In a warm Friday in August, Stephen Galvan proudly stands outside his bank's headquarters in a Latino neighborhood in Kansas City, Kan. The place is teeming with immigrants from the section of town known as the Argentine who are ready to deposit their paychecks. Industrial State Bank, the financial institution that hired Galvan 30 years ago, does a healthy business in this thriving Latino enclave. With four branches in inner city Kansas City, the bank is ideally located to serve Latino immigrants.
The author, in black dress, visits the recent Feria de Finanzas (Festival of Finances) at the nonprofit organization El Centro, in Kansas City, Kan., which provides a wide range of services to Latino immigrants. Banks opened 76 new accounts during the event.
To open accounts for many immigrants who lack traditional documents such as a driver's license and Social Security number, Galvan persuaded his bank to accept Individual Taxpayer Identification Numbers (ITINs) and matriculas consulares, official identification cards issued by the Mexican government.
"Latino immigrants are in tremendous need for financial services," Galvan says. "They are the workers in America who take the jobs that other Americans refuse to take - the low wage, unskilled jobs," Galvan says. "They pay taxes in America, and they should be given the opportunity to fulfill their basic banking and credit needs."
The sheer numbers
Statistics regarding the Latino immigrant population show an emerging, untapped market nationwide. The 2000 census revealed that nearly 13% of the U.S. population (35.3 million people) is of Latino origin. This is a 58% increase over the 1990 census. About 39% (14.5 million) of those are immigrants from Latin America. The Latino immigrant population has jumped 73% since 1990. Of the 14.5 million, a little more than half were born in Mexico.
Latinos hold substantial buying clout. Last year, Hispanic purchasing power was $452 billion, up 118% over 1990, according to the National Council of La Raza.
Research corroborates the need for financial services: Latinos are more likely to be "unbanked," or without a bank account, than any other ethnic group. A 2002 survey by El Centro showed that only 30% of respondents held a checking or savings account, and more than 60% used check cashers for financial services. Only 17% had a credit card, and only 10% had applied for a loan.
And Latino households save. El Centro, which offers an avant-garde mortgage program for its undocumented clients, reports that many of its unbanked families have thousands of dollars saved in cash. In fact, the first four families that qualified for the program had stashed between $18,000 and $34,000 at home.
Immigrants not only save but they also send sizable sums of money to relatives in Latin America. According to the InterAmerican Development Bank (IADB), immigrants send an average of $250 across borders on an almost monthly basis. The average cost for this size transfer is about $18. The cost does not include speculation on the exchange rate or the practice of charging the customer a less advantageous rate than the market's in order to yield an additional profit. IADB estimates that remittance transfer companies earn an extra $2.25 to $10.50 per $250 transaction.
With about $20 billion being wired to Latin America and the Caribbean annually, financial institutions nationwide are scrambling to design competing products. Bank of America offers Safe Send - a safe, convenient and inexpensive way to send money to Mexico. With this product, the bank sends an ATM card to the account holder's family member in Mexico, who can then withdraw money at any ATM. The charge for this service is $10 and up to $500 can be transferred daily.
The numbers point to opportunities for financial institutions. If banks are flexible, they can capture a profitable market. Flexibility means accepting alternate forms of identification to open bank accounts. Instead of requiring a driver's license and a Social Security number, many bankers catering to their burgeoning Latino clientele ask for an ITIN and a matricula consular. Forms of alternate identification also include foreign passports and voter registration cards, but ITINs and matriculas consulares are the most widely accepted forms. What are these?
ITINs
In 1996, the Internal Revenue Service (IRS) began issuing ITINs for taxpaying purposes. ITINs are tax processing numbers for individuals required to have a U.S. taxpayer identification number but who are ineligible to obtain a Social Security number. To obtain an ITIN, an individual must complete and mail in IRS Form W-7. Some banks include the form W-7 in account-opening packets for their immigrant customers.
Matricula consular
The matricula consular is an identification card issued by the Mexican consulate to individuals of Mexican nationality. The matricula bears a picture of its owner; name, date, city and state of birth (in Mexico); current address; issue date; expiration date; and the location of the consulate that issued the card. This year, the Mexican consulate upgraded the matricula card to a high-tech digital version. The new card incorporates seven security features, including holograms and other embedded designs.
Alice Perez, Hispanic market manager for U.S. Bank, one of the first financial institutions to begin accepting matriculas, says, "Our bank decided to accept the matricula when we realized that the procedure for obtaining it is similar to the bank's 'know your customer' rules."
Mexican consulates in the United States issued almost a half million matriculas in the first half of 2002 and expect to break a million before year-end.
To date at least 61 banks, 14 states and 800 police departments accept matriculas as official identification. John Byrne, senior counsel and compliance manager at the American Bankers Association, was quoted in the July 6 New York Times: "The consular ID card is a form of identification that the private sector finds acceptable. We feel fairly comfortable with the consular ID as a form of identification, and we're becoming more comfortable the more we speak with the U.S. government."
During the six months that have transpired since it began accepting matriculas, Wells Fargo Bank opened more than 30,000 bank accounts for Mexican immigrants. The bank also offers a money transfer service that charges a flat $10 fee for remittances to Mexico for transactions up to $1,000.
Patriot Act issues
Some bankers initially feared that the U.S. Patriot Act would restrict a bank's ability to accept alternate forms of identification. The Department of the Treasury, the Federal Reserve Board, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Administration have jointly issued proposed regulations that will implement Section 326 of the Patriot Act. These rules specifically cite foreign forms of identification as acceptable documents for opening bank accounts.
The regulations state in Section 103.121(b)(2)(I) Information Required that: "At a minimum, a bank must obtain from each customer the following information prior to opening an account: name; address; for individuals, date of birth; and an identification number." An identification number is further described: "For non-U.S. persons, a bank must obtain one or more of the following: a taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other governmentissued document evidencing nationality or residence and bearing a photograph or similar safeguard."
How to market to Latinos
Reaching the Latino immigrant population
Personnel
Employ bilingual, Spanish-speaking staff. Start out with tellers and new account representatives because they are encountered first by customers upon entering the bank. Hire people from the branch's immediate community. Immigrants will feel more at ease with people they know. Churches that offer bilingual services can help with recruiting, as can community groups.
Provide sensitivity/diversity training for bank personnel. Instructing employees about the cultures of prospective customers will make the employees more comfortable working with Latinos.
Pay your bilingual staff fairly. Speaking another language is a sought-after skill.
Community involvement
Become involved in community groups. Find out which group is the most effective at reaching out to the Latino community. Ask the group to refer its clients to you. William P. Selenke, vice president and Kansas City district manager for U.S. Bank, speaks from experience. "We go into the community as much as possible to find customers. We go to businesses to open accounts for employees and make presentations for community groups." Ask community groups how you can work to overcome any perceived obstacles to doing business with your bank. Many Latino immigrants distrust banks because of bad experiences in their countries of origin.
Offer financial education classes to community group clients. Many organizations offer English as a Second Language (ESL) classes. Offer low-cost accounts with bonuses, such as free checks for ESL students who attend a series of financial education sessions. The FDIC offers Money Smart, a comprehensive financial education curriculum in Spanish. It encompasses 10 modules that cover everything from opening a bank account to understanding credit reports to obtaining a home loan. Money Smart offers a scripted course that has proved easy to teach. Order it free at FDIC's web site at www.fdic.gov/consumers/ consumer/moneysmart/index.html.
Talk to your regulator's community affairs office. Chances are that the office has already started an initiative that you can latch on to. Ask about linking some efforts with CRA credit.
Do not limit yourself to helping with the local Cinco de Mayo celebration. Sponsor booths at ethnic, cultural and religious festivals. Attend community and neighborhood association meetings. It's a good way to find out about your new market and its needs.
Partner with a faith-based organization. Offer to give a presentation to its members on budgeting or another financial education topic. Advertise in its bulletin. A church in the Back of the Yards neighborhood, a historic Latino neighborhood in Chicago, partnered with banks to provide free tax preparation to the community.
Embark on a school partnership. Sponsor school events. Arrange field trips for children to visit the bank and open accounts for them. The children will bring their parents to the bank and will remain loyal customers to you when they grow up.
Branch location and services
Some banks establish branches inside shopping malls frequented by Latinos or businesses that hire significant numbers of Latinos. A rural Kansas bank set up a branch and an ATM inside a meat packing plant that employs 600 Latino workers. Other banks send personnel to employers. If you bank the employer, you have a conduit to its employees. Offer to cash employees' paychecks. Your staff can then market accounts to them. Cater to merchants in Latino business enclaves. They may become an excellent source for business and other loans.
Offer convenient hours. Find out what hours people work at major employers and tailor your hours of operation to employees' free time.
Be careful about translating documents. Make sure the translator is aware of the particular dialects of your Latino group. Have people from churches, community groups and your own staff who are representative of the nationalities you wish to serve review for clarity and for any offensive language.
Make your electronic services bilingual. Offer Spanish language options for your telephone banking, ATM screens and web site. "Pushing for our voice response to be in Spanish was a positive move for Industrial State Bank," Stephen Galvan, senior vice president, says. "It gave us the ability to communicate in Spanish 24 hours a day."
Products
Don't rely on traditional products to persuade new clients. Survey community groups that work with Latinos and ask them what's needed. Invite several local Latino residents and businessmen to an evening chat with refreshments at the local church or group headquarters.
Latinos tend to be loyal to businesses that treat them well. Because many have been tricked into bad deals, especially when they first arrived in this country, they may be reluctant at first. However, if you are perceived as trustworthy and willing to offer them good products, they will be loyal customers. Latinos tend to be conservative with their money and avoid risk. Recognize that there are different groups within your Latino clientele: moreestablished immigrants, new immigrants, second-generation Latino youth. They all need different products.
Many immigrants send money to relatives in foreign countries. Lowcost wire transfers and free calling cards can be offered along with new accounts tailored to their needs. Be innovative - a Connecticut credit union baby-sits children while clients are closing on mortgages.
Consider using alternative underwriting guidelines for your products. Many clients may not have a credit history established. Use rent and utility payments in lieu of debt payments. A Missouri bank offers a CD secured loan. The client deposits a CD with the bank, the bank extends a loan for the amount, the client pays it off in a year or two, and then gets to keep the interest.
Start clients who are wary of checking accounts with savings accounts. Offer free or reduced money orders with it so that they can pay bills. This will ease the transition from a check-cashing outlet, reduce the risk for your bank and earn you a satisfied customer.
Toward the future
"The Latino community needs increased access to mainstream financial services, and financial institutions clearly face an opportunity to increase their customer base," says Glenda Wilson, community affairs officer for the Federal Reserve Bank of St. Louis. "Banks may overcome cultural barriers that can discourage Latinos from establishing a banking relationship by becoming engaged in their communities."
The Latino immigrant population holds promise for financial institutions wishing to take the quantum leap into this growing new market.
[Author Affiliation]
Elizabeth R. Kelderhouse is community affairs officer for the Federal Deposit Insurance Corp. in the Kansas City Region. These articles are reprinted from Bridges, a quarterly publication of the Federal Reserve Bank of St. Louis.
