Hispanic Transformation will Drive a $113 Trillion Opportunity for Banks: Three Ways They Can Capture It

The banking industry has been courting the Hispanic population for decades. But beyond initial checking and savings accounts, very few organizations have been successful in growing their relationships with this audience over the long term by way of wealth management and major financial moments such as homebuying.

This is largely because, while many banks have embraced Hispanics as one of the country’s fastest-growing demographics—now 20% of the total U.S. population—they’ve overlooked a much larger opportunity that Hispanics are creating as their influence spreads.

According to Finhabits’ Power in Numbers report, it’s not just Hispanics’ population that is growing at a disproportionate rate. Their household wealth is growing faster than any other group’s at a compound rate of 12.5% over the last ten years, which is nearly double that of non-Latino Whites (6.8%).

All of this puts Hispanics on track to accumulate $113 trillion in collective wealth by 2050—which is good news for banks, if they’re able to win Hispanics’ lifelong investment business, rather than just their day-to-day deposits and transactions.

Doing so, however, will require banks to undergo a “Hispanic Transformation” that replaces surface attempts to speak to this audience with foundational changes to their offerings, operations and revenue models.

Here are three fundamental steps that will help them get there.

To make Hispanics a long-term business priority—rather than treating them as a philanthropic initiative—banks need to commit to understanding this audience in a meaningful way.

In order to capture the $113 trillion Hispanic wealth opportunity by 2050, banks need to be willing to spend the next 20 years growing relationships with their Hispanic customer base.

As it stands now, even some of the country’s largest financial institutions’ customers are less than 3% Hispanic. This is because their traditional offerings haven’t taken Hispanics’ unique approaches to banking and finance into consideration, and banks haven’t tried to change them.

Instead, they’ve put their efforts into marketing campaigns focused on capturing Hispanics’ immediate attention from the outside, but don’t actually offer anything different from banks’ existing offerings.

Or they’ve made public attempts to support and align with the Hispanic community. At this year’s L’Attitude event, for example, we saw for the first time ever, large banks sponsoring the event—a nod to their growing urgency to crack open this opportunity.

But these tangential efforts aren’t enough, and more often than not, banks ultimately end up abandoning them after a year or two of realizing that they haven’t made any difference in growing their Hispanic business outside of basic services.

Banks need to audit their legacy offerings with a clear understanding of this audience in mind.

Banks won’t be able to change how they’re approaching Hispanics until they realize why their current offerings don’t work for them. This means understanding that Hispanics’ financial needs look significantly different from the rest of banks’ existing customers.

For instance, with investing practices—where Hispanics’ long-term wealth opportunity will stem from—many Hispanic Americans are the first person in their family to ever invest in the stock market and are more likely to do so with a trusted advisor to guide them.

They think that investing is as risky as going to a casino. When trading apps initially emerged, for instance, many Hispanics thought buying a stock would make them rich—quickly. They didn’t know how to diversify and they wanted immediate gratification. They don’t know the value of doing it consistently for the long run.

They think they need to be rich to invest, with at least $50,000 to start. Some banks reinforce this belief with their offerings.

With this knowledge on their side, each of these differentiators creates a new opportunity for banks to design financial offerings that grow alongside Hispanics over the long term.

Banks must then be willing to make changes to decades-old investing systems and practices that are no longer serving customers.

Traditional wealth management models center around individual investors who have at least $1 million in household wealth. And while this system is lucrative on an individual basis, it shuts out the mass-affluent market that Hispanics are quickly moving in on.

Banks don’t have to overhaul this model to capture the Hispanic wealth opportunity. But they will have to supplement their offerings with new ways of investing that are accessible to more than the top 1% of American households.

Hispanics in particular are apprehensive of investing in the large, lump sum deposits that many financial institutions require when setting up an investment account. Instead, they’re building their wealth through smaller, but regular and automated deposits known as “micro-investments.” This new approach is ultimately enabling Hispanics to save up to 6.5% of their total income, finds Finhabits’ Power in Numbers report.

Applying this ‘power in numbers’ model will ultimately benefit more than just the U.S. Hispanic population, too. As banks transform their investment offerings, they’ll begin to tap into other audiences, such as Gen Z, that have also been shut out by existing models.

Banks that put off Hispanic Transformation aren’t just stalling their own growth. The longer that they wait, the more Hispanic customers they’re simply handing over to their competitors, including fintechs that have made it their mission to create products and services entirely for Hispanics. Ninety-two percent of Hispanics are now using fintechs to manage their money, according to recent estimates—more than any other U.S. demographic.

The opportunities are there, but it’s on banks to capitalize on them.

Author: Carlos Garcia, CEO, Finhabits