Hispanics are the fastest growing segment in the U.S. population but are also among the most underserved minorities by financial institutions. The census estimated that the Hispanic population in the U.S. by 2006 was 44.3 million, about 15% of the total population. Notably, more than 48% of the population was under the age of 25. This growth presents a wave of opportunity that credit unions cannot afford to miss.
The Hispanic market is also gaining strength financially, making them increasingly attractive to financial institutions. According to CUNA, the most likely borrowers are members from the ages of 25 to 44. The Pew Hispanic Center estimates that one-third of the Hispanic market in the U.S. earns more than $50,000 annually, and CUNA estimates that Hispanic purchasing power will reach $900 million by 2007.
Simply putting a "Se Habla Espanol" sign in your window does not mean that the Hispanics will flock to your institution. Felix Fernandez, Border Banking Group, Wells Fargo, stated in an interview with Bloomberg Business New Service in June 2003, "Many Hispanic immigrants already buy financial services, just not from banks. They establish credit with a local car dealer or furniture store and the immigrants incorrectly think, 'this is the only credit I will ever get' and pay 20-30% interest. We are trying to change that thinking." Educating the Hispanic consumer is significant in obtaining their trust and business.
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Analysis presented by the FDIC in 2004 indicated that most financial institutions were in the early stages of developing strategies for targeting the Hispanic market. The financial life cycle of many Hispanics can be divided into four stages: first, pre-banking services, usually covering first-generation Hispanics. Financial education is important for this group, because they do not have enough knowledge about financial planning and other financial services. Second stage, entry-level basic banking services, covers individuals needing products to establish a relationship with a financial institution and to satisfy their credit requirements. This stage represents first generations who have lived in the country for a while and need basic checking and savings accounts, in addition to remittance services. For example, the remitted amount of money sent to Mexico in 2001 was $9.2 billion; by 2004 that increased to $13.2 billion, a growth rate of 43%. The third stage is advanced banking services, with the primary market being second and third generations who seek mortgage and personal loans, in addition to basic service and products. Additionally, the Pew Hispanic Center cites that over the next two decades, second and third generations will make up 75% of the total growth in the Hispanic population, with new immigrants representing the remaining 25%. Because of this, individuals in this stage should grow into a profitable and large market segment, creating significant opportunity for financial institutions. Fourth stage, affluent banking services, includes second and successive generations. On average they are more educated, wealthier, and require additional financial services to meet their needs.
However, there is significant hesitation from the Hispanic population about doing business with financial institutions, according to Elsy Marlene. The hesitation is often rooted in distrust or misunderstanding of the financial institutions in their home countries. Studies performed by the Pew Hispanic Center and the Multilateral Investment Fund in 2002 found that many immigrants do not have an account with financial institutions because they did not understand services and were suspicious of price structures. The study also showed that Hispanics chose financial institutions based on word-of-mouth referrals, rather than researching available options. This challenges credit unions to produce realistic ways to serve this up-and-coming community.
In 2004, the CUNA Hispanic Outreach Task Force focused its attention on developing and implementing a national program to provide credit unions with ways to attract and serve the Hispanic community. Two recommendations that the task force considered valuable for credit unions seeking to expand service to the Hispanic market include adopting the basic principles of the Hispanic Task Force. Credit unions must engage the Hispanic community with the same regard and high level of service as other members. The credit unions need to develop trust, vision, mission, cultural intelligence and commitment to outreach to Hispanics within their marketplace and draw valued membership from this sector. Second, credit unions should authorize a budget to establish a Hispanic Outreach Resource Center, a Web-based facility designed to help implement an outreach program to targeting this market. Web site links to resources serving the Hispanic market are available from CUNA, Hispanic leagues, and other organizations. It also should provide a library to post and share files; including the Hispanic Quick-Start Kit, which is a step-by-step guide for credit unions to begin this marketing.
The Hispanic population is expected to continue growing over the next half-century, tripling in size between now and 2050. Credit unions have the most realistic chance of generating membership growth within this community given their similarity of cultural background. Hispanic culture welcomes face-to-face transactions and trustworthiness in their business relationships. Credit unions can more readily meet the needs of their community since the primary focus is usually on certain segments of potential members, often defined by geographic fields of membership. The Hispanic population is one that credit unions should not ignore. As competition between financial institutions for deposits and promoting financial services continue to heat up, it is essential that credit unions compete for the business, especially when the business is so closely aligned with the credit union culture. Most of the Hispanic sector is reached by word-of-mouth advertising. Therefore, the best advantage for credit unions is creating products and services that the Hispanic community sees as having specific value for improving their financial stability.
So, every credit union is faced with the question, who's in your market?
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