Abstract
Burgeoning Opportunity:
Virginia has some 39,000 unbanked Latino households today earning $23,500 annually which implies there are $917 million from Latino sources not channeled through the state’s financial system, directly costing Virginia’s economy interest and easier credit while the state’s housing values are affected by higher crime rates due to the extensive cash circulating in Latino areas.
In America’s Midwest, two years after the “New Alliance Task Force” was launched in 2003, area banks enjoyed 53,000 new Latino accounts totaling over $100 million. In Texas, primarily to benefit from the decreased crime and increased property values associated with serving unbanked Latinos, police officials and city fathers are partnering with local banks, foreign consulates and the Bureau of U.S. Citizenship and Immigration to improve financial services for Latinos.
Case Study:
Recognizing that credit unions enjoy not-for-profit tax status but are greatly limited in financial resources, our case study is of the Latino Community Credit Union (LCCU) because it is the fastest growing financial institution in the country dealing almost exclusively with the Latino market – the market we suggest Virginia financiers consider. In a decade, the North Carolina institution has added 53,000 members, opened 10 branches, and developed $90 million in assets. A comparison with six other credit unions also opened in 2000 puts LCCU in the upper-middle of the pack in most categories, but it’s annual 51 percent increase in membership (four times the average of the other credit unions) and reported very low loan-default rate (0.7 percent) suggests that Latinos want to be financially served and, that when they are, they are good – if low profit – customers.
LCCU expanded last spring by offering its first business loans and one of the keys to its success is that, like the Virginia Bankers Association or the Virginia Savings and Loan League, it offers financial literacy courses to the public. Also, like most Virginia financial institutions, LCCU is deeply involved in the community good, except that LCCU “partners” with Latino organizations near their branches in ways that target their potential depositors.
Social Value:
The statistical analysis indicates that by 2008 the five branches of LCCU then in operation had led to the appreciation of $9.8 billion in property value because the amount of crime fall when “easy targets” no longer carry extensive amounts of cash.
Appreciating housing prices and lower crime rates are not the only social values built by targeting financial services for Latinos. With much social research indicating that people plan for the future, work harder and save more once they have opened a checking or savings account, one in two Virginia Latinos utilize “alternative financial service providers” for their monetary services today. The mass of that business is remittances (international money orders) sent to immigrant home countries through neighborhood stores, generically titled “Las Tiendas.”
Our comparison of official remittances between North Carolina and three other Southern states, including Virginia, indicates that remittances to Latin America from North Carolina are experiencing relative decline due to LCCU’s establishment and growth. This implies that Latino immigrants in North Carolina must be keeping their savings in-state, rather than returning them to their home countries as they can exert more control over their funds and avoid exchange rate losses by keeping their dollars in the U.S. Channeled, of course, through Virginia financial institutions, these funds could thus be used in developing the state’s economy. Similar to North Carolina, Virginia today sends more than $1 billion in recorded remittances to Latin America annually.
Banking services required by Latinos:
In addition to international money orders, all the services typically requested by Virginia’s Latinos are already provided by our state’s banks at generally lower cost than alternative financial service providers. For example, check cashing is usually free if Latinos have checking or savings accounts but our research indicates that cultural, linguistic and perceptive barriers are keeping many Latinos away from Virginia financial institutions.
Barriers to Latino Services:
Las Tiendas, while unable to provide financial safety or credit/debit cards, are in effect “one-stop,” extremely-local entities that generally re-create a familiarity with the home country in the immigrant mind. In addition to “real” differences, such as less convenient hours and fewer Spanish speakers, perceptional issues, like not feeling welcomed, not trusting banks and the illusion that banks are more expensive, challenge Virginia financial institutions seeking the Latino market. Some highly significant personal reasons, like a lack of financial literacy or fear of check-book balancing, which keep Latinos out of mainstream banks, are already addressed by financial courses -- except not in Spanish. LCCU in North Carolina has instructed almost 11,000 Latinos in the value of financial literacy over its 10-year existence, obtaining not only their savings and checking account business but also building long-term loyalty towards expanding into more advanced financial services and generating “word of mouth” marketing.
One significant misunderstanding is the identification required for opening accounts. While there is much debate about America’s immigrant population, the federal government has not provided clear communication for what is acceptable. The Patriot Act leaves Matricula Consular Cards and Individual Taxpayer Identification Number decisions up to individual financial institutions, specifically stating that neither is allowed nor prohibited. Financial institutions in the Midwest, Texas and North Carolina – and possibly other states – are accepting these, and other, alternative forms of identification.
To ensure remittances are not illegal, banks can access the U.S. Treasury's Specially Designated Nationals list, as do “Las Tiendas.”
Marketing to Latinos:
This is the research area in which we are presently embarking but our preliminary work illustrates that local, small Virginia banks can partner with such organizations as the local Roman Catholic diocese, League of United Latin American Citizens, or in Charlottesville (where the Tayloe Murphy Center is located) “Creciendo Juntos” (Growing Together) and address, at the most effective level, this difficult issue. LCCU partners with Latino groups as it expands providing, in effect, free marketing and solid public relations, plus locations for its financial literacy courses, and, in some cases, even space for branch offices designed to test the need and acceptability. In a community noted for its oral tradition, furthermore, LCCU’s Spanish-language financial-literacy courses – aimed at adults, not children – have turned out hundreds of spokesman who relate their first-hand experience to others at the job site.
Cultural differences between, say, Latinos from Columbia and Mexico, hinder a “one-size-fits-all” marketing approach while traditional media (with the possible exception of Spanish-language radio and perhaps TV) is ineffective at reaching a local, young, less educated and often transient population. Understanding each immigrant population, and mapping each individual’s experience, is already being done by many potential partners in their efforts to ease the transition for that population. Perhaps Virginia financial institutions can benefit from their existing work.
Conclusion:
Everything we’ve done to date indicates that serving the Latino market with more tailored financial thinking will benefit Virginia communities, as well as the state’s overall economy. Financial institutions, and their perceptive individual employees, can benefit from understanding and addressing this underserved market in their home communities.
To ease time constraints on Virginia financiers, the Tayloe Murphy Center built this research study into what we believe will be an outstanding resource for Virginia’s financial institutions. We can’t localize it for every Virginia community but we think we can provide a basis, and perhaps the education, for building a brighter future for the state’s financial leaders.