Untapped: Business Development Opportunities in Underserved Markets

1. Untapped: Business Development Opportunities in Underserved Markets

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

3. 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?

4. 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 $5 • But most immigrants were not Citibank customers • So developed “Access Account”

6. 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.

7. 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

9. Success Story: Manpower Tech Reach Program • Manpower’s 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

10. Manpower Tech Reach Program “It’s 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 don’t have a Hispanic, Asian and African-American strategy having to do with putting disadvantaged workers to work in a meaningful way, you’re not going to be able to run your organization in fifteen years. And you can’t 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.

12. 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

13. 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

15. 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

16. Success Story: CEMEX Patrimonio Hoy • In mid ’90s, CEMEX was hit hard by Mexico’s 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”

17. 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

19. 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.

20. Challenge:Pathmark’s Harlem Store • Pathmark decided to open Harlem store in early ’90’s • 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

22. Challenge:Pathmark’s 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

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

24. 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

25. Mine and Translate Local Market Information • What’s different • Heterogeneous • Poorly documented • Different culture, assumptions • Case study solution • CEMEX • Send study team • Pathmark • Pilot stores in community

26. Adapt Business Model to Community Realities • What’s different • Costs per unit high • Harder to reach goodcandidates • Case study strategies • Citibank • Build on ATM infrastructure • Manpower • Use community groups for recruitmentand screening

27. Change Incentives & Challenge Cultural Assumptions • What’s different • Structure and incentives aimed atmainstream • Inaccurate assumptions • Case study strategies • Citibank • Build incentivesinto performance reviews • CEMEX • Deliberately identify and test assumptions

28. Build Partnerships and Strategic Alliances • What’s different • Market barriers:cost, 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

29. Improve the Enabling Environment • What’s different • Inadequate infrastructure • Cumbersomeregulations • What to do • Invest in infrastructure • ATMs • Advocate for change • Self-regulation • Equator principles

30. 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

31. Group Exercise • What products and services does my CU already provide to underserved markets? • What do I see as potential ways to expand my CU’s products and services in underserved markets? • What do I need to know to do more?

32. 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

33. R.E.A.L. Actions – For R.E.A.L. People

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

35. R.EA.L. Transaction Products • Check cashing • Stored value cards • Money orders • International wire transfer • Tax preparation • Short term small loans

36. 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 Check Cashing and REAL Credit Unions

37. 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

38. 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 Establishing VITA Sites

39. 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 R.E.A.L. Credit Union Stories

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

41. Indirect Savings at Tax Time

42. 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?

43. 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

44. 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

45. Your Family and Payday loans Maybe! All kinds of people use This most often predatory product Which can create financial disaster

46. 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

47. 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

48. 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

49. 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

50. 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 Credit – the REAL Story It’s Quick and Easy And Members Love it!!!