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Tuesday, February 13, 2007

Unbanked: Banking America's Undocumented Immigrants

According to the FDIC, an estimated 10 million American households are "unbanked" or "underbanked" (the Economist estimates 12 million) -- they do not have accounts at banks and other mainstream financial institutions.

According to a Aug 2006 study by BearingPoint and Visa, approximately 84 million people are un- and underbanked, representing $1.1 trillion in income. Assuming these consumers spend 1% of their income to pay for financial services, that amounts to $11 billion.

These cash consumers pay excessive fees for basic financial services, are susceptible to high-cost predatory lenders, or have difficulties buying a home or otherwise acquiring assets.

Undocumented immigrants — 10 million to 20 million in the USA, depending on estimates — blended long ago into the mainstream Hispanic market, which corporations are increasingly courting. +

Figures on how much undocumented workers spend are hard, if not impossible, to come by. But researchers from the Federal Reserve to PricewaterhouseCoopers predict that the Hispanic and immigrant economy will grow rapidly as those populations soar in the coming years.

The University of Georgia's Selig Center for Economic Growth projects that Hispanics' spending power — personal income after taxes — will rise from $490 billion in 2000 to $1 trillion in 2010.

In recent years, banks across the country have been offering checking accounts and even mortgages to the nation's fast-growing ranks of undocumented immigrants, most of whom are Hispanic, and many are generally unable to get major credit cards.

Bank of America, for example, has begun offering credit cards to customers without Social Security numbers, typically illegal immigrants, the Wall Street Journal recently reported. The new Bank of America card is open to people who lack both a Social Security number and a credit history, as long as they have held a checking account with the bank for three months without an overdraft, the Journal said. BoA tested the program last year at five branches in Los Angeles, and last week expanded it to 51 branches in Los Angeles County, home to the largest concentration of illegal immigrants in the U.S., the Journal said.

The bank hopes to roll out the program nationally later this year, claims WSJ.


-In 2005, Bank of America opened more than 1 million checking accounts for Hispanic customers, equivalent to the customer growth of a big Latin American bank.

-48% of U.S Hispanic households use at least one Bank of America financial product, from checking accounts to mortgages.

Nearly half of Bank of America's new hires last year were bilingual Spanish speakers. Bank literature and signs in many branches are printed in Spanish. And the company makes strong showings at Hispanic community events such as Fiesta Broadway, a Cinco de Mayo celebration in Los Angeles that draws a half-million Latinos.

Bank of America also puts on "financial literacy" seminars at Mexican consulate offices to educate immigrants about banking services, including SafeSend, a remittance service that's free if customers also open a checking account.

"We want to establish a good and solid financial relationship with the Hispanic population," Wagner says. "We know they want to save and put their money in a safe place."

The impact on these markets with regard to loyalty may hold huge potential for banks who can help people get over the economic handicap of first-time credit access. Read this recent testimony from an undocumented immigrant who states, the "credit card is the real ID in America".

At least 200 U.S. financial firms and other businesses accept an identification card called matricula consular, which is issued to Mexican nationals by Mexican consulates. More than 4 million immigrants carry the cards, according to the Mexican government and the Congressional Research Service.

And then there is the global picture of the unbanked...

I quote from a Oct 2006 Economist article, “Most South Africans do not have bank accounts. But most do have mobile phones”.

"In most of Africa, for example, only a fraction of people have bank accounts—but there is huge demand for cheap and convenient ways to send money and buy prepaid services such as airtime. Many Africans, having skipped landlines and jumped to mobiles, already use prepaid airtime as a way of transferring money. They could now leap from a world of cash to cellular banking.

Heretofore, the problem has been that the cost of customer acquisition and maintenance has been higher than the expected revenues and so these markets lay fallow (or were priced - from the consumers’ point of view - prohibitively expensively).

Check out upstarts like Wizzit which offers a view at just how we may get the world's unbanked onto the grid thru cell phones.

And South Africa is certainly not exclusive to mobile-phone banking: countries such as Japan, South Korea and the Philippines are dialing in their unbanked thru mobile technology.

via Reuters, USA Today, Wall Street Journal, and Economist

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