CFSI Study Finds $23.4 Billion in Overdraft Fees for Underserved Consumers in 2014

New Market Sizing Report from CFSI and Core Innovation Capital
Reveals Financially Underserved Market Grew More than Seven Percent in
2014 to Estimated $138 Billion

CHICAGO–(BUSINESS WIRE)–Today, the Center for Financial Services Innovation (CFSI) and Core
Innovation Capital (Core) released their fifth annual Underserved
Market Size Study. The report, which benefitted from the financial
support and strategic input of Morgan Stanley and with additional
financial support from CFSI’S Founding Partner the Ford Foundation,
reveals that underserved American consumers spent $138 billion in fees
and interest in 2014, generated from a volume of $1.6 trillion in
financial activity. Overdraft represents the single largest revenue
category of all 26 products sized at $23.4 billion.

“Underserved consumers make up a large portion of financially unhealthy
Americans, and represent a tremendous opportunity for financial
institutions and innovators,” said Jennifer Tescher, President and CEO
of CFSI. “This annual study explores the complex makeup of the
marketplace so that providers are better able to develop and launch
safe, affordable, high-quality financial products and services to
improve consumer financial health.”

Findings indicate a continually growing marketplace that expanded at a
rate of 7.6% during 2014, demonstrating significant opportunities for
financial institutions and investors to develop high-quality, affordable
solutions that improve the financial health of underserved consumers.
The market is projected to grow by 6.8% from 2014 to 2015, reaching
total revenue of $147 billion.

“Americans’ financial lives are becoming more complex and more volatile
– financial vulnerability is the new normal, and ongoing growth in
alternative products and services reflects this pressure,” said Core
Innovation Capital’s Vice President Colleen Poynton. “While advancements
in technology and new entrants are driving increased efficiency in
certain product verticals, massive opportunity remains to reduce costs
and enhance access, efficiency, and experience across financial services
by innovating at the level of infrastructure, risk, product design, and
distribution.”

The Market Size Study identified three key trends driving the growth of
26 different products and services used by underserved Americans to
borrow, spend, save and plan in 2014, including subprime auto loans,
prepaid cards, and checking accounts.

• Short-term credit continues to grow faster than single-payment
  credit
  Consumer are spending more on short-term credit
  products – including installment loans and subprime credit cards. The
  category has grown 15% to $29 billion since 2013, while spending on
  single-payment credit — such as payday loans and overdraft — has
  declined by 0.6% to $38 billion over that same period. CFSI projects
  that short term credit products will soon overtake single payment
  credit in total revenue. Major factors driving this shift in credit
  revenue from loans due in one lump sum to loans due in installments or
  offered on a revolving basis include:
  • Anticipated regulatory changes likely to slow the revenue growth
    of single-payment products further;
  • Continued innovation from online installment and marketplace
    lenders;
  • Marketing of credit cards to a wide range of subprime consumers.
  • Explosion of growth for marketplace lending
    Marketplace
    lending, typically offered by online, nonbank institutions that match
    sources of capital with applicants for personal installment loans, is
    a recent entrant into the consumer finance market, but is growing
    faster than any other segment with 310% expansion of revenue during
    2014. It remains relatively small in terms of total revenue at $0.6
    billion, but CFSI anticipates that it may play an increasing role in
    the expansion on installment and line-of-credit loan models currently
    drawing a growing number of consumers — and will maintain a high
    growth rate into next year.

  “As the market for high quality products for the financially underserved
  continues to grow, there are significant investment opportunities to
  support innovative solutions that can help low-income Americans improve
  their financial security and address the nation’s growing economic
  inequality,” said Audrey Choi, Head of Global Sustainable Finance at
  Morgan Stanley. “At Morgan Stanley, we are committed to harnessing the
  capital markets to bring these kinds of solutions to scale.”

  This annual report sizes the market opportunity to improve the financial
  health of underserved consumers. At a minimum, this market includes the
  68 million adults that lack bank accounts or use alternative financial
  services, according to the FDIC. In addition, CFSI and Core measure
  marketplace revenue generated by consumers who are underserved due to
  subprime credit scores, unscorable credit information, or
  low-to-moderate or volatile incomes.

  The report is not intended as a commentary on the appropriateness,
  safety, or quality of any specific product, nor should it be construed
  as an endorsement of, or investment advice on, any product or service
  included.

  About CFSI:

  The Center for Financial Services Innovation (CFSI) is the nation’s
  authority on consumer financial health. CFSI leads a network of
  financial services innovators committed to building a more robust
  financial services marketplace with higher quality products and
  services, specifically for those who are struggling. Through its Compass
  Principles and a lineup of proprietary research, insights and events,
  CFSI informs, advises, and connects members of its network to seed the
  innovation that will transform the financial services landscape. For
  more on CFSI, go to http://www.cfsinnovation.com
  and follow on Twitter at @CFSInnovation.

  About Core Innovation Capital

  Core Innovation Capital is a leading investor in financial services that
  empower everyday Americans. With offices in San Francisco and Los
  Angeles, Core leverages its deep financial services, technology and
  regulatory expertise to help entrepreneurs and other investors build
  disruptive, high growth businesses. Core portfolio companies save over
  ten million customers more than four billion dollars every year.
  Investments include Oportun, Ripple Labs, CoverHound, NerdWallet, and
  TIO Networks. Follow Core at @CoreEMC and online at www.corevc.com.

  About Morgan Stanley

  Morgan Stanley is a leading global financial services firm providing a
  wide range of investment banking, securities, investment management and
  wealth management services. With offices in more than 43 countries, the
  Firm’s employees serve clients worldwide including corporations,
  governments, institutions and individuals. Since 2006, Morgan Stanley
  has committed more than $9.6 billion to strengthen underserved
  communities. For further information about Morgan Stanley, please visit www.morganstanley.com.

  Contacts

  Media Contact:
  CFSI
  Shannon Austin, 703.338.8813
  saustin@cfsinnovation.com