1 Emerging Opportunities for Innovation in Small-Dollar Credit Kim Manturuk Senior Research Associate in Financial Services UNC Center for Community Capital University of North Carolina at Chapel Hill Pre-Conference Workshop on Findings From The Field – Consumers and Small-Dollar Credit
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1
Emerging Opportunities for Innovation in Small-Dollar Credit
Kim Manturuk Senior Research Associate in Financial Services UNC Center for Community Capital University of North Carolina at Chapel Hill
Pre-Conference Workshop on Findings From The Field – Consumers and Small-Dollar Credit
2
Small-Dollar Credit Customers Hard to Find
4% 2% 6%
11%
77%
Source: 2011 North Carolina Comissioner of Banks Consumer Banking and Finance Survey
Auto title loan
Payday loan
Installment loan
Pawn loan
No small-dollarcredit products
3
CFSI’s Compass Principals for Credit Products
Report to credit bureaus
Support repayment
Market transparently Price fairly
4
Very Short Term Loans = Too Short Term Loans
Low loan balance
borrower can repay quickly
High fees so lender can
achieve profitability
5
Disclosures Need Improvement
0%
10%
20%
30%
40%
50%
60%
Payday loan Pawn loan Direct depositadvance
Installmentloan
Auto title loan
Cus
tom
ers
who
did
not
kno
w lo
an c
ost i
n ad
vanc
e
Source: CFSI Research on Small-Dollar Credit
6
How Much Will This Loan Cost?
7
8
Convenience and Accessibility Are Important
9
Underbanked But Not “Under-Smartphoned”
growth in iPhone use in 2011
use mobile banking
Smartphone is primary internet connection
Sources: Fjord Consulting and Pew Research Center
Minorities own smartphones
10
Underbanked Borrowers Are Not High-Risk
55% paid at initial repayment date
38% extended loan
5% relinquished collateral
item complete default rate
Paw
n lo
an o
utco
mes
Source: CFSI Research on Small-Dollar Credit
11
Most Existing Products Do Not Meet Consumer Needs
Reasonable cost
Time to repay
Installment payments
Disclosures
Consumer needs
Profitability
Long-term customers
Cost covers risk
Lender needs
12
Strategic Partnerships Reduce Costs
Lender + Employer =
Lender + biller =
13
Technology Can Reach Underbanked Consumers
Payment apps Money management and savings apps Loan
apps?
14
Underbanked Consumers Operate Through Many Channels
15
Even Traditional Financial Institutions Can Succeed in Small-Dollar Credit
12% APR Includes savings
< 0.2% default ~200,000 loans/year
NC State Employees Credit Union Salary
Advance Loan
16
Research and Evaluation Are Crucial to Understand What Works
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