Wall St. and Business Wednesdays: Latinos Become Key Market For Financial-Services Firms by Eduardo Porter and Kathryn Kranhold

All of a sudden, Latinos are being offered lots of choice about what to do with their money.

General Electric Co.'s financial unit has begun pushing them to call "1-866-Llame-GE," for life insurance, annuities and other services. Citigroup Inc.'s Citibank just launched www.CuidaTuCredito.com (care for your credit) to teach them financial management. In Miami, Freddie Mac has started classes in Spanish about what the mortgage powerhouse terms "the financial responsibilities of higher education and homeownership."

All of this attention is prompted by the fact that despite their rising incomes, the 40 million Latinos living in the U.S. haven't yet become big consumers of financial services. About half of all Latinos don't even have bank accounts or credit cards, and only one in three has life insurance, compared with about half of the general population. Very few own stocks. According to a survey by insurer AllstateCorp., 17% of Hispanics say they have never saved for retirement -- four times the percentage for whites and 70% more than blacks.

Hispanics on average are poorer than many Americans. The average Hispanic family had an income of $45,300 in 2001, compared with a national average of $66,900, according to the census. Yet fast population growth has already boosted Latinos' total disposable income to $650 billion, according to the University of Georgia's Selig Center for Economic Growth, and that figure is expected to top $1 trillion by 2008.

"In the next couple of years, 80% of our growth will come from the multicultural market, and 60% of that will come from the Hispanic population," says Eusebio Rivera, head of Hispanic Initiatives at Bank of America. Kate Ligare, senior vice president of marketing for GE Financial, adds that Hispanics are underserved by the industry. "That's why we've focused on it," she says. "We think we're in a very pioneering space."

GE Financial, which recently launched efforts to woo this market, started airing ads this month on GE's Spanish-language TV network, Telemundo. But GE Financial has quietly built up its Hispanic-marketing effort over the past several months. It set up a Spanish-language call center, launched a Web site and tapped bilingual agents in key cities to sell GE products. In June it drafted financial commentator Julie Stav, considered the Latino version of personal-finance guru Suze Orman, to make a series of financial information spots that run in English on GE's NBC station in Miami and in Spanish on Telemundo.

On the 60-second segments -- titled "knowledge is power" -- Ms. Stav holds forth several times a week on subjects like the difference between an IRA and a Roth IRA, and the meaning of "tax bracket." "The stock market is like a giant soup with over 10,000 companies as its ingredients," explains Ms. Stav on one of her Telemundo clips. And the market indexes are like "little spoonfuls" for investors to taste how the soup is coming along.

GE Financial's target audience in the Latino population is similar to its main market: middle-class and more affluent individuals who typically are thinking of buying a home or have done so and are taking the next financial step. Other financial institutions are aiming more broadly. Bank of America Corp. has divided the Hispanic market into three segments -- new arrivals, transitionals and established -- offering basic bank accounts to the first group, mortgages and retirement accounts to the second, and brokerage services and other more sophisticated products to the third.

Many banks are focusing on the $20 billion in money transfers Hispanics send to Latin America every year, a market currently dominated by First Data Corp.'s Western Union. Since early last year, nearly 300 banks, looking to edge their way in, have begun accepting the Mexican consular card, virtually the only ID available for millions of illegal immigrants who are big remittance senders.

Banks like Wells Fargo & Co. and U.S. Bancorp's U.S. Bank have launched customized automated-teller-machine-based remittance services. Citibank and Bank of America have bought stakes in Mexican banks and used the relationship to enter the remittance market. Citibank even sends representatives to registration fairs at Mexican consulates in the U.S., to help immigrants apply for a bank account as soon as they've been issued their ID card.

Remittances are also a way for banks to get Latinos in the door and sell them more sophisticated and bigger-ticket services. Remittances offer banks "the opportunity to turn an un-banked consumer into a consumer of the bank," Alice Perez, head of Hispanic marketing for U.S. Bank, stated recently in congressional testimony. Bank of America is tying its remittance program to checking and saving accounts.

Banks face unusual hurdles to lure Latinos , starting with the paperwork. In North Carolina, for instance, the Latino Community Credit Union helps illegal immigrants apply for a federal tax identification number, the second piece of ID they need -- alongside a consular card -- to open an account.

Banks must also overcome a barrier of mistrust among many Latinos who have no previous experience with financial institutions. Half of the Hispanics surveyed by Allstate said they believe "financial institutions aren't interested in having someone like me as a client." To ease their anxiety, Wells Fargo remodeled branches in Latino-heavy neighborhoods in California, using brighter colors and playing Mexican-tinged Muzak to create a community storefront flavor.

In Pacoima, east of Los Angeles, Wells Fargo opened an experimental branch to test new ways to lure Hispanic customers, including financial literacy seminars in local residents' homes, procuring from local businesses and partnering with a local nonprofit to lend money to micro businesses.

Unlike Wells Fargo, GE isn't opening any storefronts. GE mostly sells its life insurance and annuities through independent brokers. But the company has planned its push into the Latin market carefully. Mike Fraizer, GE Financial's chief executive, says the company spent more than two years researching and planning the Hispanic initiative. And his team has worked closely with key people within the Hispanic community, including George Herrera, chief executive of the U.S. Hispanic Chamber of Commerce. "You have to be respectful of the differences. We're learning as we go," says Mr. Fraizer.

Financial education is core to most financial institutions' efforts. To overcome Hispanics' relative financial illiteracy, banking firms like FleetBoston Financial Corp. are trying out Spanish-language Web sites, brochures and call centers that teach about mortgages and "annuities versus CDs." BB&T Corp. of North Carolina teamed up with the state government and a local community organization to produce an educational video in the form of a Spanish-language soap opera that explained how to call 911, how to buy a car and how to establish credit. GE's ads have an educational message. In one, a mother and daughter look at the countries on a globe while a female voiceover talks about the importance of saving money to send your child to college.

Most banks aren't yet sure what's going to work. Next spring the Consumer Bankers Association, a group of the nation's biggest banks, plans to hold a symposium "in order to better understand other obstacles that may exist, and to share innovative programs and services being developed to serve the Hispanic and Latino marketplace," said U.S. Bank's Ms. Perez.


Eduardo Porter and Kathryn Kranhold are staff writers for The Wall St. Journal. You can write to Eduardo Porter at eduardo.porter@wsj.com and Kathryn Kranhold at kathryn.kranhold@wsj.com


This article first appeaeared in the October 21, 2003 edition of The Wall Street Journal


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Wednesday, November 5, 2003