Banking Latino Immigrants: A Lucrative New Market for Progressive Financial Institutions
On a warm Friday in August, Stephen Galvan proudly stands outside his bank's headquarters in a Latino neighborhood in Kansas City, Kan. The place is teeming with Argentine immigrants ready to deposit their paychecks. Industrial State Bank, the financial institution that hired Galvan 30 years ago, does a healthy business in this thriving Latino enclave. With four branches in inner city Kansas City, the bank is ideally located to serve Latino immigrants.
To open accounts for many immigrants who lack traditional documents such as a driver's license and Social Security number, Galvan persuaded his bank to accept Individual Taxpayer Identification Numbers (ITINs) and matriculas consulares, official identification cards issued by the Mexican government.
"Latino immigrants are in tremendous need for financial services," Galvan says. "They are the workers in America who take the jobs that other Americans refuse to take—the low wage, unskilled jobs," Galvan says. "They pay taxes in America, and they should be given the opportunity to fulfill their basic banking and credit needs."
The Sheer Numbers
Statistics regarding the Latino immigrant population show an emerging, untapped market nationwide. The 2000 census revealed that nearly 13 percent of the U.S. population (35.3 million people) is of Latino origin. This is a 58 percent increase over the 1990 census. About 39 percent (14.5 million) of those are immigrants from Latin America. The Latino immigrant population has jumped 73 percent since 1990. Of the 14.5 million, a little more than half were born in Mexico.
Latinos hold substantial buying clout. Last year, Hispanic purchasing power was $452 billion, up 118 percent over 1990, according to the National Council of La Raza.
Research corroborates the need for financial services: Latinos are more likely to be "unbanked," or without a bank account, than any other ethnic group. A 2002 survey by El Centro, a Kansas City, Kan., nonprofit that provides a wide range of services to Latino immigrants, showed that only 30 percent of respondents held a checking or savings account, and more than 60 percent used check cashers for financial services. Only 17 percent had a credit card, and only 10 percent had applied for a loan.
And Latino households save. El Centro, which offers an avant-garde mortgage program for its undocumented clients, reports that many of its unbanked families have thousands of dollars saved in cash. In fact, the first four families that qualified for the program had stashed between $18,000 and $34,000 at home.
Immigrants not only save but they also send sizable sums of money to relatives in Latin America. According to the Inter-American Development Bank (IADB), immigrants send an average of $250 across borders on an almost monthly basis. The average cost for this size transfer is about $18. The cost does not include speculation on the exchange rate or the practice of charging the customer a less advantageous rate than the market's in order to yield an additional profit. IADB estimates that remittance transfer companies earn an extra $2.25 to $10.50 per $250 transaction.
With about $20 billion being wired to Latin America and the Caribbean annually, financial institutions nationwide are scrambling to design competing products. Bank of America offers Safe Send—a safe, convenient and inexpensive way to send money to Mexico. With this product, the bank sends an ATM card to the account holder's family member in Mexico, who can then withdraw money at any ATM. The charge for this service is $10 and up to $500 can be transferred daily.
The numbers point to opportunities for financial institutions. If banks are flexible, they can capture a profitable market. Flexibility means accepting alternate forms of identification to open bank accounts. Instead of requiring a driver's license and a Social Security number, many bankers catering to their burgeoning Latino clientele ask for an ITIN and a matricula consular. Forms of alternate identification also include foreign passports and voter registration cards, but ITINs and matriculas consulares are the most widely accepted forms. What are these?
In 1996, the Internal Revenue Service (IRS) began issuing ITINs for taxpaying purposes. ITINs are tax processing numbers for individuals required to have a U.S. taxpayer identification number but who are ineligible to obtain a Social Security number. To obtain an ITIN, an individual must complete and mail in IRS Form W-7. Some banks include the form W-7 in account-opening packets for their immigrant customers.
The matricula consular is an identification card issued by the Mexican consulate to individuals of Mexican nationality. The matricula bears a picture of its owner; name, date, city and state of birth (in Mexico); current address; issue date; expiration date; and the location of the consulate that issued the card. This year, the Mexican consulate upgraded the matricula card to a high-tech, digital version. The new card incorporates seven security features, including holograms and other embedded designs.
Alice Perez, Hispanic market manager for U.S. Bank, one of the first financial institutions to begin accepting matriculas, says, "Our bank decided to accept the matricula when we realized that the procedure for obtaining it is similar to the bank's ‘know your customer' rules."
Mexican consulates in the United States issued almost a half million matriculas in the first half of 2002 and expect to break a million before year-end.
To date at least 61 banks, 14 states and 800 police departments accept matriculas as official identification. John Byrne, senior counsel and compliance manager at the American Bankers Association, was quoted in the July 6 New York Times: "The consular ID card is a form of identification that the private sector finds acceptable. We feel fairly comfortable with the consular ID as a form of identification, and we're becoming more comfortable the more we speak with the U.S. government."
During the six months that have transpired since it began accepting matriculas, Wells Fargo Bank opened more than 30,000 bank accounts for Mexican immigrants. The bank also offers a money transfer service that charges a flat $10 fee for remittances to Mexico for transactions up to $1,000.
Patriot Act Issues
Some bankers initially feared that the U.S. Patriot Act would restrict a bank's ability to accept alternate forms of identification. The Department of the Treasury, the Federal Reserve Board, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Administration have jointly issued proposed regulations that will implement Section 326 of the Patriot Act. These rules specifically cite foreign forms of identification as acceptable documents for opening bank accounts. The regulations state in Section 103.121(b)(2)(I) Information Required that: "At a minimum, a bank must obtain from each customer the following information prior to opening an account: name; address; for individuals, date of birth; and an identification number." An identification number is further described: "For non-U.S. persons, a bank must obtain one or more of the following: a taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard."