Banking On Immigration

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Credit unions aren't the only ones paying attention to opportunities in immigrant populations. Big banks waking up to the opportunities in ethnic niches have some catching up to do against the community banks that have thrived for years in this area.

Some of those smaller banks, having established themselves with one or two ethnic groups decades ago, are duplicating their success with new waves of immigrants. Still, competition is intensifying.

"I think the community banks should be feeling some heat from the big banks in terms of those customers looking for a broader product set, but they'll still have the edge over big banks in terms of those customers looking for better customer relationships," said Andrew B. Collins, an analyst with U.S. Bancorp Piper Jaffray. How long will community banks and credit unions be able to hold off larger rivals in such markets?

Feeling The Heat

"I do sense that the competition from bigger banks is getting strong in the last four to five years," said Dominic Ng, the president and chief executive officer of East West Bank in San Francisco.

East West, which has assets of $3.3 billion, is one of several banks in California that have grown quickly by emphasizing ethnic Chinese and Koreans who generally prefer doing business in their communities.

That larger banks are knocking at the door comes as no surprise-Asian-Americans tend to be big savers. According to the U.S. Census Bureau, the average U.S. household savings deposit balance is about $10,000 and the average for Chinese households is $17,000. Big-bank encroachment spurred East West to play up its strength, its Asian-American niche, even more, Ng said. For instance, it launched a Chinese- and English-language website, a claim that Wells Fargo & Co., Bank of America Corp., and others in its market cannot make. And it has opened several branches in stores of the 99 Ranch Market grocery chain, which targets Asian-Americans in California.

An Entrenched Expertise

Ng said he is confident that East West can stand up to bigger banks in business banking, especially in international trade finance.

"We have such an expertise in this business, and a very deep network of correspondent banks in Asia," he said. "So it would take quite an effort for them to take clients away."

In fact, these smaller banks' experiences contain useful lessons for larger ones, which have been devoting more advertising dollars, human resources, and community programs to enrolling people who do not speak English.

Take Laredo National Bank in Texas, which has grown along with the population and trade near the Mexican border. After focusing for its first 100 years on Mexicans and Mexican-Americans near Laredo, it branched out in the mid- 1990s, moving north to the state's larger cities-Houston, Austin, and Dallas-and opening branches in predominantly Hispanic neighborhoods. That expansion led to a near-doubling of Laredo National's assets, to $2.6 billion, and it reeled in customers for consumer and business products alike.

Achieving Marketshare

In Houston, it was the No. 1 mortgage lender by transaction volume last year. It has done this by touting itself as a bank that is accessible to Hispanics seeking homeownership. Gary G. Jacobs, Laredo National's president and chief executive officer, said its brand has come to be an easy sell, because Hispanics see Laredo National as "one of their own."

"People walk in and instantly feel that this is a Mexican-American bank," he said. "Here, it's not a prerequisite for tellers to speak English."

It is not just cosmetic: Every board member except Mr. Jacobs is Hispanic. Banks that started in the mainstream population have found that focusing on one ethnic group fosters loyalty and growth. First National Bank, in the San Diego suburb of Rancho Santa Fe, decided years ago to target Hispanics more. Now, most of the $1 billion bank's tellers are bilingual, and it has currency exchange and other specialized services.

The Loyalty Factor

"Hispanics are very loyal," said Maria Elena Castano, a First National vice president for the San Ysidro, Calif., border market. "Even during the times when other banks are offering lower interest rates, they prefer to stay with us."

Start-ups have popped up in California's Hispanic communities, but "bottom line, for Hispanics here, I don't think it matters if the bank is Hispanic-focused," Castano said. "I think it's the service from personnel that matters-particularly if the tellers speak Spanish."

In some communities, the marketing requires an ability to hit a moving target. Many Midwest and Northeast banks targeting ethnic groups were founded in the late 1800s and early 1900s, and they had to act when the people they had long served started heading for the suburbs. Mitchell Bank in Milwaukee, founded in 1907, is a case in point. When its initial customer base of German and Polish immigrants moved to outlying towns, Mitchell went with them, building branches in places like Muskego, Wis. This had mixed results.

Significant Competition

"We found that it was much more competitive out there," said James Maloney, Mitchell's chairman. "There are banks on every corner-all the big banks are there-and we don't have as much loyalty with the descendents of our original members" in the neighborhoods.

Meanwhile, immigrants from Mexico and Central America had moved into its core Milwaukee neighborhoods in large numbers. It dawned on Maloney that it made no sense for Mitchell, which has assets of $72 million, to bill itself as the bank for German immigrants in a largely Hispanic neighborhood. So it started offering more services aimed at Hispanics, including putting a branch in a high school that had a lot of immigrant and first-generation students.

Bank executives who have become more familiar with the Hispanic market say it could have more potential than their original markets.

"I see history repeating itself, and actually getting even stronger" with a Hispanic market, Maloney said, citing promising demographics such as the fact that "the head of the household is very young, so we can have a relationship with them longer."

Deja Vu All Over Again

East Boston Savings Bank in Boston is actually repeating Mitchell's formula for a fourth time. The $687 million thrift was founded 155 years ago, and at various times has served Irish, Jewish, and Italian immigrants. As their descendents gradually moved to the suburbs, so has East Boston Bank, opening branches there. But at the same time it started to concentrate on the newer immigrants near its core network of branches: Hispanics and Asians. Robert Verdonck, the thrift's president and chief execu-tive, said east Boston's newly arrived Hispanics and Asians will not take long to assimilate into the mainstream economy.

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