Banking: Why Engage Underbanked Hispanics to Differentiate?

February 5, 2017

Tuesday, August 23, 2016

By Sandra Diaz

The under banked, the #1 source of future banking growth, are disproportionately Hispanic.

The financial services industry is experiencing serous existential threats due to the commoditization of retail banking products, technology-based disruption of traditional business models and a lack of consumer trust following the 2008 financial crisis. Thus, becoming more customer-centric has become one of the imperatives for banks to differentiate their offering.

BancoAccording to a 2014 KPMG survey, the under banked represent the #1 source of future banking growth. Under banked consumers are those who have a checking or savings account but also conduct transactions at alternative financial services (AFS) locations such as stores that offer money transfers, check cashing and payday loans. Closely related, the unbanked, those without bank accounts, also represent a significant opportunity for new customer acquisition (hence identified as the #5 source of future growth by banking executives).

Customer-centricity to engage the unbanked and underbanked means thinking Hispanic, since:

✔ 28% of Hispanics are underbanked compared to 19% of non-Hispanics;

✔ 20% of Hispanics are unbanked compared to 7% of non-Hispanics; and

✔ In the Top 5 U.S. DMAs (NYC, LA, Chicago, Dallas, Houston) 1/3 to 2/3 of the unbanked and 1/4 to 1/2 of the underbanked are Hispanic.

Plus, Hispanics represent a large and desirable sub-segment of unbanked and underbanked consumers because:

✔ There are 5.8 million Hispanic households that do not use traditional financial institutions when conducting their routine financial business;

✔ They are as likely to be homeowners (47% vs. 53% of underbanked non-Hispanics); and

✔ They are less likely to have incomes below $15K (42% vs. 61% of unbanked non-Hispanics).

banco 2Immigration status should not be a barrier to engaging unbanked Hispanics – only 15% of Spanish-dominant households say that they can’t open up a bank account due to ID, credit or banking history problems. Instead, promoting cost-effective and mobile international money transfers might allow banks to steal customers from AFS providers. It is estimated that the annual AFS transaction volume attributable to Hispanic households is $64 billion.

Thus, unbanked and under banked Hispanics represent a key opportunity segment for traditional banks. According to a 2015 AHAA study, a 5 point shift in advertising allocation from English to Hispanic media results in a Total Market revenue boost of 6.4 points in Revenue CAGR for the Financial and Insurance sectors.

While Wells Fargo and JPMorgan Chase are the traditional banks that lead the charge on Hispanic media investment, the Financial and Insurance sector only allocates on average 5.5% of its advertising budget to Hispanic, which means that many key players still have the opportunity to drive growth by investing to engage Hispanics.