The Hispanic market in the United Status is the second-largest Spanish-speaking market in the world in terms of population; in terms of buying power, it is the tenth-largest. No wonder, so many banks are lining up to win over this market. Banco Bilbao Vizcaya Argentaria (BBVA) began its North American love affair by investing €4.3 billion ($5.3 billion) in the continent this year. BBVA jumped into Mexico , launching a takeover offer for the 40.6% ownership stake in Bancomer that it did not already control.


Next, BBVA bought Valley Bank, located in California , and Hipotecaria Nacional, a mortgage bank in Mexico . Shortly thereafter, BBVA also acquired Laredo National Bancshares of Texas for $850 million.


BBVA’s strategy in the U.S. Hispanic market is quite clear. It established itself in Mexico , then jumped northward across the border. In the U.S. , it has acquired two banks that target the Hispanic community in two different businesses. Valley Bank focuses on recent immigrants to the United States who demand money transfer services and basic financial products. Laredo National focuses on second- and third-generation immigrants to the U.S. Its customers are mostly individuals, and small companies. About 38% of all NAFTA-related commercial traffic passes through the Laredo region.


BBVA is not the first bank to court this attractive segment of the U.S. population. Banco Popular, based in Puerto Rico , has been taking that approach for quite a while, and with great success. It has about 100 branches throughout the U.S. Other American banks are trying to conquer the Latino market as well.


Characteristics of the Hispanic Market

Why are so many companies and politicians trying to win over this market? The Hispanic market in the U.S. has about 45 million people, when undocumented workers are included. “Its buying power is about $700 billion,” notes Felipe Korzenny , director of the Center for the Study of Hispanic Marketing Communication at FloridaStateUniversity .


Although the Hispanic market is very enticing, it is also quite complex. According to SergioPlaza , a professor at the Complutense University of Madrid, “It is a very segmented market. There are different communities within the Hispanic-Latino minority in the United States .” Moreover, income levels vary according to country of origin. Among the many minorities, Cubans – mostly living in Florida – have the highest per capita income. “This explains why a significant share of the 500 largest Hispanic companies listed in Hispanic Business magazine is in Miami ,” he notes.


According to the U.S. Census Bureau, the average per capita income of Hispanics is far below that of non-Hispanic whites. Moreover, “there is no trend toward closing that gap,” notes Plaza. The tricky thing about these numbers, however, is that “the continuous influx of immigrants with very low incomes reduces the average per capita income of the entire Hispanic community. Yet second and third generation Hispanics are joining the American middle class.”


This market is also quite young. The average age of Hispanics is about 26, compared with 36 in the overall U.S. market. “This population is young, and it has large families who are developing ties with banks,” notes Korzenny. “Half of all Hispanics have neither a checking account nor a savings account. Among undocumented workers, the probability of not having any account is much greater.” Macarena Moreno, an analyst at EuroSafei, agrees that Hispanics in the U.S. have few ties with banks.


The Major Barriers

Why do Hispanics have so little experience using banks? A major reason is that a large percentage of Hispanics are illegal immigrants and they don’t have the documents they need to open bank accounts. Carolina Echeverría, a Mexican analyst at Cheskin, a market research firm in California , cites one company that provides meal service. Its customers pay cash. Surprisingly, the owner has no access to credit, no checking account and no identification documents.


Some financial institutions, such as Bank of America and Wells Fargo, are solving this problem by accepting registration with Mexican consulates as a form of identification. “They give consular registration IDs to Mexicans who come to the United States without documents so they can return to their country,” notes Korzenny. These documents enable 67% of Hispanics who come from Mexico to open their first bank account. On the other hand, they can only open accounts that don’t yield interest.


Although the Hispanic market has changed significantly, financial education remains in short supply. According to Echeverría, in the past decade, the number of Latino homes with an income of above $100,000 has grown by more than 126%. With this sort of buying power, “If you want to buy a house, a car, or open a bank account, you need financial services,” he says. Nevertheless, in her view, Hispanics don’t manage their money effectively. “When you generate wealth, you have to learn how to manage it.” Some financial institutions, such as Merrill Lynch and H&R Block, are trying to overcome the shortage of financial education by offering their customers access to financial consultants and accountants.


Flag Financial, located in Georgia , is another case study. Flag provides services that normal financial institutions would not offer to people who have no bank account, and lack financial education. For example, Flag provides them with Internet terminals for doing their tax returns electronically. It also sells them money orders and provides telephones for making free local calls.


Generally speaking, Hispanics’ main complaint is that financial institutions are not providing the kinds of services they need, says Echeverría. “The banks are not thinking about their needs. They are not thinking that they have family members outside the United States ; that they have needs both within and outside the U.S. and want to put money in both places.” Consequently, Hispanics have needed to get by with existing services. By and large, the banks have not changed to meet their needs.


This also applies to second and third generation Hispanic immigrants. “They know what kinds of financial services they need, and how they can help. But they don’t use these services the way Americans use them. They need products that the system cannot provide today,” says Echeverría. For example, a brother might want to pay for his brother’s college tuition, instead of having his parents do that. Americans do not usually need this kind of service, but it seems entirely normal for Hispanics who have moved up the economic ladder.


Great Possibilities for Business

Nevertheless, financial institutions have developed some products that meet the changing needs of Hispanics. Without doubt, financial remittances are the biggest and most profitable such product. According to Moreno , “The volume of remittances grew at a 25% annual rate during the first half of this year, reaching a record high.”


The demand for remittances derives from the fact that Latin American emigrants to the United States work hard to raise their income. When they achieve that goal, they send a portion of their income back to their family and friends in their country of origin, whether it is Venezuela , El Salvador , Mexico , etc. This has become a very important source of income for Latin America , and a very important business in the United States . In Mexico , remittances from immigrants (living in the U.S. ) are the second-largest source of income, following petroleum.


Nevertheless, the remittance business has some weaknesses. The person living in the United States often has no way of knowing how the money he sends home is being used. According to Echeverría, “Hispanics are interested in paying for their house, their business, and so forth… but they would like to have an account in the United States , to manage all that.”


Although financial institutions take a big cut out of each remittance, BBVA and other banks hope that their investments in the Hispanic community can lead to other business opportunities. According to Moreno , establishing a presence on both sides of the U.S. border “could lead to cross-selling of products. It could develop a loyal customer base in other kinds of products, because Hispanics are not major users of bank services.” This would permit, for example, Mexican immigrants in the United States to buy homes in Mexico . According to official estimates, an estimated 20 million new homes will be constructed in that country.


A real estate boom in Mexico could foster a major cross-border business. However, Korzenny is skeptical. He argues that there are better opportunities for growth in the U.S. mortgage market. “Only 48% of Hispanics own a home, compared with 76% of all Americans,” he says.


Korzenny says low-income Hispanics living in the U.S. don’t usually make major investments. Moreover, those Hispanics who do have buying power and want to buy homes in Mexico might not need financial help from a bank. Nevertheless, from a cultural point of view, Latin Americans generally feel nostalgic about their country of birth, and that could motivate them to make a real estate deal. Still, “We have to wait and see who will help them handle paperwork on the border,” Korzenny warns.


Hipotecaria Su Casita, a Mexican mortgage company, is already involved in that kind of work. It offers a special mortgage for properties located in Mexico through its subsidiary in Denver . Payments can be made in dollars, despite the fact that the mortgage is denominated in pesos.


Pension plans are another service that remains underdeveloped in the Hispanic community. Generally speaking, Hispanics are not used to saving for retirement and they don’t know how to do it, according to Korzenny. “They still think that their sons and grandsons are going to take care of them when they grow up. They still have trouble thinking about retirement.” Insurance is another financial product with great prospects. Medical insurance in the United States is very expensive, and many Latinos decide not to buy it. Children can be cared for in some clinics, and adults occasionally travel back to their homeland for treatment and return to the U.S after they recover. “When they do all the math, it winds up cheaper.” Regarding life insurance, Americans assume that they want to be protected. However, “Latin Americans don’t have that mentality,” says Echeverría.


Some Warnings and Possible Advantages

The shortage of consumer education can become a factor when a bank targets the Hispanic market. Banks have to educate their personnel and prepare their staff for unexpected situations. What should people do, for example, when a customer shows up with a sack containing $20,000 or $30,000 in cash? Or when three families apply for one mortgage to buy a house? As Korzenny explains, that happens a lot in Mexico and along the U.S. border. Several families pool their resources. Then save, and they buy – until everyone can have his own house. “It’s like an internal lottery among friends,” he notes.


Banks should go beyond learning about cultural idiosyncrasies. They should hire employees who speak Spanish and know how to communicate effectively with Hispanic customers. Some banks are already taking such steps. One example is the Bank of America, the largest retail bank in the U.S. In many areas that have a large Hispanic population, the Bank of America has bilingual personnel and offers information in either English or Spanish.


First-generation Hispanic immigrants have some buying power. All they need is access to the system and enough information about how to invest. In the competition to acquire these customers, Mexican banks have the advantage of a well-known brand, and the prestige that comes with it. However, this could be a double-edged sword, according to Korzenny. “Mexican banks are good but they can have a bad reputation because they lost a lot of money during the (peso) devaluations.” As a result, a double brand could do a better job of attracting this market. Plaza concludes, “Knowledge of the Mexican market is a very important asset when you are trying to reach Hispanics.”