Banks, Credit Unions Can Tap $169 Billion Market of Latino and Other “Unbanked” Households, U. Va. Darden Study Finds
By University of Virginia’s Darden School of Business
Published: Friday, Jun. 17, 2011 – 9:26 am
http://www.sacbee.com/2011/06/17/3708593/banks-credit-unions-can-tap-169.html
CHARLOTTESVILLE, Va., June 17, 2011 — /PRNewswire-USNewswire/ — The University of Virginia Darden School of Business and its Tayloe Murphy Center released the findings of a major study today that outlines specific steps for how banks and credit unions can capture billions of dollars in deposits by reaching out to Latino and other “unbanked” households across the United States.
The year-long study titled “Perdido En La Traduccion: The Opportunity in Financial Services for Latinos” also demonstrates for the first time that persuading households to keep their money in banks and credit unions could lower the risk of robberies and raise property values.
Nationwide, there is more than $169 billion floating outside the formal banking system attributed to unbanked households, of which $53 billion comes from unbanked Latino households.
“This study gives the financial services industry, policy makers and market watchers information they can use and a real measurement of the scope of this hidden market. At the same time, it not only represents a significant financial opportunity, but also highlights the wide-ranging benefits for communities,” says Greg Fairchild, executive director of the Tayloe Murphy Center and Darden professor.
The study focuses on unbanked Latino households in Virginia and North Carolina. Latinos are the fastest growing multi-ethnic group in many states, including Virginia, as well as nationwide.
Many of the findings can also be applied nationally to any household that is unbanked, regardless of ethnicity, background, geographic location or length or status of residence.
California, Texas, New York, Florida and Georgia are the top five states for the greatest amount of money kept outside of banks and credit unions by such households, according to the FDIC’s full list of yearly income of unbanked households by state.
“Using rigorous statistical analysis, qualitative field research and case study, we focused on the challenges of serving Latinos and other unbanked households as well as how banks and credit unions can reach this market nationwide,” says Kulwant Rai, research director at the Tayloe Murphy Center.
On Friday, June 17, Rai will present the study for the first time in Los Angeles at the National Federation of Community Development Credit Unions’ 37th Annual Conference on Serving the Underserved.
In Virginia, the Tayloe Murphy Center found 39,000 unbanked Latino households, with an average yearly income of $23,500. That adds up annually to almost $917 million unbanked by Latino households.
Much of that unbanked money is serviced by community grocery stores and markets, called “Las Tiendas” in the report. Las Tiendas offer check-cashing, wire transfers and bill paying with significantly marked-up service fees.
For answers on how to capture those billions in deposits and provide unbanked households more control of their finances, Tayloe Murphy Center researchers examined a North Carolina-based credit union established in 2000 called the Latino Community Credit Union (LCCU).
LCCU was chosen because its membership is one of the fastest-growing of any credit union in the nation. From 2000-2009, the number of LCCU depositors soared from 917 to 53,073. It achieved its success through a strategy that makes Latinos feel comfortable and educates them on how banking services are beneficial.
Researchers found an added incentive in the credit union’s approach to banking; because of their tendency to carry cash, unbanked households, especially Latinos, are often the victims of violent robberies.
“I used to carry my money and hide it in small packets at home. It wasn’t until I was robbed at gunpoint with my son at my side that I realized I needed to put my money in a safer place,” says Roberto Maya, an LCCU member since 2000.
Maya says LCCU representatives made him feel welcome and spoke to him in Spanish. While he was initially concerned about acquiring debt, LCCU provided financial education workshops where he learned how to obtain his first loans.
“At LCCU, they helped me understand how things work and made me feel comfortable,” Maya says. “In the last 10 years, I built my credit history, bought my first home and started a painting business.”
Maya’s experience at LCCU is far from unique.
The Tayloe Murphy Center reviewed statistics from 1990-2008 that found each time LCCU opened a branch in North Carolina (in the counties of Durham, Mecklenburg, Wake, Guilford and Cumberland) the number of robberies dropped by an average of 57 per year, almost 4 percent in each county.
Further, the decline in crime led to a dramatic increase in property value in those same counties. The opening of LCCU branches from 2000-2008 is credited with raising property values by 4 percent compared to the total appreciation, or $9.8 billion.
“The study is about more than just showing banks and credit unions how to connect to this powerful and growing market,” says Fairchild. “At the Tayloe Murphy Center, we seek to conduct research that can create economic and community uplift and transform underserved areas and groups.”
This news release was issued on behalf of Newswise(TM). For more information, visit http://www.newswise.com.
SOURCE University of Virginia’s Darden School of Business
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Do Checking Accounts Prevent Crime?
NBC, Jun 16, 2011 8:11
http://www.nbc29.com/story/14920296/do-checking-accounts-prevent-crime
Paying a bill with a check or pulling money out of the ATM machine seems second nature to many but thousands of people don’t have a bank account. A new study released by the Tayloe Murphy Center at UVA’S Darden School of Business highlights the staggering number of non-banking households in the country including in Virginia. The study focused on the Hispanic population. The report shows how crime and poverty tend to drop when households simply have a bank account.
There are 39,000 Hispanic households in Virginia that do not have a savings or checking account. Marc Johnson is the Associate Director of the Tayloe Murphy Center and said there is a reason.
“A lack of comfort or feeling welcome in financial institutions and also a lack of believing there was a real benefit to them,” Johnson said.
According to the report, the Hispanic community is the fastest growing demographic in the state. In Virginia, the Hispanic community earns about $23,000 a year. That means more than $900 million is floating around, not secured in banks.
“It’s out there in cash. A lot of the money is remitted into other countries,” Johnson said.
The study also looked at the fastest growing credit union in North Carolina to see how it impacted the Hispanic community. It’s called the Latino Community Credit Union (LCCU). Researchers said fewer households were robbed, likely because money was safe in the neighborhood financial institution and not stashed in a house.
“And also a significant increase in property value following on that drop in crime,” Johnson said.
The Coalition for Economic Opportunity is working to provide better banking opportunities for the Charlottesville Community with its Bank on Greater Charlottesville program. It will provide resources and education to help the community open free or low-cost bank accounts.
Charlottesville City Council, Molly Edwards, is a coalition member.
“Even though Charlottesville is a world class city we really need to work hard on building our middle class because the playing field isn’t the same for all parts of the community,” Edwards said.
The Coalition for Economic Opportunity is planning on piloting the Bank on Greater Charlottesville program with the Summer Youth Employment program at the end of June. The idea is to begin educating young people about the importance of having a bank account.