An Introduction to Access & Use of Financial Services
Access to mainstream financial services is closely linked with economic prosperity for all immigrant groups in the U.S., regardless of country of origin, and plays an important role in an immigrant’s ability to integrate into American society. The surveyed literature and programmatic efforts suggest that lack of access to financial services can impede the process of naturalization for immigrants.
The primary limitation posed by the existing research is that the body of literature specific to the effects of access and use of financial services on naturalization efforts is slim. Therefore, the Access & Use of Financial Services section of this literature review examines the broader issue of how underserved communities participate in mainstream financial processes.
More specifically, this section of the literature review addresses three questions related the access of financial services to underserved communities, including the foreign born:
- What types of financial mechanisms do these populations rely on for financial and/or market transactions?
- What are the underlying structural, cultural, and procedural barriers that prevent them from accessing services via mainstream financial institutions?
- What solutions exist to assist immigrant communities in moving past these barriers, and what new areas of research hold promise for developing new solutions to this pressing problem?
Within the Access & Use of Financial Services section of the website, the Current Landscape of Financial Services Available to Immigrants article offers an overview of the topic and key terms.
Two key terms:
- Unbanked: individuals or families who do not have an account with a depository institution (a commercial bank, savings institution or credit union) or a transaction account with a money market mutual fund or brokerage.
- Underbanked: individuals or families who have a deposit account but also rely on alternative non-bank financial service providers (such as check cashing firms or payday lenders) for transaction or credit services firm.
The article continues with an examination of several existing programs illustrative of major trends:
ASI Federal Credit Union, Location: New Orleans, LA
Carnegie Corporation of New York,
National Association of Latino Elected and Appointed Officials (NALEO), and
California Community Foundation
Program Coordinator, Tomas Rivera Policy Institute
- Built a branch of its credit union whose primary mission was to serve Hispanic customers. These branches offer special services including: fully bilingual staff, materials and documents available in Spanish, the issuance of second ATM cards that can be sent to relatives overseas, and assistance in obtaining a Tax Identification Number (TIN).
Citizenship Tandas, Location: San Francisco, CA
- Offers savings accounts with 25% matching funds for individuals who want to open an account to save for the fees associated with naturalization.
Banco Popular, Locations Nationwide
- Image as a bank with a Hispanic heritage
- Utilizes Spanish media, bilingual materials, and bilingual staff to increase its presence in the Latino immigrant sector
- Developed accounts for those unfamiliar with formal financial institutions
Wells Fargo, Locations Nationwide
- Reputation for being a leader among the larger corporate banks in reaching out to underserved communities
- Opened branches in alternative locations, for example supermarkets
- Partnership with BBVA Bancomer, a Mexican bank, that allows consumers are able to transfer or receive money held by Wells Fargo account holders in either the US or Mexico
The list of financial institutions reviewed represents a diverse group, often operating in very different markets. The list is not meant to be exhaustive but serves to illustrate the kind of institutions engaging in efforts to improve access to financial services to underserved communities as well as the variety of ways in which these efforts are being carried out. The weakness of this list is that the reviewed institutions/programs reflect the focus of the existing research on Latinos to the detriment of information on other groups.
The article on Policy Implications & Motivations for Increased Participation article puts the literature in context by addressing the policy implications of addressing immigrants’ needs for access to financial services and the recognition by the federal government of the benefits accruing from increased access and use of mainstream financial services. Two pieces of federal legislation in particular addressed this issue: the Community Reinvestment Act and the PATRIOT Act.
These efforts attempted to reach the immigrant market primarily through reforms in the identification needed to open accounts. The surveyed literature found that the same effort to improve access in immigrant communities is not apparent at the state and local level.
Also examined in this article are motivations for increased participation, organized by personal, governmental, and the private sector motivations for increased participation.
Personal motivations identified:
- Increased safety due to lessened risk for home robbery and personal theft
- Greater wealth accumulation
- Increased stability with evidence of higher rates of ability to obtain legal status
When the people in a nation are better off, the nation is better off. In concrete terms, increased wealth and stability roughly equates to increased in tax revenue. Similarly, reduced crime for the individual translates into increased public safety in the community.
The private sector has motivation for increased participation with the potential to substantially increase the value of a bank’s assets and realizing gains in profit through increased market share and capture of a wider customer base.
Another next major topic in the Access & Use of Financial Services section of this literature review is Barriers to Immigrant Usage of Financial Services. This literature review has identified major barriers to access for both the demand (consumers of financial services) and supply side (banking service providers).
Figure 1 overviews the structure of the major barriers to immigrant consumers as classified by the Financial Literacy Center (2012)— the classification scheme chosen for the organization of this section of the literature review.
This literature review examines each type of barrier expounding on the varying factors within each type of barrier.
The main findings regarding Inexperience & Distrust:
- Historical factors generally revolve around the conditions of financial institutions in country of origin. For example, many countries in Latin America, including Mexico, have corrupt systems and agents in the financial sector leading to general distrust in the financial institutions.
- Fear may be a factor for immigrants without legal status who worry that the submittal of documents might trigger review by immigration authorities (Federal Reserve Bank of Chicago, 2007).
Probability of Return has been found to play a factor in account ownership, as short-term residents have less incentive to participate than those planning on staying in the U.S. for the long-term.
Logistical cost barriers include entry costs, e.g. minimum balance requirements, transactional costs, and fees for service that tend to be relative to the income level of immigrants.
Logistical geographic barriers are present when the physical outlets of financial institutions are located far away or in inconvenient locations increasing the time and cost necessary to engage in these constitutions. This barrier is more pronounced when payday lenders and check-cashing centers enter the picture, as they become alternatives for those that do require financial services.
Logistical language barriers, more specifically English ability, is a predictor of account ownership. As evident from the body of literature collected in this review, a primary factor is likely the lack of widespread services offered in languages other than English.
Another logistical barrier introduced in this section are restrictive requirements, like minimum credit and income verification, that tend to disproportionately discourage immigrants who may have little to no credit history and who may have informal employment as is often the case with immigrants without legal status.
The major barriers identified for banking service providers:
- Ineffective and inefficient outreach
- Competition with alternative financial institutions, e.g. payday lenders and check cashing centers
The Role of Alternative Financial Institutions covers two categories of alternative financial institutions, the first group consisting of check-cashing centers and payday lenders, and the second comprising of microfinance and micro insurance institutions. In regards to check-cashing center and payday lenders the report examines the growth in their patronage over the last decade and the implications of their concentration in low-income communities. The surveyed literature and programs for this literature review show great potential in microfinance and micro insurance institutions to increase access and provide much needed financial services to low income and immigrant communities.
Successful Financial Service Models reviews case studies of current programs. Available research points to a common trait exhibited by model programs— a holistic approach to engagement focused on efforts of outreach, education, and empowerment. This article outlines the following programs as models of innovative solutions to increasing usage of financial services.
- The New Alliance Task Force, Chicago, Illinois is an FDIC program that brings together sixty different entities, including regulatory, private and international under one broad coalition. Fifty thousand new accounts were opened using Matricula Consular cards as the result of this program (Frias, 2004).
- Knights of Columbus/Caballeros de Colon, Nationwide, International is a lay organization that offers affordable insurance policies to its members that offers U.S. policy holders the option of obtaining insurance for dependents or spouses residing in Mexico.
- Opportunity Fund, San Jose, California offers Individual Development Accounts (IDA) to low-income individuals with funds deposited in savings accounts matched by other sources.
- The Illinois Coalition for Immigrant and Refugee Rights (ICIRR) offers immigrants an Illinois a valuable service by providing a list of microloan programs aimed at improving naturalization rates. For more information about these programs see Citizenship Microloan Programs, Various Locations, Illinois [hotlink] section of this report or visit ICIRR.org.
Best Practices of Financial Service Institutions looks at research on strategies and methods in order to identify current successful models for financial service provision. It sets forth a series of best practices present in national and local case studies, organizing them in three categories: education, logistics, and programmatic.
Out of these three categories, the following recommendations and promising practices have been identified from the surveyed literature for addressing barriers to use of financial services:
- Offer financial literacy classes. Education on financial services that highlights advantages of mainstream financial services can help to dispel myths and quell fears. Research suggests that individuals who attended educational workshops on financial literacy are more likely to use traditional financial services offered by mainstream banking institutions.
- Alter internal bank policies to accept other forms of identification that are still compliant with federal policies like Matricula Consular cards.
- Provide banking services in atypical locations such as supermarkets, laundromats, and even restaurants.
- Incorporate IDAs into customary financial services offered.
- Explore promising digital technologies. This section ends with a paragraph on the potential for digital technologies, including an overview of Xoom, a digital financial services platform.
Included in this section is Figure 2, showing the financial topics that Latinos are interested in learning about. This research may be valuable for any community organizations involved with education and financial literacy.
About this project
The Tomás Rivera Policy Institute, a university research center with the mission to address the challenges and opportunities of demographic diversity in the 21st century global city, has produced these featured digital publications using the USC Media Curator, an online publishing platform designed to bring together innovative research from across the University of Southern California and beyond. This project curates research relevant for immigrant service providers on the topics of Access & Use of Technology, Access & Use of Financial Services, Notario Fraud, and Driver's Licenses for the unauthorized.