The Hispanic Market: Verdad o Ficción?

What do you call a person that speaks three languages?
Trilingual, of course.

What do you call a person that speaks two languages?
Duh, bilingual.

What do you call a person that speaks one language?
A community banker.

While all financial institutions are competing for that precious small business customer, are community banks missing the boat by not competing for the growing Hispanic segment?  Since media updates of the Latino population growth in the U.S. are currently being Trump-ed by the Rosie war, let me use this week to get it back on the front page. Apparently this segment is being courted and won over by the big banks.  Why is that?  One reason is that the big banks have the revenue to support a bilingual delivery and support infrastructure.

Understand the cost of the strategy
After spending the necessary think-time on a formal strategy to solicit and acquire this important segment, banks should be realistic about the capital it will take to lure and service it.  Nothing looks worse than a bank that screams, “Nosotros Hablamos Espanol” but can’t deliver.

Policies, People and Systems
Without getting into the whole illegal immigration debate, it will be necessary to make some pretty tough decisions and modify customer identification program policies and procedures.

What will serve as I.D.? Will anyone without a Social Security number meet with blanket-rejection? Does accepting Mexico’s Matricular Counselor I.D. card carry the possibility of “reputation risk,” which the big banks can afford to shrug off?  Look at the “pizza for pesos” fire raging in Texas as an example that garnered national attention.  How will not accepting anything except a Social Security card affect a bank’s acquisition target numbers?

On the servicing side, think of all the places where English speaking customers interact with the bank. How will that touch be serviced en Espanol?  Hiring bilingual branch employees may seem like a good solution, but is that a real support strategy?  Research suggests that Hispanics prefer branches within their own communities that are open later hours than traditional branches.  Consider everything that will be involved to staff, train and support a complete Hispanic branch network.

At the most basic level, to have a complete and successful Hispanic banking strategy, all collateral documentation will need to be in Spanish.  This includes branch product brochures, account opening forms, loan documents, newspaper advertisements and billboards.  What is the cost to duplicate all of these? How do systems know when to generate which flavor?  Beyond account acquisition documents, what about statements and notices?

Likewise, the number of bank systems that need a bilingual touch should not be underestimated. Having ATMs operate in bilingual mode is fairly common these days.  It is a requirement in this segment strategy.  But don’t stop at the ATM.  The bank will want to establish a new BIN or otherwise modify the card ordering process to allow a tarjeta de debito that has a different look than its English version debit card. And the same goes for tajeta de credito.

In the call center, there are two strategies.  One is to have the interactive voice response (IVR) system deliver the popular option, “Para Espanol, aprieta cinco,” and have that drive a duplicate menu structure with Spanish language prompts.  The other is to have the cinco option transfer directly to a Spanish speaking agent.  Either direction may exceed the capabilities of many banks’ IVR systems.  According to Dallas, Texas based Intervoice, a provider of IVR and speech solutions, bilingual deployments are no longer the exception but the rule.  The vendor’s response to this trend is a faster, out-of-the-box deployment of this feature as an integrated piece of its core offerings.  Using skill-based routing and enabling an opt-out to land on a Spanish speaking agent’s phone would be considered a best practice. However, to provide the prompts in Spanish is one thing.  Being able to perform speech recognition for the answers as opposed to responding to button pushes is another.  There is progress being made on this front.  All I can say is, thank goodness for quad socket, dual-core, 3.4 Ghz servers.  My poorly trained, neophyte ear-brain combination can barely keep up.

Products
So now that all of the Spanish support staff, documents and systems are in place, is free checking with a toaster going to satisfy the product demands of this niche? Not a chance.

A bank without a remittance product that targets this market will not be successful in attracting the business.  According to a survey of U.S. to Latin America remittance senders performed by Banorte of Monterrey, Mexico, 47% of all Latinos born outside of the U.S. regularly send money to their home country with Mexico receiving 33% of the total.  Most of these remittances are between $200 and $300 USD.  The competition will be primarily Western Union, Orlandi Valuta and Moneygram, as they hold 70% of the market according to Inter American Development Bank.  But the majority of these remitters do not have bank accounts.  Bankers, there’s an opportunity here.

In addition to remittance products, other services heavily used by the Hispanic community are check cashing, bill payments, phone cards and short term credits.  Packaging these together with a community outreach to introduce the bank and banking in general, with specifics about home ownership programs, would be a well-received source of financial education as well as earn some CRA points.

Summary
The facts point to some severe and expensive challenges for community banks wanting to enter this market.  The language and documentation issues are a given.  There is also a fear of institutions that have governmental oversight.

However, for a population base that is growing fast, the benefits of meeting their consumer banking needs now could either be a market share windfall or a missed opportunity.  The demographics point to bread and butter customers today that will grow into tomorrow’s treasured jewel, much like the growth of today’s small business segment.

Gonzonians would accuse me of not sufficiently supporting my premise if I did not offer at least a few relevant statistics.

• Seven of the 10 states with the fastest Hispanic population growth are in the South. Between 1990 and 2002, North Carolina’s grew 544 percent while Georgia’s grew 410 percent.
• In 2010, 15% of the total U.S. population growth will come from Hispanics.  In 2050 it will be 25%.
• Projections show that by 2020 nearly three-fourths of the U.S. Hispanic population growth will come from second and third generation.  Only 25% will be from immigrants.
• Hispanic households are larger and contain more young people. Thirty-four percent of Hispanics are younger than 18 compared to 31 percent for African American and 25 percent for the total U.S. population.
• While the market value of Hispanics’ savings accounts dipped 3.6 percent from 1997 to 2001, their portfolios experienced an annual increase of 33.2 percent. During this same period, the U.S. economy saw savings decrease 4.7 percent and investment portfolios decrease by 0.2 percent.
• Among the U.S. Hispanic population, 50 percent of net worth is concentrated in homeownership, compared with around 33 percent for the total U.S. population.
• The mean income of Hispanic households increased from $32,873 in 1972 to $44,887 in 2002.
• The aggregated net worth of the U.S. Hispanic population surpassed $534 billion in 2000, up more than 30 percent in two years. For non-Hispanic whites, the increase in aggregated net worth was 25 percent during the same period.
• The Hispanic homeownership rate has increased 2.3 percentage points in the last two decades – from 43.4 percent in 1980 to 45.7 percent in 2000. During the same period, the non-Hispanic white homeownership rate increased by almost 4 percentage points to 72.4 percent.
• HispanTelligence predicts the share of U.S. Hispanics who own a home will increase to 53 percent by 2012, up from about 49 percent in 2004.
• The state with the highest proportion of Hispanic-owned companies was New Mexico, where nearly 22 percent of all firms are Hispanic-owned.
• While Hispanics make up 13 percent of the U.S. population, they own just 5.8 percent of the nation’s small businesses. Sole proprietorships accounted for 85.6 percent of all Hispanic firms in 1997 but generated 22.6 percent of all business receipts.
• Many Hispanic-owned companies are entering the “middle market” stage of development, with revenues between $5 million and $50 million.
• Service industries accounted for 42 percent of all Hispanic-owned firms and 21 percent of receipts in 1997. Retail trade accounted for 12.9 percent of all Hispanic firms and 17.3 percent of their receipts. More than 75 percent of the receipts generated by the retail sector were from food and car sales.

If you want more statistics or an in-depth review of the potential this market has, read the excellent resource The U.S. Hispanic Economy in Transition from HispanTelligence®, the research division of Hispanic Business, Inc.
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