Industry Revenue by Category and Segment in Financially Underserved Market Revenue: $89 Billion $8.9B. Money Order Walk-in Bill Pay Payroll Card

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1 Financially Underserved Market Size Study DECEMBER 2013 Key Findings in an $89 Billion Market: CORE INNOVATION CAPITAL INSIDE: sponsored by The financially underserved market generated approximately $89 billion in fee and interest revenue in from a volume of approximately $792 billion in principal loaned, funds transacted, deposits held, and other financial services provided. The financially underserved market saw annual growth in revenue of 8%, from a previous total of $82 billion, while the volume of business conducted grew 7% from $740 billion in Steady, moderate revenue growth occurred across all product categories: Short Term Credit grew by from 2011 to, Very Short Term Credit and Payments each grew by 7%, Deposits grew by 4% and Other services by 6%. The strongest growth segments in included: open-loop prepaid cards both Payroll (32.7%) and General Purpose Reloadable (28.5%), Refund Anticipation Checks (25.3%) and Subprime Auto Loans (23.6%). Indicators project the financially underserved market will maintain a steady growth rate of 8% in 2013, reaching a total of $95 billion in revenue. Industry by Category and Segment...page 1 Rate by Category...page 2 Rate by Product Segment...page 3 Product Segments to Watch...page 3 A Closer Look at Four Years of...page 4 Appendix: Methodology and Data...page 5 Subprime Auto Loans are likely to be the highest growth product segment in 2013 with a projected growth rate of 23.1%. Industry by Category and Segment in Fees and Interest ($B) $21.4B Deposit Advance Refund Anticipation Check Pawn Loan Payday Loan: Internet Payday Loan: Storefront Overdraft Financially Underserved Market : $89 Billion $49.6B Credit Card: Secured Auto Title Loan Installment Loan Rent to Own Credit Card: Subprime Auto Loan: Subprime Auto Loan: Buy Here Pay Here $8.9B Money Order Walk-in Bill Pay Payroll Card Prepaid Card: GPR Check Cashing Remittance $4.7B Savings Account Checking Account Deposits 5% Payments Short Term Credit 56% $4.2B Debt Settlement Tax Preparation Very Short Term Credit Short Term Credit Payments Deposits Other Other 5% Very Short Term Credit 24% Note: Figures based on available market data and CFSI/Core proprietary analysis, calculations and assumptions. See appendix for source listing and further information for individual product segments.

2 The Financially Underserved Market The United States financially underserved market generated $89 billion in fees and interest in, representing growth of 8% from $82 billion in 2011.* Financial services for underserved consumers in the US constitute a diverse and continually growing marketplace, encompassing close to two dozen products and services accessed by more than 68 million individuals each year.** Overall, the market continues to show growth in both revenue and volume of usage across all categories, including Very Short Term Credit, Short Term Credit, Payments, Deposits and Other financial services. CFSI and Core Innovation Capital present this Knowledge Brief to share the significant trends and the range of revenue opportunities the financially underserved market offers today and in the future. The inclusion of products in this report are intended to describe the financially underserved market landscape and do not constitute a commentary on the appropriateness, safety or quality of any specific product for consumers. * Updated from previous annual report to reflect revised 2011 estimates. See appendix for detailed information. The Financially Underserved Consumer Our market of interest encompasses financial products that serve consumers whose needs are not fully met by traditional products and services. These consumers may use alternative financial services - such as check cashing or payday loans - to meet some or all of their financial needs. They may be challenged by subprime credit scores or thin or no credit files. Or they may find their access to a full range of conventional financial products otherwise limited by low to moderate household incomes or income volatility that inhibits the achievement of financial health. Collectively, these consumers represent approximately $1 trillion in annual income. ** 2011 FDIC National Survey of Unbanked and Underbanked Households, September Rate by Category 9.9% 10.5% 11.2% 2011 to to 2013 Projected 6.6% % 5.5% 2.8% % Very Short Term Credit Short Term Credit Payments Deposits Other Note: Figures based on available market data and CFSI/Core proprietary analysis, calculations and assumptions. See appendix for source listing and further information for individual product segments. 2 Underbanked Market Sizing Study

3 Rate by Product Segment 35% 25% : Projected 2 15% 5% -5% Financial Products Note: Figures based on available market data and CFSI/Core proprietary analysis, calculations and assumptions. See appendix for source listing and further information for individual product segments. Product Segments to Watch in the Financially Underserved Market GPR Prepaid and Payroll Cards had the highest growth rates in among all products reviewed and our projections place them among the three fastest growing products reviewed for However, we expect the rate of revenue growth to decrease moderately due to prepaid market maturation and increasing competition resulting in lower card fees. Although Buy Here Pay Here Auto Loans (BHPH) has been the dominant auto loan product over the past four years in terms of revenue, we expect the Subprime Auto Loan segment to surpass BHPH in 2013, as it maintains a faster pace of growth driven by increasing availability of subprime credit and decreasing interest rates. Subprime Credit Cards saw strong growth in as consumer lending rebounded from constrictions following the financial crisis, and we project continued growth at a more moderate rate in 2013 as pent up demand for revolving subprime credit becomes satisfied. As online lending became increasingly available, growth of Internet Payday Loans far exceeded growth of Storefront Payday Loans in and this trend will likely continue into 2013 when we project Internet Payday will nearly match Storefront Payday in overall revenue for the first time. However, we expect Internet Payday growth to slow somewhat in 2013 due to increasing market saturation and pressure from state and federal regulators. We project Checking Account revenue will experience accelerated growth in 2013 driven by higher fee structures and the near elimination of free checking accounts by most major banks following regulatory changes to interchange fees in the Dodd-Frank Act. Several financial products based on older pointof-sale models including Storefront Payday Loans, Auto Title Loans, Money Orders, Walk-in Bill Pay, and Check Cashing demonstrated very low growth or slight contractions in and for our 2013 projections. We expect Check Cashing to rally slightly in 2013, however, due to moderate macroeconomic growth driving increased cash flow. Products including Secured Credit Cards and Overdraft protection also showed modest growth or slight contraction in. We expect this trend to continue in 2013 due to increased regulatory scrutiny following the 2009 CARD Act and 2009 changes to Regulation E that resulted in limited fees or altered business models. Refund Anticipation Checks (RACs) experienced heightened growth in as this perceived alternative to Refund Anticipation Loans (RALs) absorbed market demand following changes in IRS policies that ended RAL provision. With the consumer shift from RALs to RACs effectively complete, we expect growth for RACs to return to moderate rates in Underbanked Market Sizing Study

4 !"#"$!"##$!"#!$!"#%&$!"#"$!"##$!"#!$!"#%&$!"#"$!"##$!"#!$!"#%&$ A Closer Look at Four Years of in the Financially Underserved Market 4 Deposit Advance Change in for Very Short Term Credit Products Change in for Short Term Credit Products Percent Change in Percent Change in to to to Year-over-Year Intervals to 2013e Overdraft Pawn Loan Payday Loan: Internet Payday Loan: Storefront Refund Anticipation Check (RAC) Auto Loan: Buy Here Pay Here Auto Loan: Subprime Auto Title Loan Credit Card: Secured Credit Card: Subprime Installment Loan Rent to Own to to to to 2013e Year-over-Year Intervals Change in for Payments Products Percent Change in Check Cashing Money Order Payroll Card Prepaid Card: GPR Remittance Walk-in Bill Pay to to to to 2013e Year-over-Year Intervals 4 Underbanked Market Sizing Study

5 APPENDIX Market Size Analysis Methodology and Data Methodology Market sizing analysis is an exercise of best estimation for a quantity that is frequently unknowable. For this analysis, we sought sources that are credible, consistent with other estimates, and continuous, providing historic figures for reference. In many cases, we extrapolated from multiple data sources to arrive at our final estimate for a given product segment. Our sources and key figures are summarized below, and we transparently disclose our confidence level (high, medium, low) for each product segment. We encourage readers with access to further information to share those figures so that we can continuously improve our analysis. CONFIDENCE LEVELS HIGH Methodology disclosed Based on surveys or company-specific information Cited by industry leaders MEDIUM Estimate derived from credible market data LOW No methodology disclosed CFSI/Core estimate requiring significant extrapolations and assumptions Pre-2010 data Product Segment ($B) 2011 to Estimated to 2013e Volume ($B) 1 Confidence Level Data Sources Auto Loan: Buy Here Pay Here % 5.9% 66.6 High Experian Automotive Quarterly and Annual Reports ; 2013 Industry Market Report, Leedom & Associates, LLC Auto Loan: Subprime % 23.1% High Experian Automotive Quarterly and Annual Reports Auto Title Loan % 0.9% 1.6 Medium Driven to Disaster: Car-Title Lending and Its Impact on Consumers, Consumer Federation of America and Center for Responsible Lending; Federal Highway Administration Statistics Checking Account % 14.1% Medium United States Census and Federal Reserve Data, 2001 ; National Survey of Unbanked and Underbanked Households, FDIC 2009 and ; Prepaid Cards or Traditional Checking Accounts: What is the Better Choice? Javelin, 2013; Market scan of checking account fees; Estimates exclusive of Overdraft revenue Check Cashing % 2.2% 65.7 High Credit Card: Secured % -2.3% 5.2 Low Credit Card: Subprime % 7.6% 11.3 Low Debt Settlement % 0. N/A Low Deposit Advance % 0.4% 4.3 Medium Installment Loan % Medium National Survey of Unbanked and Underbanked Households, FDIC 2009 and ; "Check Cashing & Money Transfer Services: A Market Analysis," Marketdata Enterprises, Inc., 2013; Information provided by industry professionals. Card Act Report, Consumer Financial Protection Bureau, 2013; Market scan of leading secured credit card companies; Information provided by industry professionals. United States Census and Federal Reserve Data, 2001 ; Market scan of leading subprime credit card companies; Equifax press statements; FICO press statements; American Bankers Association letter to CFPB, 2013 Market scan of leading debt settlement companies; Federal Trade Commission regulatory data; State-level public record data Payday Loans and Deposit Advance Products, Consumer Financial Protection Bureau, 2013; Deposit Advance market scan; Information provided by industry professionals. SEC quarterly and annual report filings of market leading installment loan companies, ; Installment loan market scan Money Order % Medium Federal USPS money order data, ; Money order market scan; National Survey of Unbanked and Underbanked Households, FDIC 2009 and Overdraft % -1.5% 8.3 Medium Moebs $ervices annual overdraft data, ; National Survey of Unbanked and Underbanked Households, FDIC 2009 and Pawn Loan % 8.6% 13.6 Medium SEC quarterly and annual report filings of market leading pawn companies, ; Pawn Industry Overview 2013, National Pawnbrokers Association Payday Loan: Internet % 9.1% 18.6 High Payday Loan Industry, Stephens Inc. 2011; Stephens Inc., 2013; A Complex Portrait, CFSI, ; Payday Loans and Deposit Advance Products, Consumer Financial Protection Bureau, 2013; SEC quarterly and annual report filings of market leading payday companies, Payday Loan: Storefront % 30.1 High Payday Loan Industry, Stephens Inc. 2011; Stephens Inc., 2013; A Complex Portrait, CFSI, ; Payday Loans and Deposit Advance Products, Consumer Financial Protection Bureau, 2013; SEC quarterly and annual report filings of market leading payday companies, Underbanked Market Sizing Study

6 Market Size Analysis Methodology - continued Product Segment ($B) 2011 to Estimated to 2013e Volume ($B) 1 Confidence Level Data Sources Payroll Card % High The Contenders: Prepaid Debit and Payroll Cards Reach Ubiquity, Aite Group, ; Winning the Void, Aite Group, 2010; SEC quarterly and annual report filings of market leading payroll card companies, Prepaid Card: GPR % 22.4% 53.6 High The Contenders: Prepaid Debit and Payroll Cards Reach Ubiquity, Aite Group, ; Winning the Void, Aite Group, 2010; SEC quarterly and annual report filings of market leading GPR prepaid companies, Refund Anticipation Check (RAC) % 7.9% N/A High Something Old, Something New in Tax-Time Financial Products, National Consumer Law Center and Consumer Federation of America, 2013; RAC market scan Remittance % 0.3% 51.1 High Rent to Own % 8.5 Medium Savings Account % 4.4% 42.3 Low Annual Remittance Data (Inflows, Outflows and Bilateral Remittance Matrices), World Bank, 2013; Remittance Prices Worldwide, World Bank, 2013; remittance market scan SEC quarterly and annual report filings of market leading Rent to Own companies, ; RTOHQ.org industry data, 2013 National Survey of Unbanked and Underbanked Households, FDIC 2009 and ; Beyond Barriers, New America Foundation, 2011 Tax Preparation % 3.2% N/A Low IRS tax filing data; The Impact of Free Tax Preparation on New Haven s Economy, New Life Corporation and Coalition for Working Families, 2011; Arlington EITC Study, 2011; Estimates exclusive of RAC and RAL revenue Walk-in Bill Pay % -2.8% 24.7 Medium The 2010 Federal Reserve Payments Study, Federal Reserve, 2011; Third-Party Walk-In Bill Payments in the United States, Mercator, Total Market % 7.9% Underbanked Market Sizing Study

7 This paper benefits from strategic input and financial support from Morgan Stanley. As with all CFSI research, this report is additionally supported by a grant from the Ford Foundation. The opinions expressed in this report are those of CFSI and Core Innovation Capital only and do not necessarily represent those of our sponsors. The Financially Underserved Market Size Study is an annual report created jointly by the Center for Financial Services Innovation (CFSI) and Core Innovation Capital. Special thanks to authors Eva Wolkowitz, CFSI Research Analyst, and Jeffrey Oh, CFSI summer associate, to the CFSI External Relations team, and to design consultant Jon Heiniger. The Center for Financial Services Innovation (CFSI) is the nation s leading authority on financial services for underserved consumers. Through insights gained by producing original research; promoting cross-sector collaboration; advising organizations and companies by offering specialized consulting services; shaping public policy; and investing in nonprofit organizations and startups, CFSI delivers a deeply interconnected suite of services benefiting underserved consumers. Since 2004, CFSI has worked with leaders and innovators in the business, government and nonprofit sectors to transform the financial services landscape. For more on CFSI, visit our web site and join the conversation on Center for Financial Services Innovation 20 N. Clark, Suite 1950 Chicago, IL CORE INNOVATION CAPITAL Core Innovation Capital is the only venture capital fund that invests exclusively in financial technology companies serving America s underbanked consumer market. Its target segment consists of more than 68 million consumers, who generate over $1 trillion in annual income and spend more than $89 billion in fees and interest on financial services per year. The fund partners with proven entrepreneurs who seek above market-rate returns and share its vision to improve the lives of low- to moderate- income Americans. Based in New York City, the partnership is backed by leading institutional investors. For more information about Core Innovation Capital, visit Supported by a grant from the Differences between the and 2011 Market Sizing Reports Buy Here Pay Here (BHPH) auto loans have been separated out from traditional subprime auto loans for the first time in this report to reflect the significant differences between these two products with regards to interest rates and terms of repayment. Refund Anticipation Loans (RALs) have been completely removed from this year s report. RALs were offered on a very limited basis for the 2011 tax year processed in due to regulatory changes. As such, RALs generated only $46 million in revenues in, a figure too small to be reflected in this report. All year-over-year growth rates reflect revised figures for past years based on updated data and methodology where applicable and the retroactive inclusion or exclusion of financial products to ensure that annual changes are directly comparable. For information on our 2011 methodology, see the 2011 Underbanked Market Sizing Study. Endnotes 1. We do not compare volume to revenue for the products in this report because volume analysis varies depending on product category. Very Short Term Credit volume is sized according to annual dollars borrowed to reflect the usage of products which are often extended multiple times to a consumer during one year; Short Term Credit is sized by average outstanding volume to reflect loans paid in installments and balances carried over a longer period; Payments are sized by annual transaction volume; Deposits are sized by average annual balances held in accounts; and the volumes of Other financial services, which generate revenue and fees independent of volume, are not sized in this report. 2. In this report, Subprime Auto Loans indicate loans to consumers with a VantageScore under 640, approximately comparable to a FICO score of 650 or below. 3. Only the portion of the relevant segment encompassing financially underserved consumers was considered for this report. Estimates are based in part on the share of consumers designated underbanked by the FDIC s National Survey of Unbanked and Underbanked Households in 2009 and. 4. Subprime Credit Cards are typically marketed to consumers with FICO scores below 660 and in this report indicate revolving lines of credit provided at subprime rates to consumers with FICO scores at or below 620. Morgan Stanley Disclaimer This document is not a product of Morgan Stanley & Co. LLC, including the Morgan Stanley Research Department, and its affiliates (collectively Morgan Stanley ). The information and opinions in these materials were prepared by the Center for Financial Services Innovation (CFSI) and Core Innovation Capital with financial sponsorship and strategic input from Morgan Stanley. These materials are solely for informational and discussion purposes and do not reflect the views of Morgan Stanley. Morgan Stanley does not undertake to update these materials and the conclusions discussed may change without notice. Morgan Stanley shall not in any way be liable for claims relating to these materials and makes no express or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in, or omissions from, them. Past performance is not necessarily a guide to future performance. This material is not a solicitation of any offer to buy or sell any security, commodity or other financial instrument or to participate in any investment strategy. This material was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Each taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. The trademarks and service marks contained herein are the property of their respective owners. Morgan Stanley is a global Financial services firm that has pursued and may continue to pursue investment banking, investment management and proprietary investment positions related to the underbanked marketplace. Facts and views presented in these materials have not been reviewed by, and may not reflect information known to, professionals in Morgan Stanley business areas Center for Financial Services Innovation and Core Innovation Capital ALL RIGHTS RESERVED. This document contains material protected under International and Federal Copyright Laws and Treaties. Any unauthorized reprint or use of this material is prohibited. 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