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Nonprofit Distribution of Financial Products:The Need, Opportunity and For-Profit PerspectiveCFED Assets Learning ConferenceSeptember, 2012

The statistics tell a different story 33% of Americans have difficulty paying their bills on time 56% do not use a budget to guide spending 39% do not have non-retirement savings 66% did not comparison shop when choosing a credit card 1 in 4 U.S. households is financially underservedSource: FINRA 2010 Financial Capability Study, NFCC 2012 Consumer FinancialLiteracy Survey, FDIC Underbanked National Study, 2009

What is Financial Capability?Financial capability is measured by whether consumers: Can cover monthly expense with income Track their spending Plan ahead and save for the future Effectively select and manage financial products and services Gains and exercise financial knowledge

Financial Capability FrameworkKnowledgeSupportandIncentivesAccess d Assets

The Product Engagement butionService ProvisionNonprofits can engage with financial institutions by: Provide general information and education Partner with providers to refer clients to quality financial products Act as distributing agent of financial products and services Own and operate money service business or financial institutionSource: Making the Shift from Financial Education to Financial Capability: Evidence from the Financial Capability Innovation Fund Report,Center for Financial Services Innovation 2011.

Nonprofit Distribution of Financial Products:The Need, Opportunity and For-Profit PerspectiveThe Underbanked ConsumerMonica SanMiguel, Center for Financial Services InnovationProvider PerspectivesGeorge Wright, Citi Community DevelopmentFrank Kaplan, NetSpend Corporation

Financially Underserved 101 & Opportunityfor NonprofitsMonica SanMiguel, Center for Financial Services InnovationCFED Assets Learning ConferenceSeptember 20, esServicesInnovationInnovation 2012

WHO ARE THEUNDERSERVED? 2012 Center for Financial Services Innovation

DefinitionsCFSI Definition2011 FDIC National Survey of Unbanked and UnderbankedHouseholds Underbanked: Have checking and/or savings accounts, and used non-bank money orders, nonbank check-cashing services, non-bank remittances, payday loans, rent-to-own agreements,pawn shops, or refund anticipation loans (RALs) in the past 12 months 2012 Center for Financial Services Innovation

The Underserved PopulationApproximately 34 million U.S. households – 28 % of all households– arefinancially underserved9.9millionUnbankedH.H24.2 millionUnderbanked H.H86.3 millionhouseholds 8% Unbanked 20% UnderbankedChecking accounts are moreprevalent than savings 29% of households donot have a savingsaccount 10% do not have achecking accountSource: 2011 FDIC National Study 2012 Center for Financial Services Innovation

Underserved orityhouseholds aredisproportionatelyunderserved22% ofunderbankedhouseholds have acollege degree48% ofhouseholds under24 areunderserved50% unemployedhouseholds areunderserved vs.26% employedSource: 2011 FDIC National Study 2012 Center for Financial Services Innovation

Underserved Income DistributionUnderserved doesn’t necessarily mean lower incomes% ofHouseholdsSource: 2011 FDIC National l Survey 2012 Center for Financial Services Innovation

Use of Alternative Financial Services(AFS)UShouseholdsusing AFS 25% of all households have used anAFS product in the last year 42% of all households had ever usedone or more AFS in the pastTransaction credit 23% of all households used antransaction AFS in the last year,compared to 6% who used AFS creditSource: 2011 FDIC National l SurveyAFS Non-bank money order, non-bank check cashing, non-bank remittances, payday loans, pawnshops, rent-to-own, or refund anticipation loans. 2012 Center for Financial Services Innovation

Specific Product UseMost Common ProductUsed by Un/UnderbankedValue PropositionAFS TransactionMoney OrderCheck Cashing Convenience Quicker access to fundsAFS CreditPawn ShopPayday Loan Easier to access thanbank loanUsage & PreferencePrepaid Cards 10% of households have ever used a GPR prepaid card Significant increase in proportion of unbankedhouseholds using prepaid Overall, 36% of consumers prefer a prepaid card over achecking account, all else being equal.Source: 2011 FDIC National l Survey, CFSI 2008 Consumer Segmentation 2012 Center for Financial Services Innovation

Why are Consumers Not at a Bank?Not enough money to make an account useful“I wish I could have money to handle. I don’t haveany. What I’m learning about myself is that I’mreally trying to survive.”Accounts are too costly“ instead of bouncing the one big check theybounced a zillion other little ones. . . . Then theycharged me, it was 30 for each, so next thing Iknow it’s like negative 600. Forget it! I mean,you guys are killing me here!”Lack of trust in banks“I don’t like putting my moneyin a bank. I don’t trust nobodywith my money but me.”“A Tool for Getting By or Getting Ahead? Consumers’ Views on Prepaid Cards” (April 2009) AND “AStudy of the Unbanked & Underbanked Consumer in the Tenth Federal Reserve District” (May 2010) 2012 Center for Financial Services Innovation

A 45B Marketplace 28 26 24Fees and Interest ( B) 22Refund anticipation loanCredit scoringAuto title lendingInternet payday 20Pawn shop lending 18LMI credit card 16 14Payday lending 12 10 8Rent-to-ownmerchandisefinancing 6 4Overdraft 2Money ordersPayroll cardsGPR prepaidCheck cashingWalk-in bill payRemittances 0CreditLMI geSource: 2011 CFSI and Core Innovation Capital analysis. 2012 Center for Financial Services Innovation

Trends in Underbanked MarketplaceSource: 2011 CFSI and Core Innovation Capital analysis. 2012 Center for Financial Services Innovation

What Does This Mean for Nonprofits?Nonprofits can be a bridge between consumers and high-qualityfinancial services to improve client financial capability Trusted in the community Understand the needs of their clients Improve measurable client impact / behavior change 2012 Center for Financial Services Innovation

Nonprofit Product Distribution Win Win Win 2012 Center for Financial Services Innovation

CFSI’s Financial Capability Institutewww.financial-capability.org 2012 Center for Financial Services Innovation

20 N. Clark, Suite 1950Chicago, IL, .com312.881.5803

Provider PerspectiveGeorge WrightDirector – Citi Global Consumer GroupCommunity Development – Midwest Region

Why?What?How?

Why Is This Important to UsCorporate CitizenshipCRAAs a large financial services provider, there are certain expectations: Significant funds will be invested back to the communities we operate in (typically via afoundation) Respond to natural emergencies Provide volunteer, board members, thought leadership, etc.#1 Affordable lender 5th time in 6 yearsFor Citi 200 years, we had over111,743 volunteers

The Community Reinvestment Act of 1977The “Spirit” of the Regulation Reinvest in underserved people and places (termedLow/Moderate Income Households and Census Tracts) By: Providing products and servicesBricks and mortarTechnical AssistanceHuman Capital

What We Look forOur premise (1) Non profits have always been uniquely positioned to distributeproduct, where and when appropriate(2) Non profits have the “customer connection” built on the threereasons why people “don’t buy” No , No Need and No Trust Attributes We Care AboutScale – This is the “Capacity Question”Philosophy – This the “Culture Question:Metrics – This is the “Efforts to Outcomes Question”Do We Like Each Other – This the “Partnership Question”

Brief Examples CCBC – 11 non profits formed a coalition to help clients build / rebuild credit byoffering a secured credit card product Grameen – a micro loan with the option to open bank accounts to build assets LISC Twin Account – a micro loan, where proceeds are saved and “on time payments”are matched. K2C and KCA – matched savings accounts for students to save for college.

How We pull it Off Reach Out versus waiting to be called (trusted and proven entities have an edge here) Focus on Capacity and Thought Leadership (we can’t buy or pay for culture) Heavy Emphasis on Partnership (a partnering relationship is critical) Drive Towards Results (to sustain and create the future)

A Partnership in Building Financial Empowerment

Why is prepaid a greatsolution for Non-profits?

Why are Non-profits agreat solution forprepaid?

Non-profits DESIRE to powerment

MissionNetSpend’s mission is to empower consumers with the freedom,convenience and security to be self-banked.Our mission closelyaligns with the Compassprinciple, PromoteSuccess and the corevalue, long-termcustomer-providerrelationships must becommitted to mutualsuccess.

Freedom to be self bankedNetSpend gives consumers the respectand empowerment that they deserve. 25% of all consumers who try to open a bank account are turnedaway by large banks. NetSpend does not turn anyone away basedon credit or payment history. NetSpend gives cardholders complete control of their money.Through free instant text alerts, cardholders always know theirbalance and recent transactions. NetSpend provides cardholders a safe and trusted way to pay forthe things they buy every day.

Prepaid Debit – A Banking AlternativeSince launch in 2001, the NetSpend card has evolved from a simple alternative to cashto a true banking alternative that is engineered around the cardholder.Better than a bankControl your spending20102005PrepaidCardSafer than Cash2001Cash Card WithdrawCash ATM Spend Track rd

Customer BenefitsWe help millions of individuals actively participate in mainstream financial life Make purchases anywhere thatVisa/MC is accepted Set up reoccurring payments toavoid late fees Shop onlineConvenienceSecurityAccess FDIC insured Visa’s Zero Liability Policy for lostor stolen cards No need to carry large amount ofcash Get paid faster with direct deposit 24/7 Online AccountManagement Real-time cash loads ATM Access Track spending Improve financialmanagement Can’t overspendControl

General Account FeaturesNetSpend’s Value Proposition130K Reload LocationsAdditional Features Online Financial PlannersFDIC-InsuredFREEPerson-to-Person TransferFREE DirectDeposit Budgeting Tools FREE Online Banking Comprehensive Bill Pay Options Online Checks and Money OrdersFREEAnytimeAlerts Companion CardsMoney orders to pay bills orsend money Custom Cards Refer a Friend Incentives Marketplace DiscountsFlexibleFee PlansFREE SupplementalLife BenefitsFREE 10Purchase CushionFREE SavingsProgram paying 5%APY Financial Literacy FREE Merchant Rewards Discount Rx Program 3 Cardholders per account

Visual Spending HistoryDeveloped to educatethe user about theirspending.

My BudgetsDeveloped and Tested to engage and educate through use.

MissionNetSpend’s mission is to empower consumers with the freedom,convenience and security to be self-banked.Our mission closelyaligns with the Compassprinciple, PromoteSuccess and the corevalue, long-termcustomer-providerrelationships must becommitted to mutualsuccess.

NetSpend’s CommitmentCommitted to Promoting Success Building programs that deliver mutual success to NetSpend and our customers. Increase the amount of money that we put back into customer’s accounts.Lower a customer’s total cost of ownershipDrive customer retention and product usage which lead to NetSpend profitability.Our Plan: Existing features that will be promoted through smart communications: Existing concepts that will be enhanced through smart design: Payback Rewards5% Savings accountFee Plan RecommendationsDirect DepositRefer a FriendNew product feature that will be added with smart design and communications To be announced