Presentation to FDIC Advisory Committee on Economic Inclusion October 24, 2007 Washington, D.C.

1. Presentation toFDIC Advisory Committee on Economic InclusionOctober 24, 2007Washington, D.C. Economic Inclusion: Meeting the Financial Needs of Consumers Through Financial Service Centers

2. Introduction Joseph Coleman Chairman, FiSCA

3. Revolution • Revolution • Engage in meaningful dialogue to lead to actions that will vastly improve the delivery of financial services to consumers • Who is the enemy? • 13,000 outlets serving 30 million low to moderate income consumers

4. Financial Services Centers of America • FiSCA represents the Financial Service Center Industry - an economically significant force in the lives of millions of households. • Formidable Player in the Financial Service Industry: • Has evolved and thrived for over 70 years • Comprises 13,000 FSC’sthroughout the nation • Serves 30 million customers. • Conducts 350 million transactions each year, with transactions worth an estimated $106 billion • 95% of our customers rated our service as good to excellent. • At the end? 10 Calls to Action

5. The Bank Business Model Account Relationship Based Prefers Low Transaction, High balance Accounts Fiduciary – Requires overhead to mange safety and soundness of funds on deposit FSC Business Model Fee for service, pay as you go, transaction based Seeks high transaction volumes. Non Fiduciary – We transact primarily with our own funds A Tale of Two Business Models

6. How the Bank Business Model Fares in this Space • Our Customers • Are engaged in high-volume / low-balance transactions. • It is arguable that they pay less, overall, using an FSC than they would at a bank • Bank Errors • It is not “lack of branches” that alienates LMIs • What goes on in a bank branch is not what LMIs need. • The most successful FSCs are those surrounded by the most bank branches • The account-based model is not the best model for entry level access to financial services • Bank fees, unless subsidized, are too great a burden for many LMIs • As long as bankers are asked to serve LMIs at rates below cost, the cry of “bank the unbanked!” will not gain traction • We must do better than the simplistic temptation to trot out, over and over, the same old repudiated perennial panacea -- the low cost bank account

7. How the FSC Business Model Fares in this Space • The FSC Business Model • Provides a the best cost benefit equation for serving LMIs at reasonable prices • Attracts entrepreneurs • Ensures sustainability • Ensures the widespread delivery of needed services • FSCs Have Evolved To Satisfy The Genuine Needs Of LMIs • Liquidity • Access • Service • Transparency

8. The Real Financial Needs of LMI Consumers 1. Liquidity: The Single Most Urgent Need of LMI Consumers • Banks expect you to not to draw your account down to zero. • Many LMI individuals cannot afford to leave funds lying in an account – from time to time, they need all their money for necessities. • FSCs make 100 % of funds, less the fee, available immediately. We hold no funds 2. Access • LMI consumers require access due to demanding life styles, • Multiple jobs • Variable work hours • Family and childcare issues. • FSCs provide an environment where customers feel comfortable and respected. • FSCs maintain locations where customers live and work • FSCs are open extended hours including many 24 / 7 locations

9. 3. Service FSCs provide “financial oxygen” in the communities we serve Our hardworking customers need fast service We provide most of the economic necessities our customers demand Our cashiers know most of their customers by name, anticipate their needs; and speak the languages of the community The Real Financial Needs of LMI Consumers

10. The Real Financial Needs of LMI Consumers 4. Fee Transparency • LMI consumers must manage a tight budget. Events such as surprise fees, incomprehensible fees, and unknown charges can be catastrophic • FSC Fees • Fees are posted and known up front – there are no surprises • Fees are paid at the time of the transaction, at the point of sale • Fees are clearly listed on the customer’s receipt

11. What’s New in the FSC World FSC Driven, Entrepreneurial Innovations (What will succeed in this space are transactional versions of traditional products) Prepaid Debit Card / “Credit Card” / Stored Value Card • Provides a branded Visa or MasterCard • Acts as a virtual account to hold funds. • Enables consumers to access electronic commerce such as the internet. • Tens of thousands of customers

12. What’s New in the FSC World Credit Union/Bank and FSC Alliances • NY PayNet Deposit Program • Credit Union Members can use the Point of Banking Program to • Make deposits and get immediate availability. • Make Transfers. • Make Withdrawals. • Get Balances. • In some locations, customers can open accounts. • Participation is growing: 6 Credit Unions and 7 FSC Companies, comprising 150 locations • Approximately 24,000 deposits a year. • NYC PayNet Payroll Program • Check Cashers pioneered the PayNet Payroll Network. • Employees cash their checks free and the fees are borne by the bank.

13. Innovations in Consumer Empowerment FiSCA Consumer Empowerment Program: The “Three Legged Stool” • Savings • Credit Building • Education

14. Innovations in Consumer Empowerment 1. Savings • Every NetSpend card distributed by a FiSCA member comes with a totally liquid savings option. • No fee, no minimum balance, FDIC Insured • 5% interest • Approximately $44 million put into savings. • The program has been expanded to other businesses, such as convenience stores.

15. Innovations in Consumer Empowerment 2. Need Based Financial Education • Current Programs • Do not address the day-to-day financial needs and realities of LMI consumers • Focus on products and services that LMIs don’t use • FiSCA’s Program • Will reflect the demonstrated needs, preferences and behaviors of LMIs • Will provide educational materials to help consumers transition to traditional financial services • Will be delivered through the 6,500 FiSCA member locations across the country • Will be designed for delivery through wider channels, such as cable television

16. Innovations in Consumer Empowerment 3. Credit Building • The Need – Credit scoring for those with no history • The Solution • FiSCA’s partnership with PRBC (“Payment Reporting Builds Credit”) • PRBC enables consumers to build a credit file and score based on their history of making rent and other recurring bill payments • PRBC has been qualified as a “Community Development Service” for Financial Institutions

17. The Compliance Myth • The MSB industry suffers from the misperception that it is “high risk” • This conclusion ignores the actual compliance record of the industry • FSCs have an exemplary record

18. The Myth Results in “Bank Discontinuance” • Bank Regulators have put pressure on the banks that serve our industry. • We have experienced an epidemic of bank account closures • A small number of banks serve an enormous MSB industry. This places us in precarious position of risk • The trend endangers the very existence of MSBs and the essential financial services they deliver • Efforts by FinCEN and the federal bank regulatory agencies have had little or no success in reversing the trend of blanket bank discontinuance

19. What’s to Be Done About “Bank Discontinuance” • FiSCA led the effort to bring key constituents together to attack this destructive trend: • FiSCA • American Bankers Association • Other key MSB and banking organizations • Solution: a federal bill to provide regulatory relief • Desired Result: reduce the regulatory burden on banks by relieving them of a duty to act as the “functional regulator” of their MSB customers

20. Small Dollar, Short-Term Loans • The Need: There is a definite need for small dollar short-term credit – $47.65 billion a year is transacted. Last year 150 million loans were transacted; 20% of this number were transacted by FSCs • Problems and Substantive issues raised by consumer advocates and others: • Cost? • Entrapment? • Areas to reform? • Changes that meet consumer needs yet remain a sustainable product for providers • Public and media discourse has been incendiary and contentious • Facts are replaced by anecdote • Solutions • Instrument for constructive dialogue • Leadership is required • Create a task force

21. Consumers, FSCs and Satisfied Customers Patricia J. Cirillo, Ph.D Cypress Research Group

22. A Brief Look at the FSC Industry

23. FSCs: Take Home Messages The FSC Industry: • It is specialized and perfectly aligned with specific segment of the consumer market • It is large • It has an existing infrastructure, built on a commitment to high levels of services. • If you want to reach this consumer market, look inside FSCs

24. FSCs: Specialized Product/Service Offerings • FSCs are fairly homogeneous in the products/services they offer. • Because these are the products/ services that consumers need. % of FSCs operating companies

25. FSCs: Specialization=High Customer Satisfaction Products & Services Ratings How would you rate [current outlet] on…? 84% Convenient Locations Convenient Hours of Operations Treat Customers With Respect & Courtesy Helpful Employees In & Out Of Store Quickly Has Products & Services Needed Charges Reasonable Fees For Products/Services Offers A Safe Environment Clearly Communicates All Costs Of Products & Services 89% 88% 80% 90% 84% 89% 82% 85% 81% 90% 79% 75% 59% 89% 75% 75% % of Customers

26. FSCs: High Customer Satisfaction Overall Service Ratings • 95% customers rate the service as either “good,” “very good” or “excellent.” % of Customers

27. This industry knows and understands its customer……

28. Fairly Targeted Demographic Group Distinctive based on their demographic characteristics. As a group, they are: • Employed, either full- or part-time (85%) • Young. 70% are under age 45 • Even male/female split • Median income of $27,000 per year, but include significant representation from all income groups • More likely to be never-married than the general population (47%) • Educated (at about the same level as the general population)

29. More Insight Into The Customer They Are of Diverse Race/Ethnicity % of Customers

30. More Insight Into The Customer They Are In A Variety Of Professions • Customers are employed within a large array of industries and have a large variety of job categories. • No job category dominates this list. % of Customers

31. Even More Insight Into The Customer Some Have/Had Checking & Savings Accounts • FSC customers do not lack access to bank accounts. In fact, over half (58%) have either a checking account, a savings account, or both. • Those without accounts choose not to. % of Customers

32. The Most Important Thing To Understand….. …The Unique Needs Met By FSC Outlets • Convenient locations • Convenient operating hours • Relatively small number of products/services • Which can be delivered in fast, efficient manner by experienced, well-trained, representatives • Respectful, rapid service, regardless of financial status of customer • Access to cash, without the requirement of an account • Services are provided on an a la carte basis • No monthly fees (which these customers eschew)

33. The FSC sub-industry is large

34. Bill Payments Check Cashing Payday Advances Wire Remittances Money Orders Pre-paid Value Cards FSCs: Large Segment Of The Industry 358 Million Transactions/$106 Billion 57,136,952 $58M $5.4B $13.2B 2,802,699 $8.3B 137,402,509 32,443,313 $56.3B 20,982,881 $22.5B 107,645,244

35. Brief Look at the Consumer U.S. Consumer Financial Services Market Total of 229M Adults • FSCs serve a significant portion of this market (33M adults), yet share that service with banks for about 15M customers. • The unserved market is also of considerable size – almost 10% of American adults (22M). Unserved Served by FSCs Served by Banks/Credit Unions

36. Mature infrastructure which has evolved to meet specific needs….

37. Contrasting Business Models FSC Service Provision Evolved Out of Unmet Needs By the Traditional Provider Industry • FSCs • Calculate profit-per-transaction • No reliance on formal customer relationships; instead, service levels. • Relatively few product offerings, no segmentation based on customers’ status. Completely financial democracy. • No access to services out of stores; instead, extensive operating hours • In-store services are also expensive to provide, but high volumes keep costs down. High volumes are possible, while still maintaining high service, because of specialization. • Traditional Outlets • Calculate profit-per-customer • Heavy reliance on formal customer relationships (accounts) • Numerous product offerings, highly segmented based on customers’ net-worth • Strong investment in technologies to provide access to services out of branches • In-branch services are extremely expensive to provide; therefore, only high-profit services are encouraged in branches

38. FSCs: Take Home Messages, Put Another Way The FSC Industry: • Offers a small subset of financial services/products, with a focus on superior, convenient service • The number of consumers it serves is large (14% of the consumer financial services retail market) • FSCs serve their consumers in-person, by definition. Presents an efficient communication channel

39. Calls to Action Joseph Coleman Chairman, FiSCA

40. Calls to Action • To include the Financial Service Center Industry, represented by FiSCA, as a partner on the Advisory Committee, as a first step toward a productive dialogue addressing services to low- and moderate-income consumers; • To encourage the use of the Financial Service Center network as a ready-made delivery channel to reach low- and moderate-income consumers; • To provide banks the direction, incentive and motivation to make banking services available to Financial Service Centers; • To actively support the Bank Discontinuance Bill when it is introduced and to otherwise work to end bank discontinuance; • To dispel the myths about the compliance burdens and risks posed by MSB's and replace them with the facts; • To expand access to credit by endorsing and, by all available means, encouraging the use by banks of alternative credit scores such as those developed by PRBC;

41. Calls to Action 7. To promote and encourage the expansion of savings programs such as the FiSCA / NetSpend National Savings Program, in order to encourage low- and moderate- income consumers to take advantage of these savings opportunities; 8. To promote and encourage the expansion of partnerships and alliances between banks, credit unions and Financial Service Centers; 9. To promote, encourage and support financial education programs that reflect demonstrated needs and preferences and are designed for low- and moderate-income consumers who use Financial Service Centers; and 10. To form a “Small Loan Task Force” comprised of regulators, consumer advocates and providers from within the Financial Service Center industry in order to foster constructive dialogue about the best ways to ensure the availability of small dollar, short-term loans and other forms of credit, while still ensuring that consumers have protections from lending abuses.

42. Revolution Carpe Diem! Take up the challenge: 13,000 outlets serving 30 million Consumers.