Independent Bank’s senior vice-president marketing Connecting and informing the community about business opportunities

MIAMI, FL (By Sean Farrell, Poder) June 28, 2008 (Original article published July 2006) ― The American banking system’s pursuit of the U.S. Hispanic market brings numerous chal­lenges along with the obvious potential for attracting here­tofore-untapped personal and commercial business.

Independent Bank is committed to attracting Hispanic business. It is hardly alone in that regard in the U.S. as banks of all sizes throughout the country are actively pursuing what is clearly an incredible growth opportunity going forward.

Banking options are increasing for Hispanics as financial institutions reach out to the growing middle class. Banks and financial institutions are tailoring their products to meet the needs of Hispanics — those with and without documents — by installing ATMs with Spanish-language options, translating websites into Spanish and even creating special mortgage packages that don’t require traditional documentation.

But the major driver behind this potential business is Hispanic penetration in the banking sector is incredibly low. While 90 percent of Americans overall held bank accounts, according to 2005 figures, that amount dropped to 56 percent among Hispanics in the U.S. As of 2004, only 23 percent of American Hispanics had a credit card in their name, as opposed to 80 percent overall. While debt is clearly anathema to this sought-after group, home ownership is a dream pursued and often attained by Hispanics, evidenced by the fact that 47 percent of that group hold mortgages compared to 68 percent of Americans overall. According to the Pew Hispanic Center, a nonpartisan research organization based in Washington, D.C., approximately 6 million Hispanic immigrants throughout the United States are currently sending money back home. It is estimated they will send close to $30 billion in remittances from the U.S. to Latin America and the Caribbean over the course of 2006.

Atlanta-based El Banco de Nuestra Comunidad is aggressively pursuing the opportunity to integrate Hispanic immigrants into the U.S. banking system. With its brand currently licensed through Sun Trust Bank, El Banco’s twelve branches are not actually banks not yet, anyway though they have proved to be highly successful in reaching customers who previously trusted only tangible savings, the kind you literally sleep on. Spanish-speaking tellers, some who are even unilingual, are among the approaches El Banco has used to establish an environment that entices Hispanics to do business with them, along with unconventional banking hours and family-friendly reception areas.

“Our value proposition to the customer says, ‘You are a stranger in a strange land, and at El Banco you are welcome and safe,’” says Richard Chambers, vice chairman of Nuestra Tarjeta de Servicios Inc., which owns El Banco. “At El Banco we will provide you with a suite of financial products and services that you are already familiar with, that you’re using in the cash economy and we will provide those to you at a cost advantage to your previous experience. We will also provide you with financial education and a customer experience delivery system for those products with which you’ll be comfortable. We will provide you financial education to show you there is another way here in the United States to participate in the economy and we will not set you up to fail in your experiment of moving from the cash economy to the banking economy.”

While trust is the basis of any sound relationship between a bank and its customers, it is the paramount issue that needs to be addressed by any banker that hopes to reach out and connect with Hispanics, many of whom have been burned by bad experiences with financial institutions in their homelands that have undermined their faith in any form of money other than cash. “We believe education, trust, a solid value proposition and serving the customer with people who look and behave and have had cultural experience similar to the ones these individuals are experiencing are key factors in bringing these individuals into the American banking system,” Chambers says. It’s a business opportunity that is worth the hard work behind establishing that essential bond.

 “Obviously our investors believe that and I think the degree of that belief is shown by the fact in the very difficult period for equity raising between 2000 and the present we have had eight successful private offerings, each of which has been oversubscribed, all to accredited investors, so sophisticated individual investors have looked at this at various times and committed their capital to it,” Chambers says. “Our branches at the branch level are all profitable and they have become profitable in a very short period of time. We have moved over 15,000 individuals from never having had a bank account in the United States to opening their first bank account.”

One of the company’s three divisions, El Banco Services and Consulting, has been busy passing along its hard earned knowledge. “We have worked with several other banks around the country and are currently working with some other banks to design Hispanic banking brands and help them fashion their response to the population explosion,” Chambers says.

And while he says his company is very satisfied with what they have already accomplished with its customers, Chambers made it clear its goal is to spread its clients’ roots in the U.S. banking system and continue growing the scale of the financial services it wants to offer its customers. The company is currently pursuing a bank charter and Chambers says that will allow it to serve every segment of the Hispanic market in a variety of ways. “But our primary focus is these customers are not currently in the banking system,” he says. “So instead of slugging it out with 8,000 other banks to attract the business of the upper tier segment of the Hispanic population, we believe there is a much larger both in absolute numbers and from a competitive standpoint business opportunity in the un-cultivated and semi-acculturated segment.” Among the nationwide American banks pursuing the Hispanic market, Charlotte based Bank of America the third-largest company in the world, according to this year’s Forbes 2000 widely touts its roots in servicing Irish and Italian immigrants and claims to draw on its experience gleaned from that heritage in its attempts to woo both the newly-arrived Spanish-speaking population, as well as the financial needs of Hispanic customers with deeper and established U.S. roots.

“Immigrants that have come to this country want to be able to succeed, not only for themselves but for their entire family and generations to come and we want to be a part of that history,” Bank of America spokesperson Diane Wagner says. “It’s always been a backbone of the success of this company. We’re reaching out to this market and we want them to succeed. For us part of educating them on financial literacy is not only what their dollars can do for them but also how do they learn to save for their children’s education and the third and fourth generations that are to come.” As part of its strategy, Bank of America hires bilingual employees and bank literature and signs in many branches are in Spanish. Nearly half of the bank’s new hires last year were bilingual Spanish speakers. Bank of America also sponsors events important to the Hispanic community and holds frequent financial literacy seminars in coordination with Mexican consulate offices around the country. Bank of America appears to have made inroads — it claims 48 percent of all U.S. Hispanic households use at least one Bank of America financial product, from checking accounts to mortgages. Just as Independent Bank learned to make an adjustment to its Banco Independiente initiative, Bank of America discovered it needed to tweak its Safe Send remittance program.

 

Originally launched in 2002, the program was refined through a pilot project in which the bank targeted the large Hispanic community in Chicago at the beginning of 2005 by eliminating virtually all fees involved in sending money home. The results were good enough to allow nationwide implementation last September. Bank of America, which owns 24.9 percent of Banco Santander Serafin, Mexico’s third-largest bank, has also developed relationships with Bansefi, Banorte and Telecomm-Telegrafos which provide a network of over 4,500 locations to pick up money throughout Mexico. “It was truly listening to the voice of our customers,” Wagner says. “They told us they wanted to put more money in the hands of their family members and friends. In other words they didn’t want to pay the exchange rates, they didn’t want to pay the foreign fees, they wanted to make sure more money got remitted home and not absorbed in fees. They wanted a stream lined process.” In Bank of America’s case, Wagner acknowledged targeting the Hispanic market requires a distinctive approach that speaks to the community’s needs and sensibilities. “Some places would tell you brick and mortar is really no longer essential in having a banking relationship but for this particular segment not all of them have the access to a computer or know the ability to go online banking,” Wagner says. “And they want that personal touch of talking to a person that understands their language and might take a look at the dollars they’re bringing in and saying, ‘Well, have you thought about taking some of this and putting it in a savings account? Here’s what our rates are for savings and this is what your dollars might be able to do for you.’” Some banks take the importance of brick and mortar a step further by creating a familiar atmosphere in their buildings and waiting rooms.

Branches located in areas with a high concentration of Hispanics are often adorned with images of the Virgin of Guadalupe and other culturally relevant symbols and decorations. Lobbies and waiting area typically tend to be larger with more seating areas for families. And it’s clear Hispanics have strong financial discipline. According to FDIC estimates, Hispanic purchasing power will reach $926 million next year, nearly double from $491 million in 2000. By 2010, says the Selig Center for Economic Growth, disposable income of Hispanics will exceed $1.08 trillion, or 9.2 percent of total purchasing power nationwide. That same year, according to a study by the Joint Center for Housing Studies of Harvard University, Hispanics will account for nearly one-third of the home buying pool. Not surprisingly that type of growth means potential for Hispanic business is turning up in non-traditional markets all over the U.S. For example, Little Rock based Metropolitan National Bank recently launched a Spanish version of its web site. Probably a good move considering that Northwest Arkansas saw a nearly tenfold growth in its Hispanic population from 4,760 in 1990 to 43,621 in 2003, compared to an overall increase from 418,500 people to 602,365 during the same period. Metropolitan National Bank also customizes services to Hispanics. Earlier this year, it introduced the Cuenta Latina Gratis, a checking account, and Directo a Mexico, a remittances service. Customers can open the checking account with a minimum deposit of $50 and two forms of I.D., a “matricula consular,” a Mexican government-issued card, or passport, and a driver’s license or employer I.D. card. Seattle-based Plaza Bank opened its doors in April, after raising $20 million from investors and receiving regulatory approval of its charter.

Opening a bank catering to Hispanics in the fast-growing northwest would appear to be an astute move. Seattle’s Hispanic population in creased 62 percent between 1990 and 2000, according to U.S. Census Bureau data, and Hispanic owned businesses in Washington state surged by 69 percent from 1992 to 2002, says a study by the University of Washington’s Business and Economic Development Center. Many of these banks not only have Hispanic tellers, their officers and board members are also Hispanic. Plaza Bank CEO Carlos Guangorena, a former Wells Fargo exec, is a native of Mexico; California’s City National Bank has an advisory board composed of Hispanic professionals and community leaders. Catering to a specific ethnic group can be a good initial hook, say analysts, but eventually the banks will have to serve a broad mix of clients in order to survive and thrive. Chambers acknowledges El Banco de Nuestra Communidad certainly has a mission to generate a return on invested capital for its shareholders, but he says it’s equally important to change the lives of its customers for the better through its value proposition and the way in which its mission is executed. “It is a source of great pride because there are very few people who have moved this many people from the cash economy into the banking economy,” Chambers says. “There are large banks that have opened tremendous numbers of bank accounts using the matricula consular but the key to this is, at the end of the day does the customer really use the account, does the customer understand what they are doing.” To drive that point home, Chambers recalled an instance of how El Banco de Nuestra Comunidad claimed a unique success story despite losing a loyal and faithful client. “We had a gentleman come in one Friday and he brought lunch for our tellers to thank them for the fact we had supplied him with coffee and pastries on his way home from work every day since he started doing business with us,” Chambers recalls. “And he brought lunch because he was withdrawing the money from his savings account because he was going back to Mexico to live. “He had been in the United States for six years and he was withdrawing $45,000. In the six years he had been here he had sent home an additional $45,000. If you think about how little money most of us as Americans are able to save, his dream had been to buy a small farm, build a small home on it and return home to Mexico to farm. And he was willing, in order to accomplish that dream, to come here and live in some overcrowded and really terrible conditions, work night and day for several years without ever going home and accomplish his dream, and we were proud we were part of helping him do it. We helped get the money out of his mattress and into the bank, and we met his other needs.”