Service to Hispanics a win-win
Serving Hispanic/Latinx consumers benefits credit unions, members, and communities.
As we celebrate National Hispanic Heritage month, credit unions would do well to consider how to better reach and serve the Hispanic/Latinx community.
More than half of total U.S. population growth since 2010 has come from Hispanic/Latinx people, according to the Pew Research Center.
In 2019, the Hispanic/Latinx population reached a record 60.6 million, representing 18% of the U.S. population. By 2040, this group is expected to reach more than 87 million, according to the U.S. Census Bureau.
While Hispanic/Latinx people are often stereotyped as immigrants, the share of this population who are immigrants has declined to 33% today from 37% in 2010. In 2018, 71% of Hispanic/Latinx people over age five spoke English proficiently, up from 59% in 2000, Pew reports.
Click to enlarge. The Credit Union Opportunity.
According to the Selig Center for Economic Growth at the University of Georgia, Hispanic/Latinx consumers in the U.S. command $1.5 trillion in buying power, higher than any other racial or ethnic group of color. Their buying power has grown 212% this decade.
Of note, Hispanic/Latinx are comparatively younger than any other racial or ethnic group, with a median age of 28. Their relative youth means their income and spending power is set to grow for many years to come.
While frequently lumped together, Hispanic/Latinx in the U.S. are not a monolithic group. They are composed of more than 15 different origin groups (e.g., Mexicans, Puerto Ricans, Cubans, Salvadorans, Dominicans, Guatemalans, Colombians, Hondurans, Ecuadorians, Peruvians, Nicaraguans, Venezuelans, Argentines, and Panamanians).
Those who self-identify as Mexican represent the largest origin group (nearly two-thirds of all Hispanic/Latinx in the U.S.). Furthermore, the demographic makeup of the Hispanic/Latinx population varies widely across the U.S.
According to Pew, the economic situation and median education level of Hispanic/Latinx can vary significantly depending on their origin group. It follows that the financial profiles, needs, challenges, and goals of this population will differ based on various factors, including subgroup, education and income level, and age.
Despite their enormous and fast-growing spending power, financial inclusion is generally an issue for Hispanic/Latinx people. Approximately half are unbanked or underbanked compared to one-third of whites.
Research by CUNA analyzing recent Federal Reserve data shows that, despite field-of-membership restrictions, credit unions are doing a comparatively good job serving Black households (16% of credit union members are Black vs. 13% of bank members, the Fed reports).
That is not the case with Hispanic/Latinx populations. Only 6% of credit union members are Hispanic/Latinx compared to 10% at banks.
This represents an opportunity to grow credit union membership and offer the Hispanic/Latinx community a financial partner with their best interests at heart.
To effectively reach and serve this community, credit unions need to begin by understanding Hispanic/Latinx consumers, including their financial profile, financial needs, and barriers to financial service, and then develop responsive products and services.
Coopera’s Hispanic Outreach Program and Inclusiv’s Juntos Avanzamos (“together we advance”) designation are complementary and help credit unions understand the differences among Hispanic/Latinx people, and provide guidance and identify best practices on how credit unions can better reach and serve this population.
Specifically, Coopera’s Hispanic Outreach Program provides demographic analytics, consulting services, and training to help credit unions with outreach and service to the Hispanic/Latinx market while Juntos Avanzamos offers a designation to credit unions that demonstrate a commitment to best practices in reaching and serving the Hispanic/Latinx community.
Diversity, equity, and inclusion (DEI) principles are fundamental values that inform both initiatives.
Bottom-line impacts
The research examining the business case for DEI focuses exclusively on corporations as opposed to cooperatives.
Significantly, the research finds DEI improves organizations’ competitive advantage, boosts profits and earnings, spurs innovation, reduces risk, enhances employee and customer satisfaction, attracts talent, and improves employee retention.
Recent research confirms these findings hold for credit unions. A 2018 study by the Filene Research Institute that examined the impact of Individual Taxpayer Identification Number (ITIN) lending on credit unions’ profitability finds that the average return on assets (ROA) for ITIN loans was 3.81%.
This is much higher than the credit union system’s average overall ROA of 0.93% in 2019, CUNA reports.
NEXT: Diversification improves performance
Diversification improves performance
New research by CUNA examines the performance of credit unions that expand their Hispanic/Latinx outreach efforts.
Specifically, CUNA conducted a rigorous evaluation of the effect of participation in Coopera’s Hispanic Outreach Program and Inclusiv’s Juntos Avanzamos designation on credit union performance.
Because some fear that serving this population could have a negative impact on asset quality, CUNA’s evaluation included an examination of how participation in either initiative affects asset quality.
CUNA’s evaluation includes a regression analysis that uses a “difference-in-differences” approach. This approach separately compares credit unions that participated in Coopera’s Hispanic Outreach Program or those that received the Juntos Avanzamos Designation to other credit unions that did not.
The model attempts to account for important differences between credit unions that might also influence outcomes such as asset size, technology, and location. The model also controls for fluctuations in unemployment and economic growth and changes in regulations.
CUNA finds that credit unions that joined Coopera’s Hispanic Outreach Program grew their memberships by 33% more than credit unions that did not join. These credit unions also experienced 44% and 31% higher increases in loans and assets, respectively, and 0.32% greater earnings.
To a much weaker extent, portfolio quality—as measured by delinquency and charge-off ratios—shows improvement for credit unions that participated in Coopera’s Hispanic Outreach Program relative to those that did not.
CUNA conducted similar research on credit unions that receive the Juntos Avanzamos designation and the results were similar.
Credit unions that joined Juntos Avanzamos grew their memberships 28.1% more than credit unions that did not join. They also experienced 39.9% and 26.4% higher increases in loans and assets, respectively. However, CUNA finds no statistically significant increase in earnings.
The evaluation also finds no statistically significant differences in portfolio quality for credit unions that joined Juntos Avanzamos relative to those that did not. The results of both evaluations indicate that both initiatives may help grow credit unions’ memberships, loans, and assets without harming portfolio quality.
One caution when interpreting the evaluation results: they do not represent annual growth rates. Instead, the results represent an overall increase for all periods after credit unions participate in Coopera’s Hispanic Outreach Program or receive the Juntos Avanzamos designation relative to before.
Fed data shows there is an opportunity for credit unions to do a better job of reaching and serving the Hispanic/Latinx community. CUNA’s research confirms that membership diversification leads to better performance.
Programs like Coopera’s Hispanic Outreach Program and Inclusiv’s Juntos Avanzamos designation are important examples of how being intentional about using a DEI approach to diversify membership can mean a win-win-win for credit unions, members, and communities.
SAMIRA SALEM is vice president of diversity, equity, and inclusion for Credit Union National Association.