting.com/
• Coopera on Twitter Follow Coopera @_Coopera
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Contact Coopera
1500 NW 118th Street
Des Moines, Iowa 50325
866.518.0214
cooperaconsulting.com
blog.cooperaconsulting.com
[email protected]
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© 2015 Coopera. Original information contained within this presentation is copyrighted and
cannot be used without expressed written consent from Coopera.