Demographic shifts in the U.S. and the resulting changes in predominant client expectations are affecting the ways FIs are compelled to develop and deliver products and services. The Latinx¹  community represents the largest minority demographic in the country, with a total population of 60 million. Of that, an estimated 32.5 million are millennials and Gen Zers. For scale, if the U.S Latinx population was its own nation, it would have the world’s seventh-largest GDP at $2.13 trillion, behind the U.K. and France. 

However, despite these incredible upward statistics, roughly 32 percent of the Hispanic² /Latinx community is not fully served by mainstream depository institutions. According to a recent Federal Reserve report, 10 percent of Hispanic/Latinxs are unbanked³  and 22 percent are underbanked.⁴ 

Unfortunately, this target demographic with tremendous purchasing power has not been a primary business focus for banks and FIs in select areas of the U.S. Aside from limited geographies, banks have not allocated sufficient resources to understand and adapt to socioeconomic and cultural aspects of the Latinx population, including those with: multi-generational or multi-status households, intergenerational knowledge and reservations about the formal financial system or hesitations to transition away from alternative financial products. Therefore, the role of FIs in understanding the needs and concerns of the Latinx demographic is crucial to accelerating and shaping the transformation agenda in service of both community empowerment and favourable business outcomes. This also enables FIs to be better prepared to address continued anticipated demographic changes.

Consequently, banks must consider the design and development of their products and services and ultimately rethink their distribution channel strategies with an emphasis on a multi-channel engagement and compelling digital products to transform the Latinx perception of institutional banks.

1) Focus areas for manifesting better business and community outcomes 

a) Innovate 

Tailor the Latinx customer experience, both in-person and digitally, to increase engagement. According to a FDIC 2019 report, minorities were less likely to visit a branch. Reasons for this may include feeling out of place, confused, and not seen amidst a busy crowded space or perhaps not having a local branch in their neighborhood. For this, banks must have well-kept spaces, and hire bilingual talent who can meet the needs of the customer and reduce the chance of miscommunication. Digitally, FIs must think about ways to use AI to better align customized products and services: 1) where multi-generational households could use a bundle of banking products and share access to banking accounts or 2) in geographies where Latinx demographics are more prevalent. The Latinx demographic is not homogenous therefore increased use of AI capabilities to identify second-level personalization needs and potential solutions is critical. 

b) Educate 

To increase market exposure and raise awareness around products and services, especially amongst millennial and Gen Z customers, deploy targeted ads and cultivate key local community partnerships. This bi-directional engagement will foster cultural awareness for banks and increase client engagement from the Latinx community. For example, community centers are important resources often organized and used by the Latinx community. Banks may seek to build relationships with community organizations to better understand each local Latinx population’s needs for customer attraction and confidence.

c) Create

To capitalize on the presently low interest rate environment, banks may consider developing credit products for a more price-sensitive demographic. Unbanked and underserved populations are especially targeted in sub-prime lending schemes, which include penalty interest rates, high late fees, and the risk of repossession of loan collateral. Consequently, opening affordable lines of credit will both address unmet borrower demand and transition the subsect of people who invest with informal community-based lending circles or additional financial products outside the formal banking system such as payday loans.

d) Elevate 

Continue to establish employment pipeline opportunities that expose Latinx candidates to career opportunities and create a sense of partnership and recruitment with the community; this shows that institutions see the value of Latinx representation within the workforce. Additionally, it is not enough to focus on recruitment. Leadership development and retention are equally important. A focus on amplifying, training, and coaching current Latinx and BIPOC (Black, Indigenous, People of Color) talent to increase diversity within the financial services’ sector can also continue to foster financial inclusion.

The Latinx demographic’s financial health is essential for the future economy. The majority of banks and financial institutions have not embraced a demographic market focus and should incorporate a demographic-lens into their product and service go-to-market strategies. In alignment with FIs’ current policies and mission statements, taking steps towards an inclusive financial atmosphere will provide reputational and community benefits.

The complete paper of “Unbanked & Underserved: Latinx Demographic Changes & Creating Financial Inclusion” will be published in Fall 2021. 

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 1.  Latinx: (la-TEEN-ex) is the gender-neutral and gender-inclusive term for Latino/a. It refers to people of Latin American cultural or ethnic identity in the U.S.
 2. Hispanic: a subsect of the Latinx demographic, refers to individuals who speak Spanish. Specifically, it refers to individuals from Spanish-speaking countries and those with Hispanic descent
 3. Unbanked: no one in the household had a checking or savings account
 4. Underbanked: the household has an account at an insured financial institution, but they also use alternative financial services (AFS) outside of the formal banking system.