Citibank began to explore product for remittances ... Ca

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Untapped Business Development Opportunities in
Underserved Markets
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Agenda

• Opportunity in underserved markets
• Five success factors
• Group discussion what can my CU do?
• REAL Solutions and CU success stories
• Take-home messages

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Opportunity in Underserved Markets

• Market Opportunity
• High and growing demand
• 1.5 trillion by 2009 in US
• Source of new workforce
• Outpaces growth in mainstream
• Many profitable businesses
• 100 fastest growing companies had compound annual
  growth of 54 from 2000-2005
• Market Challenges
• Can be hard to create profitable business
• Example Water management
• What are the factors for success?

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Success Story Citibank Access Account

• Banamex merged into Citigroup in 2001
• Citibank began to explore product for remittances
• Huge market estimated 24 billion to Mexico in
  2006
• Market dominated by wire transfer services
• Costs high, infrastructure expensive
• Citibank developed Citibank Global Transfers
• Can send money between any Citibank accounts for
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• But most immigrants were not Citibank customers
• So developed Access Account

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Citibank Access Account

• Low-cost remittance and fund transfer options for
  sending money to friends and family in Asia,
  Mexico and Europe
• MasterCard debit card for free point-of-sale
  transactions
• Unlimited free cash withdrawals at Citibank ATMs
  worldwide
• Free on-line bill payment
• No minimum balance and the waiver of 3.00
  monthly fees for Access customers who arrange for
  direct deposit of payroll, Social Security, or
  entitlement funds
• Statements available in English or Spanish
• Multi-lingual customer service agents in English,
  Spanish, and Chinese.

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Citibank Access Account

• Launched in late 2003
• Marketed directly and through partnerships
• Also available on-line
• Initial take-up was slow
• Now selling well
• Currently has 170,000 customers, adding about
  8,000 a month
• Similar products launched by Citizens and
  Sovereign

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Success Story Manpower Tech Reach Program

• Manpowers business is putting people to work
• 4 million placed in 2005
• Strategic plan in 1999 found that Manpower
  needed to address coming shortage of US workers
  with computer/IT skills
• Jobs will rise from 2.1 million in 2000 to 3.9
  million in 2010
• Need to tap underserved markets to meet this need
• Developed Tech Reach Program to help find and
  prepare workers

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Manpower Tech Reach Program

• Its clear when you look at the demographics,
  the age of people, the immigrant population and
  the change in diversity in the workforce, that if
  you dont have a Hispanic, Asian and
  African-American strategy having to do with
  putting disadvantaged workers to work in a
  meaningful way, youre not going to be able to
  run your organization in fifteen years. And you
  cant just turn a switch and be there. You have
  to know how to do that, and we believe TechReach
  is one of those answers.
• -Jeff Joerres, CEO, Manpower, Inc.

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Project management, assessment, work-readiness
training,and placement of individuals

Recruitment, Life Skills, Case Management,
Support Services
Manpower
NGOs Community Organizations
Skills training, Facilities Equipment
Educators Trainers
Government
Employers
Funding Outreach
Advisory Boards, Work Experience, Employment
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Tech Reach Program Design

• Initial assessment
• 220 hours of training
• Work-readiness/soft skills
• Technical skills
• Placement at employer sites as Manpower staff
• Six month internship (fully paid) with mentorship
  and support
• Permanent placement after six months, or
  continuation as Manpower staff

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Expanding the Program

• Manpower created partnership with US Dept of
  Labor
• Links thousands of Manpower branches with
  One-Stops across the US
• Connects Manpower to community-based
  organizations
• Manpower has placed 10,000 individuals from
  underserved markets into jobs
• Now exporting model to Canada and Europe

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Success Story CEMEX Patrimonio Hoy

• In mid 90s, CEMEX was hit hard by Mexicos
  currency devaluation
• Decided to pursue sales in do-it-yourself
  homebuilding market
• Sent a team of managers into low-income
  neighborhoods for a year to study how and when
  people built houses and used cement
• We needed to put aside all our assumptions
• Found that common approach for savings for
  long-term projects was the tanda cooperative
  money-pooling plan
• Small amount contributed by each person each week
• Pool pays out to an individual for important
  event or project
• Built on this approach to create Patrimonio Hoy

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Patrimonio Hoy

• People interested in building homes join
  Patrimonio Hoy clubs
• They each pay about 14 a week, for 70 weeks
  (total of 980)
• Participants get
• Consultations and inspections by Cemex staff
  architects
• Scheduled deliveries of materials divided into
  building phases that cover the 70 weeks.
• Fixed prices for all building materials through
  the life of the construction project
• Social support for keeping up with payments and
  for completing their construction

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Patrimonio Hoy

• Results
• Patrimonio Hoy participants built an average of a
  room every 1 ½ years much faster than previous
  pattern of a room every 4-5 years
• 18 more families built rooms
• Families used 25 more concrete per cubic meter
• Less material was wasted
• Families increased their plans to build
  additional rooms
• CEMEX has 70,000 families enrolled and is
  expanding program to other countries.

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ChallengePathmarks Harlem Store

• Pathmark decided to open Harlem store in early
  90s
• Previous success in Bed-Stuy, other neighborhoods
• Vacant full block of City-owned land on 125th
  Street
• Studies showed 60 of Harlem retail spending
  occurred outside the neighborhood
• But met with strong resistance from bodegas and
  wholesalers who supplied them
• Portrayed Pathmark as greedy corporation going to
  put local stores out of business
• Played on racial and ethnic tensions
• Slowed progress to a crawl for years

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ChallengePathmarks Harlem Store

• Pathmark worked with community groups to counter
  political attacks
• Abyssinian Black Baptist Church showed Pathmark
  would
• Significantly reduce grocery costs
• Create hundreds of jobs
• Primarily compete with bigger stores outside
  Harlem
• In 7-5 vote, Pathmark deal was approved by NYC
  Council
• Pathmark store opened in 1999
• Pathmark has opened additional stores in other
  neighborhods
• Many additional major stores have opened on 125th
  St

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Brainstorm

• What do you see as potential success factors from
  these case studies?

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Five Success Factors

• Mine and translate local market information
• Adapt business model to community realities
• Change internal incentives and challenge cultural
  assumptions
• Create partnerships and strategic alliances
• Improve the enabling environment

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Mine and Translate Local Market Information

• Whats different
• Heterogeneous
• Poorly documented
• Different culture, assumptions
• Case study solution
• CEMEX
• Send study team
• Pathmark
• Pilot stores in community

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Adapt Business Model to Community Realities

• Whats different
• Costs per unit high
• Harder to reach goodcandidates
• Case study strategies
• Citibank
• Build on ATM infrastructure
• Manpower
• Use community groups for recruitmentand
  screening

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Change Incentives Challenge Cultural
Assumptions

• Whats different
• Structure and incentives aimed atmainstream
• Inaccurate assumptions
• Case study strategies
• Citibank
• Build incentivesinto performance reviews
• CEMEX
• Deliberately identify and test assumptions

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Build Partnerships and Strategic Alliances

• Whats different
• Market barrierscost, information, complexity
• Distrust of corporations
• Case study strategies
• Manpower
• Create network ofpartnerships to enable
  successfuloperations
• Pathmark
• Work with allies to show how company will
  improve community income and well-being

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Improve the Enabling Environment

• Whats different
• Inadequate infrastructure
• Cumbersomeregulations
• What to do
• Invest in infrastructure
• ATMs
• Advocate for change
• Self-regulation
• Equator principles

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Five Success Factors

• Mine and translate local market information
• Adapt business model to community realities
• Change internal incentives and challenge cultural
  assumptions
• Create partnerships and strategic alliances
• Improve the enabling environment

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Group Exercise

• What products and services does my CU already
  provide to underserved markets?
• What do I see as potential ways to expand my CUs
  products and services in underserved markets?
• What do I need to know to do more?

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R.E.A.L. Solutions for Low-Wealth Households

• What Credit Unions Like YOURS
• Are Doing to Serve
• Low Wealth Households

Lois Kitsch Director of Field Projects Filene
Research Institute
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R.E.A.L. Actions For R.E.A.L. People
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Successful Education Programs

• What Credit Unions and FRI Have Learned.
• Education of Members
• Education of Your Staff
• Product Awareness

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R.EA.L. Transaction Products

• Check cashing
• Stored value cards
• Money orders
• International wire transfer
• Tax preparation
• Short term small loans

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Check Cashing and REAL Credit Unions

• Opportunity for Credit Unions
• Easy membership/special accounts
• Particularly important in branches that serve
  low-wealth communities
• Fees to cover costs and build revenue
• Cheap money orders
• Technology
• Simple spreadsheet or software providers
• Certigy
• Tran.Com
• Mr. Money
• PSCU
• Can purchase check guarantees

• Charter Oaks Credit Union
• Must be a member
• Par share is .01
• Do not sell other products
• 1 time 5 fee
• 1 Fee
• Cash 2700 cks/month
• 100,000 annual income
• No fee with a 500 balance

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R.E.A.L. Credit Union Stories - VITA
Volunteer Income Tax Assistance
529 million in assets 46,399 members 7
branches 8 counties and parts of 4 counties in
Wisconsin 1 county in Michigan covantagecu.org
Minonimee Nation
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Establishing VITA Sites

• Identify locations (s) site coordinator
• Recruit volunteers/preparers
• Obtain electronic filing ID number from IRS
• Set up location (equipment software)
• Train certify preparers

• CUs and VITA
• VITA Sites
• Provide volunteers
• Provide equipment
• Add new members
• Promote sites
• Build community relationships

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R.E.A.L. Credit Union Stories

• 2005 for 2004
• Prepared 81 Federal Income tax returns
• EITC claims 35,853
• Federal refunds for 86,007
• Estimated savings 22,275

• 2006 for 2005
• Prepared 335 Federal Income tax returns
• EITC 187,000
• Federal refunds for 454,000
• Estimated Savings
• 92,000

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Savings

• Do your members save?
• Safe Accounts
• Pot of Gold Savings
• Indirect Savings Tax Time

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Indirect Savings at Tax Time
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Predatory Lending and Credit Unions

• Do your members use payday loans?
• Do your employees use payday loans?
• Do your children/family use payday lending
  products?

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Do Our Members Use Payday Lenders
YES!!!
100 of Wisconsin Credit Unions 100 of Ohio
Credit Unions 91 of Maryland Credit Unions Of
the 48 REAL Solutions Credit Unions Surveyed
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Do Our Employees Use Payday Lenders
YES!!!
50 of Wisconsin Credit Unions 67 of Ohio Credit
Unions 75 of Maryland Credit Unions Of the 48
REAL Solutions Credit Unions Surveyed
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Your Family and Payday loans
Maybe!
All kinds of people use This most often predatory
product Which can create financial disaster
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Credit Three Credit Unions Stories

• Energy Federal Credit Unions
• Charges a flat 25 fee payable upon application
• Loans are 30 days loans
• Interest is 15
• Average Loan is 750
• Must have a direct deposit
• Can get the loan only once every 45 days or 6 per
  year
• Will lend no more than the amount of their next
  paycheck

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Energy FCU

• The credit union completed a survey and found
  that on average
• Income was 53,000
• Credit score was 619
• Savings balance was 825
• 11 year credit history
• 9 year employment history
• 12 year home ownership

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Energy FCU

• Delinquency is very low - .15
• Charged off 24 loans over 5 years totaling around
  20,000
• Disbursed over 3,000 loans in five years
• Most are NOT repeat users

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Benefit to the credit union

• Good income
• Build strong member relationship
• Favorable media coverage
• Providing a service their members want at more
  affordable rates than the competition

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Credit the REAL Story

• Ohio CUSI
• STRETCH PAY
• CUSO - of Ohio Credit Unions Joint Guaranty
• Cost reduction for members
• Cost reduction through market penetration

• 250/500 loans
• 35/70 annual fee
• 18 interest
• 12 up to advances/yr
• No underwriting
• 90 principal guaranty

Its Quick and Easy And Members Love it!!!
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To Implement

• Obtain approval
• Join CUSO
• Pay membership fee (25/million)
• Adopt policy
• Set up data processing
• Prepare documents (Loan forms)
• Train employees
• Set up monthly accounting (Fees Losses)
• Set up collection program
• Market
• Implement

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Measure the difference!

• Stretch Payday Loan
• The total cost to a member for 12 advances of
  250 and 30 day repayments
• 78

• Payday Loan Stores
• The total cost to a customer for 26 advances of
  250 at 20 / 100 for 14 days (includes
  rollovers)
• 1300

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Your Credit Union Can Join

• For more information
• Contact John Florian
• Ohio Credit Union League
• jflorian_at_ohiocul.org
• Phone [phone]

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A Full Service Financial Center For Low Wealth
Families
Powered by Prospera Credit Union
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R.E.A.L. Credit Union Stories
Service to anyone Payday Loans 9.90/100 2
Week Terms More than just a payday loan -
Financial education programs Opportunity to join
the credit union
Ken Eiden Prospera Credit Union Appleton,
Wisconsin
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Innovation - One Example Love and Marriage
3800 Av Balance Members Love It!!!
Geri Dillingham North Island Credit Union San
Diego, CA 619-656-4004
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R.E.A.L. Solutions 2006 - Coming Soon -
An Online Toolkit Available for Download by All
interested Credit unions
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Coming Soon
National Data Base For business Models, tools CU
Best Practices
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A parting thought..
Progress is the constant replacing of the best
there is with something better still. Edward A.
Filene
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Filene Research Institute

• To Learn More
• Visit our Website www.filene.org
• Lois Kitsch
• Director of Field Projects
• Cell Phone [phone]
• loiskitsch_at_filene.org

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Reflection and Summary

• Ten minute reflection
• Key points from this session
• Specific to do list based on what youve
  learned
• Wish list what else you need to move forward
• Report out
• Thoughts youd like to share with the group