SECTOR SPOTLIGHT: Banking for US Immigrants

The US is a nation of immigrants from all over the world who are searching for a better life. Individuals and families from Latin America, Europe, and Southeast Asia have settled in America for generations and call it home. In major US cities and metro hubs, there are iconic districts that reflect the inflow of immigrants over the years. Over 15M immigrants are estimated to live in the US.

When these newcomers arrive in the US, it takes time for them to access financial services due to residency status and lack of documentation. The alternative options are through check cashing stores, which charge high transactional fees and interest rates. Since many immigrants are unbanked, they have not other choice for banking access.

In particular, there’s a large demographic of Latino immigrants (many Spanish-speaking only) who struggle to gain mainstream financial services. There’s no customized suite of products that fit their specific needs for transacting, savings, and credit. Here’s an expanded take on the overall gap, current blockers in the market, and fintechs making an impact for US immigrants.

GAP in IMMIGRANT BANKING

Without standard banking services, many newcomers transact in only cash. For those that get paid with checks, deposit into a checking account isn’t an option since they don’t qualify for a traditional account from a bank.

Check cashing locations (charging a % of the check as a fee) are the main option. Individuals are then tasked with carrying enough cash throughout the week, purchasing money orders to pay bills (such as rent), and safeguarding what they have left until their next pay period.

Since deposit accounts aren’t available, neither are debit cards for ATM access or purchases (in-person or online). Prepaid spend cards can be purchased and loaded with cash, but these card types may not be accepted everywhere and don’t allow for ATM withdrawals.

Without access to credit or lending products (due to a lack of Social Security Number, SSN), immigrants are only able to utilize payday loans (with high loan interest rates & fees) to cover emergencies. Living paycheck-to-paycheck, it can become difficult to escape the cycle of these expensive loans that only provide short-term relief.

BLOCKERS FOR TRADITIONAL BANKING SERVICES

Government identification from the US (i.e. US passport or State Driver License / Identification Card) and SSN are two of the main requirements in opening a checking account with a bank (in-person).

If a foreign passport is being used, a personal banker would likely check for a US visa — this is common for students attending college in the US, and those on a work permit or sponsorship. If there’s no visa, an account opening request may be denied.

For immigrants from Mexico and Central America, Consular IDs and Voter cards from their home country may be acceptable as long as they’re not expired.

Some banks and credit unions may require a Social Security Number for customer verification. As Individual Tax Identification Numbers (ITIN) issued from the Internal Revenue Service (IRS) became common to help individuals without SSN file taxes, a few of the larger banks started to make exceptions to use ITIN when SSN wasn’t available.

Lastly, proof of US physical address tends to be another requirement. This can be a recent billing statement (mortgage, rent, utility, medical), or a government document from federal or state. PO boxes aren’t allowed as a main address for a new bank customer.

A newcomer to the US would not be aware of the above requirements. It may take multiple trips to bank branches, waiting for personal bankers, and finding bank staff that speak the same language (if they’re not fluent in English).

Even after going through the lengthy process, immigrants may need to pay for deposit products (e.g. monthly maintenance fee) due to minimal balances and not qualify for credit products (such as loans and credit cards) due to no SSN or lack of credit history.

Banks and credit unions understand that they may not be a fit for all customer segments. The annual overhead cost needed to staff and operate branches is high. If revenue doesn’t come from customer deposit or loan balances, bank fees must be charged to offset expenses.

NEW era of FINANCIAL services FOR US IMMIGRANTS

Financial technology (FinTech) companies avoid the overhead from financial institutions because they are digital-only. With a modern tech infrastructure (built from APIs, application programming interfaces), fintechs established a reputation for speed and efficiency in financial services — as compared to banks, who have legacy architecture and data silos.

With FinTech rapidly evolving in the last 12 years, new companies targeted specific niches of users that don’t fit the ideal profile of banks. Through customized products and services, more individuals have been able to gain access to affordable, high-quality banking programs. This includes multiple fintech companies that cater to growing market of immigrants in the US.

Maza is one of the latest firms to focus on immigrant banking, specifically targeting Latinos in the US and offering them a US deposit account and debit card. There’s no lengthy process as digital onboarding can be completed within minutes. Maza takes their customer experience further by helping newcomers file for an ITIN through their website / app. With this ITIN, Maza helps customers develop credit history to unlock affordable lending products in the future.

Welcome Tech focuses on immigrants and their families, and established itself as a trusted community resource before offering banking products. The fintech meets multiple needs of newcomers with a three pillar approach — finances, health, and education. Resources are available in Spanish and English, and discounts for consulting with health professionals are also offered (regardless of insurance or immigration status). Welcome Tech works with embassies and consulates across the US to acquire customers in local communities.

Majority takes a slightly different approach than other fintechs by having key physical locations (in addition to a mobile app) in Texas and Florida. The company wants to be the first banking product an immigrant can open as they enter the US.

For a monthly membership fee ($5.99), Majority offers migrants a bank account, debit card, community discounts, no-fee international money transfer, and discounted international calling. There is also access to Majority’s “Advisor Program,” which is a network of 250+ support staff nationwide, who are also immigrants.

The Future of Immigrant Banking in the US

As fintechs expand and scale their user base of immigrants, expect a focus on credit and wealth management.

Secured credit and credit builder cards take customer deposits as credit limits when a user swipes their card. If there’s sufficient available credit, a transaction is approved. Users make on-time, monthly payments, which get reported to credit bureaus and establish or improve credit profiles over time. The credit history helps customers apply for auto loans and even mortgages in the future.

Savings and wealth management options are increasing in demand for immigrants. Offering high-yield rates and options to invest in stocks and other securities (in a fractionalized manner) helps build toward long-term wealth and stable financial health.

The combination of deposit, credit, and savings would quickly bring US immigrants up to par with financial services available from banks & credit unions.

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