El Banco de la Oportunidad (BAC)

By Eugene Bukoveczky | February 27, 2007 AAA

Given the high margin, high growth nature of the credit card business, it's no surprise that relentless competition is the order of day.

It seems the card-issuing banks keep their marketing departments working overtime on designing yet one more marketing program offering prospective customers that special inducement that will win their business.

It's a marketplace cluttered with a dizzying assortment of offers, ranging from lower teaser rates to cash back options.

So it must have been seen as stroke of marketing genius when the card marketing types at Bank of America (BAC) came up with the plan that would allow the issuance of credit cards to individuals residing the U.S. who did not have a social security number.

Just to refresh your memory, a social security number is an essential form of identification necessary for establishing the legal right to live and work in the United States.

However, I don't think anyone at the bank was prepared for the political firestorm that such a move unleashed.

Critics rapidly descended on the bank, complaining that its actions constituted encouraging, inducing, aiding and abetting illegal immigration through its solicitation of illegal alien customers.

Calls for a boycott of the bank by various political interest groups opposed to illegal immigration to the U.S. prompted a public defense of the program by CEO Kenneth Lewis in the Wall Street Journal, but no suggestion that the bank would be backing down from going ahead with a modest pilot program focused on Hispanics in the Los Angeles area.

So why is the bank so keen to proceed with this initiative despite the potential backlash?

For starters, BAC isn't the only bank in the U.S. that is willing to push the envelope a bit to tap into the potential of the Hispanic market.

For several years now, large financial institutions like Wachovia (WB), Northern Trust (NTRS), SunTrust Banks (STI), Wells Fargo (WFC) and E*Trade Financial (ETFC) have been quietly accepting a Mexican government issued identification card called a Matricula Consular to open bank accounts despite the FBI's doubts about the Mexican government's ability to ensure the validity of this form of ID.

What's at stake is one of the last major untapped pools of potential banking business in the United States. Studies show that as many as 10 million households in the United States are "unbanked" (without access to mainstream banking products and services) and a significant number of these unbanked households are Latino immigrants.

While these folks work in the United States, most wire money home. A recent study reports that 10 million Latino immigrants living in the U.S. send money home on average 12.6 times a year, generally a few hundred dollars at a time.

So far, banks capture less than 3 percent of this market. Of the 100 million separate remittance transactions every year from the U.S. to Latin America, almost all are outside the formal banking system.

These remittances could soar over the next few years, with some estimates projecting they could reach as much as $300 billion by the end of 2010. That's mucho dineros, and the banks are keen to get their cut of the handling charges from the money wires and increased deposits connected with that business.

With its huge and well managed retail banking footprint, BAC is well-positioned to capitalize on this potential. No doubt its a key element of the bank's recent strategy shift to emphasize "organic" or internal growth as opposed to growth from acquisition; a necessary change in strategy given that the bank is near a regulatory cap that bars acquisitions giving it more than ten percent of U.S. deposits.

The bank's recently launched media campaign to re-brand itself as the "Bank of Opportunity" heralds this shift in a way that appears to echo the objectives of the bank's founder Amedeo Giannini, a son of Italian immigrants who founded the predecessor Bank of Italy in 1904 to serve "the little guys", including immigrants that other banks wouldn't touch.

It looks like this sentiment makes every bit as much business sense today as it did more than one hundred years ago.

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