Immigrant Outreach

By Robert Stowe England

There's plenty of growth potential in serving immigrant populations, but also plenty of transition issues to surmount.

Who says there are no growth opportunities in banking these days? Certainly not the financial institutions targeting immigrant communities: Hispanic and Asian populations in the U.S. are projected to grow by 258% and 267% respectively between 1995 and 2050, compared with just 50% for the nation as a whole, and their purchasing power is soaring.

Combined with the fact that many immigrant communities are "under-banked" — only 56% of U.S. Hispanics use banks, compared with 90% of the overall population — the potential for account growth, both consumer and small business, is enormous. "This is our greatest growth opportunity," says Percy Simpson, senior vice president and marketing executive for Bank of America Corp's consumer bank in Charlotte, N.C.

Bank of America estimates that 78% of the nation's 39 million Hispanics lives within its franchise area, representing 60% of the expected population growth in key markets within its 21-state footprint. Last year alone, the bank added 120,000 Hispanic households to its customer base. Other major players tackling the immigrant market include Citigroup Inc.; Wells Fargo & Co.; FleetBoston Financial Corp; U.S. Bancorp; Wachovia Corp.; HSBC Holdings plc; and Fifth Third Bancorp.

Massive transition headaches go with this opportunity, however. Marketing to distinct ethnic groups requires an appreciation of those unique cultures and specialized strategies to reach them. It's not enough simply to translate brochures into the applicable language.

Even the basics of daily banking pose some special requirements, such as bilingual tellers and call center representatives, multilingual Web sites and tailored product and service offerings. BofA, for example, created a low-cost way for Mexican and other Latin American immigrants to send cash back to their home countries (sidebar, page 18). Bankers also need to establish contact with important community groups, since immigrants often are best approached on a group rather than an individual basis.

There are some tricky financial issues as well. Along with risk management, identity authentication can be a problem for immigrants who haven't yet established the "paper trail" of native-born citizens. The controversy over Mexico's matricular consular cards (sidebar, below) underscores the complexity of these issues. Profit margins also may be low, at least initially, given upfront marketing outlays and the fact that many of these customers fall into the "low income/high-maintenance" category.

Finally, bank marketers need to plan for generational transition. While first-generation immigrants are receptive to ethnic appeals, their sons and daughters may regard themselves as more "mainstream" Americans, and hence no longer susceptible to such narrowly focused marketing.

Still, experts say these problems can be overcome with patience and a willingness to take the time to understand immigrant banking's unique dynamics.

Neutral Spanish

Projections based on the 2000 census data show just how rapidly some of these markets are growing. By 2050, it is estimated that Asian-Americans will comprise 9% of the total U.S. population, up from 4% in 1995. Most impressively, Hispanics are expected to surge to 22% of the total population, compared with 9% in 1995.

These figures highlight some lucrative opportunities for financial institutions. In 2000, for example, about 990,000 Asian-American households (32% of that group) had annual incomes of at least $75,000, compared with 24% for the entire U.S. population. While Hispanic incomes tend to be lower, this group still boasts 1.1 million households (13%) with incomes of at least $75,000.

With wealth comes purchasing power. The Selig Center for Economic Growth at the University of Georgia estimates Hispanic purchasing power in the U.S. will jump 89% between 2000 and 2007, from $491 billion to $926 billion, while that of Asian-Americans will rise 78%, from $255 billion to $455 billion.

These markets are spectacularly diverse, however, creating a nightmare for marketers. Asian-Americans, for example, fall into many distinct categories, each with its own language and culture. The major groups are Chinese, Filipino, Korean, Vietnamese, Japanese and south Asian (Indian and Pakistani). Hispanics may speak a common language, Spanish, but otherwise differentiate among themselves. Mexicans, for example, cannot be approached in exactly the same way as Colombians or Guatemalans.

"We tend to generalize about the Hispanic market, but there are big differences within this group," says consultant George L. Albright, chairman of Atlanta-based Speer & Associates Inc. One example cited by Albright: the Salvadoran immigrants in Los Angeles (several hundred thousand, according to estimates) often prefer to open joint accounts that authorize several people to write checks on a single account.

When marketing to Guatemalans as a niche market, Wells Fargo allows these customers to use their Guatemalan identification cards for opening checking accounts, and it partners with Guatemalan community groups to co-sponsor events. When appealing to the Hispanic market as a whole, through radio or television advertising, the San Francisco-based bank looks for common ground. "We try to use neutral Spanish to make sure the largest number of Spanish speakers feel that we are talking to them," says Robert Byrne, director of diverse growth segments group at Wells Fargo in San Francisco.

Beyond anecdotal claims of success, banks have a hard time evaluating their ethnic marketing initiatives, since they are forbidden by law from asking about the race or ethnicity of checking-account customers. As one measure of progress, U.S. Bancorp sends Spanish language direct mail to prospects that live near 300 targeted branches and then measures account growth at those locations. Steve SaLoutos, senior vice president and manager of product management in Milwaukee, Wis., cites "good" results but declines to elaborate.

Building Loyalty

Beyond cultural and language differences, immigrant communities present another key obstacle for bank marketers: they often distrust banks. In Latin America, for example, only about 20% of the population uses a bank (37% in Mexico), according to the Inter-American Development Bank and Celent Communications. This is not surprising, given the tendency of Latin American governments to devalue their currencies and freeze deposits in recurring economic crises.

It's actually a testament to the high reputation of U.S. banks that 56% of U.S. Hispanics have accounts. But the distance that remains to be traveled can be seen in the comparison with the 90% of Americans overall who patronize banks.

And then there's the undeniable fact that some groups have low incomes and offer less potential for banks, at least initially. "Many checking accounts won't be profitable for the banks," says George J. Benston, professor of finance accounting and economics at the Goizueta School of Business at the University of Georgia.

Bankers say they're willing to be patient. "Some customers are profitable right away; some are profitable over time, as they buy more services," says Wells Fargo's Byrne. "That's not just true of our immigrant population — it's also true of a lot of our customers who are just starting out, such as students with their first checking account."

There are other inducements for banks to stick it out. Marketing to low-income immigrant communities counts toward fulfillment of the federal Community Reinvestment Act, for example. There are also enough profitable customers in the upper strata of the Asian and Hispanic markets to justify a specialized outreach.

The marketing expenses involved in this outreach shouldn't be underestimated, however. To begin with, banks need to maintain bilingual tellers in branches located in neighborhoods that have large concentrations of the targeted group. Eighty-three percent of Chinese immigrants, for example, prefer to communicate in Chinese rather than English, while 60% of Hispanics prefer Spanish, according to a recent report from Boston-based Celent Communications. Texas-based institutions have long employed Spanish-speaking tellers in certain areas.

One community bank in Vienna, Ga. has gone a step further. Flag Financial Corp., with assets of $540 million, operates two separate all-Spanish branches in the Atlanta suburbs under the name "El Banco de Nuestra Comunidad." The first branch in this group, which opened in June 2002, is already profitable, according to the bank.

Given the proliferation of delivery channels in recent years, institutions can't just stop with the branch. Call centers, for example, must be staffed with bilingual employees, and Web sites need translation into diverse languages such as Spanish, Chinese and Korean. With 12.4 million users, the number of U.S. Hispanics online is larger than the total online population of Spain, according to a January 2003 survey by comScore Networks of Reston, Va. Asian-Americans, with Internet adoption rates at over 60%, constitute a particularly important target for Web outreach.

Product Innovation

Such efforts are just first steps, the entry point for getting into the game, so to speak. Banks that are serious about attracting immigrant business must carry these tactics to a higher level.

Wells Fargo, for example, operates seven branches where all the employees are bilingual — five in Los Angeles, one in San Diego and one in Phoenix. Signs outside are printed in both English and Spanish and the branch interior design itself boasts a color palette designed to make Hispanics feel more at home — more reds and oranges, Diego Rivera-style art work, and comfortable furniture conducive to long waits. "Since many Latinos bring the whole family to the bank, these branches have a broader teller platform and more seating," Byrne says.

The seven Spanish-speaking branches have generated double-digit growth in checking accounts, according to Byrne, who adds that many of the accounts were opened by people who previously never had them. Wells Fargo was one of the first banks to accept the matricular consular card provided by Mexican consulates to Mexicans working in the U.S. as one of two forms of identification needed to open a checking account.

Product innovation is another key to successful ethnic marketing. Banks such as Citigroup of New York and Cincinnati-based Fifth Third make special free-checking offers from time to time, since monthly fees and minimum balances have often been barriers to some immigrants who want to open a checking account.

Minneapolis-based U.S. Bancorp has developed special products specifically for immigrant and ethnic communities, including a secured credit card and secured term loan. In the case of the secured term loan, a third-party sponsor (a community group or organization), can provide some of the collateral required to make the loan. This program has been "successful for us," SaLoutos says, who declines to elaborate.

Meanwhile, BofA and other institutions offer an array of mortgage products aimed at low-income groups. These products include mortgages with low down payments, no down payments or those that allow a third party, such as a local community group or municipality, to contribute to the down payment.

The role of community groups is important in immigrant marketing, since they provide a gathering place and source of information for people who may be uncomfortable operating in the larger society. In a pilot program introduced last year in New York City and northern New Jersey, FleetBoston offered Spanish-language financial education seminars. These sessions, held in bank branches and community centers, were advertised in the local Spanish print media, attracting as many as 200 people to each session. "This form of outreach helps people feel more comfortable with banking," says Ana Lopez, director of affinity markets at FleetBoston.

Lopez declines to say how many new accounts were actually opened. But she says FleetBoston was sufficiently encouraged by the results to repeat the seminars this year and expand the program to more branches and neighborhoods. Wells Fargo has likewise embarked on special financial education efforts, including seminars planned in cooperation with Mexican consulates. It also offers college scholarships for Latino youths and recruits branch staff from the local community.

Federal banking officials generally applaud these efforts, noting that alternatives to the banking system, such as check-cashing shops and informal remittance systems, can be more expensive for the immigrants. "It's good for the consumer, it's good for the economy, and it's good for banks to develop new customers," says Sandra Braunstein, senior associate director of the Division of Consumer and Community Affairs at the Federal Reserve Board.

All new markets have their own intricacies, however, and tapping the financial services opportunity for major immigrant populations certainly will require U.S. financial services providers to master new skills and new ways of doing business. Adaptability may prove the key trait for the winners in the market, posing yet another challenge for the standardized operations of the major banking companies.

Mr. England is a freelance writer based in Arlington, Va.

Copyright © 2003 by Banking Strategies, published by BAI.

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