Financial Entities Risk Missing on Billions if They Don't Approach Latino Savers and Businesses: McKinsey

The systemic barriers preventing Latinos from accessing financial services not only have a negative impact in this demographic, but they're also a missed opportunity for financial institutions who are not seeking to attract them.

A new report by McKinsey, titled "The economic state of Latinos in America: Advancing financial growth," shoes that revenue from Latino households and small to medium-sized businesses (SMBs) already amounts to $170 billion. The figure is expected to organically grow to roughly $265 billion by 2030, amounting to 8% of the entire financial services market.

While some industry players are taking steps to enhance offerings for Latino customers, the study warns about missing an opportunity as a result of complacency, underscoring the social and economic benefits of serving Latino savers and businesses.

The study also projects that revenue from Latino customers in banking, insurance, and wealth management is poised to increase by 50% by 2030, reaching an estimated $240 billion. It also highlights additional benefits from attracting customers from this demographic, underscoring higher levels of loyalty to institutions they already engage with.

However, persistent barriers loom large, including difficulties accessing bank branches, low levels of trust, and systemic features that hinder accurate creditworthiness assessments for Latino savers. 55% of Latino savers express dissatisfaction with the financial services sector, citing a lack of Spanish-language services and an unmet need for affordable international money transfers.

When analyzing Latino business owners, the study highlights their entrepreneurial vigor, with Latinos starting businesses at three times the rate of the general population. Anticipated spending growth from these business owners on banking and insurance is significant, expected to climb from $17 billion in 2022 to $25 billion in 2030.

Despite this drive, there is a $200 billion lending gap between Latino-owned SMBs and their White counterparts. Long and daunting lending processes, coupled with trust issues, perpetuate this gap, even as institutions like community development financial institutions (CDFIs) seek to support Latino business owners.

In this context, the study outlines three approaches for institutions to get the right strategy and three strategic approaches. The first group starts with identifying key customers segments, understanding Latino customers' characteristics, product usage patterns and needs.

It is followed by developing propositions and initiatives that resonate with this customers and, finally, developing a governance model to help "pilot, integrate and scale the chosen approach across the enterprise."

As for strategic approaches, they should have a commercial value focus, an inclusion focus and an inclusive growth focus. Each approach aims to address specific needs and pain points within the Latino population, emphasizing the need for institutions to align their strategies with the diverse and often overlooked customer groups in the financial services sector.

"For instance, US institutions could use partnerships with major banks in Latin America to give highly profitable Latino customers a continuous experience," reads an example from the report.

Private-market institutional investors, particularly VC and PE firms, are identified as potential catalysts for boosting economic mobility among Latino savers and business owners. However, the study underscores the need for increased Latino representation among investing professionals and the minuscule 1% share of assets under management directly controlled by Latino entities.