While most Americans may not realize it, the United States is one of the world's largest Hispanic countries. According to estimates from the U.S. Census Bureau, there are approximately 32.4 million Americans of Hispanic descent, and the group accounts for 11.8% of the nation's total population. That makes the U.S. Hispanic population the fifth largest in the world, behind only Mexico, Spain, Colombia and Argentina. By 2055, the Census Bureau projects, Hispanics will comprise over 25% of the nation's people.

The presence of such a large, identifiable subgroup and its continued replenishment with new immigration presents the card industry with a natural affinity group to target. As a result, many issuers are jumping on the Hispanic bandwagon with product offerings and marketing tailored specifically to this ethnic group. At the same time, those banks are learning that selling credit to Hispanics requires more effort than simply translating advertisements and solicitations into Spanish.

One of the card issuers to most aggressively target Hispanic consumers is St. Louis Park, MN-based Metris Companies Inc. Metris, which issues cards through its subsidiary Direct Merchants Credit Card Bank, in August acquired the U.S. bank card portfolio of Banco Popular North America, the mainland arm of Popular Inc., one of Puerto Rico's largest banking firms. That portfolio, which comprises approximately 185,000 active accounts and $180 million in receivables, has made Metris a major player in the Hispanic market.

In addition to the portfolio, Metris also took over the infrastructure of Banco Popular's U.S. card business, including that bank's Orlando, FL, card operations center and its 130 employees. Under the acquisition agreement, Banco Popular will serve as an agent bank for Metris's card program, and Metris will offer cards to Banco Popular's U.S. customers. The sale brings to an end Banco Popular's direct card-marketing efforts in the U.S., which the bank launched in 1997.

The Banco Popular deal is just the latest in a series of initiatives Metris has taken to attract Hispanic cardholders. Last November, the bank launched a cobranded card program in conjunction with La Curacao, a Los Angeles-based retailer popular with Mexican-Americans. Marketing materials, statements and customer service for that program are provided in both Spanish and English. At the same time, Metris introduced a Spanish version of its Account Protection Plus credit insurance program.

According to Patrick Fox, senior vice president of business development at Metris and president of Direct Merchants Credit Card Bank, the La Curacao program "has met and exceeded our expectations, program to date," although he would not disclose the size of the portfolio.

This year, Metris introduced a Spanish-language version of its extended-warranty program, and the bank has plans to offer other card enhancements in Spanish in the coming months. "There's a number under development, and clearly we see this is a big opportunity," Fox relates. In virtually all cases, he says, the pricing and program features in the Spanish enhancements are the same as for the English versions.

By the end of this year Metris hopes to add a Spanish version of its cobranded Prodigy MasterCard, which it launched in May for White Plains, NY-based Internet service provider Prodigy Communications. Prodigy runs a Spanish-language Internet service. The card will be largely similar to the existing Prodigy offering. "We look to ... have a reward card out there and really look to do the same kind of product," Fox says, "[with] service in Spanish, collections in Spanish and that type of thing."

Large, Untapped Market
Fox calls the Hispanic market "one of the largest growth markets for credit card issuers in the next five to 10 years," due principally to rapid growth in the nation's Hispanic population and strong increases in the segment's buying power. At the same time, he notes that Hispanic consumers are less likely than the population at large to have credit cards, which makes the community an attractive target for issuers struggling with saturation in the mainstream marketplace.

That saturation has led to increased competition among card issuers over the past few years as banks pull out all the stops in order to find more customers. "The cost to acquire a credit card account through direct mail is approaching the $100 level" while just two to three years ago it stood in the $60 to $75 range, says David A. Smith, principal at Linthicum, MD-based First Annapolis Consulting. "The overall growth rate in card receivables is in the single digits, so issuers are looking for any new channel to acquire an account which is cost-effective."

Smith claims the Hispanic market is well suited to segmentation and affinity marketing because it is an easily identifiable niche. At the same time, he says, Hispanic consumers are often subprime borrowers, suitable customers for an issuer such as Metris that specializes in subprime portfolios. "The subprime market is really that secured [card] market, so it overlaps," he says. "So if you're Metris, and you're going after the subprime market, you're going to be talking to some of these [Hispanic] people anyway."

Fox agrees that his company's experience with subprime accounts is an asset as it increases its presence in the Hispanic market. "We've been the innovator in the low- to moderate-income segment," he says. "We can cover the whole spectrum of this market, everything from secured cards up to platinum."

Michele Turkel, vice president, financial institutions of Gurnee, IL-based PocketCard Inc. and president of PocketCard subsidiary Turkel International Consulting Inc., is optimistic about Metris' chances of success in the Hispanic market. "Metris is in the perfect position," she says. "They market to income strata that go very well along with Hispanics and new immigrants."

In fact, Turkel suggests that Metris is likely to market the program more effectively than Banco Popular did on its own. While Banco Popular has a loyal customer base and a strong presence in cities with large Hispanic populations, Turkel says it was slow to capitalize on these advantages.

"They never did [marketing] in a big, blown-out way, and with a little testing, testing, testing you generally don't make enough money to cover your expenses," she says.

Turkel posits that the bank likely made money on its U.S. card portfolio but chose to sell because the results did not meet expectations. Another industry source, who requested anonymity, says that Banco Popular received a premium from Metris as part of the deal to sell the card portfolio. A Banco Popular spokesperson could not be reached for comment.

In contrast to Banco Popular, Turkel thinks Metris is likely to invest heavily and devote more attention to building the card program. "I'm bullish on Metris because they're bullish in the marketplace," she says. "This is an issuer who realizes what they just bought and realizes what they're going into, and they're going to spend a lot of money" to meet objectives, she predicts.

But Metris is not the only issuer to realize the potential of marketing to Hispanics. Chase Manhattan Corp. has been offering Spanish-language card products to consumers for about two years, according to Steve Kietz, senior vice president of sales and marketing services for the bank's card unit. Like Metris, Chase offers Spanish-speaking customers the same card products it markets to the general population. "Our strategy ... is to use our regular product line with enhanced delivery," meaning all written materials and customer-service communications are in Spanish, Kietz says.

Kietz claims that Chase's efforts to reach consumers in their language of choice have helped the bank retain Hispanic business. "We are finding that [cardholders] do value seeing the communications in Spanish and also have greater loyalty to the card because of the continued presentation of information in the Spanish language," he notes.

Kietz says Chase has pursued a range of different options including television ads, Spanish-language direct mail and in-branch programs in cities where the bank has a retail presence. He also cites event marketing and targeted sponsorships of Hispanic organizations as cornerstones of the bank's Hispanic marketing program. For example, this year Chase sponsored the Hispanic Heritage Awards, a televised awards show honoring youth for academic excellence.

Chase's experience highlights an opinion shared by many in the card industry that, in order to be successful at Hispanic marketing, a bank must go beyond the traditional strategies used with the mainstream market. "To attack this marketplace, you need to define and segment out a unique marketing strategy that is specifically targeted to the needs of the sector you're targeting," says Marc Edmondson, marketing director of Portland, OR-based First Consumers National Bank, the card-issuing arm of cataloger Spiegel Inc. "That means you have to be sensitive to cultural issues, language issues, a ton of issues."

Edmondson says that First Consumers, which launched its first card directed at Hispanics about seven years ago, currently focuses about 10% of its marketing efforts on the Hispanic community. Most of First Consumers' cards are secured cards, and a majority of the bank's Hispanic efforts are grouped under its Adelante-branded MasterCard.

According to Edmondson, one of the challenges that issuers face when working with Hispanics is that up to 50% of the segment do not have a relationship with a bank. He claims this high proportion of unbanked individuals makes the Hispanic population receptive to First Consumers' secured card offerings, and he says the bank's goal is to move those consumers up to unsecured cards as they develop a payment history.

It's not only card issuers who are warming to the Hispanic market. At the end of July, MasterCard International launched two television commercials in Spanish to promote its brand. The ads, which are running on the Spanish-language Telemundo and Univision networks through this year's fourth quarter, are part of the association's longstanding "Priceless" campaign and feature the Spanish tag line "No tiene precio."

Petra Pasquina, MasterCard's director of Hispanic marketing, says the association seeks to bolster its member banks' ties to the Hispanic community with the promotion. "Different banks are in different stages of development of their Hispanic marketing programs," she says. "As the card association, we really wanted to get out there and set the stage for whatever marketing efforts they would do in the future and also fix the MasterCard brand in the minds of Hispanic consumers."

Besides the ads, which Pasquina says will reach 94% of the nation's Hispanics, MasterCard is preparing an educational program designed to teach the basics of financial management and credit to Hispanic consumers. MasterCard will introduce the program, which it is developing in conjunction with the League of United Latin American Citizens, later this year in Chicago, Houston and Los Angeles, as well as in San Juan, Puerto Rico.

Providing basic information is important, Pasquina says, because many Hispanics are not familiar with how credit cards work. "They may not be as far up the learning curve when it comes to credit education," she notes, due to language barriers or lack of experience with the U.S. financial system. "It's not that [the information is] not out there, but if it's not out there in your language, it'll be a little more difficult to understand."

The fact that many Hispanics have no contact with banks also makes it harder for issuers that want to target the group to find potential customers. Pasquina notes that even Hispanics who have lived in the U.S. for years may not have a credit file, in part because many families live in multi-generational households where only one adult pays the bills. "There are people that have been here and have been established in jobs for a while," she says, "but because they don't appear on records and don't have a history of paying bills, they haven't established a credit history."

Lists are Tricky
To find Hispanic consumers, many card issuers use list brokers, but the lists' accuracy can be spotty. "If you go buy a list from brokers that claim to have ethnic-specific files, you will have anywhere from 25% to as high as 40% of non-ethnic people in there," says Russ Schoper, president of Alpharetta, GA-based Business Development International Inc., a card consulting firm.

Lists obtained from organizations or companies that service a given ethnic group, Schoper says, are substantially more useful, with ethnic accuracy often rising to 90%. He cites long-distance telephone companies, courier services, ethnic associations and magazines as potentially good sources of list information, although he cautions that most such lists are relatively small.

While lists may help card issuers identify prospective Hispanic customers, they can obscure fundamental differences among different groups within the Hispanic community. As an example, First Annapolis' Smith notes that foreign-born Hispanics are more likely than their U.S.-born counterparts to need basic credit education and less likely to use credit at all. "There's a large income gap and a huge lifestyle difference within the Hispanic population, and therefore strategic marketing decisions should be made by evaluating which of the Hispanics you're targeting," he says.

Smith says issuers can reduce their credit risk by supplementing credit-bureau data with data models that take into account consumers' demographic details as well as information on seemingly unrelated topics such as hobbies and magazine subscriptions. "By overlaying other information, they may find that one segment of a thin file who also drives a certain type of car may perform better than another type of thin file," he says.

Another factor obscured by lists is that not all Hispanics speak the same version of Spanish. Settlement patterns in the U.S. mean that different subgroups are predominant in certain geographic areas--Mexicans and Mexican-Americans in the Southwest, for example, and Cubans in Florida--and these groups tend to use the Spanish language differently.

Astrid Rial, president of Arial Internacional, a University Place, WA-based consulting firm with extensive operations in Latin America, says that regional differences among Hispanics are often overlooked when U.S. card issuers set up Hispanic marketing efforts. She cautions that linguistic variations can lead to confusion--for example, in Puerto Rico, the word "delincuente" means "delinquent," while in Mexico it can signify "criminal." Similarly, the word "cancelar" can be interpreted both as "to cancel" or to "pay off" an account, depending on the speaker's place of origin.

While the challenges faced by banks that seek to build a Hispanic portfolio are large, the market's potential is both huge and largely untapped. Some in the industry now see this group as a modern version of El Dorado, South America's mythical lost city of gold. The metaphor is apt: as the Spanish explorers discovered, there's no map to riches, and many who rushed eagerly into the search soon perished.

However, those issuers that are bold enough to enter the market early and target newcomers to credit do stand to enjoy increased loyalty from Hispanic customers and enhanced revenue opportunities as those consumers graduate to value-added cards. As more banks recognize this category's importance and launch their own Hispanic marketing programs, the field is set to grow increasingly competitive. While the Spanish never found El Dorado in the jungles of South America, more and more card issuers are betting they can find it in the wallets of Los Angeles, New York and Miami.

Jason Fargo is senior editor of Credit Card Management, published by Thomson Financial.

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