A Full Cycle Financial Model to Serve the Financial Needs of Low-income Customers

A Life Cycle - Full Service Banking
Model to Serve the Financial Needs
of Low Income Consumers

Wealth
Investment
Savings
Income Alvaro Lima, Revised in 2011

Executive Summary

Demographic and Economic Profile of Low-Income Financial Consumers
• Who are the low-income consumers? What are the primary characteristics and behaviors
that drive their selection of financial services and providers?

Potential Market for Mainstream Financial Institutions
• Where do low-income shop for financial services?
• What is the size of the low-income market?

A Life Cycle - Full Service Strategic Model
• What are the key strategic shifts that banks and other financial institutions need to make
to serve this market effectively?
• What are the benefits for Financial Institutions and low-income consumers?

Appendices

Case Studies

DRAFT for discussion only

EXECUTIVE SUMMARY

• Background • This research is based on the portfolio of high priority areas and
opportunities identified in in low-income communities

• Provide a fact-base analysis for promoting awareness of
• Expected
opportunities and mobilize market forces
Project Output
• Identify obstacles with specific recommendations for overcoming
them

• Identify specific strategies that increase participation of low-
income residents in main stream financial institutions thereby
increasing wealth building opportunities for these residents

• Translate strategies into actionable programs

• Identify public and private roles in tapping some of the identified
opportunities and removing identified barriers

4


Approximately 42% of all households (HH) in the U.S. are low-income families 1

All U.S. Households2

Moderate to High Low-Income
Income Households1
Households ( < $35K)
( > $35K) approximately 44.5M HH

< $10,000 - about 9.5M
approximately 62M HH HH

58% 42% $10,000 to $24,999
about 22M HH

$25,000 to $34,999
about 13M HH

Data Source: Detailed Income Tables from the Current Population Survey, U.S. Census Bureau, March 2001

1
Total number of low-income households are calculated by the number of HH at or below 80% of median regional income ($45,106.00 for the Northeast,
$44,646.00 for the Midwest, $38,410.00 for the South and $44,744.00 for the West).
2
According to the Current Population Survey of the US Census Bureau there are a total of 106.5 HH in the US; average household size is about 2.5
persons, 2000 Decennial Census.
6

Approximately 9.5% of these households do not hold any kind of transaction
account1; 85% of them have incomes less than $25,000 and 50% have incomes
less than $10,000

Distribution of “unbanked” HH by income3

$50,000 to $99,999
> $100,000
2%
0%
$25,000 to $49,999
13% 0.2M HH

1.2M HH

5MHH
3.4MHH

Under $10000
50%
$10,000 to $24,999
35%

Data Source: Survey of Consumer Finances (SCF), 1998. The 1998 SCF represents 102.6M HH; Calculated from results
presented in Arthur B. Kennickell, Martha Starr-McCluer and Brian J. Surette, “Recent changes in U.S. Family Finances:
Results from the 1998 Survey of Consumer Finances

Transaction Accounts comprise checking, savings, money market deposit accounts, money market mutual funds, and call accounts at brokerage firms
1

2
The SCF does not separate out data for HH in the $25,000 to $34,999 category. The estimated number of low-income HH without transaction
accounts is between 8.4M and 9.6M or ~22% of all low-income households.
Unbanked HH are those HH without any kind of transaction account.
3

7

However, data from the Consumer Expenditure survey indicates that income
is not necessarily a good indicator of buying power for the lower-income
market

Spending as a percentage Share of total annual
of reported Income expenditure by income

285%
300%
27%
Lower-income > $70K < $30K
category 36%
250% 20%
17%

200%

160%
$30K to $50K
141% $50K to $70K
150%
118%
102%
92%
85%
100%
68%

50%
Note: This data is at the
national level
0%
<$10K $10K to $14,999 $15K to $19,999 $20K to $29,999 $30K to $39,999 $40K to $49,999 $50K to $69,999 $70K and over

Income Category

Source: Calculated from “Income before Taxes: Average annual expenditures from the Consumer Expenditure Survey, 1999”
Note: Similar analysis based on 1997 data appears in 8

In contrast, low-income families with transaction accounts are more likely to
purchase more sophisticated products such as asset-building, investment and
insurance services

Percentage of HH holding financial assets in the two lowest income categories

100

90 86.5

80
Percentage of Families

70

61.9
60 Transaction Accounts.
CDs
Savings Bonds
50 Stocks
Mutual Funds
Retirement Accounts
40 Life Insurance

30
25.4
20.9
20 16.8
15.7

10.2
10 7.7 7.2 7.6
6.4
3.5 3.8
1.9
0
< $10,000 $10,000-$24,999

Income Category

Source: Recent Changes in U.S. Family Finances: Results from the 1998 Survey of Consumer Finances by Arthur B. Kennickell, Martha Starr-McCluer
and Brian J. Surette
Joanne Hogarth and Kevin H. O’Donnell show that lower-income HH with a deposit account are more likely to own other financial products;
Analysis from the 1995 survey in “Banking Relationships of Lower-Income Families and the Governmental Trend toward Electronic Payment”
9

Detailed analysis reveals at least six distinct segments within banked and
“unbanked” low-income households

Annual % of US Earned Income
Income Source Education Race/Ethnicity
Income population Tax Credit
>50% HS
Welfare Govt.
> $12,000 diploma or No
Dependent assistance
GED
Wages + govt.
New Immigrant > $14,001 Unlikely
assistance
>50% HS
66% white, 18%
Wages + govt. diploma or
Working poor $17k - $34k 16.7 black, 11.6% Yes
assistance GED; 10%
Hispanic
College Grad
>50% HS
diploma or
Bootstrapper $14k - $25k Wages Yes
GED; 10%
College Grad
>50% HS
Emerging Middle diploma or
$15k - $35k Wages Yes
Class GED; 10%
College Grad
Wages,
Seniors No
retirement, SSI

10


Some economic characteristics of the unbanked

• The unbanked live from “paycheck to paycheck”, typically spending the entire
value of their checks on bills, wire transfers, debt payments, etc.
• As a result, they are likely to bounce checks frequently, compounding their
“unbanked” status; fees charged for bounced checks accumulate quickly, and
often amount to a significant proportion of their meager income
• They typically have no access to credit from mainstream financial institutions
because of late or missed payments in the past
• They typically have no financial savings
• They are subject to high fees imposed by alternative financial providers such
as check cashers and payday lenders; over time, these can be substantial
• They rent, rather than own homes
• They typically carry a high debt burden (see Appendix A for details)

11


Besides having low incomes, the unbanked are more likely to be young
minorities with less than a high school education

• Results from the 1998 Survey of Consumer Finances present the following
profile of HH without transaction accounts:

– 15.4% of HH with heads of households under 35 years do not have a
transaction account

– 33% of all African-American HH and 29% of Hispanic HH are unbanked

• Three out of ten low-income families are headed by individuals with less than
a high school education, and one-third of the heads of households have only
a high school education1

1
“Recent Changes in U.S. Family Finances: Results from the 1998 Survey of Consumer Finances” by Arthur B. Kennickell, Martha Starr-
McCluer and Brian J. Surette

12


Low-income consumers without transaction accounts often seek
alternative service providers for their routine financial needs1

Routine Financial Needs Delivery Channels

• Receiving income • Banks

• Cashing checks • Check Cashers

• Paying Bills • Bodegas

• Sending Money to families • Pawn Shops

• Building Savings • Loan Sharks

• Borrowing Money (short term • Short-term loan companies
loans, e.g., payday loans) • Liquor stores
• Buying convenience items • Western Union or similar outfits
(stamps, pre-paid calling cards,
etc.) • Informal savings circles
• Cookie jars

1
However, there is evidence in the literature that alternative service providers are also used by consumers with transaction accounts
14


Mainstream financial offerings are at odds with the financial needs of low-
income consumer segments (banked and “unbanked”)

Mainstream Financial Services and Products Financial Needs of the Low-income Segments
Check cashing, Traditional bank
money orders, accounts, high
wire transfers, fees, high min.
etc. balance

Traditional bank Check cashing,
accounts, high money orders,
fees, high min. wire transfers,
balance etc.

In order to serve this market effectively, financial institutions and banks in particular need to undergo a strategic
shift towards a more customer-driven, life-cycle, bundled product and services...
15

Few financial assets, level of comfort, privacy, and lack of appropriate
products and services drive low-income consumers away from banks and to
alternative providers

Few Financial • Not enough money
Assets • Don’t write enough checks

Level of Comfort • Prefer dealing with humans
(“high touch”)
• Do not trust banks

Privacy and Legal Risk • Undocumented immigrants are
afraid to enter branches with
security guards or that a bank
record may reveal their identifies
to the INS
• Fear that their unfavorable credit
histories will be revealed

Products and Services • Fees are too high
• Period for cashing checks is too
long
• No “one-stop” shopping
experience
• Minimum balance requirements
are too high

Note: See Appendix B for supporting survey data
16

Check cashers dominate as alternate service providers operating as a “one-
stop-shop” offering in some locations additional items such as transit
tokens, vehicle licenses, etc.

Routine financial needs
Borrowing Buy convience
Sending Money (short- items
Receiving Cashing Building
Paying Bills money to term loans, (stamps, pre-
Income Checks savings
families e.g., payday paid calling
loans) cards, etc.)
Welfare
Dependent C C C C C
New Immigrant C C C
Working poor C C
C
Bootstrapper

Emerging Middle
Class
Seniors

Key
Banks Loan Sharks
Check Cashers Liquor Stores
Bodegas Informal Savings
Grocery Stores Mechanisms

Western Union or Cookie Jars
similar Institution Pawn Shops
Government
17


Alternative service providers have enjoyed tremendous growth despite their
high costs
• The number of check cashing outlets in the United States has grown from about 2,151 outlets in
1986 to about 5,400 in 1997
• There are between 12,000 and 14,000 pawnshops across the country, outnumbering credit unions
and banks
• Payday lending grew nationally from 300 stores in 1992 to more than 8000 in 1999 (Michael A.
Stegman in Savings for the Poor, 1999)

Example: Check Cashing Fee Summary

Average fee Mode Low High
1987 1997 1987 1997 1987 1997 1987 1997
Type of Check
Paryroll 1.62% 2.34% NA 2.00% 0.78% 1.00% 3.00% 6.00%
Social Security 1.59% 2.21% NA 2.00% 0.77% 0.80% 3.00% 6.00%
Personal 4.51% 9.36% NA 10.00% 1.60% 1.85% 12.00% 16.00%
Source: Check cashers charge high rates to cash checks, lend money, Consumer Federation of America, 1997

There is clearly a perception among the lower-income, unbanked population that it is cheaper to do business
with alternate providers, while in reality, the cumulative expense may be significantly higher

18


Alternative service providers conduct approximately 280 million transactions
per year, representing $78 billion in gross revenues (5.5 billion in fees alone)

Fee/Rate per Volume of Gross
Service Fee Total
Transaction Transactions Revenues

2-3% payroll and
Check cashing government checks 180 Million $60 billion $1.5 billion
(can exceed 15% for
personal checks)

Payday Loans 15-17 per 2 weeks $10-13.8 billion $1.6-$2.2 billion
55-69 million
400% APR

1.5-25% monthly N/A
Pawnshops 30-300% APR
42 million $3.3 billion

Rent-to-own 2-3 times retail 3 million $4.7 billion $2.35 billion
1.5-25% monthly N/A N/A N/A
Auto Title Lenders 30-300% APR

Total N/A 280 million $78 billion $5.5 billion
Source: Table 1, Fringe Lending is Real Money: Estimated Annual Transactions, in “Financial Services in Distressed
Potential market for banks?
Communities: Framing the Issue, Finding Solutions”, by James H. Carr and Jenny Scheutz, Fannie Mae Foundation,
August 2001

To put this in perspective the total fees ($5.5 billion) are only slightly less than the entire asset base of the
more than 460 community development Financial Institutions (CDFIs) operating in the US (Carr and Scheutz)

19


In addition, several facts and ongoing initiatives provide compelling
evidence of an untapped opportunity...

• About 46% of the unbanked have had bank accounts in
• Previous or existing banking relationship the past, and several use banks to cash checks
• By redesigning their products and services, some banks
have (re)capture a sizeable portion of the lower-income,
unbanked market (e.x. Brazil)

• Case Studies of banks that have been • E.g., Union Bank, Shorebank, others
successful in this space

• EFT ‘99, First Accounts 2000, the Community
• Government Initiatives
Reinvestment Act, Individual Development Accounts
(IDAs), CDFI Fund, other government programs to
encourage the unbanked to build savings

• The America Saves Campaign launched with the support
• Initiatives by Consumer Organizations
of Bank of America

• Other Strategic Alliances

20

In order to serve the financial needs of low-income residents effectively
and profitably, financial institutions need to develop new retail banking
models, integrate product lines, and leverage education and technology.
Three Strategic Adjustments

Increased
market size Increased
sales
New Retail Banking Models
Network Externalities
The value to customers is in the full

Increased customer
Increased investment and
Increased value attractiveness
High-volume and reduced risk commitment to
sales drive product/service
down fixed-cost
component
Leverage Education and Integrated Product Lines
Technology
Increased value Switching costs increase due to
Technology development and financial to customer of investment in offering,
education reduce operating, fixed, product/service learning and use
and distribution costs
High
margin
Lower Increased loyalty from
prices and increased switching costs
marketing and decreased value of
costs competitors’ product/service

22


These three key strategic adjustments should follow the general
characteristics...

23

1
DRAFT for discussion Model
New Retail Banking only

Redesigned branches may welcome more unbanked, lower income consumers
and help banks keep costs in check

• Key features of a redesigned branch

– provide “one-stop shopping” services: check cashing, money orders, wire
transfers, bill payments, stamps, fax and copy services, etc.
– structure, operation and location of branch designed to fit in with needs of
local demographic (e.g., in-store branches such as in supermarkets, video
stores, etc.) and real-estate options in lower-income areas
– low-cost operations with optimum use of technology and human resources
to offer “high-touch” personal service, yet lower operations costs for banks
· flexible staffing
· use of technology, with option of personal service (“bricks and clicks”
model)
· share costs with strategic alliance partners
24

2 Integrated Product Lines

Evidence suggests a mix of traditional and non-traditional products and
services customized to the needs of the lower-income segment

Banks

Banks will need to
provide some non-
traditional
services to attract
the lower-income
consumer base

Alternate
Financial
Service
Providers

Non-traditional products Traditional products and
and services services

25


Possible partnerships and delivery mechanisms for product/service portfolio
includes...
Product and Service Portfolio Possible Partnerships Delivery Channels
• Basic Services

• Asset Building Accounts

• Credit Cards and loans

• Insurance and investments

• Financial Literacy and
Education

26

Banks might potentially structure their portfolios to first meet the needs of
low-income residents, then transition them to more mainstream services,
ultimately building wealth creating instruments

WEALTH!!
A full-service portfolio structured
to create wealth and serve the life-
cycle needs of the low- income BUILD AND GROW • Health, life, auto
and mortgage
consumer e
Insurance and insurance
ycl Investments
Life C • Savings bonds,
he
ut t
pensions, other
gho investment
th rou • High-risk, deposit
options
red RETAIN
secured emergency
of f e loans
be
m ust Credit and loans • Loan guarantees
ms
gra • Creative financing for
pro
tion small businesses and
d uca homes
E
nd
ya • Traditional savings accounts
ite rac CONVERT with some non-traditional
al L features, e.g. Union Bank Nest
a nci Savings
Fin Egg account

• Check cashing and other
INCOME
ATTRACT AND ACQUIRE services provided by traditional
check cashers,
Basic Services • Low minimum balance deposit
account

See Appendix D for a detailed product/service descriptions
27


Product and service bundles may be designed to move low-income
customer relationship further along the life-cycle

Basic, “one-
stop shopping
services
Product/Service
bundle
Product/Service
bundle

Financial
Asset-building Investments
Literacy and
accounts and Insurance
Education

Product/Service
Credit and bundle
loans

Product/Service
bundle
28

3 Leverage Technology and
Education

Technology has changed everyday transaction costs in dramatic,
observable ways.

Old Economy Approximate Cost Per Transaction

Banking
$1.07
eEconomy

$.01

Travel Booking
$10 $2

$6

Trading
$150

29

Education

Technology can provide significant savings for banks, and better access
and options for lower-income consumers

• Examples abound in the literature of the use of technology in this market

Technology used and service
Financial Institution Benefit
provided

U.S. Postal Service in partnership with Key • ATMs in Post Offices, access via debit Greater access, convenience to lower-
Bank, sponsored by the U.S. Treasury or credit cards income consumers

• Direct Deposit with “Acceso ETA”, a low-
Banco Popular Greater access to consumers, lower cost
cost account that allows customers to to Banco Poplar
receive their federal benefits via direct
deposit, and offers full access to all
traditional distribution channels as well as
access to over 22,000 ATMs and POS
terminals in Puerto Rico

Citicorp Significant cost savings to Citicorp
• Delivery of Electronic Benefit Transfer
funds through ATMs and POS
terminals, grocery stores, pharmacies
and check cashers
• “PayTM” - a program with an embedded
savings account that allows certain
corporate customers to deliver payroll to
employees electronically
•• Online distance learning totelephone,
Delivery of services to via provide Wider reach, consumer education
Operation HOPE in partnership with ATM and online banking
Financial Literacy, computer literacy and
Smartforce.com and UCLA other training
Extension School 30

Education

However, none of this is possible without the appropriate financial and
basic math literacy, education and credit counseling programs

• Financial Literacy services are mutually beneficial to both the provider and the consumer when bundled
with other life-cycle products mentioned earlier; two models follow, but there others, including Operation
Hope (see Case summary in Case Studies section of the document)

Financial Institution Strategies Deployed Educational Components

• Invested at least $50 million to finance • State Farm funds loans once homeowners
State Farm Insurance
outreach, training, insurance underwriting have undergone training in repair and fire
and home safety loans safety
• Created the Home Safety Program in alliance • Established home buying seminars in co-
with Neighborhood Housing Services (NHS) operation with NHS; corporate
of Chicago representatives explain the home and
insurance purchasing process, help with
• NHS sponsors inspections of potential
credit repair, and educate prospective
safety hazards such as furnaces and
buyers on property inspection and upkeep
electrical systems and provides loans if
repairs or replacements are needed • These courses help future homeowners in
the neighborhoods and identify new
business for State Farm
• Bank of America’s increased mortgage lending • Courses cover personal finance, how to
Bank of America portfolio has been facilitated through its
qualify for a loan, how to repair a credit
relationship with the nonprofit Neighborhood
history and how to save money for home
Assistance Corporation of America (NACA)
repairs
• Prospective buyers attend a mandatory, 10-
week training program in order to qualify for a
Bank of America Loan with no downpayment,
but at market-level interest rates. Those who
complete the class must invest in a
neighborhood stabilization pool to cover late
payments
31


Benefits to Banks and Low-Income Consumers

Why should banks consider this market?
Several “unbanked” (about 50%) consumers already cash their checks at banks, thrifts or credit unions; banks can grow
these into more profitable relationships by providing basic accounts to this market
By providing both, non-traditional and traditional banking services, banks can benefit from economy of scale and generate
enough revenue to cover fixed costs
Banks have a few advantages over check cashers: direct access to check clearing systems and a relatively low cost of
financial capital, both of which will help them control costs
There are several government initiatives, incentives and policies geared towards bringing the lower-income market into the
financial mainstream; banks can benefit from these (e.g., the Community Re-investment Act, CRA)

Benefits to Low-Income Consumers
Additional savings:
it is difficult to accumulate savings and financial assets without a bank account
paying high costs for financial services (check cashing, payday loans) can significantly reduce the amount lower
income households can save
Access to credit:
without a bank account, it is difficult to establish credit, obtain a credit card, qualify for loans or obtaining any kind
of financing for a small business
Access to online services and commerce
without a bank account or credit card, it is impossible to conduct transactions online

Ability to take advantage of government savings investments and other plans (e.g., IDA)
32


Challenges to Banks

• High risk due to the impaired credit history of this market
• Careful planning to ensure profitability in a reasonable time frame
– market research
– product/service design
– redesigning existing cost structure, and finding innovative ways to keep costs low (e.g., redesigned branches)
– cost-effective delivery systems
– alternate risk management systems

• Existing investment in fixed assets and product lines
• Overall revenue opportunity may be perceived as too small by banks, given the low fees for basic
services; however, this opportunity could grow considerably as banks consider not only the
unbanked but other customer segments within the lower-income category
• Branding or product positioning could pose a challenge to banks as they will need to balance their
ability to appeal to the lower-income market, while retaining their positioning and image in their
current target markets
• Fragmentation and varying quality of existing financial literacy, credit repair, and investment
counseling programs
• Extensive consumer research to identify micro-markets within this complex and diverse population,
and tailor products and services accordingly
33


Appendix A

Indicators of Debt Payment Difficulties

35.0% 32.0%
30.0%
% w ith ratio of debt
25.0%
19.9% paym ents to fam ily
20.0% incom e above 40%
15.1% 13.8%
15.0% 12.7% 12.3% % w ith a debt paym ent
8.1% 9.2% late 60 days or m ore in
10.0% 5.7%
4.5% previous year
5.0% 2.1%
1.5%
0.0%

k
s

0k

0k
5k
k

00
10
e

-5

10
-2
ili

-1
<
m

>
k

k
fa

k
10

25

50
ll
A

Source: Federal Reserve 1998 SCF

35


Appendix B
Survey data on reasons why LIC do not have a Survey data on reasons why LIC do not have a
checking account transaction account
Inconvenient bank hours/locations
No bank has convenient hours of location 8.5%

Credit problems
Banks w on't let us open an account 9.5%
Other reasons
Why families do not own Checking accounts

Not comfortable dealing w ith banks 17.6%
Do not need/want an account

I w ant to keep my financial records private 21.6%
Cannot manage/balance an account

Banks require too much money just to open an account 22.1%
Minimum balance is too high

Bank account fees are too high 23.1%
Service charges are too high

Don't need account because I have no savings 53.3%
Not enough money

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
Do not like banks

Do not write enough checks

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Percentage of Families

Source: John P. Caskey,

Source: Federal Reserve, 1998 Survey on Consumer Finances Lower Income American, Higher Cost Financial Services
(Madison, WI: Filene Research Institute)

36


Appendix C - Service/product description summary
• Basic Services
– Commercial Check Cashing services
· Check cashing services for both government and paychecks - (fees should be set such that they are lower
than those set by typical check cashers, but high enough to be profitable for the banks)
· One stop shopping services such as thought offered by check cashers (money orders, wire transfers - both
domestic and international, bill payment, calling cards, etc.)
– Traditional banking services
· Low -cost, low-minimum balance deposit accounts, with creative product/service “bundling:” schemes such
as those offered by Union Bank of California
· ATM and debit cards for qualifying households, and in some cases, ATM access to those with problematic
credit histories as well
· Direct deposit of paychecks and government checks
• Asset building accounts (similar to IDA accounts, but more general purpose)
– Customers make regular contributions of a fixed amount for a fixed duration of time; the amounts should be set
at levels affordable by the LIC, and could be deducted via direct deposit from their paychecks or government
checks
– Creative bundling of asset-building accounts with check cashing services
– Risk/Reward program to encourage regular contributions
• Credit cards and loans
– Creative use of technology and other efficient operations to enable smaller-value loans in cost-effective manner
– Partnerships with Community Development Organizations or philanthropic organizations to provide deposit-
secured loans or loan guarantees
37


Appendix C - Service/product description summary, continued
• Insurance and Investments
– insurance and investment products (both individual and employer-based) offered through “aggregation point” in
neighborhood or community (e.g., faith-based organization, community-based organization) to gain economies
of scale
– examples
· Metropolitan Life Insurance Company has a significant investment in loans, guarantees and equities in
community ventures with business development as a primary goal. Community Development Corporations
(CDCs) use 20% of funds from MetLife on commercial ventures that maximize profits in low-income areas.
MetLife has reaped more than the below-market rates it charges for community investments, and has
numerous relationships with nonprofit groups that benefit the company
· State Farm Insurance developed a long-term, strategic relationship with Neighborhood Housing Services
(NHS) of Chicago to expand its markets in low-income neighborhoods. It has invested at least $50 million to
finance outreach, training, underwriting of property insurance and home safety loans

38


Case Summaries - Category and Sources Matrix

Fleet Community Shorebank Union Bank of Operation Banco Nehemiah
Banking Group Corporation California Hope Popular Corporation

Full service
Community x x x
Banking

Check Cashing x x

Financial Literacy x x

Technology x x x

Down Payment x
Assistance
Community x x x
Development
Small
Business x x
Lending
“Reaching out Community
Fleet Community
to the Developments
Focus magazine ,
SOURCES Web site, Annual
Web site Unbanked”, Web site (Fall 2000) Web site
John Caskey, Newsletter,
Report
April 2001 Web site
40


Case Summary - Fleet Community Banking Group, First Community Bank
• First Community Bank (FCB), the retail arm of Fleet’s Community Banking Group (CBG) with 67
branches and $2.4 billion in deposits has become a national model for serving inner-city communities

Products and Services Delivery Mechanisms

• Small Business Lending to • Branches and ATMs in LMI communities
entrepreneurs, minority and women-
owned businesses, and other small • Partnerships with government, community- based
businesses in LMI (Low to Moderate and other private sector organizations
Income) areas • CommunityLink program and on-line banking
• Affordable Housing / Mortgages to LMI – provides computers, Internet access, training and
borrowers community-based content to qualified applicants in LMI
neighborhoods; a prototype was introduced in the
• Community Development
Roxbury neighborhood of Dudley Square in Boston, MA
Lending/Investments and the Ironbound section of Newark, NJ
• Consumer Lending in LMI areas • Technical Assistance Program (TAP)
• Personal Banking – provides specific information and training to individuals,
businesses and organizations in the areas of small
• Small Business and Equity Investments business development, rural support, predevelopment,
financial literacy, community development, affordable
• Technical Assistance and Support
housing and emerging market
– leverages existing partnerships or establishes new
41 relationships to support LMI initiatives as part of TAP


Case Summary - Shorebank Corporation

• Shorebank Corporation is the country’s oldest and largest community development bank holding
company with $1.1 billion in consolidated assets in 2000
• Consumer Products and Services • Banking Centers and
– basic checking and savings ($250 min. deposit, 3 withdrawals, no monthly ATM locations
fee), savings accounts for minors (min. $25 deposit, no fees) – 2 new supermarket
– consumer loans (personal, savings secured, auto, home equity) branches
– Certificates of Deposit • Shorebank Affiliate
– IRAs, Retirement & Investment services companies
– development deposits - socially responsible investing
– budget planning • On-line banking
• Business Products and Services
– business Loans (commercial line of credit, equipment financing, debt
financing, real estate acquisition & expansion loans, term loans, working
capital loans)
– business Deposit Services (commercial checking, account reconciliation,
custom reporting, Corporate ATM, sweep accounts)
– cash Management Services

• Churches and not-for-profit services
– church loan program, other products and services, including Individual
42
Development Accounts (IDAs)


Union Bank Case summary1
• Union Bank of California, with $33 billion in assets had (as of early 2000) twelve “Cash and Save”
outlets in Los Angeles and San Diego, and has a 40% stake in a check cashing company

• Basic Services
• Cash and Save outlets
– One-stop shopping for check cashing, money orders, located in:
bill payments, wire transfers (domestic and
international), etc. (1% fee for govt. checks and 1.5% – Large Discount Stores (highest
for paychecks); money orders cost $1 or $.50 volume of transactions); cater
mostly to moderate-income
– Low-cost, low -minimum balance checking and consumers (four outlets)
savings accounts
– Traditional Bank branches
· Benefit Transfer Service similar to the ETA
account; no ATM card – High tech laundromat which
includes a video-rental and a
– Membership cards and service plans, e.g. a Money fast-food store (one outlet)
Order Plan designed to build trust and customer
loyalty ($3 fee for Cash & Save member, and $10 • Community Based
annual fee for Money Order Plan with six free money Organizations (for Financial
orders, with a 1% fee for all checks for 1 year) Literacy and Education)
• Asset-building accounts
– The “Nest Egg” savings account open to anyone, with
no fees and a passbook ($10 initial deposit + $25 a
month for one year); no ATM card
From “Reaching Out to the Unbanked”, John P. Caskey,
1

– A service bundle consisting of the Nest Egg and April 2001
Money Order Plan 43


Union Bank Case Summary, continued ...

• Results from Union Bank of California study:
– between 120,000 to 125,000 check cashing customers 1
– expect 40% of these to transition to a traditional deposit account 1
– Cash and Save outlets in large discount stores are the most profitable 2
· they have a very high volume business, cashing at least 3 times as many checks as the
outlets in the traditional bank branches
· most of the revenue in these outlets is generated from check-cashing fees
· relatively few conversions to deposit accounts at these branches

Transcribed from comments made by Jim Laffargue, Union Bank of California during a conference call sponsored by
1

Business for Social Responsibility, on Oct. 18, 2001
2
From “Reaching Out to the Unbanked”, John P. Caskey, April 2001
44


Case Summary - Operation Hope
• Operation Hope is an LA-based non-profit investment-banking organization that runs an extensive
program to help would-be borrowers obtain credit ratings
• Since the opening of its banking center in 1996, Operation Hope has educated 26,000 adults and youths
on economic and financial literacy and counseled 2,000 individuals in credit counseling programs. It has
facilitated $46 million in loans to approximately 400 businesses and new home owners

• Economic Education and Empowerment • Partnerships with local churches,
– home ownership ( FHA and VA loan products, conventional community based organizations,
and jumbo loans, loan programs for low, middle and upper educational institutions, private sector
income individuals, no down payment programs, no cost, no corporations and the government using the
fee, purchase and refinance, others)
following delivery platforms:
– small business services (small business enterprise
– programs offered at Home Loan Centers,
incubation, business plan and marketing plan assistance,
Regional Business Empowerment Centers, and
hands-on technical support, and small business lending)
Inner-city Cyber Café network
– HOPE Private Banking Service Center program (credit
– programs offered at Operation HOPE Banking
counseling, budgeting, financial planning, investment
Centers which provide “one-stop” shopping for
planning, tax preparation, technical assistance, other
banking, financial and education services
services)
– “BOOF E-learning Across America”, an online
• Digital Empowerment distance learning program to deliver BOOF on
– IT certification, computer literacy, business fundamentals, the Smartforce platform
new economy jobs, others – Operation Hope/UCLA Extension Satellite
Centers, Operation Hope/Smartforce Satellite
• Banking on Our Future (BOOF) - Economic Literacy for
Centers
Youths 45


Case Summary - Banco Popular
• Banco Popular North America, with 94 branches in the U.S. is a full-service bank, and a subsidiary of
Popular North America with $5.1 billion in assets. Since its inception in 1893, its history has been
linked closely with the economic and social welfare of the communities it serves. It’s parent company,
Poplar Inc. has over $25 billion in assets and continues to expand it’s presence in the United States,
the Caribbean and Latin America
• Banco Popular has evolved from its origins in Puerto Rico to become the largest Hispanic financial
institution in North America
• Products and Services for the unbanked:
– Popular Cash Express
· a “one-stop-shop” retail financial services outlet (check cashing, wire transfers, utility payments, money orders,
etc.), with additional value-added products and services such as insurance and travel services. Banco Popular
has been working on developing a suite of credit products, including credit cards and personal loans specifically
designed with this target market in mind
– Educational video and television
· Banco Popular participated in a the production and distribution of “El Sueno Americano” an educational video
geared towards educating Hispanics on the importance of establishing and building a good credit history. The
bank has also sponsored segments on the weekly television show “Sabado Gigante”, where it actively promotes
homeownership as a way of attaining financial security and an improved quality of life
– Direct Deposit
· Banco Popular was the first institution in Puerto Rico and among the first in the United States to offer an
Electronic Transfer Account (ETA) to federal benefits recipients. “Acceso ETA” is a low-cost account that allows
customers to receive their federal benefits via direct deposit. This account offers full access to all traditional
distribution channels as well as access to over 22,000 ATMs and point-of-sale terminals in Puerto Rico
46


Case Summary - Nehemiah Corporation of California
• Along with a variety of programs and affiliate organizations, Nehemiah Corporation leads the nation in urban
revitalization and redevelopment. To date, Nehemiah has provided more than $335 million in down-payment
assistance gifts, resulting in $10 billion worth of investment, and helped more than 98,000 families and individuals
achieve their dream of ownership

Programs and Affiliates Program and Affiliate Descriptions
Provides gift funds (of between 1% to 6% of the contract
price) for down payment and closing costs (of any resale
The Nehemiah Program®
or new property) to qualified buyers using an eligible loan
program, such as an FHA loan
The Nehemiah Conventional Loan combines a 97% loan-
The Nehemiah Conventional Loan to-value first mortgage with a 5% second mortgage to
create a 102% combined loan-to-value loan up to a
maximum dollar amount of $289,175 for qualifying buyers
The NCRF invests in community development projects.
The Nehemiah Community Reinvestment
Nehemiah has invested $24 million to date to fund
Fund (NCRF) development projects in the communities it serves

The Nehemiah Community Foundation Develops, sponsors and promotes urban ministries.
Provides grants to faith-based and community based
Nehemiah Urban Ministries, Inc. (NUMI) organizations
Acquires, manages and preserves affordable and special
Nehemiah Urban Land Trust (NULT) needs housing for low-income families and individuals

47

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