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Community Banker’s Guide to Hispanic Marketing January 2005 Jesse Torres The author would like to thank to Californ ia National Bank (www.CalNationalBank.com) and its Hispanic Outreach and Marketing Council for encouraging this project. © 2005 Jesse Torres Unauthorized duplication of this report is a violation of copyright. January 2005 Copies of this document can be downloaded at www.CalNationalBank.com/pdfs/hispanicmarketing2005.pdf Comments, corrections and other feedback may be sent to the author at firstname.lastname@example.org Interpretations, assertions and conclusions pr esented in the paper are strictly those of the author and should not be attributed to any other person or organization that supported this research project. i Table of contents About the Author .........................................................................................................................iv List of Tables, Graphs, Illustrations and Appendices............................................................. v Executive Summary..................................................................................................................... 1 Chapter I – Introduction............................................................................................................... 3 Chapter II – Who is Hispanic America...................................................................................... 4 Chapter III – Why Target Hispanic America ............................................................................ 6 Chapter IV – Challenges to Tapping the Hispanic Market .................................................... 8 DEGREE OF ACCULTURATION.......................................................................................... 8 IDENTIFICATION..................................................................................................................... 9 LANGUAGE BARRIER ........................................................................................................... 9 MISTRUST OF FINANCIAL INSTITUTIONS....................................................................... 9 LACK OF UNDERSTANDING ............................................................................................. 10 Chapter V – Meeting the Challenges...................................................................................... 11 SEGMENTATION OF THE HISPANIC POPULATION.................................................... 11 DEVELOPMENT OF A STRATEGY................................................................................... 12 SELECTION OF A SEGMENT............................................................................................. 12 USE OF APPROPRIATE LANGUAGE............................................................................... 13 FOCUS ON CULTURAL TRAITS........................................................................................ 14 COMPLETE COMMITMENT................................................................................................ 14 SELECTION OF PRODUCTS AND SERVICES............................................................... 17 Chapter VI– Selecting Appropriate Products and Services................................................. 18 PRODUCTS............................................................................................................................ 18 SERVICES.............................................................................................................................. 21 Chapter VII – Conclusions........................................................................................................ 28 Bibliography ................................................................................................................................ 29 Endnotes...................................................................................................................................... 31 ii (left intentionally blank) iii About the Author Jesse Torres joined California National Bank in January 2002 and currently serves as Senior Vice President and Chief Compliance and Information Security Officer. Prior to joining California National Bank, Mr. Torres served as Senior Vice President for Fidelity Federal Bank where he was responsible fo r the regulatory compliance and information security functions. Mr. Torres also spent several years working as a bank examiner with the Office of Comptroller of the Currency as well as a senior consultant with KPMG Peat Marwick’s Financial Services Practice in Los Angeles. Other experience includes time with Western Federal Savings and Loan and California Federal Bank. Mr. Torres holds a bachelor s degree from UCLA and a post -graduate certificate from the Pacific Coast Banking School, University of Washington. Mr. Torres holds several professional designations incl uding Certified Internal Audi tor, Certified Information Systems Auditor and Certified Information Systems Security Professional. Mr. Torres also holds an Award in Accounting and a professional designation in information securityfromUCLA. Hesitsonmany boards including the West Coast Anti-Money Laundering Forum, California Hispanic Corporate Council and Los Angeles Council Boy Scouts Learning for Life. iv List of Tables, Graphs, Illustrations and Appendices Table 1: National Backgrounds ....................................................................................... 3 Table 2: Communities Where Hispanics Represent Largest Foreign-Born Immigrant Group.......................................................................................................................... .. 26 v Executive Summary The purpose of this paper is to prov ide community bankers with a roadmap to developing and implementing an effective Hispanic marketing program. With 60 percent growth in population bet ween 1990 and 2000, Hispanics have become America’s fastest growing minority group and represent the majority of residents in many U.S. communities in California, Texas and Florida. After the 2000 Census, Hispanics became the largest minority group representing 12.5 percent of the U.S. populati on. This growth is expect ed to continue, with Hispanics expected to represent 25 perce nt of the U.S. population by 2050. In addition, the Hispanic market is becoming increasingly affluent, with the rate of $100,000-income earners with assets in exce ss of $500,000, exceedi ng by eight times the non-Hispanic segment of the U.S. While Hispanics are a lar ge and growing popul ation, they have historically eluded traditionalfinancial institutions for various reasons including fear, ignorance and accessibility. This paper provides community bankers with the background needed to determine who the Hispanic market represent s and whether it is a market they should pursue. It provides important details regarding the segments that co mprise the Hispanic market and the differences and similarities among the segments. This paper discusses in detail the challenges that banks face with regard to marketing to Hispanics as well as detailed solution s to address those challenges. The paper concludes with product and service recomm endations aimed at increasing Hispanic market share. The following topics are addressed in the paper: 1. Who does the Hispanic market represent? 2. Why is the Hispanic market important? 3. What are the challenges associated with Hispanic marketing? 4. What are the solutions to the challenges? 5. What products and services are most appropriate for reaching the Hispanic market? Sources of information for this study included numerous current newspaper and magazine articles as well as marketi ng firm reports, census data and Hispanic marketing seminar information. 1 The sources of information provided the followin g findings related to the topic of this paper: 1. Developing and implementing an effectiv e Hispanic marketing program requires significant effort and resources. 2. The Hispanic market is comprised of distinct sub-groups, each with its own degree of acculturat ion and language preference and each r equiring a different marketing approach. 3. Marketing to the Hispanic market requi res a greater degree of handholding than marketing to non-Hispanics and requires banks to enter the Hispanic community to gain trust and respect before Hispanics will step into a branch. 4. Once trust and respect is established with the Hispanic market, this group is extremely loyal and is likely to remain a long-term customer of the bank. Analysis led to the following conclusions: 1. Banks should carefully assess whether or not they wish to enter the Hispanic market because a successful venture r equires significant financial and human resources. 2. Banks that choose to fully commit to the Hispanic market wil l be positioned to take advantage of a growing segment of the population, in terms of size, affluence and profitability. This paper was written to be of particula r interest to bank presidents, boards of directors, marketing manager s, branch personnel and ot hers with an interest in expanding the reach of a bank from a customer and profitability perspective. 2 Chapter I – Introduction On November 29, 2002, the United States Census Bureau confirmed what many savvy business people and entr epreneurs have known for a long time – “It’s the Hispanic market, stupid.” The release of the Census Bureau’s 2000 Census of Population and Housing report, i informed American business that the road to profitability in the 21 century runs through the “vecindarios” of Hispanic America. At 35.3 million strong , the American Hispanic population has firmly taken control as the Country’s largest and fastest growing minority group. Census data indicates that the Hispanic market has grown 60 percent since 1990. Further, some estimate this market growing to 25 per cent of the U.S. population by 2050 .ii While this may be old news to some, this market remains largely untapped. The apathy is shocking given the estimated $970 billion in annual purchasing power expected by 2007. Further, data suggests t hat this market may acquire purchasiiii power in excess of $1 trillion by 2020 and between $2.5 and $3.6 trillion by 2050 . Poor penetration of the Hispa nic market is not isolated to a single industry or geographical region. Data shows the Hispanic market at 12.55 per cent of the U.S. iv population with only 2.4 percent of advertising b udgets dedicated to Hispanics . In 2004, the Association of Hispanic Advertisi ng Agencies announced that their review of advertiser budgets for 671 companies for the period 2000 to 2003 found that while Hispanic advertising (television and print media) in general improved, financial services firms were those that spent the least on Hispanic marketing v. The lack of commitment to this segment is indicative of three pr oblems that affect U.S. industries – 1) no understanding of who t he Hispanic market represents, 2) no understanding of why the Hispanic market is important and 3) no understanding of how to effectively reach this market. As such, this paper was developed to provi de solutions to the three problems noted above. Specifically, this paper was deve loped to assist community bankers in successfully penetrating this market. This paper highlights the successful practices of financial institutions and mark eters over the past decade. This paper takes into consideration emerging trends and best prac tices that will allow community bankers to focus their resources and position themselves for the continued growth that this market will bring over the coming decades. While the emphasis of this research tar gets product and service strategies, it also dedicates some attention to larger stra tegic issues includ ing de novo expansion strategies. The objective of this paper is to provide community bankers with a tool that can be easily incorporated into every day business practices to yield greater profits through increased market share and the long-term loyalty of the Hispanic market. 3 Chapter II – Who is Hispanic America Later sections of this paper address succe ssful practices employed to reach the Hispanic market. However, before those practi ces can be implemented it is critical to have a sound understanding of who the Hispanic market represents. Hispanics in the media are typically por trayed as a single, homogenous Spanish- speaking group. On the surfac e the fact that 58% of the Hispanic market is comprised of Hispanics of Mexican origin tends to sup port this notion. However, this segment and the Hispanic market as a whole is very dive rse. Consider that the Hispanic market vi represents 19 additional countries and the mix becomes quite complicated . As such, treating the Hispanic market as a single gr oup is the most effective way of ensuring failure. As noted above, the His panic market is comprised of a very diverse constituency. Hispanics can vary in terms of their nat vii ional backgrounds, racial backgrounds and regional and lang uage preferences . In terms of racial backgrounds, Hispanics have ancestral links to native populations as we ll as European, African and Asian roots. Further, an American Hispanic can be deri ved from any one of the following 20 countries: Table 1: National Backgrounds 1. Argentina 6. Cuba 11. Honduras 16. Peru 2. Bolivia 7. Dominicnepublic 12. Mexico 17. PuertoRico 3. Chile 8. Ecuador 13. Nicaragua 18. Spain 4. Colombia 9. Slalvador 14. Panama 19. Uruguay 5. Cosaica 10. Guatemala 15. Paraguay 20. Venezuela Hispanics of a particular national background tend to have certain regional preferences. For example, the majority of Hispanics in California and Texas are of Mexican origin while those in New York and Florida tend to have Caribbean roots. Even though Strategic Resear ch Corporation found that 89 percent of Hispanics consider Spanish as their pr imary language, the le vel of acculturatio n – the extent to which a Hispanic has adopted American traits - generally determines the language (English or Spanish) that His panics prefer to speak with businesses. Regardless of preference, Hispanics tend to be proud of their bi-lingual abilities viii Later this paper will address the reas ons why community banks must not be frightened away from reaching out to this p opulation. This paper will demonstrate why the Hispanic market is not only worthwhile , but may also be the key to a community bank’s success over the next several decades. 4 This paper will also detail why this segment of the U.S. population cannot be treated as a single entity. The di verse nature of this segment requires careful consideration and analysis for successful penetration. The extent of the analysis required to reach this segment may force many to consider the value of Hispanics in general. 5 Chapter III – Why Target Hispanic America To community bankers it seems that t oday more than ever, the competitive landscape has been turned up to “high.” With large regional banks abandoning commercial banking and focusing on retail bank ing and as the reach of credit unions expands as well as competit ion brought on from non-banks su ch as Merrill Lynch and Internet-based banks such as ING Direct, co mmunity bankers are finding their piece of the banking pie getting smaller and smaller. As such, they are mo re motivated than ever to find a fresh source of growth. Therefore, it is no surprise that David Perez, Presiden t of Lumina Americas states that “any company that is interested in diversifying its revenue base should explore marketing to Hispanics.” Companies that have jumped into the Hispanic market with both feet include Kraft, AT&T, Ford, Sears, Proctor & Gamble, Allstate Insuixnce, Anheuser-Busch, Continental Airlines, Century 21 and Pepsi, to name a few . With purchasing power expected to rise from $450 billion to $970 billion between 2001 and 2007, this market cannot be ignored. And although this segment presents many marketing challenges based on its heterogeneous composit ion, Hispanics are becomixg increasing influential and lucrative and should be considered well worth the effort. Research has found that the number of Hispanics who earn $100,000 a year or more and have at least $500,000 in assets, is growing eight times faster than the general affluent market .xi Another major draw is the age of the Hispanic market. The mediaxiige of the Hispanic market is 27 versus 35 fo r the rest of t he U.S. population . This means that community banks that are overburdened with the expensive CDs of baby boomers and seniors can diversify the deposit base and increase the volume of low-cost demand deposits as well as the fee income that comes with younger customers. Another particularly attractive feature of Hispanics is thei r brand loyalty. American Hispanics show a great deal of loyalty towards brands and companies that cater to their needs. When Hispanics find a product or servic e that they have confidence in, they tend to stick with it. As such , it is in a community banker’s best interest to develop a strong relationship with the burgeoning Hispanic market xi.i Research has found t hat 61 percent of Hispanics find it difficult to change brands once they find one they like. Further, 59 per cent claim to have no time to investigate the quality of different brands and as such , stay with the brand they have chosen xi. Given this reputation for brand loyalty, the Hispanic market should prove to be bank xv management’s dream . Within the banking industry, Bank of America has acted as a trailblazer in committing resources to reaching the Hispanic communi ty. Chief Executive Officer Kenneth D. Lewis sees gold in marketing to Hispani cs because this group is generally younger xvi and in their prime earning years when compar ed to the rest of the population. An additional attraction is that Hispanics tend to be a heavy users of banking services once 6 accounts are opened. Sixty percent of immigrants that came to the U.S. in the last ten years do not have bank account s. However, once His panics start banking, they become big borrowers and heavy users of services, generating incremental interest and xvii fee income . According to CEO Lewis, Bank of America ex pects to gain at least 80 percent of its future growth in retail banking from the Hispanic market. This is due to the fact that the Hispanic market is extremely underserved with only 58 percent of Hispanics holding checking accounts compared to 93 percent of Whites. CEO Lewis believes that as Hispanic income rises, the demand for mortgages, home equity lines and credit cards is xviii going to explode . Given these facts, community bankers s hould also keep the following in mind: community banks are best suited to targeting and reaping the rewards associated with a Hispanic marketing program. Community banks are part of the fabric that makes up the community. Community bankers serve on school boards, chambers of commerce, nonprofit boards, etc. They are in the best position to understand the nature and needs of the local Hispanic community. Therefore, while creating a Hispanic marketing progra m may require significant resources, it is likely that these effort s will generate a signific ant number of new customers who will remain wi th a bank long enough for a banker to earn a favorable return on the investment. When purchasing power, increasing wealth, age, loyalty, use of products and services and an untapped market are combined, few reasons remain why a community bank should not embark on a full-scale Hispanic marketing program. 7 Chapter IV – Challenges to Tapping the Hispanic Market Up to this point this paper has provided the reasons why community banks should commit to a program to attract Hispanic cu stomers. A convincing case has been made relative to the incremental growth that these customers can bring to an institution. Unfortunately, as previously stated, the Hispanic market is far from homogenous – making it impossible to successfully penetrate the market through the use of a single approach. A second significant hurdle is communication – spec ifically, the fact that a significant percentage of this market eit her speaks or prefers to be spoken to in Spanish. Additional challenges exist that require comm unity banks to carefully plot out a strategy before undertaking a Hispanic ma rketing campaign. This chapter will address the various challenges involved in ma rketing to the Hispanic market. The next chapter will address solutions to these challenges. The challenges include: • Degree of Acculturation; • Identification; • Language Barrier; • Mistrust of Financial Institutions; and, • Lack of Understanding. DEGREE OF ACCULTURATION As previously stated, acculturation refers to the extent to which a Hispanic has adopted American traits. The more accultur ated an individual is, the greater the similarity to the typical non-Hispanic Am erican consumer and the more effective traditional marketing efforts become. Unfortunately for bankers and American business in general, acculturation is a gradual process due to Hisp anics’ strong ties to their cultural roots. According to Strategic Research Corpor ation, only 11 percent of Hispanics are highly accult urated, 64 percent are so mewhat acculturated and 25 percent are not acculturated at all. This slower rate of acculturation forces American business to significantly alter its approach if it is to reach the Hispanic market. The following are factors that affect the rate of acculturation: 1. Geographic Proximity : Most Hispanics remain re latively close to their countries of origin. For example, Hispanics of Mexican descent generally live in the southwestern U.S. while Hispani cs of Cuban descent generally live in the southeastern U.S. This geographic proximity allows Hispanics to frequently return to their roots, re connecting with their native culture and preventing complete acculturation. 8 2. Modern Communications : As technology continues to improve, telecommunications and travel costs ha ve continued to decline. This reduction in cost has made it more c onvenient for Hispanics to maintain contact with families and friends in t heir native countries and has allowed Hispanics to maintain their cultural identity. 3. PeerSupport : At 35 million Hispanics nationwide, Hispanics find it relatively easy to live within communities that share the same cultural roots, making it possible for Hispanics to resist pressure to modify their language, culture and customs. 4. Freedom of Choice/Movement : Some Hispanics, particularly first-generation Hispanics, sometimes keep their nativ e language and culture because they intend on returning to their native count ry once the political or economic factors that forced them out, stabilize. IDENTIFICATION Lack of traditional identification is another challenge when it comes to the Hispanic market. Many Hispanics do not have Social Secu rity cards, making it difficult to open xx bank accounts or establish credit . According to Fortune Magazine, the five million undocumented Hispanic immigrants in the U.S. are unable to establish bank accounts largely because they lack sufficient identification .xxi LANGUAGE BARRIER Many Hispanics do not speak English or pref er to speak Spanish as their pxxiiry language when discussing important matters such as personal finance . According to a study conducted in 2000 by Stra tegic Research Corporation, 60 percent of Hispanics are most comfortable speaki ng Spanish while only 21 perc ent prefer English and 19 percent are comfortable with either xxi.i MISTRUST OF FINANCIAL INSTITUTIONS A significant number of Hispanics, particu larly recent immigrants, fear financial institutions due to their ex perience with corrupt institut ions in their home country xxi. This is not surprising giv en the economic and polit ical situations that have existed in many Latin American countri es including rampant infl ation, constant currency xxv devaluations and periodic economic chaos . Further, many Hispanics do not feel that U.S. banks want their business or value them as customers. This mentality is based on the perceived lack of Hispanic outreach as well as the hi gh rejection rate on loan applications, which is two times higher than non-Hispanic white applications xx.i In addition, some Hispanics fear that ban ks will report them to the immigration authorities. As such, many Hispanics tend to utilize high-cxxviiheck-cashing services due to their less stringent rules regarding identification . 9 LACK OF UNDERSTANDING The Hispanic population is a segment that does not understand cred it as well as its xxviii Anglo counterpart . This chapter highlighted the challenges that must be addres sed by a Hispanic marketing program. At first glance these c hallenges may seem too complex or may be perceived as too much work. However, the payback from a carefully devised Hispanic marketing plan should act as a strong motivato r – particularly since estimates show this population gaining steam over t he next several decades. Th e next chapter begins to address solutions to the challenges presented here. 10 Chapter V – Meeting the Challenges As has been stated throughout this paper, the Hispanic market cannot be penetrated with a one-size-fits-all approach. Hispanics’ attitudes and habits differ on so many levels that a shotgun approach to reaching this market will not yield worthwhile results. To effectively reach the Hispanic market a bank must take the time to acquire a thorough understanding of the comp lexities of its local His panic population and then decide which segments it will target. This effort requires a bank to acknowledge the Hispanic market’s diverse national, racial and regional backgrounds. Also requ ired is a commitment to the use of Spanish in efforts that target certain Hispanic segm ents. Finally, a bank intending to effectively target the Hispanic market must take the time to understand the specific behaviors that result at the different stages of acculturationi. SEGMENTATION OF THE HISPANIC POPULATION To assist in the development stage of a Hispanic marketing program, bankers should understand the various segments within the Hispanic community. According to Victor Ornelas, President and CEO of Ornelas & Associates , a Dallas-based marketing communications agency, ther e are four different segments within the Hispanic market :xx 1. Nationalists; 2. EagerAdopters; 3. Fusionists;and, 4. Assimilators. Nationalists represent approximately 20 percent of the Hispanic market. These individuals are generally 35 years old and older. Spanish is the dominant language and tradition is very important. These indivi duals have a “live for today” mentality with respect to spending patterns. Eager Adopters make up 34 percent of the Hispanic market . This sub-segment is generally 35 and younger. This niche came to the U.S. to get the best of both worlds – values from the home country and opportunity in the new country. Eager Adopters prefer to speak Spanish but become bi-lingual quickly upon arrival in the U.S. At 25 percent of the Hispanic market, Fusionists cannot be ignored. This group is comprised of first-generation Hispanics. This class is largely bi-lingual and generally between 18 and 49 years old. Assimilators, at 21 percent of the Hispanic market , represent the final stage of the Hispanic transformation. Assimilators have families that have lived in the States for two 11 or three generations. While this segment uses English as the dominant language, Assimilators are proud of t heir Hispanic heritage. Assi milators understand how credit xxxi works and why investments and insurance are important . Individuals within this class are frequently influential within their communities. DEVELOPMENT OF A STRATEGY The development of a Hispanic marketing strategy must contain five components xxxi: 1. Selection of a segment; 2. Use of appropriate language and dialect; 3. Focus on the segment’s cultural traits; 4. Complete commitment to carrying out the mission through an effective experience; and, 5. Selection of financial products and se rvices that meet the needs of the targeted segment. SELECTION OF A SEGMENT Selection of a segment requi res knowledge of the composit ion of the local Hispanic community. The effort needed to determine t he composition of the local Hispanic market may vary, depending on the nature of a bank’s relationship with the local community and government. In some ci rcumstances banks may know what the composition of the community is with respect to the four segments. In other cases, banks may need to conduct some research to uncover this information. Due to the significant investment that is required to implement an effective Hispanic marketing program and due to most bank board’s need to review quantitative information relative to return on investment, it is reco mmended that bankers undertake some degree of market research. The results of this market research can be utilized to convince executive management and the board, of the opp ortunity presented by the local Hispanic market. Another reason for an analysis is based on the views of some executives and board members who continue to belie ve that significant Hispanic populations exist only in Texas and California. As confirmed by the 2000 Census, Hispanics have spread throughout the entire nation. Table 2, located below, notes communities around the United States where Hispanics represent the largest foreign-born immigrant group xxx.ii Determining the composition of a Hispani c community can be accomplished in a couple ways – it can be outsourced or in -house personnel who possess access to appropriate tools can conduct it. The objective of this analysis is simply to identify the types, approximate size and general locations of the segments so that informexxxiv decisions can be made. The objective is not to precisely pinpoint this population . 12 The following are tips that a bank should consider when conducting the analysis: 1. Ask local government to provide mo st recent data regarding the local communities. Many municipalities ca refully track immigrant and minority populations to assist in the provision of public services. This information is generally public and full of useful data. 2. Meet with leaders of local non-profit organizations and churches. Not all non- profits are organized well enough to provide current statistical data. However, most are able to provide general information regarding the types of Hispanics that occupy a community as well as t he financial needs of these Hispanics. Banks should use these non-profits to as sist them in identifying the local Hispanic community leaders. Knowing who these individuals are will assist during the implementation stage of a program. xxxv 3. Use publicly avail able statistical data from sources such as the U.S. Census xxxv, Federal Financial Institutions Examination Council (“FFIEC”) Geocoding System xxxv, Community Development Financial Institutions (“CDFI”) Fund Help Desk program xxxvias well as reports from organizations xxxix such as the Brookings Instixltion Center on Urban and Metropolitan Policy and Pew Hispanic Center . 4. Contact the Community Affairs Depar tment of the local Federal Reserve office as well as the district offi ce of the bank’s supervisory agency to determine if the agency has conduct ed an analysis of the community. Regulatory agencies are good sources of data and analysis because they collect such information during the completion of Community Reinvestment Act examinations. USE OF APPROPRIATE LANGUAGE A common misperception regarding His panics is that the Spanish language translates equally across all Hispanic countries and cultures. This is not the case. Due to cultural and geographic differences amo ng countries (and even among regions of certain nations), meanings can differ – despi te the use of the same language. An effective Hispanic marketing program uses the language of choice of the Hispanic market being targeted. According to Theodore Serrano, Vice Presi dent of Geo Advertising & Marketing in Tucson, Arizona, the targeting of a Hispani c segment requires companies to sell the product as integral to the particular culture. It is not effective to merely translate copy or dub over with Spanish language. Such practices will not yield the expected results x.i Adelante Hispanic Marketing in Raleigh, N.C., advocates th e use of “transcreation” – a use of the Spanish language that considers the nuances of t he Hispanic culture rather than directly converting English-language advertising into Spanish . xlii In instances where a particular segment is largely heterogeneous from a country of origin standpoint or where a bank is seeking to appeal to a broad Hispanic audience or 13 where country of origin is largely unknown, the approach sh ould be to use a neutral or xliii “universal” form of the Spanish language in order to avoid alienating any segments . Generally speaking, however, effectiv e Hispanic marketing programs base the language used on the characteristics of the segment being marketed. When possible, a Hispanic marketing program should use the k nowledge of the segment ’s cultural ties xliv and motivators to offer relevant products and services . FOCUS ON CULTURAL TRAITS A well designed Hispanic marketing program will take into consideration the cultural traits of the segment it is intended to capture. Consideration of cultural traits includes : xlv 1. Leveraging of the strong connection to countries of origin; 2. Catering to the importance of family; 3. Committing to the preservation of culture and heritage; and, 4. Acknowledging the role of religion in daily life. xlvi Hispanics are generally reached at the emotional level . This requires banks to recognize the passion that this group feels about family, language, religion, musical expression, celebrations and holidays xlv. An approach to determining the cultural traits of the segment is to survey local residen ts, church leaders and non-profits. This information can be enhanced with other publicly available research. Surveying the local community and developing a marketing program that takes cultural traits into consideration demonstrates to the local Hi spanic community that the bank is serious about its commitment. It acts as the first step to earning loyalty xlv. Marketing experts believe that such targeted marketing is five times more effective than marketing xlix targeted to the general U.S. population . According to Chrysanthe Georges, president and founder of Adelante His panic Marketing, “knowin g the nuances of Hispanic marketing will be a powerful tool for many U.S. companies trying to increase their market share in an incredibly competitive environment. ” COMPLETE COMMITMENT li A committed Hispanic marketing campaign includes the following : 1. Localizing the content; 2. Demystifyingthe services provided; 3. Developing products for the Hispanic market; 4. Visiting with the Hispanic community; and, 5. Supportingcustomerswith Spanish language service. 14 Localizing the Content Translating the content into Spanish is not enough. As previously stated, the Hispanic community is diverse and comprised of different segments based on the level of acculturation. Further cultural distinctions exist within segments relative to country of origin. Any Hispanic marketing initiative must not only take language into consideration but must also deliver the message based on the composition of the group being targeted. The message needs to speak to the language, cultural values, life stages and traditions that represent the segment .lii For example, the message to Nationalists should differ from t he message to the Assimilators and the message delivered to Eager Adopters in Los Angeles (Mexican descent) may need to differ from the mess age delivered to Eager Adopters in Miami (Cuban descent). Demystify the Services An effective Hispanic marketing program requires the bank to make Hispanics feel wanted and respected. The program must break down all misperceptions, attitudes and liii barriers that exist between banks and the Hispanic community . While the American banking industry moves to less touch via Inte rnet banking, ATMs, direct deposit, bank- by-mail, etc., the Hispanic community expect s human contact – particularly in early stages of acculturation because that is the manner in which financial transactions are conducted in their native countries l.v One of the most significant challenges that a marketing program must overcome is Hispanics’ general distrust of financial institutions. Ther efore, an effective program must focus on creating trust between the bank and the consumer. A second significant hurdle is the Hispanic community ’s perception that they are not wanted as customers. Both of these challenges require an investment in terms of outreach. Develop Hispanic-Specific Products Once an effective method of communica tion has been determined and trust has been established, the bank must be able to provide products and services that meet the targeted segment’s distinct needs. The leve l of acculturation wi ll generally determine the types of products and services that should be marketed to the segment. At the lower levels of a cculturation the bank should focus on products and services that focus on moving the unbanked into th e financial mainstream. Hispanics with a greater degree of acculturation should be targeted with more sophisticated products and services. In all instances, products and se rvices should match the lifestyle of the segment being targeted. 15 Visiting with the Hispanic Community As described in Chapter Thr ee, the Hispanic market is si gnificantly unbanked. An effective Hispanic marketing program requi res banks to actively pursue this unbanked market by entering the Hispanic community . This means that bankers cannot utilize traditional marketing techniques and expect His panics to walk in their doors. Before Hispanics decide to walk in the door, bankers must seek them out through interaction with trusted leader s and organizations . Bankers should seek out organizations that serve the needs of the local Hispanic communi ty including local churches, community centers and nonprolvi organizations. Trust must be earned before Hispanics respond to marketing efforts . Spanish Language Service In order to deliver an e ffective Hispanic marketing pr ogram, banks must commit to providing service in Spanish. This commit ment must extend to 1) personnel, 2) marketing materials, 3) applications and disclosures, and 4) outreach. The strongest message a bank can send to the Hispanic market regarding its commitment is through the use of Spani sh-speaking personnel and other Spanish- language resources. As previously stated, Hispanics are generally a high-touch market – particularly at the lower leve ls of acculturation. This means that banks must be able to provide Spanish-speaking assistance withi n all areas of the bank that Hispanics are likely to utilize. This includes Spanish-s peaking branch and call center personnel as well as some senior bank officers. In addition to personnel, banks should ensure that ATMs and electronic banking services, includi ng Web sites, are also equipped to deal with Spanish-speaking customers. In 2000, the Roslow Research Group c onducted a study entitled “Spanish vs. English Ad Effectiveness.” The purpose of the study was to determine the optimal manner of communicating with bi-lingual Hispanics. The Roslow study found that Spanish-language ads were four-and-a-half times more persuasive than English- language ads. The study also concluded t hat commercials in Spanish are 61 percent more effective at increasing ad awarenes s levels than those in English and that Spanish-language commercialslvii are 57 percent more effective when it comes to communicating a message . Marketing materials must not only be provi ded in Spanish but they must also be culturally correct. Banks must ensure that materials are not simply translated word-for- word but instead are translated with culture in mind. Banks that provide literal translations run the risk of alienating and in so me cases, insulting the market they are attempting to reach. Due to the sensit ivity of language, banks should utilize professional agencies that specialize in financial translations. Marketing materials may include a brochure that highlight s a bank’s full range of serv ices and the skills of bank employees relative to the needs of Hispanic clients. A bank may also include details lviii regarding the bank’s outreach programs within the local Hispanic community . 16 Banks that are fully committed to reac hing the Hispanic market also provide applications and disclosures in Spanish. While this is not a requirement, it sends the Hispanic market a strong message of commi tment. Due to the legal and compliance risks associated with applications and disclosures, competent legal counsel should also review any Spanish language applications and disclosures. Bankers should also be aware of the applicability of state laws that may require Spanish-language disclosures and applications in instances in which financial transactions are negotiated in Spanish. The finishing touch with respect to Span ish-language services is Spanish-language outreach. This includes any financial literacy courses that are provided by the bank as well as marketing-related events such as booths at church and community fairs. SELECTION OF PRODUCTS AND SERVICES The final aspect in the development of a sound Hispanic marketing strategy is the selection of the products and services. Th is component will be addressed in the next chapter. While Chapter Four presented the cha llenges posed by the Hispanic market, Chapter Five provided a roadmap to stee ring through the obstacles. By no means should an effective Hispanic marketing program be considered an easy task. Quite the contrary. An effective program requires seri ous and total commitment to the cause. However, based on the potential profitability and growth of the Hispanic market there is little reason for banks to shy away from the implementation of a Hispanic marketing program. Table 2: Communities Where Hispanics Represent Largest Foreign-Born Immigrant Group Community Country Community Country of Origin of Origin Milwaukee, WI Mexico Fort Worth – Arlington, TX Mexico New York, NY Dominican Republic Oakland, CA Mexico Chicago, IL Mexico San Jose, CA Mexico Nassau-Suffolk, NY El Salvador Phoenix – Mesa, AZ Mexico Jersey City, NJ Cuba Seattle – Bellevue, WA Mexico Los Angeles, CA Mexico Tamp – St. Petersburg – Clearwater, FL Mexico Miami, FL Cuba Denver, CO Mexico Houston, TX Mexico Sacramento, CA Mexico Orange County, CA Mexico Minneapolis – St. Paul, MN Mexico Riverside-San Bernardino, CA Mexico Portland – Vancouver, OR Mexico San Diego, CA Mexico Austin – San Marcos, TX Mexico Washington, D.C. El Salvador Salt Lake City – Ogden, UT Mexico Dallas, TX Mexico Raleigh – Durham – Chapel Hill, NC Mexico Atlanta, GA Mexico Charlotte – Gastonia – Rock Hill, NC Mexico Las Vegas, NV Mexico Greensboro – Winston Salem – High Point, NCMexico Orlando, FL Mexico Source: The Brookings Institution, Celixr on Urban and Metropolitan Policy, February 2004 17 Chapter VI– Selecting Appropriate Products and Services At this point it has been m ade very clear that the His panic market is far from a homogenous market. This market is comp rised of various segments, each having different needs and financial objectives. As such, banks are encouraged to determine which niche they would prefer to target and create a marketing pr ogram customized to that segment’s financial needs. This chapter will provide a description of products and services in addition to traditional products and services , that a bank should be pre pared to offer in order to more effectively capture the Hispanic market. Due to the similarity of Fusionists and Assimilators with typical American consumer s, this chapter will focus on products and services that are best suited to the Nationalists and Eager Adopters, which represent 54 percent of the Hispanic market. PRODUCTS Low-Cost Funds Transfers According to a Pew Hispanic Center study, Mexican Americans wired $9.3 billion to Mexico in 2002. That numberlxs estimate d at $13 billion for 2003 and is expected to reach $18 billion in 2005 . It is also estimated that 91 percent of that wire activity and the fee income associated with it, occurs outside the banking system due to Hispanics’ lack of bank accounts . As such, many banks’ strategies for penetrating the Hispanic market begins with a form of low-cost remitt ance service. From there, banks hope to capitalize through the introduclxii of che cking and savings account s as well as loans and other financial services . The study found that His panic consumers view wire- transfer companies such as Western Unio n and MoneyGram, as a simpler means of sending funds – despite the higher fees. The study attributed part of the problem to the fact that approximately 75 perc ent of U.S. financial institut ions require a customer to lxiii open an account to access money-transfer services . In an effort to win a piece of the remitt ance business, Bank of America implemented their SafeSend program which utilizes ATM cards to initiate funds transfers between the U.S. and Mexico. With SafeSend, an accounthol der in the U.S. requests that a second ATM card be delivered to someone in Mexico. The card is delivered via DHL to ensure security in transit. Money is transferred by having the U.S. customer transfer funds into a “transfer” account that is accessible with the ATM card in Mexico. Only those funds specifically placed in the transfer account are accessible. Through the use of this program transfer fees are reduced to a fracti on of the wire fee. Bank of America has used this innovative program to convert a portion oflxiv unbanked community through the promise of safety, se curity and cost savings . Likewise, U.S. Bank offers Secure Money Transfer, an ATM-based international money transfer service specifically designed to send money to Mexico lx. 18 In June 2004, Citigroup began issu ing bi-national credit cards in a partnership with its Mexican affiliate Banamex lx. Through this low-cost program, account holders in the U.S. are able to send a second credit card to a family member in Mexico. The U.S. cardholder is responsible for payments and is able to set ca rd spending limits on the Mexican card. In 2004, Wachovia debuted Dinero Direct, a remittance card program created as part of the company’s broader Hispanic marketing efforts lxvand Wells Fargo Bank has entered into an agreement with t he Mexican subsidiary of HSBC for the purpose of creating a U.S.-to-Mexico remittance program lxv.ii While banks may not be able or willing to conduct business with non-customers for reasons related to the Bank Secre cy and USA PATRIOT Acts, banks have become increasing creative and have dev eloped programs that ma y lure consumers from traditional wire transfer companies – even if it means they have to open an account. Hispanic-Specific Small Business Program The number of Hispanic-owned small busine sses is growing faster than the number of companies owned by non- Hispanics. The growth is believed to be sparked by Hispanics who feel shut out of corporate America. Despite this growth, many of these Hispanic entrepreneurs rely on self-financing or borrowings from family members due to their distrust of banks or inability to obtain bank financing due to their lack of lxix documentation or credit history . Banks that provide small business loans should consider developing loan programs that fit the Hispanic prof ile while still preserving sa fety and soundness standards. According to Jorge Reynardus, President of Reynardus & Maya Advertising, “the biggest hurdle is the inability of…banks’ credit departments to really understand the low lxx credit risk this group represents .” In order to maximize results, banks shou ld incorporate seminars into its small business loan program. Seminars should fo cus on all aspects of small business financial management, including issues such as payroll, insurance, retirement plans, investments and budgeting. Individual Development Accounts Research related to the income levels of Hispanics has found that Hispanics overall have lower incomes and lower levels of education than non-Hispanic whites and Asians . Lower income and education levels act as key drivers to the Hispanic community’s largely “unbanked” status. As such, banks seeking to convert the unbanked Hispanic community must develop pr oducts that address these issues. The Individual development account (“IDA”) is one such tool. Individual development accounts (“IDA”) were created in the early 1990s as a means of addressing the wealth-building component of anti-poverty strategies in the U.S. IDAs are savings accounts that provide dollar-for-dollar matching grants. The intent of these programs is to allow lower-income individual s to accumulate funds for the purpose of purchasing a home, paying for education or j ob training, or launching a small business. 19 IDA programs typically match participant’s savi ngs at a rate of 1-to-1 up to 4-to-1, depending on the specific program. For ex ample, under a 4-to-1 IDA program, a participant that saves $1,000 is granted an additional $4,000, resulting in total wealth lxxii accumulation of $5,000 that may be used for the established purpose . IDA programs are commonly establish ed as partnerships between nonprofit organizations, financial institutions and governmental agencies. The nonprofit organization typically administers the progr am. Administration generally includes the provision of some form of financial lite racy training and couns eling, provided on a monthly basis. Nonprofits also monitor a participant’s progress in the program and ensure that participants comply with prog ram requirements such as attendance at training/counseling, making required monthly minimum depos its and ensuring that participants meet the income r equirements of the program. Nonprofits also control the matching grant funds and related budgets lxx.ii Financial institutions provi de the accounts that are used to maintain participant deposits. Institutions typically utilize standard savings accounts with fees and minimum balance requirements waived. Government entities as well as foundations, financial institutions and other organizations provi de the funding used to match participant contributions. An example of an IDA program includes the Denver-based Mile High United Way IDA program, which is a collaboration betw een the United Way and Wells Fargo Bank. Through this IDA program, the United Way and Wells Fargo reach out to the unbanked population through employers and community -based organizations. Through a $1,267,500 grant provided by the U.S. Treasury Department, the Mile High United Way received funding to reach 2,375 unbanked low- and moderate-income individuals in the Denver metropolitan area. As part of the program, Wells Fargo will provide no-cost bank products and financial management and econ omic literacy training to program participants. The project was establishe d to reach out to the unbanked population through employers and through clxxivity -based organizations and workforce development public agencies . A second example includes the First-Ti me Homebuyer Matching Grant Program established between Operation Hope and Los Angeles-based Cal National Bank. Under this program, Cal National Bank provided Operation Hope with a $250,000 grant for the purpose of matching low- and moderate-income first-time homebuyers with up to $5,000 in matching grant funds. The program requires participants to complete required financial literacy and homebuyer counseling, provided by Operation Hope, prior to receiving the grant. Banks interested in establishing an IDA program should contact the Federal Reserve Bank as well as the Federal Home Loan Bank to determine the availability of government funds and the requirements for establishing an IDA program. Banks should also inquire with the community development officers at these agencies to determine other organizations that provide IDA funding. Additional relxxvces include the Office of Community Services’ Assets for Independence Program . 20 SERVICES Acceptance of Matricula Consular and ITIN A significant hurdle for many Hispanics is the lack of traditional identification required by banks to establish a bank account. For ex ample, many Hispanics living and working in the U.S. do not have a Social Security Card and passport or other commonly used identification. The lack of documentation has kept a la rge number of Hispanics from establishing bank accounts – either because of the Hispanic’s reluctance or because of the bank’s new account policies. In order to successfully tap into this mark et banks must be willing to work with the Hispanic community. This means that banks must be willing to accept the Matricula Consular issued by the Mexican government to Mexican nationals living abroad, and the Individual Taxpayer Identif ication Number (“ITIN”) iss ued by the Internal Revenue Service to individuals who do not qualify for a Social Security Card. Since the events of September 11, 2001 and the passage of the USA PATRIOT Act, many banks have been cautious about the ty pes of documentation accepted when opening a new account. As such, th ere has been some debate over the appropriateness of the Matricul a Consular as a form of pr imary identification for the purpose of establishing a bank account lxx. Federal supervisory agencies have chosen not to opine on the appropriateness and have left that decision up to institutions. The banking industry has seen widespread use of the Matricula Consular by financial institutions. Millions have si nce applied and received the card and have successfully opened bank accounts. Bank of America has been so committed to the Hispanic community that its employees visit Mexican consulates and woo Hispanics lxxvii applying for the card with brochures and free coffee . A Pew Hispanic Center study found that financial instituti ons with the greatest success in reachinglxxviiispanic market are those that have decided to accept the Matricula Consular . Other banks are experimenting with loans using an ITIN in lieu of a Social Security number lxx. An American Bankers Association reported entitled “Best Practices in Immigrant Lending” highlights ITIN mort gage programs at three banks, including Milwaukee-based Mitchell Bank, which offers a three-year ARM amortized over 30 years. However, due to the lack of Social Security cards, banks that market ITIN mortgages are unable to sell these loans into the secondary market or obtain private mortgage insurance. As such, these banks portfolio the loans or find private investors willing to purchase the credits. In an effort to assist banks in the creation of ITIN-based credit products, in July 2004, Fair Isaac Corporation launched its FICO Expansionlxxx Score Service which uses the ITIN as the first step to establishing a credit history . 21 Earned Income Tax Credit lxxxi The Earned Income Tax Credit (“EITC”) was created in 1975. The EITC was designed to offset the burden of Social Security payroll taxes on low-wage workers, supplement earnings and complement efforts to help families make the transition from welfare to work. The size of the credi t is based on the amount of income earned and lxxxii the number of qualifying children in a household. A large and growing share of U.S. low-wage workers ar e Hispanic and therefore Hispanics especially benef it from the EITC. In 1998, approximately one-third of all Hispanic households claimed the EITC, and the average EI TC benefit distributed to Hispanic households was $1,764. lxxxiii Unfortunately, according to a 1999 study conducted by the Urban Institute, only 65.7 percent of all families at 50 to 100 percent of the f ederal poverty level know about the tax credit. This statistic worsens to less than 50 percent for families at less than 50 percent of the poverty level. lxxxiv With regard to Hispanics, the Urban Instit ute found that low-in come Hispanics are much less likely to know about or receiv e the EITC than low-in come non-Hispanics. According to the Urban Institute, fewer t han one in three low-income Hispanic parents know about the EITC program, and fewer than one in five ever received the tax credit or lxxxv refund. Three reasons that likely contribute to Hispanics’ low participation rate include 1) Hispanics’ feeling that the EITC tax forms are too complicated, 2) their inability to speak or read English well enough to understa
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