Report: Retail Financial Services, The Evolving Needs of U S Consumers

ACE Cash Express, Inc. (AACE) has issued a report offering insights on the current state of the retail financial service needs of consumers in the United States.

The report provides an overview of the evolving nature of how Americans access and utilize financial services at the retail level and the increasing number of consumers who periodically or rarely utilize the traditional retail banking system. ACE has a unique perspective on the dynamics that are fundamentally altering the landscape of retail financial services.

Jay Shipowitz, CEO of ACE Cash Express, stated, "America is changing and so too are the financial service needs of its citizens. Continued immigration, increased urban concentration, erosion of the middle class and other factors have combined to produce a growing segment of the population who do not utilize traditional retail banks. This has given rise to the services offered by ACE and other providers who understand and meet the unique needs of these consumers."

Retail Financial Services The Evolving Needs of U S Consumers A Status Report from ACE Cash Express

Introduction
For the past decade a profound evolution has been taking place in the way Americans meet their individual financial service needs This change has taken place gradually and it has occurred off the radar screen for most but it represents a fundamental shift in how a rapidly growing number of Americans choose and access the services they require to manage their day to day money matters and their overall financial needs

While estimates vary according to a 2002 Report by the Government's General Accounting Office GAO as many as 56 million adult Americans about 28 of all U S adults may not have a bank account When this so called un banked population is combined with the similarly large number of people who are classified as under banked because they do not utilize or qualify for bank services beyond maintaining an account it represents a sizeable and incredibly significant segment of America

Effectively and responsibly serving the distinct needs and preferences of this population is a critical component in the smooth operation of the US economy and society at large Effectively and responsibly serving the distinct needs and preferences of this population is the business of ACE Cash Express

The Face of ACE Traditionally it has been believed that those Americans that are either unwilling or unable to establish a relationship with a traditional bank are small in number at odds with the mainstream and possess some flaw or deficiency that causes them to operate outside the norms of society

Clearly times have changed At one third of the population and growing they are fast becoming the mainstream So who are these individuals what makes their needs so different and what has driven them to define an entirely new consumer financial services model

Some of them drive the bus that takes our children to school while others teach them when they arrive They fight fires and patrol the streets to keep us safe They build houses pave roads and repair utility poles They work on farms in hospitals and for the government They serve food in restaurants run checkout counters at supermarkets and work as customer service representatives for large and small companies They serve in every branch of the military and defend our nation at home and abroad They are our neighbors and our friends They are the face of America

They are hard working people many of whom own their homes pay taxes raise their families and struggle to build a better quality of life For the most part they make less than the median family income of 50,000 They are desperately trying to hold on to their place in the shrinking American middle class and in many ways they are the backbone of our society and a critical component of our economy

In part due to the continued flow of new immigrants to this country this group is also growing constantly They come from as many countries and backgrounds as we have in America but they share at least two important things in common

The Changing Face of Individual Financial Service Needs
The financial service needs of Americans have changed as the population of the country has changed While the traditional banking model continues to work for much of the population particularly the middle and upper middle class the balance of Americans have found the system completely out of step with their needs.

Today two thirds of Americans live in urban centers Hispanics and African Americans represent 25 of the population and they are the fastest growing segments of the population Only 25 of the American workforce is considered professional technical while nearly 80 of Americans do not have a college degree Over the past 15 years an average of one million immigrants per year came to the United States.

For many of these Americans the business model of the traditional bank does not work For them the painful reality of poor or no credit history makes them undesirable to banks while for others minimum balance requirements and high overdraft and other fees make maintaining a checking account unrealistic Even for those who do establish an account many simply keep a minimum balance and are unable to build savings access lines of credit or utilize other basic bank services The lack of a nearby branch or multi lingual tellers and limited hours of operation further contribute to the disenfranchisement of these Americans Some simply do not feel welcome or comfortable inside a bank.

Consolidation in the banking industry has reduced the number of neighborhood branches increased banks focus on corporate and higher income customers and limited their ability to serve and interest in serving the needs of individual customers with small accounts or less than perfect financial histories.

The growing immigrant population continues to diversify our country with new languages customs and needs These consumers are less technologically proficient and want to conduct their financial business with a human being and have diverse language requirements And like all segments of the population these consumers have busier more hectic lives and are looking for greater convenience flexibility and service in everything they do.

These are all elements that traditional banks are deemphasizing with respect to individual consumers.

The Challenge of Living Paycheck to Paycheck
Many Americans are fortunate to live in a situation where they can save not only for that proverbial rainy day but also to build a better future for themselves and their family They dedicate a portion of each paycheck or their annual tax refund to pay for future college tuition a bigger home or retirement.

For more and more Americans however this is simply not possible Each month the amount of money they earn is equivalent to their living expenses for rent utilities food clothing and other necessities In fact according to its 2001 survey the Consumer Federation of America estimates that an astounding 53 of Americans live paycheck to paycheck at least some of the time For these Americans living paycheck to paycheck leaves no margin for error which means any unusual unforeseen or immediate expense can become a crisis And as we all know life is full of unusual unforeseen and immediate expenses.

For example what happens when the car the only means of getting to and from work breaks down and needs 500 in repairs What happens when a child gets sick and requires an expensive prescription that isn't covered by insurance What happens when the utility bill is much higher than expected because of a cold winter What happens when a spouse is laid off temporarily reducing the family income by half Reality doesn't wait for payday to come around.

When these things happen waiting three days for a check to clear waiting until Monday when a branch opens paying with a credit card or borrowing from the rainy day fund are simply not options What is needed is quick easy and convenient access to financial services that provide the solution It is this societal need that has led to the growth of companies like ACE and the rest of the community financial services industry.

ACE and the Emergence of the Community Financial Services Industry
ACE is the leading company in this field with more than 30 years of experience over 1,200 stores in 37 states and the District of Columbia and a track record of continually providing innovative solutions to meet customer needs Each month approximately 3 million customers visit our stores for service and assistance in handling their day today money matters.

They come to ACE because we understand their needs provide quick respectful and confidential service in a safe clean and convenient location ACE customers view our retail stores the same way Americans used to view their neighborhood bank as a helpful accessible friendly and essential partner in managing their lives For many Americans today we offer a regulated licensed and safe solution to help people convert their paychecks to cash get short term loans pay bills send money to relatives all around the world and even shop online with their debit cards.

Each of the services ACE provides is in direct response to an identified customer need Each year we conduct extensive customer satisfaction surveys to ensure we exceed our customer's expectations and understand how their needs and preferences are changing We have received more than 230,000 responses to our questionnaires in the last three years alone Over the years we have continually refined our service offerings to ensure that we provide the greatest amount of freedom flexibility and choice possible to our customers.

Check Cashing Services
For those without a meaningful banking relationship a bank is generally not an option for cashing a weekly or monthly paycheck But even if a person has a checking or savings account the bank will hold all or a large portion of the funds until the check clears which is often several days.

For many people particularly those who get paid on Friday using a bank and having to wait several days for access to their cash is not an option ACE offers customers immediate access to their hard earned money.

Bill Payment
For an individual without a checking account the simple act of paying a monthly utility bill can involve considerable time and inconvenience At ACE we provide walk in bill pay services which allow our customers to quickly process many of their monthly payments at one of our convenient neighborhood locations rather than delivering cash in person to several different locations around town or facing the possibility of late fees or discontinued service Our customers made over 9.7 million bill payments at our stores last year many of which we posted immediately thus avoiding a late payment or shut off of a critical utility

Money Transfer
With the continued growth in the immigrant population increasing numbers of workers in America need to find safe reliable and convenient ways to send money to family members across the country and around the world ACE provides that convenient and user friendly service in the same environment where customers can handle all of their other money management needs ACE has become a trusted brand in the community for this service This past year our customers wired money to family and friends over 2 million times with a face value of 581 million.

Short Term Loans
There is another large group of people who do use bank accounts but do not have savings accounts and live paycheck to paycheck For these consumers who lack collateral for a bank loan or the necessary credit history to qualify for a credit card an unexpected expense or other emergency can become a major crisis The traditional banking system offers few if any viable solutions for these individuals ACE has stepped up to meet the short term credit needs of those who simply can't afford to wait until their next paycheck arrives.

Each month we provide approximately 180,000 short term loans with an average loan size of 278 to our customers In most cases we are able to process the application within 15 minutes and provide cash on a short term basis.

These loans are provided to customers who are currently employed and have an active checking account The majority of these customers are female some with working spouses but many are single moms They come to us when they face an unexpected bill such as a car repair medical bills heating and cooling repairs or when they just need cash to get them to the next payday to cover necessities like food and clothing and back to school supplies Since most of our customers are living paycheck to paycheck they occasionally need a cash advance.

A majority of these customers have incomes between 25,000 and 50,000 and 94 have high school diplomas or better with 56 having attended college or having earned a degree Almost half of these customers own their home On average our loan customers use ACE for short term emergencies five times per year.

Some critics have claimed that the approximately 16 about 40 fee charged for this service is unfair and amounts to an inappropriately high equivalent annual percentage rate However the facts related to customer usage and customer satisfaction as well as the direct comments of our customers dispute this claim Moreover a comparison between the fee for this service and the actual real life alternatives available to our customers clearly demonstrates that the fee is more than equitable With respect to the APR some point to the mathematical cal culation that a 16 fee on a two week loan would equate to the equivalent of a roughly 417 APR Although this percentage rate may be eye catching it is entirely inappropriate to gauge the cost of a short term loan based on an annual percentage rate basis The payday loan provides an alternative to overdraft fees which average 30 per check and are charged to the consumer whether the check is 5 or 200.

The business of providing short term unsecured smalldollar loans is labor intensive and involves a level of risk that traditional banks would not be willing to take In fact on average banks claim that the cost of simply processing an in person loan application is as much as 250 Due to the relatively small amount of the loan collections are expensive and often unsuccessful so there is a higher level of risk involved.

A payday loan by definition is short term unlike a mortgage a car loan or a credit card balance that is carried over a long period of time It can be equated to a taxicab ride Taxis are very expensive and inefficient to use for everyday or lengthy travel and if one were to calculate the cost per mile of traveling by taxis versus the cost of buying or renting a car it would clearly come out much higher But taxis just like payday loans are useful and very efficient for occasional short distance needs They both offer considerable convenience accessibility and immediate assistance in getting from one point to the next.

Cash Advance Customer Profile Sources The Credit Research Center McDonough School of Business Georgetown University Gregory Ellichausen and Edward C Lawrence Payday Advance Credit in America An Analysis of Customer Demand April 2001

But even if APR were an appropriate yardstick by which to measure the cost of a payday loan a quick look at the available alternatives would reveal that even by that standard the value is much greater than one might think.

Banks are not required to disclose the APR on bounced checks or overdraft protection At ACE all fees are prominently posted on the menu boards in our stores and 96 of customers report being aware of the fee While many consumers can obtain overdraft protection this practice results in the consumer paying high fees and interest rates often without their knowledge or consent.

William Isaac former Chairman of the Federal Deposit Insurance Corporation FDIC said that short term cash advance lending provides a much needed and muchappreciated service to low and middle income families And the true test of the need for this service comes from those who utilize and benefit from it Recent surveys show that 92 of customers believe that a cash advance loan is a useful service and more than 75 reported satisfaction with their most recent transactions and numerous studies show the state regulators receive very few complaints despite the millions of transactions each year.

Our short term loans are fully regulated financial products and ACE refuses to provide such loans in states that do not actively regulate them The fact is that these short term loans are one of the only alternatives many working Americans have to gain quick legal access to cash and compared to other alternatives the loan is a tremendous value.

Debit Cards
In listening to our customers over the years we increasingly realized their desire for greater financial freedom and flexibility Although providing access to cash and check writing services opened new opportunities for them the introduction of our MasterCard debit card and payroll card represents a dramatic increase in the opportunity available to a customer.

Through this service which has already been utilized by more than 300,000 ACE customers individuals receive the benefits that so many others take for granted safety security FDIC insured funds and the convenience of being able to use a payment card at millions of locations worldwide For many this card unlocks the potential to shop online for the first time The card also has other options available to customers such as payroll direct deposit In the future this card will also become the vehicle for accessing one of the most important features in achieving greater financial self sufficiency savings Through debit payroll cards we expect that ACE customers will be able to deposit regular sums of money into FDIC insured savings accounts and put money away for their own American dream.

Leading the Industry and Serving Our Customers
ACE Cash Express exists and prospers because of our singular focus on the needs of our customers We understand their lives and we listen to what they say through our annual surveys targeted meetings focus groups and the tens of thousands of individual interactions we have each and every day at our stores.

Our customers trust us with some of their most personal and important decisions We have become a critical partner in their daily lives With this role comes tremendous responsibility and we take that responsibility seriously.

We also take great pride in being an active and empowering force in the communities in which we operate That is why we give 1 of net income annually to support children's causes education and financial literacy We call it Giving Back The ACE Community Fund The ACE Fund targets the very people we serve and seeks to help them and their children develop basic financial management skills as well as improve their lives in a variety of ways During fiscal 2004 ACE donated over 200,000 to various charities across the U S.

One program sponsored by ACE distributed over 780,000 book covers to schools in disadvantaged communities Joining ACE in this program was the State of Texas Office of the Consumer Credit Commissioner which provided the financial literacy text and graphics for the book covers.

We have also engaged with the Mental Health Association We recently made a 10,000 donation to create a financial education curriculum to provide individuals with mental illness with the skills and knowledge to enable them to achieve self sufficiency and participate in their own recovery This program has the potential to be adopted by Mental Health Associations across the country.

In Baltimore Maryland ACE became a sponsor of the Urban Debate League This group enables inner city youth to learn debate skills and compete nationally and internationally in debate forums United States Congressman Elijah Cummings joined ACE in presenting a 10,000 check to the Debate League to expand their training programs.

On a national basis ACE has teamed up with The March of Dimes to sponsor WalkAmerica an annual event that raises money to fight birth defects and premature birth During the month of April the ACE store network became 1,200 points of light to collect money mostly 1 at a time Through the generosity of our customers we raised 100,000 for this worthy cause.

The fact is the face of America is changing The financial service needs of the majority of Americans are not the same today as they were 25 or even 5 years ago ACE is a customer driven business providing products and services in direct response to the needs of those in the community needs that have gone unmet by other financial institutions We will continue to be the advocate of the underbanked and the under appreciated helping to ensure that these Americans have quick easy access to cash and the purchasing power to meet their needs ACE is here to help these Americans achieve the American dream of a better quality of life and a higher standard of living.

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