Banking the Unbanked

The FDIC believes that the future of U.S. retail banking may rest heavily on the successful integration of millions of ‘unbanked’ Hispanics into the U.S. banking system over the next two decades.  Are U.S. banks up for the challenge?

Although the average deposit may be small, the aggregate amount from Hispanic bank accounts, according to Economy.com, is expected to generate over $200 billion in new banking business over the next ten years. This stunning report was revealed at a high level conference sponsored by the FDIC and IADB. They not only highlighted the $56 billion per year of money-transfer services that banks have been slow to claim from outside services, but also underscored the compelling obligation of member banks to encourage Hispanics to deposit their earnings into the U.S. financial mainstream.

In California, Wells Fargo & Co. has led the way by redecorating their branches to showcase a Mexican theme. According to Businessweek.com, the familiar surroundings of Aztec art helped to generate 700 new accounts per day. Wells Fargo & Co. was not alone. At Bank of America, Spanish advertising efforts attracted one million new Hispanic checking accounts.

The increase in new Hispanic checking accounts from two strong banks that implemented “cosmetic” changes may give the impression that the $200 billion projection for new banking business in the next ten years is right on course. What remains conspicuously absent, however, are the grassroots efforts of Hispanic businessmen and women launching Hispanic-focused community banks. These business-oriented Hispanics believe that the Hispanic trust cannot be won by competitive savings rates alone, but should include a warm greeting in Spanish followed by an intimate understanding of the clients’ financial priorities.

Both large and small banks who hope to prosper from this new pool of converted ‘unbanked’ Hispanics will face a number of challenges. As an example, in the collapse of the sub-prime loan programs for home buyers, the majority of the mortgage holders who defaulted on their payments were Hispanic. Many of these unwary victims lost their life savings and their homes.

As banks begin to implement their various strategies to educate the ‘unbanked’ Hispanics, they should keep in mind that many of their prospective customers come from countries where banks are known to condone abusive practices and, in some cases, been forced to close. Redecorating a lobby may win over a few Hispanics; but eventually, what may prevail will be consumer-friendly lending practices designed to encourage sustainable growth within Hispanic communities.

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